10-Q 1 frme-20220331.htm 10-Q frme-20220331
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to _______

FIRST MERCHANTS CORPORATION
(Exact name of registrant as specified in its charter)

Indiana
(State or other jurisdiction of incorporation)
001-4134235-1544218
(Commission File Number)(IRS Employer Identification No.)


200 East Jackson Street, Muncie, IN                  47305-2814
(Address of principal executive offices)                   (Zip code)

(Registrant’s telephone number, including area code): (765) 747-1500

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.125 stated value per shareFRMEThe Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/100th interest in a share of Non-Cumulative Perpetual Preferred Stock, Series AFRMEPThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934 during the preceding 12 months (or for such shorter  period that the  registrant was  required  to file such  reports),  and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-Accelerated Filer
Smaller Reporting Company
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No

As of May 3, 2022, there were 59,462,227 outstanding common shares of the registrant.
1

Table of Contents
TABLE OF CONTENTS

FIRST MERCHANTS CORPORATION

Page No.
Item 1. 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
   
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
2

Table of Contents
GLOSSARY OF DEFINED TERMS

FIRST MERCHANTS CORPORATION

2021 CAAThe 2021 Consolidated Appropriations Act, signed into law on December 27, 2020, which included the Economic Aid to Hard-Hit-Small Businesses, Nonprofits, and Venues Act, amending the CARES Act.
ACLAllowance for Credit Losses
AmeriborThe American interbank offered rate, a potential replacement for LIBOR, is a benchmark interest rate calculated as a volume-weighted average of the daily transactions in overnight unsecured loans on the American Financial Exchange, LLC, a self-regulated electronic exchange for direct lending by American banks and financial institutions.
ASCAccounting Standards Codification
ASUAccounting Standards Update
BankFirst Merchants Bank, a wholly-owned subsidiary of the Corporation
CARES ActCoronavirus Aid, Relief and Economic Security Act
CECL
FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, adopted by the Corporation on January 1, 2021.
CET1Common Equity Tier 1
CorporationFirst Merchants Corporation
COVID or COVID-192019 novel coronavirus disease, which was declared a pandemic by the World Health Organization on March 11, 2020.
ESPPEmployee Stock Purchase Plan
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
Federal ReserveBoard of Governors of the Federal Reserve System
FHLBFederal Home Loan Bank
FOMCFederal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
FTEFully taxable equivalent
GAAPU.S. Generally Accepted Accounting Principles
HoosierHoosier Trust Company, which was acquired by the Bank on April 1, 2021.
IRSInternal Revenue Service
OREOOther real estate owned
PPPPaycheck Protection Program, which was established by the CARES Act and implemented by the Small Business Administration to provide small business loans.
RSARestricted Stock Awards
TEFRATax Equity and Fiscal Responsibility Act


3

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)


CONSOLIDATED CONDENSED BALANCE SHEETS
March 31,
2022
December 31,
2021
(Unaudited)
ASSETS  
Cash and due from banks$148,277 $167,146 
Interest-bearing deposits395,262 474,154 
Investment securities available for sale2,164,197 2,344,551 
Investment securities held to maturity, net of allowance for credit losses of $245 and $245 (fair value of $2,145,994 and $2,202,503)
2,325,066 2,179,802 
Loans held for sale3,938 11,187 
Loans9,356,241 9,241,861 
Less: Allowance for credit losses - loans(195,984)(195,397)
Net loans9,160,257 9,046,464 
Premises and equipment105,883 105,655 
Federal Home Loan Bank stock26,422 28,736 
Interest receivable56,081 57,187 
Goodwill545,385 545,385 
Other intangibles24,109 25,475 
Cash surrender value of life insurance291,881 291,041 
Other real estate owned6,271 558 
Tax asset, deferred and receivable73,422 35,641 
Other assets138,807 140,167 
TOTAL ASSETS$15,465,258 $15,453,149 
LIABILITIES  
Deposits:  
Noninterest-bearing$2,745,235 $2,709,646 
Interest-bearing10,160,718 10,022,931 
Total Deposits12,905,953 12,732,577 
Borrowings:  
Securities sold under repurchase agreements169,697 181,577 
Federal Home Loan Bank advances308,960 334,055 
Subordinated debentures and other borrowings118,677 118,618 
Total Borrowings597,334 634,250 
Interest payable3,589 2,762 
Other liabilities150,749 170,989 
Total Liabilities13,657,625 13,540,578 
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:
  
Authorized - 600 shares
  
Issued and outstanding - 125 shares
125 125 
Common Stock, $0.125 stated value:
  
Authorized - 100,000,000 shares
  
Issued and outstanding - 53,424,823 and 53,410,411 shares
6,678 6,676 
Additional paid-in capital987,404 985,818 
Retained earnings897,818 864,839 
Accumulated other comprehensive income (loss)(84,392)55,113 
Total Stockholders' Equity1,807,633 1,912,571 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$15,465,258 $15,453,149 


See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
4

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)


CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
 20222021
INTEREST INCOME  
Loans receivable:
Taxable$79,075 $85,105 
Tax exempt5,704 5,339 
Investment securities: 
Taxable8,510 6,695 
Tax exempt15,875 12,385 
Deposits with financial institutions230 114 
Federal Home Loan Bank stock146 178 
Total Interest Income109,540 109,816 
INTEREST EXPENSE  
Deposits4,294 6,200 
Federal funds purchased 2 
Securities sold under repurchase agreements89 87 
Federal Home Loan Bank advances1,218 1,442 
Subordinated debentures and other borrowings1,659 1,657 
Total Interest Expense7,260 9,388 
NET INTEREST INCOME102,280 100,428 
Provision for credit losses - loans  
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES102,280 100,428 
OTHER INCOME  
Service charges on deposit accounts6,419 5,264 
Fiduciary and wealth management fees7,332 6,422 
Card payment fees5,723 4,367 
Net gains and fees on sales of loans2,199 3,986 
Derivative hedge fees918 317 
Other customer fees410 368 
Increase in cash surrender value of life insurance1,176 1,189 
Gains on life insurance benefits520 147 
Net realized gains on sales of available for sale securities566 1,799 
Other income634 232 
Total Other Income25,897 24,091 
OTHER EXPENSES  
Salaries and employee benefits42,519 38,811 
Net occupancy6,187 6,491 
Equipment5,080 5,030 
Marketing736 1,124 
Outside data processing fees4,363 4,244 
Printing and office supplies345 283 
Intangible asset amortization1,366 1,357 
FDIC assessments2,192 1,368 
Other real estate owned and foreclosure expenses564 734 
Professional and other outside services2,953 2,543 
Other expenses6,020 4,113 
Total Other Expenses72,325 66,098 
INCOME BEFORE INCOME TAX55,852 58,421 
Income tax expense7,266 8,952 
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$48,586 $49,469 
Per Share Data:  
Basic Net Income Available to Common Stockholders$0.91 $0.92 
Diluted Net Income Available to Common Stockholders$0.91 $0.91 
Cash Dividends Paid$0.29 $0.26 
Average Diluted Shares Outstanding (in thousands)53,616 54,134 


See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

5

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)


CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
March 31,
20222021
Net income$48,586 $49,469 
Other comprehensive loss:
     Unrealized gains/losses on securities available-for-sale:
Unrealized holding loss arising during the period(176,567)(47,911)
Reclassification adjustment for gains included in net income(566)(1,799)
Tax effect37,199 10,439 
Net of tax(139,934)(39,271)
     Unrealized gain/loss on cash flow hedges:
Unrealized holding gain arising during the period303 58 
Reclassification adjustment for gains included in net income241 252 
Tax effect(115)(65)
Net of tax429 245 
      Total other comprehensive loss, net of tax(139,505)(39,026)
Comprehensive income (loss)$(90,919)$10,443 


See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

6

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)


CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
Three Months Ended March 31, 2022
PreferredCommon StockAdditionalAccumulated
Other
SharesAmountSharesAmountPaid in
Capital
Retained
Earnings
Comprehensive
Income (Loss)
Total
Balances, December 31, 2021125 $125 53,410,411 $6,676 $985,818 $864,839 $55,113 $1,912,571 
Comprehensive loss:
Net income— — — — — 48,586 — 48,586 
Other comprehensive loss, net of tax — — — — — — (139,505)(139,505)
Cash dividends on common stock ($.29 per share)
— — — — — (15,607)— (15,607)
Share-based compensation— — 1,200 — 1,100 — — 1,100 
Stock issued under dividend reinvestment and
stock purchase plan
— — 10,639 2 469 — — 471 
Stock options exercised— — 3,000 — 37 — — 37 
Restricted shares withheld for taxes— — (427)— (20)— — (20)
Balances, March 31, 2022
125 $125 53,424,823 $6,678 $987,404 $897,818 $(84,392)$1,807,633 


Three Months Ended March 31, 2021
PreferredCommon StockAdditionalAccumulated
Other
SharesAmountSharesAmountPaid in
Capital
Retained
Earnings
Comprehensive
Income
Total
Balances, December 31, 2020
125 $125 53,922,359 $6,740 $1,005,366 $788,578 $74,836 $1,875,645 
Cumulative effect of ASC 326 adoption(68,040)(68,040)
Balances, January 1, 2021125$125 53,922,359 $6,740 $1,005,366 $720,538 $74,836 $1,807,605 
Comprehensive income:
Net income— — — — — 49,469 — 49,469 
Other comprehensive loss, net of tax — — — — — — (39,026)(39,026)
Cash dividends on common stock ($.26 per share)
— — — — — (14,130)— (14,130)
Share-based compensation— — 4,285 1 1,189 — — 1,190 
Stock issued under employee benefit plans— — 3,929 — 144 — — 144 
Stock issued under dividend reinvestment and
stock purchase plan
— — 9,117 1 442 — — 443 
Stock options exercised— — 14,300 2 169 — — 171 
Restricted shares withheld for taxes— — (267)— (10)— — (10)
Balances, March 31, 2021125 $125 53,953,723 $6,744 $1,007,300 $755,877 $35,810 $1,805,856 


See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
7

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)


CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
 Three Months Ended March 31
 20222021
Cash Flow From Operating Activities:  
Net income$48,586 $49,469 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization2,668 2,748 
Change in deferred taxes(1,665)(3,079)
Share-based compensation1,100 1,190 
Loans originated for sale(63,805)(111,558)
Proceeds from sales of loans held for sale72,456 114,383 
Gains on sales of loans held for sale(1,402)(3,289)
Gains on sales of securities available for sale(566)(1,799)
Increase in cash surrender of life insurance(1,176)(1,189)
Gains on life insurance benefits(520)(147)
Change in interest receivable1,106 (714)
Change in interest payable827 733 
Other adjustments(7,388)6,062 
Net cash provided by operating activities50,221 52,810 
Cash Flows from Investing Activities:  
Net change in interest-bearing deposits78,892 (501)
Purchases of: 
Securities available for sale(62,164)(597,901)
Securities held to maturity(206,523)(135,098)
Proceeds from sales of securities available for sale35,029 48,016 
Proceeds from maturities of: 
Securities available for sale37,442 80,114 
Securities held to maturity42,834 66,361 
Change in Federal Home Loan Bank stock2,314  
Net change in loans(116,409)(72,704)
Proceeds from the sale of other real estate owned174 495 
Proceeds from life insurance benefits856 315 
Other adjustments(2,896)(2,285)
Net cash used in investing activities(190,451)(613,188)
Cash Flows from Financing Activities:  
Net change in :  
Demand and savings deposits211,458 620,609 
Certificates of deposit and other time deposits(38,082)(30,439)
Borrowings59 8,678 
Repayment of borrowings(36,975)(30,093)
Cash dividends on common stock(15,607)(14,130)
Stock issued under employee benefit plans 144 
Stock issued under dividend reinvestment and stock purchase plans471 443 
Stock options exercised37 171 
Net cash provided by financing activities121,361 555,383 
Net Change in Cash and Cash Equivalents(18,869)(4,995)
Cash and Cash Equivalents, January 1167,146 192,896 
Cash and Cash Equivalents, March 31
$148,277 $187,901 
Additional cash flow information:  
Interest paid$6,433 $8,655 
Income tax paid7,750  
Loans transferred to other real estate owned5,868 44 
Fixed assets transferred to other real estate owned 1,167 
Non-cash investing activities using trade date accounting5,246 66,558 
ROU assets obtained in exchange for new operating lease liabilities53 386 


See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.
8

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)


NOTE 1 
GENERAL
Financial Statement Preparation

The Consolidated Condensed Balance Sheet of the Corporation as of December 31, 2021, has been derived from the audited consolidated balance sheet of the Corporation as of that date. Certain information and note disclosures normally included in the Corporation’s annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results to be expected for the year. Reclassifications have been made to prior financial statements to conform to the current financial statement presentation. These reclassifications had no effect on net income. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses and fair value of financial instruments.

Significant Accounting Policies

The significant accounting policies followed by the Corporation and its wholly-owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments, which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported, have been included in the accompanying Consolidated Condensed Financial Statements.

The Corporation did not adopt any new accounting pronouncements in the first quarter of 2022. 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:

New Accounting Pronouncements Not Yet Adopted

FASB Accounting Standards Updates - No. 2020-04 - Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
Summary - The FASB issued ASU No. 2020-04 to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. LIBOR and other interbank offered rates are widely used benchmarks or reference rates in the United States and globally. Trillions of dollars in loans, derivatives, and other financial contracts reference LIBOR, the benchmark interest rate banks use to make short-term loans to each other. With global capital markets expected to move away from LIBOR and other interbank offered rates and move toward rates that are more observable or transaction based and less susceptible to manipulation, the FASB launched a broad project in late 2018 to address potential accounting challenges expected to arise from the transition. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The ASU is intended to help stakeholders during the global market-wide reference rate transition period.

Entities may apply this ASU as of the beginning of an interim period that includes the March 12, 2020 issuance date of the ASU, through December 31, 2022. The Corporation expects to adopt the practical expedients included in the ASU prior to December 31, 2022. The Corporation is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Corporation is assessing ASU 2020-04 and its impact on the Corporation's transition away from LIBOR for its loans and other financial instruments.

FASB Accounting Standards Updates - No. 2021-01 - Reference Rate Reform (Topic 848): Scope
Summary - The FASB has published ASU 2021-01, Reference Rate Reform. ASU 2021-01 clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

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

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

The amendments in this Update do not apply to contract modifications made after December 31, 2022, new hedging relationships entered into after December 31, 2022, and existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). The Corporation is assessing ASU 2021-01 and its impact on the Corporation's transition away from LIBOR for its loans and other financial instruments.
9

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)



FASB Accounting Standards Updates - No. 2021-08 - Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
Summary - The FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, that addresses diversity in practice related to the accounting for revenue contracts with customers acquired in a business combination.

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

The FASB indicates that some stakeholders indicated that it is unclear how an acquirer should evaluate whether to recognize a contract liability from a revenue contract with a customer acquired in a business combination after Topic 606 is adopted. Furthermore, it was identified that under current practice, the timing of payment (payment terms) of a revenue contract may subsequently affect the post-acquisition revenue recognized by the acquirer. To address this, the ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. Finally, the amendments in the ASU improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.

For public business entities, the amendments are effective for fiscal years beginning after December 31, 2022, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period or early application, and (2) prospectively to all business combinations that occur on or after the date of initial application. The Corporation is reviewing the terms of this guidance, but adoption of the standard is not expected to have a significant impact on the Corporation's financial statements or disclosures.

FASB Accounting Standards Updates - Accounting Standards Update No. 2022-02 - Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
Summary - The FASB issued ASU No. 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings ("TDRs") and Vintage Disclosures, which is intended to improve the usefulness of information provided to investors about certain loan refinancings, restructurings, and writeoffs.

The amendments in the new ASU eliminate the accounting guidance for TDRs by creditors that have adopted CECL while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. The amendments also require that a public business entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases.

Since the Corporation adopted CECL on January 1, 2021, the amendments in ASU 2022-02 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Corporation is assessing ASU 2022-02 and its impact on the Corporation's disclosures. The Corporation expects to adopt this ASU in the first quarter of 2023.


NOTE 2 
ACQUISITIONS

Hoosier Trust Company

On April 1, 2021, the Bank acquired 100 percent of Hoosier Trust Company ("Hoosier") through a merger of Hoosier with and into the Bank. The consideration paid to shareholders of Hoosier at closing was $3,225,000 in cash. Prior to the acquisition, Hoosier was an Indiana corporate trust company, headquartered in Indianapolis, Indiana, with approximately $290 million in assets under management. Hoosier’s sole office is now being operated by the Bank as a limited service trust office.

Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair value on the date of the acquisition. Based on the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change based on the timing of the transaction, the purchase price for the Hoosier acquisition is detailed in the following table.
Fair Value
Cash and cash equivalents$292 
Other assets35 
Other liabilities(816)
Net tangible assets acquired(489)
Customer relationship intangible2,247 
Goodwill1,467 
Purchase price$3,225 
10

Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
(Unaudited)



Of the total purchase price, $2,247,000 was allocated to a customer relationship intangible, which will be amortized over its estimated life of 10 years. The remaining purchase price was allocated to goodwill, which is deductible for tax purposes. Pro forma financial information of the Hoosier acquisition is not included in these disclosures as it is deemed immaterial.

Level One Bancorp, Inc.

On April 1, 2022, the Corporation acquired 100 percent of Level One Bancorp, Inc. ("Level One"). Level One, a Michigan corporation, merged with and into the Corporation (the "Merger"), whereupon the separate corporate existence of Level One ceased and the Corporation survived. Immediately following the Merger, Level One's wholly owned subsidiary, Level One Bank, merged with and into the Bank, with the Bank as the surviving bank.

Level One was headquartered in Farmington Hills, Michigan and had 17 banking centers serving the Michigan market. Pursuant to the merger agreement, each common shareholder of Level One received, for each outstanding share of Level One common stock, (a) a 0.7167 share (the "Exchange Ratio") of the Corporation's common stock, in a tax-free exchange, and (b) a cash payment of $10.17. Fractional shares of the Corporation's common stock were not issued in respect of fractional interests arising from the Exchange Ratio but were paid in cash pursuant to the merger agreement. The Corporation issued 5.6 million shares of the Corporation's common stock and paid $79.3 million in cash in exchange for all outstanding shares of Level One common stock.

Additionally, the Corporation issued 10,000 shares of newly created 7.5% 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. Likewise, each outstanding Level One depositary share representing a 1/100th interest in a share of the Level One Series B 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 (Nasdaq: FRMEP).

The combined Corporation has 126 banking centers in Indiana, Illinois, Michigan and Ohio. As of March 31, 2022, Level One had total assets of $2.4 billion, total loans of $1.7 billion and deposits of $1.9 billion. Certain fair value measurements and the purchase price allocation have not been completed due to the timing of the acquisition and the number of assets acquired and liabilities assumed. Review of the estimated
fair values of loans, investments, property and equipment, intangible assets, other assets, deposits, borrowings and other liabilities, and the evaluation of the assumed tax positions will occur during the measurement period.


NOTE 3

INVESTMENT SECURITIES

The following table summarizes the amortized cost, gross unrealized gains and losses and approximate fair value of investment securities available for sale as of March 31, 2022 and December 31, 2021.

 Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair
Value
Available for sale at March 31, 2022    
U.S. Treasury$1,964 $ $5 $1,959 
U.S. Government-sponsored agency securities85,494 7 6,403 79,098 
State and municipal