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
 
 
 
 10-Q
 
 
 
 
 ☒
 
 
 
 March 31, 2020
 
 ☐
 
 
 
 
 
 0-17071
 
 FIRST MERCHANTS CORP
 
 
 Indiana
  35-1544218
 
 
 
 200 East Jackson Street
  Muncie
  IN
  47305-2814
 
 
 765
  747-1500
 
 
 
 
 Title of Each ClassTrading Symbol(s)Name of each exchange on which registeredCommon Stock, $0.125 stated value per shareFRMENasdaq Global Select Market
 
 Yes
 
 Yes
 
 
 Large Accelerated Filer☒Accelerated Filer☐Non-Accelerated Filer☐Smaller Reporting Company☐Emerging Growth Company☐
 
 
 
 ☐
 
 54,115,879
 
 
  
 Table of Contents
 
 
 
 
 
 
 Page No.Glossary of Defined Terms3Part I. Financial InformationItem 1.Financial  Statements:Consolidated Condensed Balance Sheets4Consolidated Condensed Statements of Income5Consolidated Condensed Statements of Comprehensive Income6Consolidated Condensed Statements of Stockholders' Equity7Consolidated Condensed Statements of Cash Flows8Notes to Consolidated Condensed Financial Statements9Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations37Item 3.Quantitative and Qualitative Disclosures About Market Risk52Item 4.Controls and Procedures53Part II. Other InformationItem 1.Legal Proceedings54Item 1A.Risk Factors54Item 2.Unregistered Sales of Equity Securities and Use of Proceeds55Item 3.Defaults Upon Senior Securities55Item 4.Mine Safety Disclosures55Item 5.Other Information55Item 6.Exhibits56Signatures57
 
 
  
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 ASCAccounting Standards CodificationASUAccounting Standards UpdateBankFirst Merchants Bank, a wholly-owned subsidiary of the CorporationCARES ActCoronavirus Aid, Relief and Economic Security ActCET1Common Equity Tier 1CMTConstant Maturity TreasuryCorporationFirst Merchants CorporationCOVID-192019 novel coronavirus disease, which was declared a pandemic by the World Health Organization on March 11, 2020.ESPPEmployee Stock Purchase PlanFASBFinancial Accounting Standards BoardFDICFederal Deposit Insurance CorporationFederal ReserveBoard of Governors of the Federal Reserve SystemFHLBFederal Home Loan BankFOMCFederal Open Market Committee, the monetary policymaking body of the Federal Reserve System.FTEFully taxable equivalentGAAPGenerally Accepted Accounting PrinciplesMBTMBT Financial Corp., which was acquired by the Corporation on September 1, 2019OREOOther real estate ownedRSARestricted Stock AwardsTEFRATax Equity and Fiscal Responsibility Act
 
 
 
 
  
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 March 31, 2020December 31, 2019(Unaudited)ASSETSCash and cash equivalents$127,731$177,201Interest-bearing time deposits132,944118,263Investment securities available for sale1,815,7751,790,025Investment securities held to maturity (fair value of $920,178 and $827,566)882,179806,038Loans held for sale5,0399,037Loans, net of allowance for loan losses of $99,454 and $80,2848,507,3958,379,026Premises and equipment114,045113,055Federal Home Loan Bank stock28,73628,736Interest receivable47,48948,901Goodwill543,918543,918Other intangibles33,44834,962Cash surrender value of life insurance289,574288,206Other real estate owned7,9727,527Tax asset, deferred and receivable9,49712,165Other assets147,776100,194TOTAL ASSETS$12,693,518$12,457,254LIABILITIESDeposits:Noninterest-bearing$1,688,205$1,736,396Interest-bearing8,182,2798,103,560Total Deposits9,870,4849,839,956Borrowings:Federal funds purchased47,00055,000Securities sold under repurchase agreements183,317187,946Federal Home Loan Bank advances480,995351,072Subordinated debentures and term loans128,741138,685Total Borrowings840,053732,703Interest payable7,7466,754Other liabilities197,27591,404Total Liabilities10,915,55810,670,817COMMITMENTS AND CONTINGENT LIABILITIESSTOCKHOLDERS' EQUITYCumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:Authorized - 600 sharesIssued and outstanding - 125 shares125125Common Stock, $.125 stated value:Authorized - 100,000,000 sharesIssued and outstanding - 53,754,137 and 55,368,482 shares6,7196,921Additional paid-in capital1,000,9421,054,997Retained earnings716,518696,520Accumulated other comprehensive income53,65627,874Total Stockholders' Equity1,777,9601,786,437TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$12,693,518$12,457,254
 
 
 
 
 
  
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 Three Months EndedMarch 31,20202019INTEREST INCOMELoans receivable:Taxable$96,652$90,481Tax exempt5,3154,153Investment securities:Taxable7,6316,095Tax exempt9,3356,871Deposits with financial institutions575875Federal Home Loan Bank stock299338Total Interest Income119,807108,813INTEREST EXPENSEDeposits21,74819,594Federal funds purchased11193Securities sold under repurchase agreements352330Federal Home Loan Bank advances1,7741,814Subordinated debentures and term loans1,9452,116Total Interest Expense25,93023,947NET INTEREST INCOME93,87784,866Provision for loan losses19,7521,200NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES74,12583,666OTHER INCOMEService charges on deposit accounts5,9705,095Fiduciary and wealth management fees5,9853,818Card payment fees5,9074,826Net gains and fees on sales of loans3,3631,295Derivative hedge fees1,939781Other customer fees398439Increase in cash surrender value of life insurance1,360989Net realized gains on sales of available for sale securities4,6121,140Other income265330Total Other Income29,79918,713OTHER EXPENSESSalaries and employee benefits39,24333,028Net occupancy5,8015,027Equipment4,3443,642Marketing1,4431,074Outside data processing fees4,1993,684Printing and office supplies387315Intangible asset amortization1,5141,528FDIC assessments1,523707Other real estate owned and foreclosure expenses5051,165Professional and other outside services2,2581,884Other expenses4,9544,567Total Other Expenses66,17156,621INCOME BEFORE INCOME TAX37,75345,758Income tax expense3,4906,941NET INCOME AVAILABLE TO COMMON STOCKHOLDERS$34,263$38,817Per Share Data:Basic Net Income Available to Common Stockholders$0.63$0.79Diluted Net Income Available to Common Stockholders$0.62$0.78Cash Dividends Paid$0.26$0.22Average Diluted Shares Outstanding (in thousands)54,91849,541
 
 
 
 
 
 
  
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 Three Months EndedMarch 31,20202019Net income$34,263$38,817Other comprehensive income (loss), net of tax:Unrealized holding gain (loss) on securities available for sale arising during the period, net of tax of $8,071 and $5,58030,36420,990Unrealized gain (loss) on cash flow hedges arising during the period, net of tax of $276 and $82(1,038)(309)Reclassification adjustment for net gains included in net income, net of tax of $943 and $227(3,544)(854)Total other comprehensive income, net of tax25,78219,827Comprehensive income$60,045$58,644
 
 
 
 
 
 
  
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 Three Months Ended March 31, 2020PreferredCommon StockAdditionalAccumulatedOtherSharesAmountSharesAmountPaid inCapitalRetainedEarningsComprehensiveIncomeTotalBalances, December 31, 2019125$12555,368,482$6,921$1,054,997$696,520$27,874$1,786,437Comprehensive income:Net income—————34,263—34,263Other comprehensive income, net of tax——————25,78225,782Cash dividends on common stock($.26 per share)—————(14,265)—(14,265)Repurchases of common stock——(1,634,437)(204)(55,708)——(55,912)Share-based compensation——3,332—1,220——1,220Stock issued under dividend reinvestment andstock purchase plan——15,7102426——428Stock options exercised——1,050—7——7Balances,March 31, 2020125$12553,754,137$6,719$1,000,942$716,518$53,656$1,777,960
 
 
 Three Months Ended March 31, 2019PreferredCommon StockAdditionalAccumulatedOtherSharesAmountSharesAmountPaid inCapitalRetainedEarningsComprehensiveLossTotalBalances, December 31, 2018125$12549,349,800$6,169$840,052$583,336$(21,422)$1,408,260Comprehensive income:Net income—————38,817—38,817Other comprehensive income, net of tax——————19,82719,827Cash dividends on common stock($.22 per share)—————(10,933)—(10,933)Share-based compensation——103,66013968——981Stock issued under employee benefit plans——5,3391173——174Stock issued under dividend reinvestment andstock purchase plan——8,5081339——340Stock options exercised——3,700—40——40Restricted shares withheld for taxes——(42,539)(5)(1,653)——(1,658)Balances,March 31, 2019125$12549,428,468$6,179$839,919$611,220$(1,595)$1,455,848
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
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 Three Months EndedMarch 31, 2020March 31, 2019Cash Flow From Operating Activities:Net income$34,263$38,817Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses19,7521,200Depreciation and amortization2,6742,209Change in deferred taxes(7,662)740Share-based compensation1,220981Loans originated for sale(163,378)(67,596)Proceeds from sales of loans held for sale170,30769,940Gains on sales of loans held for sale(2,931)(896)Gains on sales of securities available for sale(4,612)(1,140)Increase in cash surrender of life insurance(1,360)(989)Change in interest receivable1,412(50)Change in interest payable9921,706Other adjustments20,8167,019Net cash provided by operating activities71,49351,941Cash Flows from Investing Activities:Net change in interest-bearing deposits(14,681)(33,709)Purchases of:Securities available for sale(87,499)(125,523)Securities held to maturity(126,759)(138,857)Proceeds from sales of securities available for sale96,55834,107Proceeds from maturities of:Securities available for sale45,62125,904Securities held to maturity49,91213,879Net change in loans(148,882)(75,963)Proceeds from the sale of other real estate owned303288Other adjustments(3,672)(954)Net cash used in investing activities(189,099)(300,828)Cash Flows from Financing Activities:Net change in :Demand and savings deposits109,276171,543Certificates of deposit and other time deposits(78,748)121,662Borrowings180,060295,060Repayment of borrowings(72,710)(350,710)Cash dividends on common stock(14,265)(10,933)Stock issued under employee benefit plans—174Stock issued under dividend reinvestment and stock purchase plans428340Stock options exercised740Restricted shares withheld for taxes—(1,658)Repurchase of common stock(55,912)—Net cash provided by financing activities68,136225,518Net Change in Cash and Cash Equivalents(49,470)(23,369)Cash and Cash Equivalents, January 1177,201139,247Cash and Cash Equivalents,March 31$127,731$115,878Additional cash flow information:Interest paid$24,938$22,241Loans transferred to other real estate owned761260Fixed assets transferred to other real estate owned—302Non-cash investing activities using trade date accounting44,36214,579ROU assets obtained in exchange for new operating lease liabilities7923,324
 
 
 
  
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 GENERALFinancial Statement PreparationThe 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 Consolidated Condensed Balance Sheet of the Corporation as ofDecember 31, 2019, 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 endedDecember 31, 2019filed with the Securities and Exchange Commission.  The results of operations for thethree months ended March 31, 2020, 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 loan losses and fair value of financial instruments.  The uncertainties related to the coronavirus disease 2019 ("COVID-19") could cause significant changes to these estimates compared to what was known at the time these financial statements were prepared.Impact of COVID-19On January 30, 2020, the World Health Organization (“WHO”) announced that the outbreak of COVID-19 constituted a public health emergency of international concern.  On March 11, 2020, WHO declared COVID-19 to be a global pandemic and, on March 13, 2020, the President of the United States declared the COVID-19 outbreak a national emergency.  The health concerns relating to the COVID-19 outbreak and related governmental actions taken to reduce the spread of the virus have significantly impacted the global economy (including the states and local economies in which the Corporation operates), disrupted supply chains, lowered equity market valuations, and created significant volatility and disruption in financial markets. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. As a result, the demand for the Corporation’s products and services has been, and will continue to be, significantly impacted.Recent Accounting Changes Adopted in 2020FASB Accounting Standards Updates No. 2018-15 -Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service ContractSummary -The FASB issued Accounting Standards Update (ASU) No. 2018-15,Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,which reduces complexity for the accounting for costs of implementing a cloud computing service arrangement. This standard aligns the accounting for implementation costs of hosting arrangements, regardless of whether they convey a license to the hosted software. The ASU aligns the following requirements for capitalizing implementation costs:•Those incurred in a hosting arrangement that is a service contract, and•Those incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).For calendar-year public companies, the changes were effective for fiscal years ending after December 15, 2019. The Corporation adopted the standard in the first quarter of 2020 and adoption of the standard did not have a significant effect on the Corporation’s consolidated financial statements.FASB Accounting Standards Updates No. 2018-14- Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit PlansSummary -The FASB issued ASU No. 2018-14,Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans,that applies to all employers that sponsor defined benefit pension or other postretirement plans. The amendments modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans.Disclosure Requirements Deleted•The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.•The amount and timing of plan assets expected to be returned to the employer.•Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan.•For public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits. 
 
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 Disclosure Requirements Added•An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.The amendments also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed:•The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets, and•The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.ASU No. 2018-14 is effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities. The Corporation adopted the standard in the first quarter of 2020 and adoption of the standard did not have a significant effect on the Corporation’s disclosures.FASB Accounting Standards Updates No. 2018-13 -Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value MeasurementSummary -The FASB issued ASU No. 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.ASU No. 2018-13 modifies the disclosure requirements on fair value measurements in Topic 820.  Certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy and Level 3 valuation process were removed from Topic 820.  Disclosures were also added to Topic 820 for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.In addition, the amendments eliminate "at a minimum" from the phrase “an entity shall disclose at a minimum” to promote the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements.The amendments in ASU No. 2018-13 were effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty were applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments were applied retrospectively to all periods presented upon their effective date. Early adoption was permitted. An entity was permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date.  The Corporation adopted the standard in the first quarter of 2020 and adoption of the standard did not have a significant effect on the Corporation’s disclosures.FASB Accounting Standards Updates No. 2017-04 -Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.Summary -The FASB issued ASU No. 2017-04,Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill,which simplifies how an entity is required to test goodwill for impairment.  To simplify the subsequent measurement of goodwill, the ASU eliminates Step 2 from the goodwill impairment test.  The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.  An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  In addition, the income tax effects of tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.  The amendments also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform Step 2 of the goodwill impairment test.  An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the qualitative impairment test is necessary.The amendments were applied on a prospective basis. The Corporation adopted ASU No. 2017-04,Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill,in the first quarter of 2020 and accordingly assessed the recent economic impact and market conditions from the COVID-19 pandemic. Based upon factors considered in the assessment and the general uncertainty as to the full extent of the COVID-19 pandemic and its effect on economic recovery, the Corporation has determined that it is not more likely than not that the fair value of the Corporation is less than the carrying value.  Therefore, the Corporation concluded goodwill was not impaired at March 31, 2020, the details of which are included in NOTE 6.  GOODWILL of these Notes to Consolidated Condensed Financial Statements.Guidance on Non-TDR Loan Modifications due to COVID-19On March 22, 2020, a statement was issued by the Bank's banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. Accordingly, the Bank is offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The modifications completed in the three months ended March 31, 2020 were immaterial. 
 
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 New Accounting Pronouncements Not Yet AdoptedThe Corporation continually monitors potential accounting changes and pronouncements.  The following pronouncements have been deemed to have the most applicability to the Corporation's financial statements:FASB Accounting Standards Update No. 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial InstrumentsSummary- The FASB issued Accounting Standards Update (ASU) No. 2016-13,Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This new guidance was issued to address concerns that current generally accepted accounting principles (GAAP) restricts the ability to record credit losses that are expected, but do not yet meet the “probable” threshold by replacing the current “incurred loss” model for recognizing credit losses with an “expected life of loan loss” model referred to as the Current Expected Credit Loss (CECL) model.Under the CECL model, certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, are required to be presented at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The change could materially affect how the allowance for loan losses is determined and cause a charge/credit  to earnings through the provision for loan losses. Such could create volatility in earnings and could adversely affect the financial condition of the Corporation.The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Pursuant to the CARES Act and the related joint statement of federal banking regulators (which also became effective as of March 27, 2020), and consistent with guidance from the SEC and FASB, the Corporation has elected to delay implementation of ASU No. 2016-13, which would have become effective for the Corporation as of January 1, 2020.  As discussed above, ASU No. 2016-13 provides for the replacement of the incurred loss model for recording the allowance for loan losses with CECL.  However, as a result of the Corporation’s election, its first quarter 2020 financial statements have been prepared under the existing incurred loss model.  The temporary relief applicable to the Corporation’s compliance with CECL ends on the earlier of: (1) the termination date of the national emergency concerning the COVID-19 outbreak, declared by the President of the United States on March 13, 2020, under the National Emergencies Act; or (2) December 31, 2020.The Corporation has developed models that satisfy the requirements of the new standard which will be governed by a system of internal controls and a cross-functional working group consisting of accounting, finance, and credit administration personnel. The loan portfolio was pooled into ten loan segments with similar risk characteristics for which the probability of default/loss given default methodology will be applied. The Corporation intends to utilize a one-year economic forecast period then revert to historical macroeconomic levels for the remaining life of the portfolio. A baseline macroeconomic scenario, along with three other scenarios, will be used to develop a range of estimated credit losses for which to determine the best estimate within.The Corporation will record a one-time cumulative-effect adjustment to retained earnings, net of income taxes, on the consolidated balance sheet as of the beginning of the adoption period, or January 1, 2020.  The allowance will increase by55-65percent from December 31, 2019 because it will cover expected credit losses over the life of the loan portfolio, which approximatesfour years, and it includes all purchased loans that were previously excluded from the allowance for loan losses calculation. CECL also requires the establishment of a reserve for potential losses from unfunded commitments that is recorded in other liabilities, separate from allowance for credit losses, which is estimated to be approximately$18 million.FASB Accounting Standards Update No. 2019-11 -Codification Improvements to (Topic 326): Financial Instruments - Credit LossesSummary -The FASB issued ASU No. 2019-11,Codification Improvements to Topic 326, Financial Instruments - Credit Lossesin order to address issues raised by stakeholders during the implementation of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments.Among other narrow-scope improvements, the new ASU clarifies guidance around how to report expected recoveries. “Expected recoveries” describes a situation in which an organization recognizes a full or partial write-off of the amortized cost basis of a financial asset, but then later determines that the amount written off, or a portion of that amount, will in fact be recovered. While applying the credit losses standard, stakeholders questioned whether expected recoveries were permitted on assets that had already shown credit deterioration at the time of purchase (also known as PCD assets).  In response to this question, the ASU permits organizations to record expected recoveries on PCD assets.  In addition to other narrow technical improvements, the ASU also reinforces existing guidance that prohibits organizations from recording negative allowances for available-for-sale debt securities.The ASU includes effective dates and transition requirements that vary depending on whether or not an entity has already adopted ASU No. 2016-13.  As discussed above, pursuant to the CARES Act, the Corporation elected to defer the adoption of CECL.  The temporary relief applicable to the Corporation’s compliance with CECL ends on the earlier of: (1) the termination date of the national emergency concerning the COVID-19 outbreak, declared by the President of the United States on March 13, 2020, under the National Emergencies Act; or (2) December 31, 2020. 
 
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 FASB Accounting Standards Updates - No. 2020-04 -Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial ReportingSummary -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 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. 
 
 
 
 
 ACQUISITIONMBT Financial Corp.On September 1, 2019, the Corporation acquired100 percentof MBT.  MBT, a Michigan corporation, merged with and into the Corporation, whereupon the separate corporate existence of MBT ceased and the Corporation survived.  Immediately following the merger, MBT's wholly-owned subsidiary, Monroe Bank & Trust, merged with and into the Bank, with the Bank continuing as the surviving bank.MBT was headquartered in Monroe, Michigan and had20banking centers serving the Monroe market.  Pursuant to the merger agreement, each MBT shareholder received0.275shares of the Corporation's common stock for each outstanding share of MBT common stock held.  The Corporation issued approximately6.4 millionshares of common stock, which was valued at approximately$229.9 million.  The Corporation engaged in this transaction with the expectation that it would be accretive to income and add a new market area in Michigan that has a demographic profile consistent with many of the current Indiana and Ohio markets served by the Bank.  Goodwill resulted from this transaction due to the expected synergies and economies of scale.Under the acquisition method of accounting, the total purchase price is allocated to net tangible and intangible assets based on their current estimated fair values on the date of the acquisition.  Based on preliminary valuations of the fair value of tangible and intangible assets acquired and liabilities assumed, which are based on assumptions that are subject to change based on the timing of the transaction, the purchase price for the MBT acquisition is detailed in the following table.  If, prior to the end of the one-year measurement period for finalizing the purchase price allocation, information becomes available about facts and circumstances that existed as of the acquisition date, which would indicate adjustments are required to the purchase price allocation, such adjustments will be included in the purchase price allocation retrospectively.Fair ValueCash and cash equivalents$10,222Interest-bearing time deposits281,228Investment securities212,235Loans732,578Premises and equipment21,664Federal Home Loan Bank stock4,148Interest receivable3,361Cash surrender value of life insurance59,545Tax asset, deferred and receivable5,205Other assets6,011Deposits(1,105,926)Securities sold under repurchase agreements(94,760)Federal Home Loan Bank advances(10,853)Other liabilities(9,807)Net tangible assets acquired114,851Core deposit intangible16,527Goodwill98,563Purchase price$229,941Of the total purchase price,$16,527,000was allocated to a core deposit intangible, which will be amortized over its estimated life of10 years.  The remaining purchase price was allocated to goodwill, which is not deductible for tax purposes. 
 
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 Acquired loan data for MBT is included in the following table:Fair Value of Acquired Loans at Acquisition DateGross Contractual Amounts Receivable at Acquisition DateBest Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be CollectedAcquired receivables subject to ASC 310-30$3,531$6,840$2,733Acquired receivables not subject to ASC 310-30$729,047$907,210$14,722Purchased loans with evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments are accounted for under ASC 310-30,Loans Acquired with Deteriorated Credit Quality.  The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference.  The accretable portion of the fair value discount or premium is the difference between the expected cash flows and the net present value of expected cash flows, with such difference accreted into earnings over the term of the loans.Pro Forma Financial InformationThe results of operations of MBT have been included in the Corporation's consolidated financial statements since the acquisition date.  The following table includes pro forma results for the year ended December 31, 2019 as if the MBT acquisition occurred as of the beginning of the period presented.2019Total revenue (net interest income plus other income)$474,891Net income available to common shareholders$161,228Earnings per share:Basic$2.89Diluted$2.88The pro forma information includes adjustments for interest income on loans and investments, interest expense on deposits and borrowings, premises expense for banking centers acquired and amortization of intangibles arising from the transaction and the related income tax effects.  The pro forma information for the year ended December 31, 2019 includes operating revenue from MBT of$19.7 millionsince the date of acquisition.  Additionally$19.7 million, net of tax, of non-recurring expenses directly attributable to the MBT acquisition were included in the year ended December 31, 2019 pro forma information.The pro forma information is presented for informational purposes only and is not indicative of the results of operations that actually would have been achieved had the acquisition been consummated as of that time, or intended to be a projection of future results. 
 
 
 
 
 INVESTMENT SECURITIESThe amortized cost, gross unrealized gains, gross unrealized losses and approximate market value of the Corporation's investment securities at the dates indicated were:AmortizedCostGross Unrealized GainsGross Unrealized LossesFairValueAvailable for sale at March 31, 2020U.S. Treasury$596$4$—$600U.S. Government-sponsored agency securities12,39880—12,478State and municipal898,99150,523306949,208U.S. Government-sponsored mortgage-backed securities820,26333,296101853,458Corporate obligations31——31Total available for sale1,732,27983,9034071,815,775Held to maturity at March 31, 2020U.S. Government-sponsored agency securities35,0508—35,058State and municipal358,47918,03028376,481U.S. Government-sponsored mortgage-backed securities487,15019,989—507,139Foreign investment1,500——1,500Total held to maturity882,17938,02728920,178Total Investment Securities$2,614,458$121,930$435$2,735,953 
 
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 AmortizedCostGross Unrealized GainsGross Unrealized LossesFairValueAvailable for sale at December 31, 2019U.S. Government-sponsored agency securities$38,529$346$—$38,875State and municipal859,51141,092807899,796U.S. Government-sponsored mortgage-backed securities842,34910,3781,404851,323Corporate obligations31——31Total available for sale1,740,42051,8162,2111,790,025Held to maturity at December 31, 2019U.S. Government-sponsored agency securities15,61913715,583State and municipal354,11515,151107369,159U.S. Government-sponsored mortgage-backed securities434,8046,921401441,324Foreign investment1,500——1,500Total held to maturity806,03822,073545827,566Total Investment Securities$2,546,458$73,889$2,756$2,617,591The increase in unrealized gains from December 31, 2019 to March 31, 2020 is primarily due to interest rate declines.  The longer term points on the yield curve have declined since year-end which increases the fair value of securities in the portfolio.The amortized cost and fair value of available for sale and held to maturity securities atMarch 31, 2020andDecember 31, 2019, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.Available for SaleHeld to MaturityAmortized CostFair ValueAmortized CostFair ValueMaturity Distribution at March 31,2020:Due in one year or less$1,945$1,965$8,740$8,762Due after one through five years4,8004,93233,39333,947Due after five through ten years47,80749,833107,482111,986Due after ten years857,464905,587245,414258,344912,016962,317395,029413,039U.S. Government-sponsored mortgage-backed securities820,263853,458487,150507,139Total Investment Securities$1,732,279$1,815,775$882,179$920,178Available for SaleHeld to MaturityAmortized CostFair ValueAmortized CostFair ValueMaturity Distribution at December 31, 2019Due in one year or less$1,134$1,136$9,920$10,105Due after one through five years5,0315,14145,19745,654Due after five through ten years74,74576,92084,15388,844Due after ten years817,161855,505231,964241,639898,071938,702371,234386,242U.S. Government-sponsored mortgage-backed securities842,349851,323434,804441,324Total Investment Securities$1,740,420$1,790,025$806,038$827,566The carrying value of securities pledged as collateral, to secure borrowings and for other purposes, was$576,123,000atMarch 31, 2020, and$503,427,000atDecember 31, 2019.The book value of securities sold under agreements to repurchase amounted to$174,705,000atMarch 31, 2020, and$182,856,000atDecember 31, 2019.Gross gains on the sales and redemptions of available for sale securities for thethree months ended March 31, 2020and2019are shown below.Three Months EndedMarch 31,20202019Sales and Redemptions of Available for Sale Securities:Gross gains$4,612$1,140Gross losses—— 
 
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 The following tables show the Corporation’s gross unrealized losses and fair value, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position atMarch 31, 2020, andDecember 31, 2019:Less than12 Months12 Months or LongerTotalFairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesTemporarily Impaired Available for Sale Securities at March 31, 2020State and municipal$34,304$306$—$—$34,304$306U.S. Government-sponsored mortgage-backed securities17,011101——17,011101Total Temporarily Impaired Available for Sale Securities51,315407——51,315407Temporarily Impaired Held to Maturity Securities at March 31,2020State and municipal6,81528——6,81528Total Temporarily Impaired Held to Maturity Securities6,81528——6,81528Total Temporarily Impaired Investment Securities$58,130$435$—$—$58,130$435Less than12 Months12 Months or LongerTotalFairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesFairValueGrossUnrealizedLossesTemporarily Impaired Available for Sale Securities at December 31, 2019State and municipal$76,273$807$—$—$76,273$807U.S. Government-sponsored mortgage-backed securities127,6731,32620,79678148,4691,404Total Temporarily Impaired Available for Sale Securities203,9462,13320,79678224,7422,211Temporarily Impaired Held to Maturity Securities at December 31, 2019U.S. Government-sponsored agency securities3,016412,4673315,48337State and municipal22,947107——22,947107U.S. Government-sponsored mortgage-backed securities124,2533647,99137132,244401Total Temporarily Impaired Held to Maturity Securities150,21647520,45870170,674545Total Temporarily Impaired Investment Securities$354,162$2,608$41,254$148$395,416$2,756Certain investments in debt and equity securities are reported in the financial statements at an amount less than their historical cost as indicated in the table below.March 31, 2020December 31, 2019Investments reported at less than historical cost:Historical cost$58,565$398,172Fair value58,130395,416Gross unrealized losses$435$2,756Percent of the Corporation's investment portfolio2.2%15.2%The Corporation's management believes the decline in fair value for these securities was temporary. Should the impairment of any of these securities become other-than-temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income during the period the other-than-temporary-impairment ("OTTI") is identified.  The Corporation’s management has evaluated all securities with unrealized losses for OTTI and concluded no OTTI existed atMarch 31, 2020.In determining the fair value of the investment securities portfolio, the Corporation utilizes a third party for portfolio accounting services, including market value input, for those securities classified as Level 1 and Level 2 in the fair value hierarchy.  The Corporation has obtained an understanding of what inputs are being used by the vendor in pricing the portfolio and how the vendor classified these securities based upon these inputs.  From these discussions, the Corporation’s management is comfortable that the classifications are proper.  The Corporation has gained trust in the data for two reasons:  (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis; and (b) actual gains or loss resulting from the sale of certain securities has proven the data to be accurate over time.   Fair value of securities classified as Level 3 in the valuation hierarchy was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active. 
 
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 State and Municipal SecuritiesThe unrealized losses on the Corporation's investments in securities of state and political subdivisions were caused by interest rate changes. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. Because the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired atMarch 31, 2020. The state and municipal securities portfolio contains unrealized losses of$306,000onseventeensecurities and$28,000onfoursecurities in the available for sale and held to maturity portfolios, respectively.   At March 31, 2020, the Corporation had little to no exposure to municipal bonds related to entertainment receipts, student housing, parking facilities, airports, nursing homes or public transit.U.S. Government-Sponsored Mortgage-Backed SecuritiesThe unrealized losses on the Corporation's investment in mortgage-backed securities were a result of interest rate changes. The Corporation expects to recover the amortized cost basis over the term of the securities.  Because the decline in market value is attributable to changes in interest rates and not credit quality, and because the Corporation does not intend to sell the investments and it is not more likely than not that the Corporation will be required to sell the investments before recovery of their amortized cost basis, which may be maturity, the Corporation does not consider those investments to be other-than-temporarily impaired atMarch 31, 2020. The mortgage-backed securities portfolio contains unrealized losses of$101,000onthreesecurities in the available for sale portfolio andnounrealized losses in the held to maturity portfolio.  All these securities are issued by a U.S. government-sponsored entity and have an implicit or explicit government guarantee.  The slowing of prepayments and the forbearance programs resulting from the financial impacts of COVID-19 could increase bond duration and potentially improve market values on these securities. 
 
 
 
 
 LOANS AND ALLOWANCEThe Corporation’s primary lending focus is small business and middle market commercial, commercial real estate and residential real estate, which results in portfolio diversification. The following tables show the composition of the loan portfolio, the allowance for loan losses and credit quality characteristics by collateral classification, excluding loans held for sale. Loans held for sale as ofMarch 31, 2020, andDecember 31, 2019, were$5,039,000and$9,037,000, respectively.The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:March 31, 2020December 31, 2019Commercial and industrial loans$2,199,226$2,109,879Agricultural production financing and other loans to farmers87,42193,861Real estate loans:Construction643,674787,568Commercial and farmland3,268,1683,052,698Residential1,121,5561,143,217Home equity570,398588,984Individuals' loans for household and other personal expenditures129,765135,989Public finance and other commercial loans586,641547,114Loans8,606,8498,459,310Allowance for loan losses(99,454)(80,284)Net Loans$8,507,395$8,379,026Allowance, Credit Quality and Loan PortfolioThe original implementation date of the Current Expected Credit Loss (CECL) model for calculating the Allowance for Credit Losses guided by FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit losses on Financial Instruments was January 1, 2020. Pursuant to the CARES Act and the related joint statement of federal banking regulators (which also became effective as of March 27, 2020), and consistent with guidance from the SEC and FASB, the Corporation has elected to delay implementation of ASU No. 2016-13.  As discussed below, ASU No. 2016-13, provides for the replacement of the incurred loss model for recording the allowance for loan losses with CECL. However, as a result of the Corporation’s election, its first quarter 2020 financial statements have been prepared under the existing incurred loss model.  The temporary relief applicable to the Corporation’s compliance with CECL ends on the earlier of: (1) the termination date of the national emergency concerning the COVID-19 outbreak, declared by the President of the United States on March 13, 2020, under the National Emergencies Act; or (2) December 31, 2020. 
 
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 The Corporation maintains an allowance for loan losses to cover probable credit losses identified during its loan review process. Management believes the allowance for loan losses is adequate to cover probable losses inherent in the loan portfolio atMarch 31, 2020. The process for determining the adequacy of the allowance for loan losses is critical to the Corporation’s financial results. It requires management to make difficult, subjective and complex judgments to estimate the effect of uncertain matters. The allowance for loan losses considers current factors, including economic conditions and ongoing internal and external examinations, and will increase or decrease as deemed necessary to ensure it remains adequate. In addition, the allowance as a percentage of charge-offs and nonperforming loans will change at different points in time based on credit performance, portfolio mix and collateral values.The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings. The allowance is increased by provision expense and decreased by charge-offs less recoveries. All charge-offs are approved by the Bank's senior credit officers and in accordance with established policies. The Bank charges off a loan when a determination is made that all or a portion of the loan isuncollectable. The amount provided for loan losses in a given period may be greater than or less than net loan losses experienced during the period, and is based on management’s judgment as to the appropriate level of the allowance for loan losses. The determination of the provision amount is based on management’s ongoing review and evaluation of the loan portfolio, including an internally administered loan "watch" list and independent loan reviews. The evaluation takes into consideration identified credit problems, the possibility of losses inherent in the loan portfolio that are not specifically identified and management’s judgment as to the impact of the current environment and economic conditions on the portfolio.The allowance consists of specific impairment reserves as required by ASC 310-10-35, a component for historical losses in accordance with ASC 450 and the consideration of current environmental factors in accordance with ASC 450. A loan is deemed impaired when, based on current information or events, it is probable that all amounts due of principal and interest according to the contractual terms of the loan agreement will not be collected.The historical loss allocation for loans not deemed impaired according to ASC 450 is the product of the volume of loans within the non-impaired criticized and non-criticized risk grade classifications, each segmented by call code, and the historical loss factor for each respective classification and call code segment. The historical loss factors are based upon actual loss experience within each risk and call code classification. The historical look back period for non-criticized loans looks to the most recent rolling-four-quarter average and aligns with the look back period for non-impaired criticized loans. Each of the rolling four quarter periods used to obtain the average, include all charge-offs for the previous twelve-month period, therefore the historical look back period includes seven quarters. The resulting allocation is reflective of current conditions. Criticized loans are grouped based on the risk grade assigned to the loan.  Loans with a special mention grade but not impaired are assigned a loss factor, and loans with a classified grade but not impaired are assigned a separate loss factor. The loss factor computation for this allocation includes a segmented historical loss migration analysis of risk grades to charge-off.In addition to the specific reserves and historical loss components of the allowance, consideration is given to various environmental factors to ensure that losses inherent in the portfolio are reflected in the allowance for loan losses. The environmental component adjusts the historical loss allocations for non-impaired loans to reflect relevant current conditions that, in management's opinion, have an impact on loss recognition.  Environmental factors that management reviews in the analysis include: national and local economic trends and conditions; trends in growth in the loan portfolio and growth in higher risk areas; levels of, and trends in, delinquencies and non-accruals; experience and depth of lending management and staff; adequacy of, and adherence to, lending policies and procedures including those for underwriting; industry concentrations of credit; and adequacy of risk identification systems and controls through the internal loan review and internal audit processes.In conformance with ASC 805 and ASC 820, purchased loans are recorded at the acquisition date fair value. Such loans are included in the allowance to the extent a specific impairment is identified that exceeds the fair value adjustment on an impaired loan or the historical loss and environmental factor analysis indicates losses inherent in a purchased portfolio exceeds the fair value adjustment on the portion of the purchased portfolio not deemed impaired. 
 
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 The following tables summarize changes in the allowance for loan losses by loan segment for the three endedMarch 31, 2020andMarch 31, 2019:Three Months Ended March 31, 2020CommercialCommercialReal EstateConsumerResidentialTotalAllowance for loan losses:Balances, December 31, 2019$32,902$28,778$4,035$14,569$80,284Provision for losses5,7019,1941,9242,93319,752Recoveries on loans4431184270673Loans charged off(615)(183)(249)(208)(1,255)Balances, March 31, 2020$38,431$37,907$5,752$17,364$99,454Three Months Ended March 31, 2019CommercialCommercialReal EstateConsumerResidentialTotalAllowance for loan losses:Balances, December 31, 2018$32,657$29,609$3,964$14,322$80,552Provision for losses236769105901,200Recoveries on loans5422451181001,005Loans charged off(366)(1,189)(161)(139)(1,855)Balances, March 31, 2019$33,069$29,434$4,026$14,373$80,902The increase in the allowance as a percentage of loans was primarily due to an increase in the qualitative factor for economic conditions to account for the impending impact of the COVID-19 pandemic. Governmental actions taken to reduce the spread of the virus have significantly contributed to rising unemployment and negatively impacted consumer and business spending.  Therefore, the allowance for loan losses was increased to cover probable and incurred credit losses as a result of the economic downturn.The tables below show the Corporation’s allowance for loan losses and loan portfolio by loan segment as of the periods indicated.March 31, 2020CommercialCommercialReal EstateConsumerResidentialTotalAllowance Balances:Individually evaluated for impairment$—$150$—$466$616Collectively evaluated for impairment38,43137,7575,75216,89898,838Total Allowance for Loan Losses$38,431$37,907$5,752$17,364$99,454Loan Balances:Individually evaluated for impairment$905$9,282$3$2,623$12,813Collectively evaluated for impairment2,870,8553,895,221129,7621,687,6128,583,450Loans acquired with deteriorated credit quality1,5287,339—1,71910,586Loans$2,873,288$3,911,842$129,765$1,691,954$8,606,849December 31, 2019CommercialCommercialReal EstateConsumerResidentialTotalAllowance Balances:Individually evaluated for impairment$—$231$—$458$689Collectively evaluated for impairment32,90228,5474,03514,11179,595Total Allowance for Loan Losses$32,902$28,778$4,035$14,569$80,284Loan Balances:Individually evaluated for impairment$457$8,728$4$2,520$11,709Collectively evaluated for impairment2,748,6813,821,660135,9851,727,9668,434,292Loans acquired with deteriorated credit quality1,7169,878—1,71513,309Loans$2,750,854$3,840,266$135,989$1,732,201$8,459,310Loans individually evaluated for impairment are comprised of commercial and consumer loans deemed impaired in accordance with ASC 310-10.  This includes loans acquired with deteriorated credit quality totaling$2,697,000with$124,000of related allowance for loan losses at March 31, 2020 and$2,819,000with$124,000related allowance for loan losses at December 31, 2019. 
 
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 The risk characteristics of the Corporation’s material portfolio segments are as follows:CommercialCommercial lending is primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower.  The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the tangible assets being financed such as equipment or real estate or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee. Other loans may be unsecured, secured but under-collateralized or otherwise made on the basis of the enterprise value of an organization. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.Commercial real estateThese loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.Consumer and ResidentialWith respect to residential loans that are secured by 1-4 family residences and are typically owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles.  Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment on loans secured by 1-4 family residences can be impacted by changes in property values. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. When the interest accrual is discontinued, all unpaid accrued interest is reversed against earnings when considered uncollectable. Payments subsequently received on non-accrual loans are applied to principal.  A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance. Payments received on impaired accruing or delinquent loans are applied to interest income as accrued.The following table summarizes the Corporation’s non-accrual loans by loan class as of the periods indicated:March 31, 2020December 31, 2019Commercial and industrial loans$1,759$1,255Agriculture production financing and other loans to farmers—183Real estate loans:Construction1,094977Commercial and farmland6,9957,007Residential4,3325,062Home equity1,4091,421Individuals' loans for household and other personal expenditures6044Total$15,649$15,949Impaired loans include loans deemed impaired according to the guidance set forth in ASC 310-10. Commercial loans under $500,000 and consumer loans, with the exception of troubled debt restructures, are not individually evaluated for impairment.Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral dependent loans. If the impaired loan is identified as collateral dependent, then the fair value method for measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings andor customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions. 
 
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 The following tables show the composition of the Corporation’s impaired loans, related allowance and interest income recognized while impaired by loan class as of the periods indicated:March 31, 2020UnpaidPrincipalBalanceRecordedInvestmentRelatedAllowanceImpaired loans with no related allowance:Commercial and industrial loans$905$905$—Real estate Loans:Construction1,206970—Commercial and farmland8,1606,403—Residential7659—Individuals' loans for household and other personal expenditures33—Total$10,350$8,340$—Impaired loans with related allowance:Real estate Loans:Commercial and farmland2,6491,909150Residential2,1982,173393Home equity40739173Total$5,254$4,473$616Total Impaired Loans$15,604$12,813$616December 31, 2019UnpaidPrincipalBalanceRecordedInvestmentRelatedAllowanceImpaired loans with no related allowance:Commercial and industrial loans$320$320$—Agriculture production financing and other loans to farmers299137—Real estate Loans:Construction1,206970—Commercial and farmland8,0375,849—Residential9376—Total$9,955$7,352$—Impaired loans with related allowance:Real estate Loans:Commercial and farmland2,6481,909231Residential2,0702,044383Home equity41740075Individuals' loans for household and other personal expenditures44—Total$5,139$4,357$689Total Impaired Loans$15,094$11,709$689Three Months Ended March 31, 2020AverageRecorded InvestmentInterestIncome RecognizedImpaired loans with no related allowance:Commercial and industrial loans$905$—Real estate Loans:Construction1,015—Commercial and farmland6,85237Residential591Individuals' loans for household and other personal expenditures3—Total$8,834$38Impaired loans with related allowance:Real estate Loans:Commercial and farmland2,400—Residential2,18019Home equity3933Total$4,973$22Total Impaired Loans$13,807$60 
 
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 Three Months Ended March 31, 2019AverageRecorded InvestmentInterestIncome RecognizedImpaired loans with no related allowance:Commercial and industrial loans$1,641$—Agriculture production financing and other loans to farmers799—Real estate Loans:Construction8,270—Commercial and farmland8,99939Residential381Home equity48—Individuals' loans for household and other personal expenditures1—Public finance and other commercial loans353—Total$20,149$40Impaired loans with related allowance:Agriculture production financing and other loans to farmers2,150—Real estate Loans:Commercial and farmland171—Residential1,88415Home equity3563Public finance and other commercial loans15—Total$4,576$18Total Impaired Loans$24,725$58Impaired loans in the above tables do not include loans accounted for under ASC 310-30, or any other loan, unless deemed impaired in accordance with ASC 310-10.As part of the ongoing monitoring of the credit quality of the Corporation's loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge-offs, (iii) non-performing loans, (iv) covenant failures and (v) the general national and local economic conditions.The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans. Loans with grades below pass are reviewed more frequently depending on the grade. A description of the general characteristics of these grades is as follows:•Pass - Loans that are considered to be of acceptable credit quality.•Special Mention - Loans which possess some credit deficiency or potential weakness, which deserves close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation's credit position at some future date. Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification. The key distinctions of this category's classification are that it is indicative of an unwarranted level of risk; and weaknesses are considered “potential”, not “defined”, impairments to the primary source of repayment. Examples include businesses that may be suffering from inadequate management, loss of key personnel or significant customer or litigation. 
 
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 •Substandard - A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Other characteristics may include:othe likelihood that a loan will be paid from the primary source of repayment is uncertain or financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss,othe primary source of repayment is gone, and the Corporation is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees,oloans have a distinct possibility that the Corporation will sustain some loss if deficiencies are not corrected,ounusual courses of action are needed to maintain a high probability of repayment,othe borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments,othe Corporation is forced into a subordinated or unsecured position due to flaws in documentation,oloans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms,othe Corporation is seriously contemplating foreclosure or legal action due to the apparent deterioration of the loan, andothere is significant deterioration in market conditions to which the borrower is highly vulnerable.•Doubtful - Loans that have all of the weaknesses of those classified as Substandard. However, based on currently existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable. Other credit characteristics may include considerable doubt as to the quality of the secondary sources of repayment. The possibility of loss is high, but because of certain important pending factors that may strengthen the loan, loss classification is deferred until the exact status of repayment is known.•Loss – Loans that are considered uncollectable and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical not desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.The following tables summarize the credit quality of the Corporation’s loan portfolio, by loan class for the periods indicated. Consumer non-performing loans include accruing consumer loans 90-days or more delinquent and consumer non-accrual loans. The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified date. Loans that evidenced deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected are included in the applicable categories below.March 31, 2020CommercialPassCommercialSpecialMentionCommercial SubstandardCommercialDoubtfulCommercial LossConsumer PerformingConsumerNon-PerformingTotalCommercial and industrial loans$2,024,943$93,686$80,597$—$—$—$—$2,199,226Agriculture production financing and other loans to farmers70,3655,96211,094————87,421Real estate Loans:Construction591,59920,0431,466——30,449117643,674Commercial and farmland3,120,08449,71496,451——1,919—3,268,168Residential200,7923956,439——909,8134,1171,121,556Home equity24,273405794——543,5791,347570,398Individuals' loans for household and other personal expenditures—————129,70560129,765Public finance and other commercial loans586,207434—————586,641Loans$6,618,263$170,639$196,841$—$—$1,615,465$5,641$8,606,849 
 
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 December 31, 2019CommercialPassCommercialSpecialMentionCommercial SubstandardCommercialDoubtfulCommercial LossConsumer PerformingConsumerNon-PerformingTotalCommercial and industrial loans$1,956,985$81,179$71,715$—$—$—$—$2,109,879Agriculture production financing and other loans to farmers78,5585,6269,677————93,861Real estate Loans:Construction749,2491,6131,634——35,072—787,568Commercial and farmland2,894,36657,77698,575——1,981—3,052,698Residential196,7108778,075——932,7434,8121,143,217Home equity24,211257682——562,5071,327588,984Individuals' loans for household and other personal expenditures—————135,94445135,989Public finance and other commercial loans547,114——————547,114Loans$6,447,193$147,328$190,358$—$—$1,668,247$6,184$8,459,310At March 31, 2020, loans 30-59 Days Past Due totaled$100,677,000an increase of$85,994,000from December 31, 2019. The increase is primarily due to customers negatively impacted by the COVID-19 pandemic.  The modifications for these loans were processed subsequent to the end of the first quarter.The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as ofMarch 31, 2020, andDecember 31, 2019:March 31, 2020Current30-59 DaysPast Due60-89 DaysPast DueLoans 90 Days or More Past Due And AccruingNon-AccrualTotal Past Due& Non-AccrualTotalCommercial and industrial loans$2,175,423$21,717$119$208$1,759$23,803$2,199,226Agriculture production financing and other loans to farmers86,566855———85587,421Real estate loans:Construction622,17119,542867—1,09421,503643,674Commercial and farmland3,204,30351,5165,354—6,99563,8653,268,168Residential1,112,5234,536133324,3329,0331,121,556Home equity566,0182,191708721,4094,380570,398Individuals' loans for household and other personal expenditures129,33032055—60435129,765Public finance and other commercial loans586,641—————586,641Loans$8,482,975$100,677$7,236$312$15,649$123,874$8,606,849December 31, 2019Current30-59 DaysPast Due60-89 DaysPast DueLoans 90 Days or More Past Due And AccruingNon-AccrualTotal Past Due& Non-AccrualTotalCommercial and industrial loans$2,105,445$3,039$136$4$1,255$4,434$2,109,879Agriculture production financing and other loans to farmers93,678———18318393,861Real estate loans:Construction784,9611,630——9772,607787,568Commercial and farmland3,043,3182,32449—7,0079,3803,052,698Residential1,133,4764,290367225,0629,7411,143,217Home equity584,0232,960538421,4214,961588,984Individuals' loans for household and other personal expenditures135,399440105144590135,989Public finance and other commercial loans547,114—————547,114Loans$8,427,414$14,683$1,195$69$15,949$31,896$8,459,310On occasion, borrowers experience declines in income and cash flow. As a result, these borrowers seek to reduce contractual cash outlays including debt payments. Concurrently, in an effort to preserve and protect its earning assets, specifically troubled loans, the Corporation works to maintain its relationship with certain customers who are experiencing financial difficulty by contractually modifying the borrower's debt agreement with the Corporation. In certain loan restructuring situations, the Corporation may grant a concession to a debtor experiencing financial difficulty, resulting in a troubled debt restructuring. A concession is deemed to be granted when, as a result of the restructuring, the Corporation does not expect to collect all original amounts due, including interest accrued at the original contract rate. If the payment of principal at original maturity is primarily dependent on the value of collateral, the current value of the collateral is considered in determining whether the principal will be repaid. 
 
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 On March 22, 2020, a statement was issued by the Bank's banking regulators and titled the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” that encourages financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations due to the effects of COVID-19. Additionally, Section 4013 of the CARES Act further provides that a qualified loan modification is exempt by law from classification as a TDR as defined by GAAP, from the period beginning March 1, 2020 until the earlier of December 31, 2020 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak under the National Emergencies Act (50 U.S.C. 1601 et seq.) terminates. Accordingly, the Bank is offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due. These include short-term, 180 days or less, modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. The modifications completed in the three months ended March 31, 2020 were immaterial.No troubled debt restructures in the Corporation's loan portfolio occurred in the three months ended March 31, 2020. The following tables summarize troubled debt restructures in the Corporation's loan portfolio that occurred during the periods indicated:Three Months Ended March 31, 2019Pre-Modification Recorded BalancePost-ModificationRecorded BalanceNumberof LoansReal estate loans:Residential$90$901Total$90$901No troubled debt restructures occurred in the period endedMarch 31, 2020.  The following table summarizes the recorded investment of troubled  restructures as of  March 31,2019by modification type, that occurred during the period indicated:Three Months Ended March 31, 2019TermModificationRateModificationCombinationTotalModificationReal estate loans:Residential$—$90$—$90Total$—$90$—$90Loans secured by residential real estate made up100 percentof the post-modification balance of troubled debt restructured loans made in the three months endedMarch 31, 2019.The following tables summarize troubled debt restructures that occurred during the twelve months endedMarch 31, 2020and 2019, that subsequently defaulted during thethree months ended March 31, 2020and remained in default atMarch 31, 2020. A loan is considered in default if it is 30-days or more past due.Three Months Ended March 31, 2020Number of LoansRecorded BalanceReal estate loans:Residential1$22Total1$22Three Months Ended March 31, 2019Number of LoansRecorded BalanceReal estate loans:Residential1$63Total1$63For potential consumer loan restructures, impairment evaluation occurs prior to modification. Any subsequent impairment is typically addressed through the charge-off process, or may be addressed through a specific reserve. Consumer troubled debt loan restructures are generally included in the general historical allowance for loan loss at the post modification balance. Consumer non-accrual and delinquent troubled debt loan restructures are also considered in the calculation of the non-accrual and delinquency trend environmental allowance allocation. Consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process totaled$507,000and$1,033,000atMarch 31, 2020and December 31, 2019, respectively.Commercial troubled debt restructured loans that are risk graded special mention, substandard, doubtful or loss are individually evaluated for impairment under ASC 310.  Any resulting specific reserves are included in the allowance for loan losses.  Commercial troubled debt loan restructures 30-89 days delinquent are included in the calculation of the delinquency trend environmental allocation in the allowance for loan losses. With the exception of the acquired loans excluded from the allowance for loan losses, all commercial non-impaired loans, including non-accrual and 90-days or more delinquent, are included in the ASC 450 loss estimate. 
 
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 PURCHASED CREDIT IMPAIRED LOANSPurchased Credit Impaired Loans are included in NOTE 4.  LOANS AND ALLOWANCE of these Notes to Consolidated Condensed Financial Statements.  As described in NOTE 4, purchased loans are recorded at the acquisition date fair value, which could result in a fair value discount or premium.  Purchased loans with evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments are accounted for under ASC 310-30,Loans Acquired with Deteriorated Credit Quality.  The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference.  The accretable portion of the fair value discount or premium is the difference between the expected cash flows and the net present value of expected cash flows, with such difference accreted into earnings over the term of the loans.The carrying amount of Purchased Credit Impaired Loans as of March 31, 2020 was$13.3 millionwith allowance for loan loss of$124,000. The carrying amount of Purchased Credit Impaired Loans as of December 31, 2019 was$16.1 millionwith$124,000of related allowance for loan losses. As customer cash flow expectations improve, nonaccretable yield can be reclassified to accretable yield. The accretable yield, or income expected to be collected, and reclassifications from nonaccretable, are identified in the table below.Three Months Ended March 31, 2020Accretable yield beginning balance$2,132Additions—Accretion(385)Reclassification from nonaccretable186Disposals(7)Accretable yield ending balance$1,926Three Months Ended March 31, 2019Accretable yield beginning balance$2,143Additions—Accretion(580)Reclassification from nonaccretable501Disposals—Accretable yield ending balance$2,064There were no loans acquired during the three months ended March 31, 2020 and 2019, for which it was probable that all contractually required payments would not be collected. 
 
 
 
 GOODWILLGoodwill is recorded on the acquisition date of an entity.  During theone-yearmeasurement period, the Corporation may record subsequent adjustments to goodwill for provisional amounts recorded at the acquisition date.   The MBT acquisition on September, 1, 2019 resulted in$98,563,000of goodwill, which includes a measurement period adjustment of$719,000. Details regarding the MBT acquisition are discussed in NOTE 2. ACQUISITION of these Notes to Consolidated Condensed Financial Statements. There have been no changes in goodwill since December 31, 2019, resulting in a goodwill balance of$543,918,000as of March 31, 2020.2019Balance, January 1$445,355Goodwill acquired97,844Measurement period adjustment719Balance, December 31$543,918 The Corporation adopted ASU No. 2017-04,Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill, in the first quarter of 2020 and accordingly assessed the recent economic impact and market conditions from the COVID-19 pandemic. Based upon factors considered in the assessment and the general uncertainty as to the full extent of the COVID-19 pandemic and its effect on economic recovery, the Corporation has determined that it is not more likely than not that the fair value of the Corporation is less than the carrying value.  Therefore, the Corporation concluded goodwill was not impaired at March 31, 2020.
 
 
 
 
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 CORE DEPOSIT INTANGIBLESCore deposit intangibles are recorded on the acquisition date of an entity.  During theone-yearmeasurement period, the Corporation may record subsequent adjustments to these intangibles for provisional amounts recorded at the acquisition date.  The MBT acquisition on September 1, 2019 resulted in a core deposit intangible of$16,527,000.  Details regarding the MBT acquisition are discussed in NOTE 2.  ACQUISITION of these Notes to Consolidated Condensed Financial Statements.The carrying basis and accumulated amortization of recognized core deposit intangibles are noted below.March 31, 2020December 31, 2019Gross carrying amount$102,396$85,869Core deposit intangibles acquired16,527Accumulated amortization(68,948)(67,434)Total core deposit intangibles$33,448$34,962The core deposit intangibles are being amortized primarily on an accelerated basis over their estimated useful lives, generally over a period often years.  Estimated future amortization expense is summarized as follows:Amortization Expense2020$4,47320215,42920225,02720234,82720244,241After 20249,451$33,448 
 
 
 
 
 DERIVATIVE FINANCIAL INSTRUMENTSRisk Management Objective of Using DerivativesThe Corporation is exposed to certain risks arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments.  Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash payments principally related to certain variable-rate liabilities.  The Corporation also has derivatives that are a result of a service the Corporation provides to certain qualifying customers, and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities.  The Corporation manages a matched book with respect to its derivative instruments offered as a part of this service to its customers in order to minimize its net risk exposure resulting from such transactions.Cash Flow Hedges of Interest Rate RiskThe Corporation’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Corporation primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the payment of fixed amounts to a counterparty in exchange for the Corporation receiving variable payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. As ofMarch 31, 2020andDecember 31, 2019, the Corporation hadfourinterest rate swaps with a notional amount of$46.0million that were designated as cash flow hedges.The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.During2020,$26.0million of the interest rate swaps were used to hedge the variable cash outflows (LIBOR-based) associated with existing trust preferred securities when the outflows converted from a fixed rate to variable rate in September of 2012.  In addition, the remaining$20.0million of interest rate swaps were used to hedge the variable cash outflows (LIBOR-based) associated withtwoFederal Home Loan Bank advances.  During thethree months ended March 31, 2020and2019, the Corporation did not recognize any ineffectiveness. 
 
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 Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Corporation's variable-rate liabilities.  During the next twelve months, the Corporation expects to reclassify$975,000from accumulated other comprehensive income to interest expense.Non-designated HedgesThe Corporation does not use derivatives for trading or speculative purposes.  Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers. The Corporation executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Corporation executes with a third party, such that the Corporation minimizes its net risk exposure resulting from such transactions.  As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.  As ofMarch 31, 2020andDecember 31, 2019, the notional amount of customer-facing swaps was approximately$766,919,000and$692,287,000, respectively.  These amounts are offset with third party counterparties, as described above.Fair Values of Derivative Instruments on the Balance SheetThe table below presents the fair value of the Corporation’s derivative financial instruments, as well as their classification on the Balance Sheet, as ofMarch 31, 2020, andDecember 31, 2019.Asset DerivativesLiability DerivativesMarch 31, 2020December 31, 2019March 31, 2020December 31, 2019BalanceSheetLocationFairValueBalanceSheetLocationFairValueBalanceSheetLocationFairValueBalanceSheetLocationFairValueDerivatives designated as hedging instruments:Interest rate contractsOther Assets$—Other Assets$—Other Liabilities$2,633Other Liabilities$1,444Derivatives not designated as hedging instruments:Interest rate contractsOther Assets$78,762Other Assets$27,855Other Liabilities$78,762Other Liabilities$27,855The Corporation's derivative asset and derivative liability relating to interest rate contracts increased$50.9 millionand$52.1 million, respectively, from December 31, 2019.  The increases are primarily due to a$74.6 millionincrease in the related outstanding notional balance.  Additionally, yield curve rates used for valuation purposes were lower at each term point as of March 31, 2020 compared to December 31, 2019.  This was primarily the result of investors seeking the safety of U.S. Treasuries as containment efforts related to the COVID-19 outbreak began to significantly reduce economic activity.The amount of gain (loss) recognized in other comprehensive income is included in the table below for the periods indicated.Derivatives in Cash Flow Hedging RelationshipsAmount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)Three Months EndedMarch 31, 2020March 31, 2019Interest Rate Products$(1,314)$(391)Effect of Derivative Instruments on the Income StatementThe Corporation did not recognize any gains or losses from derivative financial instruments in the Consolidated Condensed Statements of Income for thethree months ended March 31, 2020and2019.The amount of gain (loss) reclassified from other comprehensive income into income is included in the table below for the periods indicated.Derivatives Designated asHedging Instruments underFASB ASC 815-10Location of Gain (Loss)Recognized Income onDerivativeAmount of Gain (Loss) Reclassed from Other Comprehensive Income into Income  (Effective Portion)Three Months Ended March 31, 2020Three Months Ended March 31, 2019Interest rate contractsInterest Expense$(125)$(59) 
 
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 The Corporation’s exposure to credit risk occurs because of nonperformance by its counterparties.  The counterparties approved by the Corporation are usually financial institutions, which are well capitalized and have credit ratings through Moody’s and/or Standard & Poor’s at or above investment grade.  The Corporation’s control of such risk is through quarterly financial reviews, comparing mark-to-market values with policy limitations, credit ratings and collateral pledging.Credit-risk-related Contingent FeaturesThe Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well or adequately capitalized institution, then the Corporation could be required to terminate or fully collateralize all outstanding derivative contracts. Additionally, the Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Corporation could also be declared in default on its derivative obligations.  As ofMarch 31, 2020, the termination value of derivatives in a net liability position related to these agreements was$81,962,000.  As ofMarch 31, 2020, the Corporation has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of$79,575,000.  While the Corporation did not breach any of these provisions as ofMarch 31, 2020, if it had, the Corporation could have been required to settle its obligations under the agreements at their termination value. 
 
 
 
 
 DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIESThe Corporation used fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.  The accounting guidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  ASC 820 applies only when other guidance requires or permits assets or liabilities to be measured at fair value; it does not expand the use of fair value in any new circumstances.As defined in ASC 820, fair value is the price to sell an asset or transfer a liability in an orderly transaction between market participants.  It represents an exit price at the measurement date.  Market participants are buyers and sellers, who are independent, knowledgeable, and willing and able to transact in the principal (or most advantageous) market for the asset or liability being measured.  Current market conditions, including imbalances between supply and demand, are considered in determining fair value.  The Corporation values its assets and liabilities in the principal market where it sells the particular asset or transfers the liability with the greatest volume and level of activity.  In the absence of a principal market, the valuation is based on the most advantageous market for the asset or liability (i.e., the market where the asset could be sold or the liability transferred at a price that maximizes the amount to be received for the asset or minimizes the amount to be paid to transfer the liability).Valuation inputs refer to the assumptions market participants would use in pricing a given asset or liability.  Inputs can be observable or unobservable.  Observable inputs are those assumptions which market participants would use in pricing the particular asset or liability.  These inputs are based on market data and are obtained from a source independent of the Corporation.  Unobservable inputs are assumptions based on the Corporation’s own information or estimate of assumptions used by market participants in pricing the asset or liability.  Unobservable inputs are based on the best and most current information available on the measurement date.  All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy which gives the highest ranking to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest ranking to unobservable inputs for which there is little or no market activity (Level 3).  Fair values for assets or liabilities classified as Level 2 are based on one or a combination of the following factors: (i) quoted prices for similar assets; (ii) observable inputs for the asset or liability, such as interest rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data.  The level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Corporation considers an input to be significant if it drives 10 percent or more of the total fair value of a particular asset or liability.RECURRING MEASUREMENTSAssets and liabilities are considered to be measured at fair value on a recurring basis if fair value is measured regularly (i.e., daily, weekly, monthly or quarterly). Recurring valuation occurs at a minimum on the measurement date. Assets and liabilities are considered to be measured at fair value on a nonrecurring basis if the fair value measurement of the instrument does not necessarily result in a change in the amount recorded on the balance sheet. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment or recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses. 
 
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 Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in theaccompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.Investment SecuritiesWhere quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Corporation currently has no securities classified within Level 1 of the hierarchy.  Where significant observable inputs, other than Level 1 quoted prices, are available, securities are classified within Level 2 of the valuation hierarchy.  Level 2 securities include government-sponsored agency and mortgage-backed securities and state and municipal securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include state and municipal, government-sponsored mortgage-backed securities and corporate obligations securities. Level 3 fair value for securities was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3.Interest Rate Derivative AgreementsSee information regarding the Corporation’s interest rate derivative products in NOTE 8.  DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements. The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the ASC 820 fair value hierarchy in which the fair value measurements fall atMarch 31, 2020, andDecember 31, 2019.Fair Value Measurements Using:March 31, 2020Fair ValueQuoted Prices in Active Markets for Identical Assets(Level 1)Significant OtherObservable Inputs(Level 2)SignificantUnobservableInputs(Level 3)Available for sale securities:U.S. Treasury$600$—$600$—U.S. Government-sponsored agency securities12,478—12,478—State and municipal949,208—946,7142,494U.S. Government-sponsored mortgage-backed securities853,458—853,4544Corporate obligations31——31Interest rate swap asset78,762—78,762—Interest rate swap liability81,395—81,395—Fair Value Measurements Using:December 31, 2019Fair ValueQuoted Prices inActive Markets forIdentical Assets(Level 1)Significant Other Observable Inputs(Level 2)SignificantUnobservableInputs(Level 3)Available for sale securities:U.S. Government-sponsored agency securities$38,875$—$38,875$—State and municipal899,796—896,9382,858U.S. Government-sponsored mortgage-backed securities851,323—851,3194Corporate obligations31——31Interest rate swap asset27,855—27,855—Interest rate swap liability29,299—29,299—There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets orliabilities held atMarch 31, 2020orDecember 31, 2019. 
 
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 Level 3 ReconciliationThe following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanyingbalance sheets using significant unobservable Level 3 inputs for the three months ended March 31, 2020 and2019.Available for Sale SecuritiesThree Months EndedMarch 31, 2020March 31, 2019Balance at beginning of the period$2,893$3,328Included in other comprehensive income(20)43Principal payments(344)(435)Ending balance$2,529$2,936Transfers Between LevelsThere werenotransfers in or out of Level 3 for the three months ended March 31, 2020 and2019.Nonrecurring MeasurementsFollowing is a description of valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy forMarch 31, 2020, andDecember 31, 2019.Fair Value Measurements UsingMarch 31, 2020Fair ValueQuoted Prices inActive Markets forIdentical Assets(Level 1)Significant OtherObservableInputs(Level 2)Significant UnobservableInputs(Level 3)Impaired loans (collateral dependent)$5,462$—$—$5,462Other real estate owned96——96Fair Value Measurements UsingDecember 31, 2019Fair ValueQuoted Prices inActive Markets forIdentical Assets(Level 1)Significant OtherObservable Inputs(Level 2)Significant UnobservableInputs(Level 3)Impaired loans (collateral dependent)$5,653$—$—$5,653Other real estate owned194——194Impaired Loans (collateral dependent)Loans for which it is probable that the Corporation will not collect all principal and interest due according to contractual terms are measured for impairment.  Allowable methods for determining the amount of impairment include estimating fair value of the collateral for collateral dependent loans.  If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized.  This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.  A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.  If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses.  Loan losses are charged against the allowance when management believes the uncollectability of the loan is confirmed.  During2019and2020, certain impaired loans were partially charged off or re-evaluated.  Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method.Other Real Estate OwnedThe fair value for impaired loans and other real estate owned is measured based on the value of the collateral securing those loans or real estate and is determined using several methods. The fair value of real estate is generally determined based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a discounted cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions. 
 
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 Unobservable (Level 3) InputsThe following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, atMarch 31, 2020andDecember 31, 2019.March 31, 2020Fair ValueValuation TechniqueUnobservable InputsRange                  (Weighted-Average)State and municipal securities$2,494Discounted cash flowMaturity/Call date1 month to 15 yrsUS Muni BQ curveA- to BBB-Discount rate1.5% - 4%Weighted-average coupon3.87%Corporate obligations and U.S. Government-sponsored mortgage-backed securities$35Discounted cash flowRisk free rate3 month LIBORplus premium for illiquidityplus 200bpsWeighted-average coupon—%Impaired loans (collateral dependent)$5,462Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability0% - 10%Weighted-average discount by loan balance1%Other real estate owned$96AppraisalsDiscount to reflect current market conditions0% - 72%Weighted-average discount of other real estate owned balance72%December 31, 2019Fair ValueValuation TechniqueUnobservable InputsRange                  (Weighted-Average)State and municipal securities$2,858Discounted cash flowMaturity/Call date1 month to 15 yrsUS Muni BQ curveA- to BBB-Discount rate2% - 5%Weighted-average coupon3.92%Corporate obligations and U.S Government-sponsored mortgage-backed securities$35Discounted cash flowRisk free rate3 month LIBORplus premium for illiquidityplus 200bpsWeighted-average coupon—%Impaired loans (collateral dependent)$5,653Collateral based measurementsDiscount to reflect current market conditions and ultimate collectability0% - 10%Weighted-average discount by loan balance1%Other real estate owned$194AppraisalsDiscount to reflect current market conditions0% - 37%Weighted-average discount of other real estate owned balance37%The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.State and Municipal Securities, Corporate Obligations and U.S. Government-sponsored Mortgage-Backed SecuritiesThe significant unobservable inputs used in the fair value measurement of the Corporation's state and municipal securities, corporate obligations and U.S. Government-sponsored mortgage-backed securities are premiums for unrated securities and marketability discounts. Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement. Generally, changes in either of those inputs will not affect the other input. 
 
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 Fair Value of Financial InstrumentsThe following table presents estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall atMarch 31, 2020, andDecember 31, 2019.March 31, 2020Quoted Prices in Active Marketsfor IdenticalAssetsSignificantOtherObservableInputsSignificant UnobservableInputsCarrying Amount(Level 1)(Level 2)(Level 3)Assets:Cash and cash equivalents$127,731$127,731$—$—Interest-bearing time deposits132,944132,944——Investment securities available for sale1,815,775—1,813,2462,529Investment securities held to maturity882,179—895,07525,103Loans held for sale5,039—5,039—Loans8,507,395——8,612,153Federal Home Loan Bank stock28,736—28,736—Interest rate swap asset78,762—78,762—Interest receivable47,489—47,489—Liabilities:Deposits$9,870,484$8,256,022$1,610,891$—Borrowings:Federal funds purchased47,000—47,000—Securities sold under repurchase agreements183,317—183,350—Federal Home Loan Bank advances480,995—493,455—Subordinated debentures and term loans128,741—124,167—Interest rate swap liability81,395—81,395—Interest payable7,746—7,746—December 31, 2019Quoted Prices in Active Marketsfor IdenticalAssetsSignificantOtherObservableInputsSignificant UnobservableInputsCarrying Amount(Level 1)(Level 2)(Level 3)Assets:Cash and cash equivalents$177,201$177,201$—$—Interest-bearing time deposits118,263118,263——Investment securities available for sale1,790,025—1,787,1322,893Investment securities held to maturity806,038—799,88427,682Loans held for sale9,037—9,037—Loans8,379,026——8,335,340Federal Home Loan Bank stock28,736—28,736—Interest rate swap asset27,855—27,855—Interest receivable48,901—48,901—Liabilities:Deposits$9,839,956$8,146,745$1,675,202$—Borrowings:Federal funds purchased55,000—55,000—Securities sold under repurchase agreements187,946—187,801—Federal Home Loan Bank advances351,072—352,581—Subordinated debentures and term loans138,685—123,571—Interest rate swap liability29,299—29,299—Interest payable6,754—6,754—  
 
 
 
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 TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGSThe collateral pledged for all repurchase agreements that are accounted for as secured borrowings as ofMarch 31, 2020andDecember 31, 2019were:March 31, 2020Remaining Contractual Maturity of the AgreementsOvernight and ContinuousUp to 30 Days30-90 DaysGreater Than 90 DaysTotalU.S. Government-sponsored mortgage-backed securities$180,925$—$1,642$750$183,317December 31, 2019Remaining Contractual Maturity of the AgreementsOvernight and ContinuousUp to 30 Days30-90 DaysGreater Than 90 DaysTotalU.S. Government-sponsored mortgage-backed securities$178,732$—$7,672$1,542$187,946 
 
 
 
 
 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)The following table summarizes the changes in the balances of each component of accumulated other comprehensive income (loss), net of tax, as ofMarch 31, 2020and2019:Accumulated Other Comprehensive Income (Loss)Unrealized Gains (Losses) on Securities Available for SaleUnrealized Gains (Losses) on Cash Flow HedgesUnrealized Gains (Losses) on Defined Benefit PlansTotalBalance at December 31, 2019$38,872$(1,141)$(9,857)$27,874Other comprehensive income before reclassifications30,364(1,038)—29,326Amounts reclassified from accumulated other comprehensive income(3,643)99—(3,544)Period change26,721(939)—25,782Balance at March 31, 2020$65,593$(2,080)$(9,857)$53,656Balance at December 31, 2018$(6,343)$(559)$(14,520)$(21,422)Other comprehensive income before reclassifications20,990(309)—20,681Amounts reclassified from accumulated other comprehensive income(901)47—(854)Period change20,089(262)—19,827Balance at March 31, 2019$13,746$(821)$(14,520)$(1,595) 
 
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 The following tables present the reclassification adjustments out of accumulated other comprehensive income (loss) that were included in net income in the Consolidated Condensed Statements of Income for thethree months ended March 31, 2020and2019.Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Three Months Ended March 31,Details about Accumulated Other Comprehensive Income (Loss) Components20202019Affected Line Item in the Statements of IncomeUnrealized gains (losses) on available for sale securities(1)Realized securities gains reclassified into income$4,612$1,140Other income - net realized gains on sales of available for sale securitiesRelated income tax expense(969)(239)Income tax expense$3,643$901Unrealized gains (losses) on cash flow hedges(2)Interest rate contracts$(125)$(59)Interest expense - subordinated debentures and term loansRelated income tax benefit2612Income tax expense$(99)$(47)Total reclassifications for the period, net of tax$3,544$854(1)For additional detail related to unrealized gains (losses) on available for sale securities and related amounts reclassified from accumulated other comprehensive income see NOTE 3. INVESTMENT SECURITIES of these Notes to Consolidated Condensed Financial Statements.(2)For additional detail related to unrealized gains (losses) on cash flow hedges and related amounts reclassified from accumulated other comprehensive income see NOTE 8. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements. 
 
 
 
 
 SHARE-BASED COMPENSATIONStock options and RSAs have been issued to directors, officers and other management employees under the Corporation's 2009 Long-term Equity Incentive Plan, the 2019 Long-term Equity Incentive Plan, and the Equity Compensation Plan for Non-Employee Directors.  The stock options, which have atenyear life, become100 percentvested based on time ranging fromone yeartotwo yearsand are fully exercisable when vested.  Option exercise prices equal the Corporation's common stock closing price on NASDAQ on the date of grant.  The RSAs issued to employees and non-employee directors provide for the issuance of shares of the Corporation's common stock at no cost to the holder and generally vest after3 years.  The RSAs vest only if the employee is actively employed by the Corporation on the vesting date and, therefore, any unvested shares are forfeited.  For non-employee directors, the RSAs vest only if the non-employee director remains as an active board member on the vesting date and, therefore, any unvested shares are forfeited.  The RSAs for employees and non-employee directors are either immediately vested at retirement, disability or death, or, continue to vest after retirement, disability or death, depending on the plan under which the shares were granted.The Corporation’s 2009 ESPP and 2019 ESPP provide eligible employees of the Corporation and its subsidiaries an opportunity to purchase shares of common stock of the Corporation through quarterly offerings financed by payroll deductions.  The price of the stock to be paid by the employees shall be equal to85 percentof the average of the closing price of the Corporation’s common stock on each trading day during the offering period.  However, in no event shall such purchase price be less than the lesser of an amount equal to85 percentof the market price of the Corporation’s stock on the offering date or an amount equal to85 percentof the market value on the date of purchase. Common stock purchases are made quarterly and are paid through advance payroll deductions up to a calendar year maximum of$25,000.  The 2009 ESPP expired on June 30, 2019.Compensation expense related to unvested share-based awards is recorded by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards, with no change in historical reported fair values and earnings.  Awards are valued at fair value in accordance with provisions of share-based compensation guidance and are recognized on a straight-line basis over the service periods of each award.  To complete the exercise of vested stock options, RSA’s and ESPP options, the Corporation generally issues new shares from its authorized but unissued share pool.  Share-based compensation for thethree months ended March 31, 2020was$1,220,000compared to$981,000for thethree months ended March 31, 2019.  Share-based compensation has been recognized as a component of salaries and benefits expense in the accompanying Consolidated Condensed Statements of Income.Share-based compensation expense recognized in the Consolidated Condensed Statements of Income is based on awards ultimately expected to vest and is reduced for estimated forfeitures.  Share-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.  Pre-vesting forfeitures were estimated to be approximately0.4 percentfor thethree months ended March 31, 2020, based on historical experience. 
 
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 The following table summarizes the components of the Corporation's share-based compensation awards recorded as an expense and the income tax benefit of such awards.Three Months EndedMarch 31,20202019Stock and ESPP OptionsPre-tax compensation expense$41$11Income tax benefit—(16)Stock and ESPP option expense, net of income taxes$41$(5)Restricted Stock AwardsPre-tax compensation expense$1,179$970Income tax benefit(257)(540)Restricted stock awards expense, net of income taxes$922$430Total Share-Based CompensationPre-tax compensation expense$1,220$981Income tax benefit(257)(556)Total share-based compensation expense, net of income taxes$963$425As ofMarch 31, 2020, unrecognized compensation expense related to RSAs was$6,444,000and is expected to be recognized over a weighted-average period of1.40 years.  The Corporation didnot have any unrecognized compensation expense related to stock options as ofMarch 31, 2020.Stock option activity under the Corporation's stock option plans as ofMarch 31, 2020and changes during thethree months ended March 31, 2020, were as follows:Number ofSharesWeighted-Average Exercise PriceWeighted Average RemainingContractual Term(in Years)AggregateIntrinsicValueOutstanding at January 1,202059,350$13.51Exercised(1,050)$6.71OutstandingMarch 31, 202058,300$13.632.23$749,737Vested and Expected to Vest at March 31,202058,300$13.632.23$749,737Exercisable at March 31, 202058,300$13.632.23$749,737The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Corporation's closing stock price on the last trading day of the first three months of2020and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their stock options onMarch 31, 2020.  The amount of aggregate intrinsic value will change based on the fair market value of the Corporation's common stock.The aggregate intrinsic value of stock options exercised during thethree months ended March 31, 2020and2019was$36,000and$97,000, respectively.  Cash receipts of stock options exercised during this same period were$7,000and$40,000, respectively.The following table summarizes information on unvested RSAs outstanding as ofMarch 31, 2020:Number of SharesWeighted-AverageGrant Date Fair ValueUnvested RSAs at January 1,2020351,048$40.67Granted7,573$26.47Vested(3,332)$39.32Unvested RSAs atMarch 31, 2020355,289$40.38The grant date fair value of ESPP options was estimated to be approximately$41,000at the beginning of the January 1, 2020 quarterly offering period.  The ESPP options vested during the three months endingMarch 31, 2020, leavingnounrecognized compensation expense related to unvested ESPP options atMarch 31, 2020. 
 
 
 
 
 
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 INCOME TAXThe following table summarizes the major components creating differences between income taxes at the federal statutory and the effective tax rate recorded in the consolidated statements of income for thethree months ended March 31, 2020and2019:Three Months EndedMarch 31,20202019Reconciliation of Federal Statutory to Actual Tax Expense:Federal statutory income tax at 21%$7,928$9,609Tax-exempt interest income(3,022)(2,267)Share-based compensation—(350)Tax-exempt earnings and gains on life insurance(286)(207)Tax credits(61)(78)CARES Act - NOL carryback rate differential(1,178)—Other109234Actual Tax Expense$3,490$6,941Effective Tax Rate9.2%15.2% 
 
 
 
 
 NET INCOME PER SHAREBasic net income per share is computed by dividing net income by the weighted-average shares outstanding during the reporting period.  Diluted net income per share is computed by dividing net income by the combination of the weighted-average shares outstanding during the reporting period and all potentially dilutive common shares.  Potentially dilutive common shares include stock options and RSAs issued under the Corporation's share-based compensation plans. Potentially dilutive common shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive.The following table reconciles basic and diluted net income per share for thethree months ended March 31, 2020and2019. Three Months Ended March 31,20202019Net IncomeWeighted-Average SharesPer ShareAmountNet IncomeWeighted-Average SharesPer ShareAmountNet income available to common stockholders$34,26354,732,073$0.63$38,81749,369,024$0.79Effect of potentially dilutive stock options and restricted stock awards185,687171,820Diluted net income per share$34,26354,917,760$0.62$38,81749,540,844$0.78For thethree months ended March 31, 2020and2019, there wereno stock options with an option price greater than the average market price of the common shares.
 
 
 
 
 
 GENERAL LITIGATION AND REGULATORY EXAMINATIONSThe Corporation is subject to claims and lawsuits that arise primarily in the ordinary course of business.  Additionally, the Corporation is subject to periodic examinations by various regulatory agencies.  It is the general opinion of management that the disposition or ultimate resolution of such claims, lawsuits, and examinations will not have a material adverse effect on the consolidated financial position, results of operations and cash flow of the Corporation.A discussion of the Bank’s Settlement Agreement and Agreed Order with the United States Department of Justice is contained in the "REGULATORY DEVELOPMENTS" section of Part I, Item 2. Management’s Discussion & Analysis of this Quarterly Report on Form 10-Q. 
 
 
  
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 •statements of our goals, intentions and expectations; •statements regarding our business plan and growth strategies; •statements regarding the asset quality of our loan and investment portfolios; and •estimates of our risks and future costs and benefits. 
 
 
 •fluctuations in market rates of interest and loan and deposit pricing, which could negatively affect our net interest margin, asset valuations and expense expectations; •adverse changes in the economy, which might affect our business prospects and could cause credit-related losses and expenses; •the severity and duration of the COVID-19 pandemic and its impact on general economic and financial market conditions and our business, results of operations, and financial condition; •adverse developments in our loan and investment portfolios; •competitive factors in the banking industry, such as the trend towards consolidation in our market; •changes in the banking legislation or the regulatory requirements of federal and state agencies applicable to bank holding companies and banks like our affiliate bank; •acquisitions of other businesses by us and integration of such acquired businesses; •our ability to implement and comply with the Settlement Agreement and Agreed Order entered into with the United States Department of Justice ("DOJ") related to our fair lending practices; •changes in market, economic, operational, liquidity, credit and interest rate risks associated with our business; and •the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends. 
 
 
 
 
 
 
 
 
 
 
 
 
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 (Dollars in Thousands)Three Months EndedMarch 31, 2020March 31, 2019Average BalanceInterest Income /ExpenseAverageRateAverage BalanceInterest Income /ExpenseAverageRateAssets:Interest-bearing time deposits$159,859$5751.44%$145,935$8752.40%Federal Home Loan Bank stock28,7372994.1624,5883385.50Investment Securities:(1)Taxable1,368,5467,6312.23902,4026,0952.70Tax-Exempt(2)1,208,71711,8163.91829,0858,6974.20Total Investment Securities2,577,26319,4473.021,731,48714,7923.42Loans held for sale17,2171934.489,7031124.62Loans:(3)Commercial6,235,33676,9524.945,309,99872,7585.48Real Estate Mortgage870,65410,4024.78743,7368,3214.48Installment759,6149,1054.79665,0509,2905.59Tax-Exempt(2)643,7506,7284.18501,6325,2574.19Total Loans8,526,571103,3804.857,230,11995,7385.30Total Earning Assets11,292,430123,7014.38%9,132,129111,7434.89%Net unrealized gain (loss) on securities available for sale48,656(5,015)Allowance for loan losses(81,160)(80,907)Cash and cash equivalents159,757117,224Premises and equipment113,81293,236Other assets1,039,743823,475Total Assets$12,573,238$10,080,142Liabilities:Interest-bearing deposits:Interest-bearing NOW deposits$3,589,240$8,2760.92%$2,689,797$7,0191.04%Money market deposits1,535,8443,7830.991,139,0622,7820.98Savings deposits1,425,0541,8270.511,150,7252,2670.79Certificates and other time deposits1,666,6427,8621.891,565,5787,5261.92Total Interest-bearing Deposits8,216,78021,7481.066,545,16219,5941.20Borrowings748,1854,1822.24635,0584,3532.74Total Interest-bearing Liabilities8,964,96525,9301.167,180,22023,9471.33Noninterest-bearing deposits1,669,4931,391,494Other liabilities122,36278,689Total Liabilities10,756,8208,650,403Stockholders' Equity1,816,4181,429,739Total Liabilities and Stockholders' Equity$12,573,23825,930$10,080,14223,947Net Interest Income (FTE)$97,771$87,796Net Interest Spread (FTE)(4)3.22%3.56%Net Interest Margin (FTE):Interest Income (FTE) / Average Earning Assets4.38%4.89%Interest Expense / Average Earning Assets0.92%1.05%Net Interest Margin (FTE)(5)3.46%3.84%(1)Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value adjustments.  Annualized amounts are computed utilizing a 30/360 day basis.(2)Tax-exempt securities and loans are presented on a fully taxable equivalent basis, using a marginal tax rate of 21 percent for 2020 and 2019.  These totals equal $3,894 and $2,930 for the three months ended March 31, 2020 and 2019, respectively.(3)Non-accruing loans have been included in the average balances.(4)Net Interest Spread (FTE) is interest income expressed as a percentage of average earning assets minus interest expense expressed as a percentage of average interest-bearing liabilities.(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.
 
 
 
 
 
 
 
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 Prompt Corrective Action ThresholdsActualAdequately CapitalizedWell CapitalizedMarch 31, 2020AmountRatioAmountRatioAmountRatioTotal risk-based capital to risk-weighted assetsFirst Merchants Corporation$1,376,61013.80%$798,2778.00%N/AN/AFirst Merchants Bank1,325,04113.22801,5638.00$1,001,95410.00%Tier 1 capital to risk-weighted assetsFirst Merchants Corporation$1,212,15612.15%$598,7086.00%N/AN/AFirst Merchants Bank1,225,58712.23601,1736.00$801,5638.00%CET1 capital to risk-weighted assetsFirst Merchants Corporation$1,155,73711.58%$449,0314.50%N/AN/AFirst Merchants Bank1,225,58712.23450,8794.50$651,2706.50%Tier 1 capital to average assetsFirst Merchants Corporation$1,212,15610.10%$480,1924.00%N/AN/AFirst Merchants Bank1,225,58710.24478,6884.00$598,3605.00%
 
 Prompt Corrective Action ThresholdsActualAdequately CapitalizedWell CapitalizedDecember 31, 2019AmountRatioAmountRatioAmountRatioTotal risk-based capital to risk-weighted assetsFirst Merchants Corporation$1,400,61714.29%$783,9468.00%N/AN/AFirst Merchants Bank1,267,64912.87787,7538.00$984,69110.00%Tier 1 capital to risk weighted assetsFirst Merchants Corporation$1,255,33312.81%$587,9606.00%N/AN/AFirst Merchants Bank1,187,36512.06590,8156.00$787,7538.00%CET1 capital to risk-weighted assetsFirst Merchants Corporation$1,188,97012.13%$440,9704.50%N/AN/AFirst Merchants Bank1,187,36512.06443,1114.50$640,0496.50%Tier 1 capital to average assetsFirst Merchants Corporation$1,255,33310.54%$476,3834.00%N/AN/AFirst Merchants Bank1,187,3659.99475,5644.00$594,4555.00%
 
 
 
 
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 March 31, 2020December 31, 2019(Dollars in thousands, except per share amounts)First Merchants CorporationFirst Merchants BankFirst Merchants CorporationFirst Merchants BankTotal Risk-Based CapitalTotal Stockholders' Equity (GAAP)$1,777,960$1,850,513$1,786,437$1,787,006Adjust for Accumulated Other Comprehensive (Income) Loss(1)(53,656)(56,807)(27,874)(30,495)Less:  Preferred Stock(125)(125)(125)(125)Add:  Qualifying Capital Securities56,419—66,363—Less:  Disallowed Goodwill and Intangible Assets(568,442)(567,994)(569,468)(569,021)Total Tier 1 Capital (Regulatory)1,212,1561,225,5871,255,3331,187,365Qualifying Subordinated Debentures65,000—65,000—Allowance for Loan Losses Includible in Tier 2 Capital99,45499,45480,28480,284Total Risk-Based Capital (Regulatory)$1,376,610$1,325,041$1,400,617$1,267,649Net Risk-Weighted Assets (Regulatory)$9,978,462$10,019,543$9,799,329$9,846,913Average Assets (Regulatory)$12,004,796$11,967,196$11,909,571$11,889,092Total Risk-Based Capital Ratio (Regulatory)13.80%13.22%14.29%12.87%Tier 1 Capital to Risk-Weighted Assets12.15%12.23%12.81%12.06%Tier 1 Capital to Average Assets10.10%10.24%10.54%9.99%CET1 Capital RatioTotal Tier 1 Capital (Regulatory)$1,212,156$1,225,587$1,255,333$1,187,365Less:  Qualified Capital Securities(56,419)—(66,363)—CET1 Capital (Regulatory)$1,155,737$1,225,587$1,188,970$1,187,365Net Risk-Weighted Assets (Regulatory)$9,978,462$10,019,543$9,799,329$9,846,913CET1 Capital Ratio (Regulatory)11.58%12.23%12.13%12.06%
 
 
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 Tangible Common Equity to Tangible Assets (non-GAAP)(Dollars in thousands, except per share amounts)March 31, 2020December 31, 2019Total Stockholders' Equity (GAAP)$1,777,960$1,786,437Less:  Cumulative preferred stock (GAAP)(125)(125)Less:  Intangible assets (GAAP)(577,366)(578,881)Tangible common equity (non-GAAP)$1,200,469$1,207,431Total assets (GAAP)$12,693,518$12,457,254Less: Intangible assets (GAAP)(577,366)(578,881)Tangible assets (non-GAAP)$12,116,152$11,878,373Stockholders' Equity to Assets (GAAP)14.01%14.34%Tangible common equity to tangible assets (non-GAAP)9.91%10.16%Tangible common equity (non-GAAP)$1,200,469$1,207,431Plus:   Tax Benefit of intangibles (non-GAAP)6,9467,257Tangible common equity, net of tax  (non-GAAP)$1,207,415$1,214,688Common Stock outstanding53,75455,368Book Value (GAAP)$33.08$32.26Tangible book value - common (non-GAAP)$22.46$21.94
 
 
 
 Three Months Ended March 31,(Dollars in thousands, except per share amounts)20202019Average goodwill (GAAP)$543,919$445,354Average core deposit intangible (GAAP)34,33523,819Average deferred tax on CDI (GAAP)(7,129)(4,891)Intangible adjustment (non-GAAP)$571,125$464,282Average stockholders' equity (GAAP)$1,816,418$1,429,739Average cumulative preferred stock (GAAP)(125)(125)Intangible adjustment (non-GAAP)(571,125)(464,282)Average tangible capital (non-GAAP)$1,245,168$965,332Average assets (GAAP)$12,573,238$10,080,142Intangible adjustment (non-GAAP)(571,125)(464,282)Average tangible assets (non-GAAP)$12,002,113$9,615,860Net income available to common stockholders (GAAP)$34,263$38,817CDI amortization, net of tax (GAAP)1,1971,207Tangible net income available to common stockholders (non-GAAP)$35,460$40,024Per Share Data:Diluted net income available to common stockholders (GAAP)$0.62$0.78Diluted tangible net income available to common stockholders (non-GAAP)$0.65$0.81Ratios:Return on average GAAP capital (ROE)7.55%10.86%Return on average tangible capital11.39%16.58%Return on average assets (ROA)1.09%1.54%Return on average tangible assets1.18%1.66%
 
 
 
 
 
 
 
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 (Dollars in Thousands)March 31, 2020December 31, 2019Non-Performing Assets:Non-accrual loans$15,649$15,949Renegotiated loans665841Non-performing loans (NPL)16,31416,790OREO and Repossessions8,0177,527Non-performing assets (NPA)24,33124,317Loans 90-days or more delinquent and still accruing31269NPAs and loans 90-days or more delinquent$24,643$24,386Impaired Loans$12,813$11,709
 
 
 
 
 
 (Dollars in Thousands)March 31, 2020December 31, 2019Non-performing assets and loans 90-days or more delinquent:Commercial and industrial loans$1,967$1,259Agricultural production financing and other loans to farmers—183Real estate loans:Construction7,3087,191Commercial and farmland7,5177,103Residential5,9896,810Home equity1,7541,795Individuals' loans for household and other personal expenditures6645Public finance and other commercial loans42—Non-performing assets and loans 90-days or more delinquent:$24,643$24,386
 
 
 
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 Three Months Ended March 31,(Dollars in Thousands)20202019Net charge-offs (Recoveries):Commercial and industrial loans$129$(123)Agricultural production financing and other loans to farmers4319Real estate loans:Construction(37)957Commercial and farmland102(13)Residential(7)80Home equity145(41)Individuals' loans for household and other personal expenditures20743Public finance and other commercial loans—(72)Total net charge-offs$582$850
 
 
 
 
 
 
 
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 (Dollars in Thousands)Remaining202020212022202320242025 andafterASC 805 fair value adjustments at acquisitionTotalOperating leases$2,537$3,179$3,057$2,663$2,591$10,199$—$24,226Federal funds purchased47,000——————47,000Securities sold under repurchase agreements183,317——————183,317Federal Home Loan Bank advances101,36055,09775,097115,09797134,247—480,995Subordinated debentures and term loans—————132,322(3,581)128,741Total$334,214$58,276$78,154$117,760$2,688$276,768$(3,581)$864,279
 
 
 
 
 
 
 
 (Dollars in Thousands)March 31, 2020Amounts of commitments:Loan commitments to extend credit$2,900,955Standby and commercial letters of credit29,840$2,930,795
 
 
 
 
 
 
 
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 March 31, 2020RISINGFALLINGDriver Rates(200 Basis Points)(100 Basis Points)Prime200—Federal funds200—One-year CMT200(6)Three-year CMT200(1)Five-year CMT200—CD's200(24)FHLB advances200(19)
 
 
 
 March 31, 2020RISINGFALLING(Dollars in Thousands)Base(200 Basis Points)(100 Basis Points)Net interest income$339,784$365,639$332,342Variance from base$25,854$(7,442)Percent of change from base7.6%(2.2)%
 
 
 
 
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 December 31, 2019RISINGFALLINGDriver Rates(200 Basis Points)(100 Basis Points)Prime200(100)Federal funds200(100)One-year CMT200(100)Three-year CMT200(100)Five-year CMT200(100)CD's200(24)FHLB advances200(89)
 
 
 
 December 31, 2019RISINGFALLING(Dollars in Thousands)Base(200 Basis Points)(100 Basis Points)Net interest income$368,024$389,367$355,191Variance from base$21,343$(12,833)Percent of change from base5.8%(3.5)%
 
 
 
 
 
 
 
 
 
 
 (Dollars in Thousands)March 31, 2020December 31, 2019Interest-bearing time deposits$132,944$118,263Investment securities available for sale1,815,7551,790,025Investment securities held to maturity882,179806,038Loans held for sale5,0399,037Loans8,606,8498,459,310Federal Home Loan Bank stock28,73628,736Total$11,471,502$11,211,409
 
 
 
 
 
 
 
 
  
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 PeriodTotal Numberof SharesPurchased (i)AveragePrice Paidper ShareTotal Number of SharesPurchased as part of Publicly announced Plans or Programs (ii)Maximum Number of Sharesthat may yet be PurchasedUnder the Plans or ProgramsJanuary, 2020518,610$40.56518,6101,965,374February, 2020219,883$38.89219,8831,745,491March, 2020895,944$29.38895,944—Total1,634,437$34.211,634,437
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
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 Exhibit No:Description of Exhibits:3.1First Merchants Corporation Articles of Incorporation, as amended (Incorporated by reference to registrant’s Form 8-K filed on May 2, 2017) (SEC No. 000-17071)3.2Bylaws of First Merchants Corporation dated August 11, 2016 (Incorporated by reference to registrant’s Form 10-K filed on March 1, 2017) (SEC No. 000-17071)4.1First Merchants Corporation Amended and Restated Declaration of Trust of First Merchants Capital Trust II dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)4.2Indenture dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)4.3Guarantee Agreement dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)4.4Form of Capital Securities Certification of First Merchants Capital Trust II (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)4.5First Merchants Corporation Dividend Reinvestment and Stock Purchase Plan (Incorporated by reference to registrant’s Form S-3 filed on February 6, 2019) (SEC No. 333-229527)4.6Upon request, the registrant agrees to furnish supplementally to the Commission a copy of the instruments defining the rights of holders of its (a) 5.00% Fixed-to-Floating Rate Senior Notes due 2028 in the aggregate principal amount of $5 million and (b) 6.75% Fixed-to-Floating Rate Subordinated Notes due 2028 in aggregate principal amount of $65 million.31.1Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)31.2Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)32Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)101.INSInline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (1)101.SCHInline XBRL Taxonomy Extension Schema Document (1)101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document (1)101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document (1)101.LABInline XBRL Taxonomy Extension Label Linkbase Document (1)101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document (1)104Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)(1) Filed herewith.(2) Furnished herewith.
 
 
 
 
  
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 First Merchants Corporation(Registrant)May 8, 2020By:/s/ Michael C. RechinMichael C. RechinPresident and Chief Executive Officer(Principal Executive Officer)May 8, 2020By:/s/ Mark K. HardwickMark K. HardwickExecutive Vice President,Chief Financial Officer and Chief Operating Officer(Principal Financial and Accounting Officer)