FIRST MERCHANTS CORPFRME
FIRST MERCHANTS CORP Income Taxes Disclosure
INCOME TAXES
Income tax expense consists of the following components for the years ended December 31, 2025, 2024, and 2023:
| 2025 | 2024 | 2023 | |||||||||||||||
| Income Tax Expense for the Year Ended December 31: | |||||||||||||||||
| Currently Payable: | |||||||||||||||||
| Federal | $ | 30,471 | $ | 27,979 | $ | 29,351 | |||||||||||
| State | 423 | 723 | (504) | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 1,106 | 1,548 | 4,613 | ||||||||||||||
| State | 1,113 | 76 | 1,986 | ||||||||||||||
| Income Tax Expense | $ | 33,113 | $ | 30,326 | $ | 35,446 | |||||||||||
The reconciliation between income tax expense expected at the U.S. federal statutory tax rate and the reported income tax expense is summarized in the following table for years ended December 31, 2025, 2024 and 2023:
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | ||||||||||||||||||||||||||||||
| Income Before Income Taxes | $ | 259,114 | $ | 231,728 | $ | 259,232 | |||||||||||||||||||||||||||||
| Federal Statutory Income Tax at 21% | $ | 54,414 | 21.0 | % | $ | 48,663 | 21.0 | % | $ | 54,439 | 21.0 | % | |||||||||||||||||||||||
State & Local Taxes, Net of Federal Income Tax Effect (1) | 1,213 | 0.5 | % | 631 | 0.3 | % | 1,171 | 0.4 | % | ||||||||||||||||||||||||||
| Tax-exempt Interest Income | (18,512) | (7.1) | % | (17,509) | (7.5) | % | (18,193) | (7.0) | % | ||||||||||||||||||||||||||
| Non-deductible FDIC Premiums | 600 | 0.2 | % | 624 | 0.3 | % | 454 | 0.2 | % | ||||||||||||||||||||||||||
| Earnings on Life Insurance | (1,599) | (0.6) | % | (1,777) | (0.8) | % | (1,753) | (0.7) | % | ||||||||||||||||||||||||||
| Other Non-taxable/Non-deductible Items | 720 | 0.2 | % | 521 | 0.2 | % | (9) | — | % | ||||||||||||||||||||||||||
| Tax Credits | (3,662) | (1.4) | % | (2,018) | (0.9) | % | (331) | (0.1) | % | ||||||||||||||||||||||||||
| Other | (61) | — | % | 1,191 | 0.5 | % | (332) | (0.1) | % | ||||||||||||||||||||||||||
| Income Tax Expense & Effective Tax Rate | $ | 33,113 | 12.8 | % | $ | 30,326 | 13.1 | % | $ | 35,446 | 13.7 | % | |||||||||||||||||||||||
(1) State taxes in Illinois make up the majority (greater than 50 percent) of the State & Local Taxes, Net of Federal Income Tax Effect for periods ended December 31, 2025, 2024 and 2023.
The Corporation operates in multiple U.S. states. For the years ended December 31, 2025, 2024, and 2023, the effect of state and local taxes on the effective tax rate is primarily influenced by operations in Indiana and Illinois, which make up greater than 50 percent of the state and local tax effect. Tax-exempt interest income includes interest earned on municipal securities held in the investment portfolio. Tax Credits consist entirely of low-income housing tax credits.
Income taxes paid (net of refunds) for the years ended December 31, 2025, 2024 and 2023 are summarized in the following table:
| 2025 | 2024 | 2023 | |||||||||||||||
| Income Taxes Paid for the Year Ended December 31: | |||||||||||||||||
| Federal | $ | 19,704 | $ | 7,000 | $ | 33,682 | |||||||||||
| State | 1,042 | 627 | 1,156 | ||||||||||||||
| Income Taxes Paid | $ | 20,746 | $ | 7,627 | $ | 34,838 | |||||||||||
In 2025, there were no individual state or local jurisdictions with taxes paid that equaled or exceeded 5% of total income taxes paid.
Significant components of the net deferred tax assets and liabilities resulting from temporary differences were as follows at December 31, 2025 and 2024:
| 2025 | 2024 | ||||||||||
| Deferred Tax Asset at December 31: | |||||||||||
| Assets: | |||||||||||
| Differences in Accounting for Credit Losses | $ | 51,617 | $ | 51,186 | |||||||
| Differences in Accounting for Loan Fees | 2,431 | 2,193 | |||||||||
| Deferred Compensation | 4,258 | 3,950 | |||||||||
| Federal & State Income Tax Loss Carryforward and Credits | 260 | 1,166 | |||||||||
| Net Unrealized Loss on Securities Available for Sale | 35,063 | 50,084 | |||||||||
| Other | 5,816 | 5,771 | |||||||||
| Total Assets | 99,445 | 114,350 | |||||||||
| Liabilities: | |||||||||||
| Differences in Depreciation Methods | 7,612 | 8,801 | |||||||||
| Differences in Accounting for Loans and Securities | 501 | 920 | |||||||||
| Differences in Accounting for Mortgage Servicing Rights | 2,460 | 2,280 | |||||||||
| Difference in Accounting for Pensions and Other Employee Benefits | 10,610 | 8,156 | |||||||||
| State Income Tax | 1,179 | 1,416 | |||||||||
| REIT Dividend Deferral | 2,818 | 677 | |||||||||
| Other | 7,022 | 6,208 | |||||||||
| Total Liabilities | 32,202 | 28,458 | |||||||||
| Net Deferred Tax Asset | $ | 67,243 | $ | 85,892 | |||||||
As of December 31, 2025, the Corporation has approximately $5.3 million of state NOL carryforwards available to offset future state taxable income, which will expire beginning in 2026. These NOL carryforwards along with normal timing differences between book and tax result in total state deferred tax assets of $5.6 million. Management believes it is more likely than not that the benefit of these state NOL carryforwards and other state deferred tax assets will be fully realized.
The Corporation has additional paid-in capital that is considered restricted resulting from the acquisitions of CFS Bancorp, Inc. (“CFS”) and Ameriana Bancorp, Inc. (“Ameriana”) of approximately $13.4 million and $11.9 million, respectively. CFS and Ameriana qualified as banks under provisions of the Internal Revenue Code which permitted them to deduct from taxable income an allowance for bad debts which differed from the provision for losses charged to income, for which no deferred federal income tax liability has been recognized. If in the future this portion of additional paid-in capital is distributed, or the Corporation no longer qualifies as a bank for income tax purposes, federal income taxes may be imposed at the then applicable tax rate. The unrecorded deferred tax liability at December 31, 2025, would have been approximately $5.3 million.
The Corporation or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Corporation is generally no longer subject to U.S. federal, state and local income tax examinations by tax authorities for tax years before 2022.
Additional details regarding the Corporation’s policies related to income taxes are discussed in NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES of these Notes to Consolidated Financial Statements.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.