FIRST MERCHANTS CORPFRME
FIRST MERCHANTS CORP Stock Compensation Disclosure
SHARE-BASED COMPENSATION
Stock options and Restricted Stock Awards (“RSAs”) have been issued to directors, officers and other management employees under the Corporation’s 2024 Long-term Equity Incentive Plan, the 2019 Long-term Equity Incentive Plan, the Level One Bancorp, Inc. 2007 Stock Option Plan and the Equity Compensation Plan for Non-Employee Directors. The stock options, which have a ten-year life, become 100 percent vested based on time ranging from one year to two years and 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 after three years. The RSAs vest only if the employee is actively employed by the Corporation on the vesting date. For non-employee directors, the RSAs vest only if the non-employee director remains as an active board member on the vesting date. 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 2024 Employee Stock Purchase Plan (“ESPP”) provides 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 to 85 percent of 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 to 85 percent of the market price of the Corporation’s stock on the offering date or an amount equal to 85 percent of 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 2019 Employee Stock Purchase Plan expired on June 30, 2024.
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, RSAs and ESPP options, the Corporation generally issues new shares from its authorized but unissued share pool. Share-based compensation for the years ended December 31, 2025, 2024, and 2023 was $7.3 million, $5.8 million, and $5.2 million, respectively, and has been recognized as a component of salaries and employee benefits expense in the accompanying Consolidated Statements of Income.
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. For the years ended December 31, 2025 and 2024, the Corporation had RSAs vest primarily at a stock price that was lower than the grant date stock price, which resulted in the recognition of income tax expense at vesting of $94,000 and $130,000, respectively. For the year ended December 31, 2023, the Corporation had RSAs vest primarily at a stock price that was higher than the grant date stock price, which resulted in the recognition of income tax benefit at vesting of $126,000.
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Stock and ESPP Options | |||||||||||||||||
| Pre-tax compensation expense | $ | 102 | $ | 164 | $ | 103 | |||||||||||
| Income tax benefit | (17) | (40) | (62) | ||||||||||||||
| Stock and ESPP option expense, net of income taxes | $ | 85 | $ | 124 | $ | 41 | |||||||||||
| Restricted Stock Awards | |||||||||||||||||
| Pre-tax compensation expense | $ | 7,231 | $ | 5,654 | $ | 5,055 | |||||||||||
| Income tax benefit | (1,424) | (1,058) | (1,188) | ||||||||||||||
| Restricted stock awards expense, net of income taxes | $ | 5,807 | $ | 4,596 | $ | 3,867 | |||||||||||
| Total Share-Based Compensation | |||||||||||||||||
| Pre-tax compensation expense | $ | 7,333 | $ | 5,818 | $ | 5,158 | |||||||||||
| Income tax benefit | (1,441) | (1,098) | (1,250) | ||||||||||||||
| Total share-based compensation expense, net of income taxes | $ | 5,892 | $ | 4,720 | $ | 3,908 | |||||||||||
The grant date fair value of ESPP options was estimated to be approximately $20,000 at the beginning of the October 1, 2025 quarterly offering period. The ESPP options vested during the three months ending December 31, 2025, leaving no unrecognized compensation expense related to unvested ESPP options at December 31, 2025.
Stock option activity under the Corporation’s stock option plans, as of December 31, 2025, and changes during the year ended December 31, 2025 were as follows:
| Number of Shares | Weighted-Average Exercise Price | Weighted Average Remaining Contractual Term (in Years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding at January 1, 2025 | 40,991 | $ | 22.44 | ||||||||||||||||||||
| Exercised | (21,467) | $ | 21.15 | ||||||||||||||||||||
| Outstanding December 31, 2025 | 19,524 | $ | 23.86 | 1.10 | $ | 266 | |||||||||||||||||
| Vested and Expected to Vest at December 31, 2025 | 19,524 | $ | 23.86 | 1.10 | $ | 266 | |||||||||||||||||
| Exercisable at December 31, 2025 | 19,524 | $ | 23.86 | 1.10 | $ | 266 | |||||||||||||||||
The 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 2025 and 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 on December 31, 2025. The amount of aggregate intrinsic value will change based on the fair value of the Corporation’s common stock.
The aggregate intrinsic value of stock options exercised during the years ended December 31, 2025 and 2024 was $374,000 and $707,000, respectively. Cash receipts of stock options exercised during 2025 and 2024 were $454,000 and $900,000, respectively.
The following table summarizes information on unvested RSAs outstanding as of December 31, 2025:
| Number of Shares | Weighted-Average Grant Date Fair Value | ||||||||||
| Unvested RSAs at January 1, 2025 | 554,436 | $ | 36.47 | ||||||||
| Granted | 222,098 | $ | 37.75 | ||||||||
| Vested | (129,592) | $ | 40.63 | ||||||||
| Forfeited | (5,825) | $ | 35.62 | ||||||||
| Unvested RSAs at December 31, 2025 | 641,117 | $ | 36.08 | ||||||||
As of December 31, 2025, unrecognized compensation expense related to RSAs was $11.5 million and is expected to be recognized over a weighted-average period of 1.59 years. The Corporation did not have any unrecognized compensation expense related to stock options as of December 31, 2025.
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 Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.