10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to _______

Commission File Number 0-17071

FIRST MERCHANTS CORPORATION

(Exact name of registrant as specified in its charter)

Indiana                                                                            35-1544218

(State or other jurisdiction of                                   (I.R.S. Employer

incorporation or organization)                               Identification No.)

200 East Jackson Street, Muncie, IN                  47305-2814

(Address of principal executive offices)                   (Zip code)

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

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.125 state value per share	FRME	NASDAQ

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

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

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

Large Accelerated Filer	☒	Accelerated Filer	☐	Non-Accelerated Filer	☐
Smaller Reporting Company	☐	Emerging Growth Company	☐

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

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

As of October 31, 2019, there were 55,696,408 outstanding common shares of the registrant.

1

TABLE OF CONTENTS

FIRST MERCHANTS CORPORATION

		Page No.
Glossary of Defined Terms		3
Part I. Financial Information
Item 1.	Financial  Statements:
	Consolidated Condensed Balance Sheets	4
	Consolidated Condensed Statements of Income	5
	Consolidated Condensed Statements of Comprehensive Income	6
	Consolidated Condensed Statements of Stockholders' Equity	7
	Consolidated Condensed Statements of Cash Flows	9
	Notes to Consolidated Condensed Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	60
Part II. Other Information
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62
Signatures		63

2

GLOSSARY OF DEFINED TERMS

FIRST MERCHANTS CORPORATION

ASC	Accounting Standards Codification
Bank	First Merchants Bank, a wholly-owned subsidiary of the Corporation
CET1	Common Equity Tier 1
CMT	Constant Maturity Treasury
Corporation	First Merchants Corporation
ESPP	Employee Stock Purchase Plan
FDIC	Federal Deposit Insurance Corporation
FHLB	Federal Home Loan Bank
FTE	Fully taxable equivalent
GAAP	Generally Accepted Accounting Principles
MBT	MBT Financial Corp., which was acquired by the Corporation on September 1, 2019
OREO	Other real estate owned
RSA	Restricted Stock Awards
TEFRA	Tax Equity and Fiscal Responsibility Act

3

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED BALANCE SHEETS

	September 30, 2019		December 31, 2018
	(Unaudited)
ASSETS
Cash and cash equivalents	$	202,383	$	139,247
Interest-bearing time deposits	230,101		36,963
Investment securities available for sale	1,646,399		1,142,195
Investment securities held to maturity (fair value of $865,286 and $489,217)	843,021		490,387
Loans held for sale	7,910		4,778
Loans, net of allowance for loan losses of $80,571 and $80,552	8,218,689		7,143,915
Premises and equipment	113,446		93,420
Federal Home Loan Bank stock	28,736		24,588
Interest receivable	45,923		40,881
Goodwill	543,199		445,355
Other intangibles	36,552		24,429
Cash surrender value of life insurance	286,747		224,939
Other real estate owned	7,156		2,179
Tax asset, deferred and receivable	15,187		23,668
Other assets	99,612		47,772
TOTAL ASSETS	$	12,325,061	$	9,884,716
LIABILITIES
Deposits:
Noninterest-bearing	$	1,777,365	$	1,447,907
Interest-bearing	7,988,086		6,306,686
Total Deposits	9,765,451		7,754,593
Borrowings:
Federal funds purchased	—		104,000
Securities sold under repurchase agreements	191,603		113,512
Federal Home Loan Bank advances	354,609		314,986
Subordinated debentures and term loans	138,630		138,463
Total Borrowings	684,842		670,961
Interest payable	7,855		5,607
Other liabilities	117,901		45,295
Total Liabilities	10,576,049		8,476,456
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:
Authorized - 600 shares
Issued and outstanding - 125 shares	125		125
Common Stock, $.125 stated value:
Authorized - 100,000,000 shares
Issued and outstanding - 55,345,672 and 49,349,800 shares	6,918		6,169
Additional paid-in capital	1,053,148		840,052
Retained earnings	663,173		583,336
Accumulated other comprehensive income (loss)	25,648		(21,422		)
Total Stockholders' Equity	1,749,012		1,408,260
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	12,325,061	$	9,884,716

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

4

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019		2018
INTEREST INCOME
Loans receivable:
Taxable	$	96,850		$	88,479	$	280,155	$	251,409
Tax exempt	4,500			3,761		12,897		10,989
Investment securities:
Taxable	6,729			5,514		19,822		16,044
Tax exempt	8,335			6,493		22,660		18,865
Deposits with financial institutions	1,363			270		3,022		1,034
Federal Home Loan Bank stock	355			283		1,028		950
Total Interest Income	118,132			104,800		339,584		299,291
INTEREST EXPENSE
Deposits	24,830			13,685		67,511		34,852
Federal funds purchased	15			229		225		670
Securities sold under repurchase agreements	385			174		1,057		519
Federal Home Loan Bank advances	1,894			2,137		5,400		6,141
Subordinated debentures and term loans	2,076			2,089		6,315		6,136
Total Interest Expense	29,200			18,314		80,508		48,318
NET INTEREST INCOME	88,932			86,486		259,076		250,973
Provision for loan losses	600			1,400		2,300		5,563
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	88,332			85,086		256,776		245,410
OTHER INCOME
Service charges on deposit accounts	6,107			5,619		16,639		15,434
Fiduciary and wealth management fees	4,429			3,673		12,178		11,064
Card payment fees	5,158			4,586		14,813		13,642
Other customer fees	450			452		1,230		1,349
Increase in cash surrender value of life insurance	1,144			961		3,060		2,946
Gains on life insurance benefits	—			—		19		198
Net gains and fees on sales of loans	2,227			1,841		5,258		5,262
Net realized gains on sales of available for sale securities	393			1,285		3,376		4,016
Derivative hedge fees	1,684			775		3,952		1,848
Other income	524			335		1,918		1,520
Total Other Income	22,116			19,527		62,443		57,279
OTHER EXPENSES
Salaries and employee benefits	38,942			32,936		104,679		97,354
Net occupancy	4,777			4,586		14,273		13,604
Equipment	4,030			3,483		11,789		10,707
Marketing	1,332			1,216		5,158		3,574
Outside data processing fees	4,435			3,422		12,048		9,848
Printing and office supplies	312			334		961		992
Intangible asset amortization	1,356			1,650		4,404		5,094
FDIC assessments	(668		)	856		717		2,286
Other real estate owned and foreclosure expenses	294			455		2,362		1,219
Professional and other outside services	8,251			1,844		12,511		5,174
Other expenses	4,293			4,240		12,660		12,361
Total Other Expenses	67,354			55,022		181,562		162,213
INCOME BEFORE INCOME TAX	43,094			49,591		137,657		140,476
Income tax expense	6,337			8,478		21,027		23,050
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	36,757		$	41,113	$	116,630	$	117,426
Per Share Data:
Basic Net Income Available to Common Stockholders	$	0.71		$	0.83	$	2.33	$	2.38
Diluted Net Income Available to Common Stockholders	$	0.71		$	0.83	$	2.32	$	2.37
Cash Dividends Paid	$	0.26		$	0.22	$	0.74	$	0.62
Average Diluted Shares Outstanding (in thousands)	51,570			49,492		50,227		49,458

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

5

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net income	$	36,757		$	41,113		$	116,630		$	117,426
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on securities available for sale arising during the period, net of tax of $3,034, $2,596, $13,436, and $7,470	11,415			(9,765		)	50,545			(30,032		)
Unrealized gain (loss) on cash flow hedges arising during the period, net of tax of $37, $44, $267 and $212	(141		)	166			(1,003		)	1,039
Reclassification adjustment for net gains included in net income, net of tax of $61, $250, $657 and $766	(228		)	(942		)	(2,472		)	(2,882		)
Total other comprehensive income (loss), net of tax	11,046			(10,541		)	47,070			(31,875		)
Comprehensive income	$	47,803		$	30,572		$	163,700		$	85,551

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

6

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Three Months Ended September 30, 2019
	Preferred			Common Stock					Additional						Accumulated Other
	Shares	Amount		Shares		Amount			Paid in Capital			Retained Earnings			Comprehensive Income (Loss)		Total
Balances, June 30, 2019	125	$	125	49,456,594		$	6,182		$	841,365		$	639,362		$	14,602	$	1,501,636
Comprehensive income:
Net income	—	—		—		—			—			36,757			—		36,757
Other comprehensive income, net of tax	—	—		—		—			—			—			11,046		11,046
Cash dividends on common stock ($.26 per share)	—	—		—		—			—			(12,946		)	—		(12,946		)
Issuance of common stock related to acquisition	—	—		6,383,806		798			229,128			—			—		229,926
Repurchase of common stock	—	—		(516,016	)	(65		)	(18,976		)	—			—		(19,041		)
Share-based compensation	—	—		4,405		—			1,062			—			—		1,062
Stock issued under employee benefit plans	—	—		4,870		1			155			—			—		156
Stock issued under dividend reinvestment and stock purchase plan	—	—		10,263		1			399			—			—		400
Stock options exercised	—	—		1,750		1			15			—			—		16
Stock redeemed	—	—		—		—			—			—			—		—
Balances, September 30, 2019	125	$	125	55,345,672		$	6,918		$	1,053,148		$	663,173		$	25,648	$	1,749,012

	Three Months Ended September 30, 2018
	Preferred			Common Stock				Additional						Accumulated Other
	Shares	Amount		Shares		Amount		Paid in Capital			Retained Earnings			Comprehensive Income (Loss)			Total
Balances, June 30, 2018	125	$	125	49,280,188		$	6,160	$	836,549		$	522,362		$	(24,868	)	$	1,340,328
Comprehensive income:
Net income	—	—		—		—		—			41,113			—			41,113
Other comprehensive loss, net of tax	—	—		—		—		—			—			(10,541		)	(10,541		)
Cash dividends on common stock ($.22 per share)	—	—		—		—		—			(10,924		)	—			(10,924		)
Share-based compensation	—	—		8,812		1		890			—			—			891
Stock issued under employee benefit plans	—	—		4,243		2		172			—			—			174
Stock issued under dividend reinvestment and stock purchase plan	—	—		6,650		—		324			—			—			324
Stock options exercised	—	—		6,311		—		140			—			—			140
Stock redeemed	—	—		(1,662	)	—		(79		)	—			—			(79		)
Balances, September 30, 2018	125	$	125	49,304,542		$	6,163	$	837,996		$	552,551		$	(35,409	)	$	1,361,426

7

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY - CONTINUED

(Unaudited)

	Nine Months Ended September 30, 2019
	Preferred			Common Stock					Additional						Accumulated Other
	Shares	Amount		Shares		Amount			Paid in Capital			Retained Earnings			Comprehensive Income (Loss)			Total
Balances, December 31, 2018	125	$	125	49,349,800		$	6,169		$	840,052		$	583,336		$	(21,422	)	$	1,408,260
Comprehensive income:
Net income	—	—		—		—			—			116,630			—			116,630
Other comprehensive income, net of tax	—	—		—		—			—			—			47,070			47,070
Cash dividends on common stock ($.74 per share)	—	—		—		—			—			(36,793		)	—			(36,793		)
Issuance of common stock related to acquisition	—	—		6,383,806		798			229,128			—			—			229,926
Repurchase of common stock	—	—		(516,016	)	(65		)	(18,976		)	—			—			(19,041		)
Share-based compensation	—	—		113,043		14			2,873			—			—			2,887
Stock issued under employee benefit plans	—	—		16,117		2			516			—			—			518
Stock issued under dividend reinvestment and stock purchase plan	—	—		28,949		3			1,106			—			—			1,109
Stock options exercised	—	—		12,950		2			119			—			—			121
Stock redeemed	—	—		(42,977	)	(5		)	(1,670		)	—			—			(1,675		)
Balances, September 30, 2019	125	$	125	55,345,672		$	6,918		$	1,053,148		$	663,173		$	25,648		$	1,749,012

	Nine Months Ended September 30, 2018
	Preferred			Common Stock					Additional						Accumulated Other
	Shares	Amount		Shares		Amount			Paid in Capital			Retained Earnings			Comprehensive Income (Loss)			Total
Balances, December 31, 2017	125	$	125	49,158,238		$	6,145		$	834,870		$	465,231		$	(2,908	)	$	1,303,463
Comprehensive income:
Net income	—	—		—		—			—			117,426			—			117,426
Other comprehensive loss, net of tax	—	—		—		—			—			—			(31,875		)	(31,875		)
Cash dividends on common stock ($.62 per share)	—	—		—		—			—			(30,732		)	—			(30,732		)
Reclassification adjustment under ASU 2018-02	—	—		—		—			—			626			(626		)	—
Share-based compensation	—	—		106,833		13			2,533			—			—			2,546
Stock issued under employee benefit plans	—	—		13,448		2			513			—			—			515
Stock issued under dividend reinvestment and stock purchase plan	—	—		18,761		2			877			—			—			879
Stock options exercised	—	—		51,243		6			1,087			—			—			1,093
Stock redeemed	—	—		(43,981	)	(5		)	(1,884		)	—			—			(1,889		)
Balances, September 30, 2018	125	$	125	49,304,542		$	6,163		$	837,996		$	552,551		$	(35,409	)	$	1,361,426

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

8

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	September 30, 2019			September 30, 2018
Cash Flow From Operating Activities:
Net income	$	116,630		$	117,426
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,300			5,563
Depreciation and amortization	6,737			6,630
Change in deferred taxes	(1,097		)	3,750
Share-based compensation	2,887			2,546
Loans originated for sale	(361,054		)	(277,312		)
Proceeds from sales of loans held for sale	362,084			285,297
Gains on sales of loans held for sale	(4,162		)	(3,791		)
Gains on sales of securities available for sale	(3,376		)	(4,016		)
Increase in cash surrender of life insurance	(3,060		)	(2,946		)
Gains on life insurance benefits	(19		)	(198		)
Change in interest receivable	(1,681		)	(1,401		)
Change in interest payable	2,191			1,530
Other adjustments	18,149			3,077
Net cash provided by operating activities	136,529			136,155
Cash Flows from Investing Activities:
Net change in interest-bearing deposits	88,090			(31,736		)
Purchases of:
Securities available for sale	(435,804		)	(341,433		)
Securities held to maturity	(397,166		)	—
Proceeds from sales of securities available for sale	102,840			126,136
Proceeds from maturities of:
Securities available for sale	89,603			56,533
Securities held to maturity	67,791			52,258
Change in Federal Home Loan Bank stock	—			(763		)
Net change in loans	(352,716		)	(347,054		)
Net cash and cash equivalents received in acquisition	10,207			—
Proceeds from the sale of other real estate owned	1,571			2,069
Proceeds from life insurance benefits	816			2,836
Other adjustments	(6,064		)	2,708
Net cash used in investing activities	(830,832		)	(478,446		)
Cash Flows from Financing Activities:
Net change in :
Demand and savings deposits	729,495			342,471
Certificates of deposit and other time deposits	175,437			118,151
Borrowings	535,239			1,451,467
Repayment of borrowings	(626,971		)	(1,552,068		)
Cash dividends on common stock	(36,793		)	(30,732		)
Stock issued under employee benefit plans	518			515
Stock issued under dividend reinvestment and stock purchase plans	1,109			879
Stock options exercised	121			1,093
Stock redeemed	(1,675		)	(1,889		)
Repurchase of common stock	(19,041		)	—
Net cash provided by financing activities	757,439			329,887
Net Change in Cash and Cash Equivalents	63,136			(12,404		)
Cash and Cash Equivalents, January 1	139,247			154,905
Cash and Cash Equivalents, September 30	$	202,383		$	142,501
Additional cash flow information:
Interest paid	$	78,260		$	46,788
Income tax paid (refunded)	19,335			13,719
Loans transferred to other real estate owned	6,902			405
Fixed assets transferred to other real estate owned	965			374
Non-cash investing activities using trade date accounting	13,893			828
Investments transferred from held to maturity to available for sale in accordance with ASU 2017-12	—			30,794
ROU assets obtained in exchange for new operating lease liabilities	23,496			—
In conjunction with the acquisitions, liabilities were assumed as follows:
Fair value of assets acquired	$	1,450,741		$	—
Cash paid in acquisition	(15		)	—
Less: Common stock issued	229,926			—
Liabilities assumed	$	1,220,800		$	—

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

9

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 1 

GENERAL

Financial Statement Preparation

The 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 of December 31, 2018, has been derived from the audited consolidated balance sheet of the Corporation as of that date. Certain information and note disclosures normally included in the Corporation’s annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2019, 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.

Recent Accounting Changes Adopted in 2019

FASB Accounting Standards Updates No. 2018-11 - Leases (Topic 842): Targeted Improvements - The FASB issued Accounting Standards Update (ASU) No. 2018-11, Leases (Topic 842): Targeted Improvements. This ASU was intended to reduce costs and ease implementation of the leases standard for financial statement preparers. ASU 2018-11 provided a new transition method and a practical expedient for separating components of a contract. ASU 2018-11 provided entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applied the new leases standard at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the Corporation's reporting for the comparative periods presented in the financial statements in the period of adoption is in accordance with GAAP in Topic 840, Leases. The Corporation must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840. The amendments did not change the existing disclosure requirements in Topic 840 (for example, they did not create interim disclosure requirements that the Corporation previously was not required to provide). The Corporation adopted this new transition method on January 1, 2019, but did not recognize a cumulative-effect adjustment to the opening balance of retained earnings at adoption. Lease disclosures are included in NOTE 8. LEASES of these Notes to Consolidated Condensed Financial Statements.

The amendments in ASU 2018-11 provided lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:

* The timing and pattern of transfer of the non-lease component(s) and associated lease component are the same.

* The lease component, if accounted for separately, would be classified as an operating lease.

An entity electing this practical expedient (including an entity that accounts for the combined component entirely in Topic 606) is required to disclose certain information, by class of underlying asset, as specified in the ASU. The Corporation elected the practical expedient to not separate non-lease components from the associated lease component at adoption, which was January 1, 2019.

FASB Accounting Standards Update No. 2018-07 - Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting - The FASB issued an Accounting Standards Update (ASU) intended to reduce cost and complexity and to improve financial reporting for non-employee share-based payments. The ASU expanded the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees is substantially aligned. The ASU supersedes Subtopic 505-50, Equity-Equity-Based Payments to Non-Employees. The Corporation adopted the standard in the first quarter of 2019 and adoption of the standard did not have a significant effect on the Corporation’s consolidated financial statements.

10

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

FASB Accounting Standards Update No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities - The FASB issued Accounting Standards Update (ASU) No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortened the amortization period for certain callable debt securities held at a premium to the earliest call date. Under previous GAAP, entities normally amortized the premium as an adjustment of yield over the contractual life of the instrument. Stakeholders expressed concerns with the approach on the basis that GAAP excluded certain callable debt securities from consideration of early repayment of principal even if the holder was certain the call would be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium was recorded as a loss in earnings. Further, there was diversity in practice (1) in the amortization period for premiums of callable debt securities, and (2) in how the potential for exercise of a call was factored into current impairment assessments. Another issue was that the practice in the United States was to quote, price, and trade callable debt securities using a model that incorporated consideration of calls (also referred to as “yield-to-worst” pricing). The ASU shortened the amortization period for certain callable debt securities held at a premium and required the premium to be amortized to the earliest call date. However, the amendments did not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

The Corporation was required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at adoption. The Corporation adopted ASU 2017-08 on January 1, 2019 and adoption of the standard did not have a significant effect on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update No. 2016-02 - Leases (Topic 842) - The FASB issued new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date:

• A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

• A right-of-use ("ROU") asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees are no longer provided with a source of off-balance sheet financing.

The Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. The Corporation elected to not apply ASC 842 to short-term leases (leases with a term of 12 months or less). Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Corporation expenses the lease on a straight-line basis over the lease term. The Corporation also elected the practical expedient to not separate nonlease components from lease components. Variable payments are not included as part of the consideration of a lease contract and all of the Corporation's nonlease components contain variable payments; therefore, this election will not have any impact on the ROU asset or lease liability.

The Corporation adopted this ASU on January 1, 2019 and recorded a ROU asset of $23.3 million and a lease liability of $23.8 million at adoption. Lease disclosures are included in NOTE 8. LEASES of these Notes to Consolidated Condensed Financial Statements.

Revenue Recognition

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

The majority of the Corporation's revenue-generating transactions are not subject to revenue recognition guidance, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the disclosures. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Condensed Statements of Income was not necessary. Descriptions of revenue-generating activities that are within the scope of the guidance, which are presented in our income statements are as follows:

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

11

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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

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

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

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

New Accounting Pronouncements Not Yet Adopted

The 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 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 Contract

Summary - The FASB has 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 will be effective for fiscal years ending after December 15, 2019. For all other calendar-year companies and organizations, the changes will be effective for fiscal years ending after December 15, 2020. The Corporation plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact 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 Plans

Summary - The FASB has 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.

12

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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.

* 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 plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact 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 Measurement

Summary - The FASB has 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 are 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 should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is 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 plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact on the Corporation’s disclosures.

FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Summary - The FASB has 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 to earnings through the provision for loan losses. Such would 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 (i.e., January 1, 2020, for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Corporation plans to adopt this ASU in the first quarter of 2020.

The Corporation expects a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016.  Third party software has been implemented and models have been developed.  The implementation team is conducting parallel runs and a model validation conducted by a third party is underway.  Any needed adjustments to the models as a result of recommendations from the model validation will be made in the fourth quarter of 2019. As such, the estimated impact of CECL will be finalized in the fourth quarter of 2019.

13

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 2

ACQUISITION

MBT Financial Corp.

On September 1, 2019, the Corporation acquired 100 percent of 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 had 20 banking centers serving the Monroe market. Pursuant to the merger agreement, each MBT shareholder received 0.275 shares of the Corporation's common stock for each outstanding share of MBT common stock held. The Corporation issued approximately 6.4 million shares 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 Value
Cash and cash equivalents	$	10,222
Interest-bearing time deposits	281,228
Investment securities	212,235
Loans	731,260
Premises and equipment	21,664
Federal Home Loan Bank stock	4,148
Interest receivable	3,361
Cash surrender value of life insurance	59,545
Tax asset, deferred and receivable	4,970
Other assets	7,737
Deposits	(1,105,926		)
Securities sold under repurchase agreements	(94,760		)
Federal Home Loan Bank advances	(10,853		)
Other liabilities	(9,261		)
Net tangible assets acquired	115,570
Core deposit intangible	16,527
Goodwill	97,844
Purchase price	$	229,941

Of the total purchase price, $16,527,000 was allocated to a core deposit intangible, which will be amortized over its estimated life of 10 years. The remaining purchase price was allocated to goodwill, which is not deductible for tax purposes.

Acquired loan data for MBT is included in the following table:

	Fair Value of Acquired Loans at Acquisition Date		Gross Contractual Amounts Receivable at Acquisition Date		Best Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be Collected
Acquired receivables subject to ASC 310-30	$	3,531	$	6,840	$	2,733
Acquired receivables not subject to ASC 310-30	$	727,729	$	907,210	$	14,506

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.

14

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Pro Forma Financial Information

The results of operations of MBT have been included in the Corporation's consolidated financial statements since the acquisition date. The following schedules includes pro forma results for the three months and nine months ended September 30, 2019 and the annual period ended December 31, 2018, as if the MBT acquisition occurred as of the beginning of the periods presented.

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Total revenue (net interest income plus other income)	$	120,606	$	351,121
Net income available to common shareholders	$	30,835	$	110,958
Earnings per share:
Basic	$	0.55	$	1.98
Diluted	$	0.54	$	1.97
			Year Ended December 31, 2018
Total revenue (net interest income plus other income)			$	474,842
Net income available to common shareholders			$	174,900
Earnings per share:
Basic			$	3.13
Diluted			$	3.12

The 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 three months ended September 30, 2019 includes operating revenue from MBT of $4.9 million since the date of acquisition. Additionally $17.3 million, net of tax, of non-recurring expenses directly attributable to the MBT acquisition were included in the three months ended September 30, 2019 pro forma information.

The pro forma information for the nine months ended September 30, 2019, includes operating revenue from MBT $4.9 million since the date of acquisition. Additionally $18.2 million, net of tax, of non-recurring expenses directly attributable to the MBT acquisition were included in the nine months ended September 30, 2019 pro forma information.

The pro forma information for the year ended December 31, 2018 includes operating results from MBT as if the acquisition occurred at the beginning of the year. Additionally, $877,000, net of tax, of non-recurring expenses directly attributable to the MBT acquisition were included in the year ended December 31, 2018 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.

NOTE 3 

INVESTMENT SECURITIES

The amortized cost, gross unrealized gains, gross unrealized losses and approximate market value of the Corporation's investment securities at the dates indicated were:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at September 30, 2019
U.S. Government-sponsored agency securities	$	48,553	$	450	$	26	$	48,977
State and municipal	754,846		42,663		634		796,875
U.S. Government-sponsored mortgage-backed securities	789,887		11,660		1,031		800,516
Corporate obligations	31		—		—		31
Total available for sale	1,593,317		54,773		1,691		1,646,399
Held to maturity at September 30, 2019
U.S. Government-sponsored agency securities	42,434		4		95		42,343
State and municipal	355,263		15,841		40		371,064
U.S. Government-sponsored mortgage-backed securities	443,824		7,024		462		450,386
Foreign investment	1,500		—		7		1,493
Total held to maturity	843,021		22,869		604		865,286
Total Investment Securities	$	2,436,338	$	77,642	$	2,295	$	2,511,685

15

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2018
U.S. Government-sponsored agency securities	$	13,493	$	92	$	3	$	13,582
State and municipal	605,994		5,995		5,854		606,135
U.S. Government-sponsored mortgage-backed securities	530,209		634		8,396		522,447
Corporate obligations	31		—		—		31
Total available for sale	1,149,727		6,721		14,253		1,142,195
Held to maturity at December 31, 2018
U.S. Government-sponsored agency securities	22,618		—		545		22,073
State and municipal	197,909		2,858		872		199,895
U.S. Government-sponsored mortgage-backed securities	268,860		713		3,323		266,250
Foreign investment	1,000		—		1		999
Total held to maturity	490,387		3,571		4,741		489,217
Total Investment Securities	$	1,640,114	$	10,292	$	18,994	$	1,631,412

The change in unrealized gains/losses from December 31, 2018 to September 30, 2019 is primarily due to the changes in interest rates.  The longer term points on the yield curve have declined since year-end which increases the fair value of securities held in the portfolio.

The amortized cost and fair value of available for sale and held to maturity securities at September 30, 2019 and December 31, 2018, 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 Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at September 30, 2019:
Due in one year or less	$	1,134	$	1,139	$	13,833	$	13,894
Due after one through five years	4,527		4,638		55,424		55,783
Due after five through ten years	83,254		85,475		100,501		104,733
Due after ten years	714,515		754,631		229,439		240,490
	803,430		845,883		399,197		414,900
U.S. Government-sponsored mortgage-backed securities	789,887		800,516		443,824		450,386
Total Investment Securities	$	1,593,317	$	1,646,399	$	843,021	$	865,286

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at December 31, 2018
Due in one year or less	$	13,092	$	13,144	$	4,732	$	4,730
Due after one through five years	5,311		5,378		49,054		48,473
Due after five through ten years	73,280		74,411		62,873		64,163
Due after ten years	527,835		526,815		104,868		105,601
	619,518		619,748		221,527		222,967
U.S. Government-sponsored mortgage-backed securities	530,209		522,447		268,860		266,250
Total Investment Securities	$	1,149,727	$	1,142,195	$	490,387	$	489,217

The carrying value of securities pledged as collateral, to secure borrowings and for other purposes, was $632,275,000 at September 30, 2019, and $416,155,000 at December 31, 2018.

The book value of securities sold under agreements to repurchase amounted to $187,472,000 at September 30, 2019, and $116,691,000 at December 31, 2018.

Gross gains on the sales and redemptions of available for sale securities for the three and nine months ended September 30, 2019 and 2018 are shown below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	393	$	1,285	$	3,376	$	4,016
Gross losses	—		—		—		—

16

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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 at September 30, 2019, and December 31, 2018:

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Temporarily Impaired Available for Sale Securities at September 30, 2019
U.S. Government-sponsored agency securities	$	25,033	$	26	$	—	$	—	$	25,033	$	26
State and municipal	53,220		634		—		—		53,220		634
U.S. Government-sponsored mortgage-backed securities	155,175		939		27,238		92		182,413		1,031
Total Temporarily Impaired Available for Sale Securities	233,428		1,599		27,238		92		260,666		1,691
Temporarily Impaired Held to Maturity Securities at September 30, 2019
U.S. Government-sponsored agency securities	23,983		35		12,440		60		36,423		95
State and municipal	3,351		40		—		—		3,351		40
U.S. Government-sponsored mortgage-backed securities	122,572		426		8,567		36		131,139		462
Foreign investment	1,493		7		—		—		1,493		7
Total Temporarily Impaired Held to Maturity Securities	151,399		508		21,007		96		172,406		604
Total Temporarily Impaired Investment Securities	$	384,827	$	2,107	$	48,245	$	188	$	433,072	$	2,295

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Temporarily Impaired Available for Sale Securities at December 31, 2018
U.S. Government-sponsored agency securities	$	1,490	$	3	$	—	$	—	$	1,490	$	3
State and municipal	234,431		3,958		38,028		1,896		272,459		5,854
U.S. Government-sponsored mortgage-backed securities	196,601		2,400		217,121		5,996		413,722		8,396
Total Temporarily Impaired Available for Sale Securities	432,522		6,361		255,149		7,892		687,671		14,253
Temporarily Impaired Held to Maturity Securities at December 31, 2018
U.S. Government-sponsored agency securities	—		—		22,073		545		22,073		545
State and municipal	14,952		369		16,786		503		31,738		872
U.S. Government-sponsored mortgage-backed securities	102,828		876		87,268		2,447		190,096		3,323
Foreign investment	—		—		999		1		999		1
Total Temporarily Impaired Held to Maturity Securities	117,780		1,245		127,126		3,496		244,906		4,741
Total Temporarily Impaired Investment Securities	$	550,302	$	7,606	$	382,275	$	11,388	$	932,577	$	18,994

Certain 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.

	September 30, 2019			December 31, 2018
Investments reported at less than historical cost:
Historical cost	$	435,367		$	951,571
Fair value	433,072			932,577
Gross unrealized losses	$	2,295		$	18,994
Percent of the Corporation's investment portfolio	17.4		%	57.1		%

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 at September 30, 2019.

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.

17

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

State and Municipal Securities, U.S. Government-Sponsored Agency Securities and Foreign Investment Securities

The unrealized losses on the Corporation's investments in securities of state and political subdivisions and U.S. Government-Sponsored Agency securities were caused by interest rate increases. 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 at September 30, 2019. The state and municipal securities portfolio contains unrealized losses of $634,000 on twenty-six securities and $40,000 on two securities in the available for sale and held to maturity portfolios, respectively. The U.S. Government-Sponsored Agency securities portfolio contains unrealized losses of $26,000 on two securities in the available for sale portfolio and $95,000 on five securities in the held to maturity portfolio. The foreign investment securities portfolio contains no unrealized losses in the available for sale portfolio, and $7,000 on one security in the held to maturity portfolio.

U.S. Government-Sponsored Mortgage-Backed Securities

The 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 at September 30, 2019. The mortgage-backed securities portfolio contains unrealized losses of $1,031,000 on thirty-one securities and $462,000 on sixteen securities in the available for sale and held to maturity portfolios, respectively. All these securities are issued by a U.S. government-sponsored entity.

NOTE 4  

LOANS AND ALLOWANCE

The 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 of September 30, 2019, and December 31, 2018, were $7,910,000 and $4,778,000, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

	September 30, 2019			December 31, 2018
Commercial and industrial loans	$	2,034,311		$	1,726,664
Agricultural production financing and other loans to farmers	90,462			92,404
Real estate loans:
Construction	670,138			545,729
Commercial and farmland	3,144,649			2,832,102
Residential	1,155,403			966,421
Home equity	601,335			528,157
Individuals' loans for household and other personal expenditures	131,246			99,788
Public finance and other commercial loans	471,716			433,202
Loans	8,299,260			7,224,467
Allowance for loan losses	(80,571		)	(80,552		)
Net Loans	$	8,218,689		$	7,143,915

Allowance, Credit Quality and Loan Portfolio

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 at September 30, 2019. 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.

18

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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 is uncollectable. 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.

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2019 and September 30, 2018:

	Three Months Ended September 30, 2019
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, June 30, 2019	$	33,202		$	29,531		$	4,070		$	14,471		$	81,274
Provision for losses	130			370			40			60			600
Recoveries on loans	149			143			105			199			596
Loans charged off	(480		)	(1,078		)	(109		)	(232		)	(1,899		)
Balances, September 30, 2019	$	33,001		$	28,966		$	4,106		$	14,498		$	80,571

	Nine Months Ended September 30, 2019
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, December 31, 2018	$	32,657		$	29,609		$	3,964		$	14,322		$	80,552
Provision for losses	466			1,459			181			194			2,300
Recoveries on loans	1,035			1,166			323			511			3,035
Loans charged off	(1,157		)	(3,268		)	(362		)	(529		)	(5,316		)
Balances, September 30, 2019	$	33,001		$	28,966		$	4,106		$	14,498		$	80,571

19

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

	Three Months Ended September 30, 2018
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, June 30, 2018	$	31,467		$	27,731		$	3,921		$	14,424		$	77,543
Provision for losses	256			410			159			575			1,400
Recoveries on loans	658			306			46			165			1,175
Loans charged off	(313		)	(501		)	(194		)	(704		)	(1,712		)
Balances, September 30, 2018	$	32,068		$	27,946		$	3,932		$	14,460		$	78,406

	Nine Months Ended September 30, 2018
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, December 31, 2017	$	30,420		$	27,343		$	3,732		$	13,537		$	75,032
Provision for losses	1,567			1,448			493			2,055			5,563
Recoveries on loans	2,060			1,858			233			915			5,066
Loans charged off	(1,979		)	(2,703		)	(526		)	(2,047		)	(7,255		)
Balances, September 30, 2018	$	32,068		$	27,946		$	3,932		$	14,460		$	78,406

The tables below show the Corporation’s allowance for loan losses and loan portfolio by loan segment as of the periods indicated.

	September 30, 2019
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance Balances:
Individually evaluated for impairment	$	1,680	$	124	$	—	$	457	$	2,261
Collectively evaluated for impairment	31,321		28,842		4,106		14,041		78,310
Total Allowance for Loan Losses	$	33,001	$	28,966	$	4,106	$	14,498	$	80,571
Loan Balances:
Individually evaluated for impairment	$	4,310	$	9,371	$	4	$	2,589	$	16,274
Collectively evaluated for impairment	2,590,318		3,792,239		131,242		1,752,443		8,266,242
Loans acquired with deteriorated credit quality	1,861		13,177		—		1,706		16,744
Loans	$	2,596,489	$	3,814,787	$	131,246	$	1,756,738	$	8,299,260

	December 31, 2018
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance Balances:
Individually evaluated for impairment	$	—	$	1,435	$	1	$	436	$	1,872
Collectively evaluated for impairment	32,657		28,174		3,963		13,886		78,680
Total Allowance for Loan Losses	$	32,657	$	29,609	$	3,964	$	14,322	$	80,552
Loan Balances:
Individually evaluated for impairment	$	1,838	$	17,756	$	18	$	2,413	$	22,025
Collectively evaluated for impairment	2,248,330		3,347,686		99,770		1,490,872		7,186,658
Loans acquired with deteriorated credit quality	2,102		12,389		—		1,293		15,784
Loans	$	2,252,270	$	3,377,831	$	99,788	$	1,494,578	$	7,224,467

20

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Loans 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 $1,798,000 with $453,000 of related allowance for loan losses at September 30, 2019 and $1,541,000 with no related allowance for loan losses at December 31, 2018.

The risk characteristics of the Corporation’s material portfolio segments are as follows:

Commercial

Commercial 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 estate

These 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 Residential

With 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:

	September 30, 2019		December 31, 2018
Commercial and industrial loans	$	2,065	$	1,803
Agriculture production financing and other loans to farmers	3,150		679
Real estate loans:
Construction	1,027		8,667
Commercial and farmland	9,265		8,156
Residential	5,381		4,966
Home equity	1,737		1,481
Individuals' loans for household and other personal expenditures	103		42
Public finance and other commercial loans	—		354
Total	$	22,728	$	26,148

Impaired 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 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.

21

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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:

	September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	897	$	877	$	—
Agriculture production financing and other loans to farmers	1,023		1,012		—
Real estate Loans:
Commercial and farmland	10,118		8,047		—
Residential	207		189		—
Total	$	12,245	$	10,125	$	—
Impaired loans with related allowance:
Commercial and industrial loans	$	563	$	329	$	329
Agriculture production financing and other loans to farmers	2,144		2,092		1,351
Real estate Loans:
Commercial and farmland	2,061		1,324		124
Residential	2,079		2,055		389
Home equity	362		345		68
Individuals' loans for household and other personal expenditures	4		4		—
Total	$	7,213	$	6,149	$	2,261
Total Impaired Loans	$	19,458	$	16,274	$	2,261

	December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	828	$	806	$	—
Agriculture production financing and other loans to farmers	679		679		—
Real estate Loans:
Construction	1,352		614		—
Commercial and farmland	11,176		8,994		—
Residential	118		100		—
Home equity	49		48		—
Public finance and other commercial loans	353		353		—
Total	$	14,555	$	11,594	$	—
Impaired loans with related allowance:
Real estate Loans:
Construction	$	7,978	$	7,977	$	1,429
Commercial and farmland	171		171		6
Residential	1,958		1,907		362
Home equity	376		358		74
Individuals' loans for household and other personal expenditures	18		18		1
Total	$	10,501	$	10,431	$	1,872
Total Impaired Loans	$	25,056	$	22,025	$	1,872

22

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	877	$	—	$	881	$	—
Agriculture production financing and other loans to farmers	1,012		—		1,014		—
Real estate Loans:
Construction	—		—		339		—
Commercial and farmland	8,075		39		8,651		117
Residential	189		—		190		2
Total	$	10,153	$	39	$	11,075	$	119
Impaired loans with related allowance:
Commercial and industrial loans	$	329	$	—	$	329	$	—
Agriculture production financing and other loans to farmers	2,100		—		2,123		—
Real estate Loans:
Commercial and farmland	1,324		—		1,324		—
Residential	2,072		15		2,095		47
Home equity	346		3		350		9
Individuals' loans for household and other personal expenditures	4		—		5		—
Total	$	6,175	$	18	$	6,226	$	56
Total Impaired Loans	$	16,328	$	57	$	17,301	$	175

	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	979	$	—	$	994	$	—
Agriculture production financing and other loans to farmers	640		—		640		—
Real estate Loans:
Construction	614		—		930		—
Commercial and farmland	12,098		40		12,733		128
Residential	62		1		63		2
Individuals' loans for household and other personal expenditures	9		—		10		—
Total	$	14,402	$	41	$	15,370	$	130
Impaired loans with related allowance:
Real estate Loans:
Residential	1,797		13		1,812		37
Home equity	364		3		367		8
Total	$	2,161	$	16	$	2,179	$	45
Total Impaired Loans	$	16,563	$	57	$	17,549	$	175

Impaired 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.

23

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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.

• 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:

o the 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,

o the 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,

o loans have a distinct possibility that the Corporation will sustain some loss if deficiencies are not corrected,

o unusual courses of action are needed to maintain a high probability of repayment,

o the borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments,

o the Corporation is forced into a subordinated or unsecured position due to flaws in documentation,

o loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms,

o the Corporation is seriously contemplating foreclosure or legal action due to the apparent deterioration of the loan, and

o there 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.

24

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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.

	September 30, 2019
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss		Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	1,923,043	$	62,219	$	48,719	$	329	$	1	$	—	$	—	$	2,034,311
Agriculture production financing and other loans to farmers	70,715		5,681		13,867		—		—		199		—		90,462
Real estate Loans:
Construction	638,040		288		1,818		—		—		29,992		—		670,138
Commercial and farmland	2,963,113		73,429		101,025		—		—		7,082		—		3,144,649
Residential	198,986		3,492		7,195		—		—		940,613		5,117		1,155,403
Home equity	30,813		121		872		—		—		567,865		1,664		601,335
Individuals' loans for household and other personal expenditures	—		—		—		—		—		131,143		103		131,246
Public finance and other commercial loans	471,716		—		—		—		—		—		—		471,716
Loans	$	6,296,426	$	145,230	$	173,496	$	329	$	1	$	1,676,894	$	6,884	$	8,299,260

	December 31, 2018
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss		Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	1,660,879	$	23,246	$	42,539	$	—	$	—	$	—	$	—	$	1,726,664
Agriculture production financing and other loans to farmers	78,446		5,966		7,992		—		—		—		—		92,404
Real estate Loans:
Construction	492,358		2,185		24,224		—		—		25,419		1,543		545,729
Commercial and farmland	2,669,491		76,037		84,288		—		—		2,285		1		2,832,102
Residential	170,075		7,373		2,076		—		—		782,080		4,817		966,421
Home equity	24,653		535		457		—		—		500,996		1,516		528,157
Individuals' loans for household and other personal expenditures	—		—		—		—		—		99,741		47		99,788
Public finance and other commercial loans	432,849		—		353		—		—		—		—		433,202
Loans	$	5,528,751	$	115,342	$	161,929	$	—	$	—	$	1,410,521	$	7,924	$	7,224,467

The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as of September 30, 2019, and December 31, 2018:

	September 30, 2019
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans 90 Days or More Past Due And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	2,026,547	$	5,468	$	231	$	—	$	2,065	$	7,764	$	2,034,311
Agriculture production financing and other loans to farmers	87,274		—		38		—		3,150		3,188		90,462
Real estate loans:
Construction	669,111		—		—		—		1,027		1,027		670,138
Commercial and farmland	3,132,460		2,219		705		—		9,265		12,189		3,144,649
Residential	1,145,240		4,238		526		18		5,381		10,163		1,155,403
Home equity	596,472		2,547		515		64		1,737		4,863		601,335
Individuals' loans for household and other personal expenditures	130,641		319		183		—		103		605		131,246
Public finance and other commercial loans	471,716		—		—		—		—		—		471,716
Loans	$	8,259,461	$	14,791	$	2,198	$	82	$	22,728	$	39,799	$	8,299,260

25

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

	December 31, 2018
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans 90 Days or More Past Due And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	1,723,337	$	1,093	$	182	$	249	$	1,803	$	3,327	$	1,726,664
Agriculture production financing and other loans to farmers	89,440		2,285		—		—		679		2,964		92,404
Real estate loans:
Construction	535,520		64		—		1,478		8,667		10,209		545,729
Commercial and farmland	2,822,515		1,253		178		—		8,156		9,587		2,832,102
Residential	959,252		1,756		430		17		4,966		7,169		966,421
Home equity	524,198		2,164		207		107		1,481		3,959		528,157
Individuals' loans for household and other personal expenditures	99,499		179		64		4		42		289		99,788
Public finance and other commercial loans	432,848		—		—		—		354		354		433,202
Loans	$	7,186,609	$	8,794	$	1,061	$	1,855	$	26,148	$	37,858	$	7,224,467

On 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 trouble 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 paid.

The following tables summarize troubled debt restructures in the Corporation's loan portfolio that occurred during the periods indicated:

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate loans:
Residential	$	195	$	185	3	$	456	$	439	8
Total	$	195	$	185	3	$	456	$	439	8

	Three Months Ended September 30, 2018					Nine Months Ended September 30, 2018
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate loans:
Residential	$	154	$	140	4	$	490	$	487	11
Home equity	65		65		1	81		81		3
Individuals' loans for household and other personal expenditures	—		—		—	7		8		1
Total	$	219	$	205	5	$	578	$	576	15

The following tables summarize the recorded investment of troubled debt restructures as of September 30, 2019 and 2018, by modification type, that occurred during the periods indicated:

	Three Months Ended September 30, 2019
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	—	$	184	$	184
Total	$	—	$	—	$	184	$	184

	Nine Months Ended September 30, 2019
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	88	$	345	$	433
Total	$	—	$	88	$	345	$	433

26

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

	Three Months Ended September 30, 2018
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	47	$	93	$	140
Home equity	—		65		—		65
Total	$	—	$	112	$	93	$	205

	Nine Months Ended September 30, 2018
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	208	$	239	$	447
Home equity	77		76		—		153
Individuals' loans for household and other personal expenditures	—		6		—		6
Total	$	77	$	290	$	239	$	606

Loans secured by residential real estate made up 100 percent of the post-modification balance of troubled debt restructured loans made in the three and nine months ended September 30, 2019. The same loan classification made up 100 percent and 99 percent of the post-modification balance of troubled debt restructured loans made in the three and nine months ended September 30, 2018, respectively.

The following tables summarize troubled debt restructures that occurred during the twelve months ended September 30, 2019 and 2018, that subsequently defaulted during the period indicated and remained in default at period end. A loan is considered in default if it is 30-days or more past due.

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Real estate loans:
Commercial and farmland	1	$	85	1	$	85
Total	1	$	85	1	$	85

	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Real estate loans:
Commercial and farmland	1	$	262	1	$	262
Residential	2	83		4	152
Individuals' loans for household and other personal expenditures	1	11		1	11
Total	4	$	356	6	$	425

For 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 $683,000 and $800,000 at September 30, 2019 and December 31, 2018, respectively.

Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and 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.

27

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 5

PURCHASED CREDIT IMPAIRED LOANS

Purchased 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 September 30, 2019 was $18.5 million with allowance for loan loss of $453,000. The carrying amount of Purchased Credit Impaired Loans as of December 31, 2018 was $17.3 million with no required 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 September 30, 2019			Nine Months Ended September 30, 2019
Accretable yield beginning balance	$	1,914		$	2,143
Additions	576			576
Accretion	(420		)	(1,638		)
Reclassification from nonaccretable	374			1,363
Disposals	(165		)	(165		)
Accretable yield ending balance	$	2,279		$	2,279

	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Accretable yield beginning balance	$	2,423		$	2,890
Additions	—			—
Accretion	(1,004		)	(2,441		)
Reclassification from nonaccretable	798			1,768
Disposals	(16		)	(16		)
Accretable yield ending balance	$	2,201		$	2,201

The following table presents loans acquired, as of the acquisition date, during the nine months ended September 30, 2019, for which it was probable that all contractually required payments would not be collected. There were no loans acquired during the nine months ended September 30, 2018.

	MBT
Contractually required payments receivable at acquisition date	$	6,840
Nonaccretable difference	2,733
Expected cash flows at acquisition date	4,107
Accretable difference	576
Basis in loans at acquisition date	$	3,531

28

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 6

GOODWILL

Goodwill is recorded on the acquisition date of an entity. During the one-year measurement 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 $97,844,000 of goodwill. Details regarding the MBT acquisition are discussed in NOTE 2. ACQUISITION of these Notes to Consolidated Condensed Financial Statements.

	2019
Balance, January 1	$	445,355
Goodwill acquired	97,844
Balance, September 30	$	543,199
	2018
Balance, January 1	$	445,355
Goodwill acquired	—
Balance, December 31	$	445,355

NOTE 7

OTHER INTANGIBLES

Core deposit intangibles and other intangibles are recorded on the acquisition date of an entity. During the one-year measurement 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 and other intangibles are noted below.

	September 30, 2019			December 31, 2018
Gross carrying amount	$	85,869		$	85,869
Core deposit intangibles acquired	16,527			—
Accumulated amortization	(65,844		)	(61,440		)
Total other intangibles	$	36,552		$	24,429

The core deposit intangibles and other intangibles are being amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of two to ten years. Estimated future amortization expense is summarized as follows:

	Amortization Expense
2019	$	1,591
2020	5,987
2021	5,429
2022	5,027
2023	4,827
After 2023	13,691
	$	36,552

NOTE 8

LEASES

The Corporation adopted ASU No. 2016-02 - Leases (Topic 842), as amended, as of January 1, 2019 for certain retail branches, office space, land and equipment. The Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. Operating leases are included in the operating lease right-of use ("ROU") asset, which is included in other assets and the lease liability is included in other liabilities in our condensed balance sheets. The Corporation does not have any finance leases.

29

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

ROU assets represent the Corporation's right to use an underlying asset for the lease term and lease liabilities represent the Corporation's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Corporation's leases do not provide an implicit rate, the Corporation typically uses its incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. Lease terms may include options to extend or terminate the lease. The exercise of such lease renewal options is at the Corporation's sole discretion and is not included in the present value of lease obligations unless it is reasonably certain that the option will be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of the Corporation's lease agreements include rental payments adjusted periodically for inflation. The Corporation's lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Corporation does not have any material sublease agreements.

Supplemental balance sheet information related to leases is presented in the table below as of September 30, 2019.

	September 30, 2019
Operating lease assets	$	21,446
Total lease assets	$	21,446
Operating lease liabilities	$	22,108
Total Lease liabilities	$	22,108
Weighted average remaining lease term (years)
Operating leases	9.0
Weighted average discount rate
Operating leases	3.39		%

The table below presents the components of lease expense for the periods indicated.

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Lease Cost:
Operating lease cost	$	899		$	2,705
Short-term lease cost	47			120
Variable lease cost	252			763
Sublease income	$	(6	)	$	(6	)
Total lease cost	$	1,192		$	3,582

Supplemental cash flow information related to leases is presented in the tables below.

Maturity of lease liabilities	Operating Leases
Remaining 2019	$	900
2020	3,425
2021	3,147
2022	3,024
2023	2,645
2024 and after	12,777
Total lease payments	$	25,918
Less: Present value discount	3,810
Present value of lease liabilities	$	22,108
Other Information	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,521
ROU assets obtained in exchange for new operating lease liabilities	$	23,496

30

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 9

DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The 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 Risk

The 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 of September 30, 2019, the Corporation had four interest rate swaps with a notional amount of $46.0 million that were designated as cash flow hedges. As of December 31, 2018, the Corporation had four interest rate swaps with a notional amount of $46.0 million and one interest rate cap with a notional amount of $13.0 million 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.

During 2019, $26.0 million 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 $20.0 million of interest rate swaps were used to hedge the variable cash outflows (LIBOR-based) associated with two Federal Home Loan Bank advances. During the nine months ended September 30, 2019 and 2018, the Corporation did not recognize any ineffectiveness.

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 $475,000 from accumulated other comprehensive income to interest expense.

Non-designated Hedges

The 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 of September 30, 2019, the notional amount of customer-facing swaps was approximately $625,549,000.  This amount is offset with third party counterparties, as described above.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Corporation’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2019, and December 31, 2018.

Asset Derivatives

Liability Derivatives

September 30, 2019

December 31, 2018

September 30, 2019

December 31, 2018

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Interest rate contracts

Other Assets

$

—

Other Assets

$

135

Other Liabilities

$

1,730

Other Liabilities

$

688

Derivatives not designated as hedging instruments:

Interest rate contracts

Other Assets

$

37,899

Other Assets

$

11,948

Other Liabilities

$

37,899

Other Liabilities

$

11,948

31

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

The Corporation's derivative hedge asset and derivative hedge liability increased $25.8 million and $27.0 million, respectively from December 31, 2018. The increases are primarily due to a $147.8 million increase in outstanding notional balance. Additionally, yield curve rates used for valuation purposes were lower at each term point as of September 30, 2019 compared to December 31, 2018.

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 Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)
	Three Months Ended					Nine Months Ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Interest Rate Products	$	(178	)	$	210	$	(1,270	)	$	1,009

Effect of Derivative Instruments on the Income Statement

The Corporation did not recognize any gains or losses from derivative financial instruments in the Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2019 and 2018.

The amount of gain (loss) reclassified from other comprehensive income into income is included in the table below for the periods indicated.

Derivatives Designated as Hedging Instruments under FASB ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Reclassed from Other Comprehensive Income into Income (Effective Portion)
		Three Months Ended September 30, 2019			Three Months Ended September 30, 2018
Interest rate contracts	Interest Expense	$	(104	)	$	(93	)

Derivatives Designated as Hedging Instruments under FASB ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Reclassed from Other Comprehensive Income into Income (Effective Portion)
		Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Interest rate contracts	Interest Expense	$	(247	)	$	(368	)

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 Features

The 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 of September 30, 2019, the termination value of derivatives in a net liability position related to these agreements was $39,707,000. As of September 30, 2019, the Corporation has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $49,255,000. The Corporation did not breach any of these provisions as of September 30, 2019, but if the Corporation had breached these provisions, it could have been required to settle its obligations under the agreements at their termination value.

NOTE 10 

DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

The 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.

32

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

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 MEASUREMENTS

Assets 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.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the

accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

Where 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 backs 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 backs 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.

33

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Interest Rate Derivative Agreements

See information regarding the Corporation’s interest rate derivative products in NOTE 9. 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 820-10 fair value hierarchy in which the fair value measurements fall at September 30, 2019, and December 31, 2018.

			Fair Value Measurements Using:
September 30, 2019	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	48,977	$	—	$	48,977	$	—
State and municipal	796,875		—		794,014		2,861
U.S. Government-sponsored mortgage-backed securities	800,516		—		800,512		4
Corporate obligations	31		—		—		31
Interest rate swap asset	37,899		—		37,899		—
Interest rate swap liability	39,629		—		39,629		—

			Fair Value Measurements Using:
December 31, 2018	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	13,582	$	—	$	13,582	$	—
State and municipal	606,135		—		602,842		3,293
U.S. Government-sponsored mortgage-backed securities	522,447		—		522,443		4
Corporate obligations	31		—		—		31
Interest rate swap and cap asset	12,083		—		12,083		—
Interest rate swap liability	12,636		—		12,636		—

There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets or

liabilities held at September 30, 2019 or December 31, 2018.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying

balance sheets using significant unobservable Level 3 inputs for the three and nine months ended September 30, 2019 and 2018.

	Available for Sale Securities
	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Balance at beginning of the period	$	2,975		$	3,970		$	3,328		$	3,978
Included in other comprehensive income	6			(35		)	85			(59		)
Principal payments	(85		)	(620		)	(517		)	(604		)
Ending balance	$	2,896		$	3,315		$	2,896		$	3,315

Transfers Between Levels

There were no transfers in or out of Level 3 for the three and nine months ended September 30, 2019 and 2018.

34

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Nonrecurring Measurements

Following 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 for September 30, 2019, and December 31, 2018.

			Fair Value Measurements Using
September 30, 2019	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent)	$	6,939	$	—	$	—	$	6,939
Other real estate owned	220		—		—		220

			Fair Value Measurements Using
December 31, 2018	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent)	$	11,866	$	—	$	—	$	11,866
Other real estate owned	657		—		—		657

Impaired 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. During 2018 and 2019, 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 Owned

The 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.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2019 and December 31, 2018.

September 30, 2019	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted-Average)
State and municipal securities	$	2,861	Discounted cash flow	Maturity/Call date	1 month to 15 yrs
				US Muni BQ curve	A- to BBB-
				Discount rate	2% - 5%
Corporate obligations and U.S. Government-sponsored mortgage backed securities	$	35	Discounted cash flow	Risk free rate	3 month LIBOR
				plus premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	6,939	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	0% - 10% (2%)
Other real estate owned	$	220	Appraisals	Discount to reflect current market conditions	0% - 51% (31%)

35

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

December 31, 2018	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted-Average)
State and municipal securities	$	3,293	Discounted cash flow	Maturity/Call date	1 month to 20 yrs
				US Muni BQ curve	A- to BBB-
				Discount rate	.69% - 5%
Corporate obligations and equity securities	$	35	Discounted cash flow	Risk free rate	3 month LIBOR
				plus premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	11,866	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	0% - 10% (6%)
Other real estate owned	$	657	Appraisals	Discount to reflect current market conditions	0% - 10% (4%)

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 Securities

The 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.

Fair Value of Financial Instruments

The 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 at September 30, 2019, and December 31, 2018.

			September 30, 2019
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	202,383	$	202,383	$	—	$	—
Interest-bearing time deposits	230,101		230,101		—		—
Investment securities available for sale	1,646,399		—		1,643,503		2,896
Investment securities held to maturity	843,021		—		832,750		32,536
Loans held for sale	7,910		—		7,910		—
Loans	8,218,689		—		—		8,206,069
Federal Home Loan Bank stock	28,736		—		28,736		—
Interest rate swap asset	37,899		—		37,899		—
Interest receivable	45,923		—		45,923		—
Liabilities:
Deposits	$	9,765,451	$	7,992,716	$	1,752,081	$	—
Borrowings:
Federal funds purchased	—		—		—		—
Securities sold under repurchase agreements	191,603		—		191,603		—
Federal Home Loan Bank advances	354,609		—		357,166		—
Subordinated debentures and term loans	138,630		—		124,453		—
Interest rate swap liability	39,629		—		39,629		—
Interest payable	7,855		—		7,855		—

36

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

			December 31, 2018
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	139,247	$	139,247	$	—	$	—
Interest-bearing time deposits	36,963		36,963		—		—
Investment securities available for sale	1,142,195		—		1,138,867		3,328
Investment securities held to maturity	490,387		—		481,377		7,840
Loans held for sale	4,778		—		4,778		—
Loans	7,143,915		—		—		7,004,193
Federal Home Loan Bank stock	24,588		—		24,588		—
Interest rate swap and cap asset	12,083		—		12,083		—
Interest receivable	40,881		—		40,881		—
Liabilities:
Deposits	$	7,754,593	$	6,267,879	$	1,464,129	$	—
Borrowings:
Federal funds purchased	104,000		—		104,000		—
Securities sold under repurchase agreements	113,512		—		113,437		—
Federal Home Loan Bank advances	314,986		—		318,728		—
Subordinated debentures and term loans	138,463		—		127,298		—
Interest rate swap liability	12,636		—		12,636		—
Interest payable	5,607		—		5,607		—

NOTE 11

TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

The collateral pledged for all repurchase agreements that are accounted for as secured borrowings as of September 30, 2019 and December 31, 2018 were:

	September 30, 2019
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 Days		Total
U.S. Government-sponsored mortgage-backed securities	$	181,412	$	—	$	1,769	$	8,422	$	191,603

	December 31, 2018
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 Days		Total
U.S. Government-sponsored mortgage-backed securities	$	104,883	$	1,014	$	7,615	$	—	$	113,512

37

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 12 

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 of September 30, 2019 and 2018:

	Accumulated Other Comprehensive Income (Loss)
	Unrealized Gains (Losses) on Securities Available for Sale			Unrealized Gains (Losses) on Cash Flow Hedges			Unrealized Gains (Losses) on Defined Benefit Plans			Total
Balance at December 31, 2018	$	(6,343	)	$	(559	)	$	(14,520	)	$	(21,422	)
Other comprehensive income before reclassifications	50,545			(1,003		)	—			49,542
Amounts reclassified from accumulated other comprehensive income	(2,667		)	195			—			(2,472		)
Period change	47,878			(808		)	—			47,070
Balance at September 30, 2019	$	41,535		$	(1,367	)	$	(14,520	)	$	25,648
Balance at December 31, 2017	$	8,970		$	(1,125	)	$	(10,753	)	$	(2,908	)
Other comprehensive income before reclassifications	(30,032		)	1,039			—			(28,993		)
Amounts reclassified from accumulated other comprehensive income	(3,173		)	291			—			(2,882		)
Period change	(33,205		)	1,330			—			(31,875		)
Reclassification adjustment under ASU 2018-02	1,932			(242		)	(2,316		)	(626		)
Balance at September 30, 2018	$	(22,303	)	$	(37	)	$	(13,069	)	$	(35,409	)

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 the three and nine months ended September 30, 2019 and 2018.

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Three Months Ended September 30,
Details about Accumulated Other Comprehensive Income (Loss) Components	2019			2018			Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains reclassified into income	$	393		$	1,285		Other income - net realized gains on sales of available for sale securities
Related income tax expense	(83		)	(270		)	Income tax expense
	$	310		$	1,015
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts	$	(104	)	$	(93	)	Interest expense - subordinated debentures and term loans
Related income tax benefit	22			20			Income tax expense
	$	(82	)	$	(73	)
Total reclassifications for the period, net of tax	$	228		$	942

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Nine Months Ended September 30,
Details about Accumulated Other Comprehensive Income (Loss) Components	2019			2018			Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains reclassified into income	$	3,376		$	4,016		Other income - net realized gains on sales of available for sale securities
Related income tax expense	(709		)	(843		)	Income tax expense
	$	2,667		$	3,173
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts	$	(247	)	$	(368	)	Interest expense - subordinated debentures and term loans
Related income tax benefit	52			77			Income tax expense
	$	(195	)	$	(291	)
Total reclassifications for the period, net of tax	$	2,472		$	2,882

⁽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 9. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements.

38

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 13 

SHARE-BASED COMPENSATION

Stock 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 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 3 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 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 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 the three and nine months ended September 30, 2019 was $1,062,000 and $2,887,000, respectively, compared to $891,000 and $2,546,000, respectively, for the three and nine months ended September 30, 2018. 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 approximately 1.7 percent for the nine months ended September 30, 2019, based on historical experience.

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 Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Stock and ESPP Options
Pre-tax compensation expense	$	36		$	39		$	72		$	88
Income tax benefit	—			(15		)	(57		)	(153		)
Stock and ESPP option expense, net of income taxes	$	36		$	24		$	15		$	(65	)
Restricted Stock Awards
Pre-tax compensation expense	$	1,026		$	852		$	2,815		$	2,458
Income tax benefit	(226		)	(202		)	(951		)	(952		)
Restricted stock awards expense, net of income taxes	$	800		$	650		$	1,864		$	1,506
Total Share-Based Compensation
Pre-tax compensation expense	$	1,062		$	891		$	2,887		$	2,546
Income tax benefit	(226		)	(217		)	(1,008		)	(1,105		)
Total share-based compensation expense, net of income taxes	$	836		$	674		$	1,879		$	1,441

As of September 30, 2019, unrecognized compensation expense related to RSAs was $8,560,000 and is expected to be recognized over a weighted-average period of 1.82 years. The Corporation did not have any unrecognized compensation expense related to stock options as of September 30, 2019.

39

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

Stock option activity under the Corporation's stock option plans as of September 30, 2019 and changes during the nine months ended September 30, 2019, were as follows:

	Number of Shares		Weighted-Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	76,300		$	12.40
Exercised	(12,950	)	$	9.32
Cancelled	—		$	—
Outstanding September 30, 2019	63,350		$	13.03	2.55	$	1,558,945
Vested and Expected to Vest at September 30, 2019	63,350		$	13.03	2.55	$	1,558,945
Exercisable at September 30, 2019	63,350		$	13.03	2.55	$	1,558,945

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 the first nine months of 2019 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 September 30, 2019.  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 the nine months ended September 30, 2019 and 2018 was $355,000 and $1,203,000, respectively. Cash receipts of stock options exercised during this same period were $121,000 and $1,093,000, respectively.

The following table summarizes information on unvested RSAs outstanding as of September 30, 2019:

	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2019	344,362		$	36.80
Granted	119,743		$	37.08
Vested	(113,043	)	$	23.61
Forfeited	(2,400	)	$	40.54
Unvested RSAs at September 30, 2019	348,662		$	41.51

The grant date fair value of ESPP options was estimated to be $36,000 at the beginning of the July 1, 2019 quarterly offering period. The ESPP options vested during the three months ending September 30, 2019, leaving no unrecognized compensation expense related to unvested ESPP options at September 30, 2019.

NOTE 14

INCOME TAX

The 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 the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 21%	$	9,050		$	10,414		$	28,908		$	29,500
Tax-exempt interest income	(2,637		)	(2,118		)	(7,307		)	(6,178		)
Share-based compensation	(11		)	(38		)	(402		)	(570		)
Tax-exempt earnings and gains on life insurance	(241		)	(197		)	(647		)	(655		)
Tax credits	(61		)	(42		)	(202		)	(65		)
Other	237			459			677			1,018
Actual Tax Expense	$	6,337		$	8,478		$	21,027		$	23,050
Effective Tax Rate	14.7		%	17.1		%	15.3		%	16.4		%

40

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

(Unaudited)

NOTE 15

NET INCOME PER SHARE

Basic 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 the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended September 30,
	2019					2018
	Net Income		Weighted-Average Shares	Per Share Amount		Net Income		Weighted-Average Shares	Per Share Amount
Net income available to common stockholders	$	36,757	51,433,227	$	0.71	$	41,113	49,286,945	$	0.83
Effect of potentially dilutive stock options and restricted stock awards			136,330					205,074
Diluted net income per share	$	36,757	51,569,557	$	0.71	$	41,113	49,492,019	$	0.83

	Nine Months Ended September 30,
	2019					2018
	Net Income		Weighted-Average Shares	Per Share Amount		Net Income		Weighted-Average Shares	Per Share Amount
Net income available to common stockholders	$	116,630	50,085,701	$	2.33	$	117,426	49,244,403	$	2.38
Effect of potentially dilutive stock options and restricted stock awards			141,679					213,782
Diluted net income per share	$	116,630	50,227,380	$	2.32	$	117,426	49,458,185	$	2.37

For the three and nine months ended September 30, 2019 and 2018, there were no stock options with an option price greater than the average market price of the common shares.

NOTE 16

GENERAL LITIGATION AND REGULATORY EXAMINATIONS

The 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.

41

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

From time to time, we include forward-looking statements in our oral and written communication. We may include forward-looking statements in filings with the Securities and Exchange Commission, such as this Quarterly Report on Form 10-Q, in other written materials and in oral statements made by senior management to analysts, investors, representatives of the media and others. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of these safe harbor provisions. Forward-looking statements can often be identified by the use of words like “believe”, “continue”, “pattern”, “estimate”, “project”, “intend”, “anticipate”,  “expect” and similar expressions or future or conditional verbs such as “will”, “would”,  “should”,  “could”,  “might”, “can”, “may”, or similar expressions. These forward-looking statements include:

• 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.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors which could affect the actual outcome of future events:

• 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;

• 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.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our anticipated future results.

CRITICAL ACCOUNTING POLICIES

Generally accepted accounting principles are complex and require us to apply significant judgments to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply those principles where actual measurement is not possible or practical. For a complete discussion of our significant accounting policies, see “Notes to the Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2018. Certain policies are considered critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

We believe there have been no significant changes during the nine months ended September 30, 2019, to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.

BUSINESS SUMMARY

First Merchants Corporation (the “Corporation”) is a financial holding company headquartered in Muncie, Indiana and was organized in September 1982. The Corporation’s Common Stock is traded on NASDAQ’s Global Select Market System under the symbol FRME. The Corporation has one full-service bank charter, First Merchants Bank (the “Bank”), which opened for business in Muncie, Indiana, in March 1893. The Bank also operates First Merchants Private Wealth Advisors (a division of First Merchants Bank).  The Bank includes 130 banking locations in thirty Indiana, two Illinois, two Ohio and two Michigan counties. In addition to its traditional branch network, the Corporation offers comprehensive electronic and mobile delivery channels to its customers. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.

Through the Bank, the Corporation offers a broad range of financial services, including accepting time, savings and demand deposits; making consumer, commercial, agri-business and real estate mortgage loans; providing personal and corporate trust services; offering full-service brokerage and private wealth management; and providing letters of credit, repurchase agreements and other corporate services.

42

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

REQUIREMENTS FOR BANK HOLDING COMPANIES WITH $10 BILLION OR MORE IN ASSETS

Various federal banking laws and regulations, including rules adopted by the Federal Reserve pursuant to the requirements of the Dodd-Frank Act, impose heightened requirements on certain large banks and bank holding companies. Most of these rules apply primarily to bank holding companies with at least $50 billion in total consolidated assets, but certain rules also apply to banks and bank holding companies with at least $10 billion in total consolidated assets. As of March 31, 2019, the Corporation, for the first time, exceeded the $10 billion threshold.

Following the fourth consecutive quarter (and any applicable phase-in period) where the Corporation’s or the Bank’s total consolidated assets, as applicable, equal or exceed $10 billion, the Corporation or the Bank, as applicable, will, among other requirements:

• calculate the FDIC deposit assessment base using a performance score and a loss-severity scoring system; and

• be examined for compliance with federal consumer protection laws primarily by the Consumer Financial Protection Bureau.

Additionally, on July 21, 2010, President Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act has had a broad impact on the financial services industry, including significant regulatory and compliance changes. Although most of the required regulations of the Dodd-Frank Act have been promulgated and implemented (or are being implemented over time), there are additional regulations yet to be finalized by the authorized federal agencies. The changes resulting from the Dodd-Frank Act have impacted the profitability of the Corporation’s business activities, required changes to certain business practices, and imposed more stringent capital, liquidity and leverage requirements, and, when fully implemented, may further adversely affect the Corporation's business. Among other things, the Dodd-Frank Act has resulted in:

• increases to the cost of the Corporation’s operations due to greater regulatory oversight, supervision and examination of banks and bank holding companies, including higher deposit insurance premiums;

• limitations on the Corporation’s ability to raise additional capital through the use of trust preferred securities, as new issuances of these securities may no longer be included as Tier 1 capital;

• reduced flexibility for the Corporation to generate or originate certain revenue-producing assets based on increased regulatory capital standards; and

• limitations on the Corporation’s ability to expand consumer product and service offerings due to stricter consumer protection laws and regulations.

• as the Corporation's assets have now exceeded $10 billion, compliance with the Durbin Amendment will result in a material reduction of interchange fee income paid by merchants when debit cards are used as payment.

The Corporation’s management continues to take the steps necessary to minimize the adverse impact of the Dodd-Frank Act on its business, financial condition and results of operation.

RESULTS OF OPERATIONS

Executive Summary

The Corporation reported third quarter 2019 net income of $36.8 million, compared to $41.1 million during the third quarter of 2018. Diluted earnings per share for the period totaled $0.71 per share, compared to $0.83 per diluted share during the same period in 2018. Included in the third quarter results are $11.2 million, or $0.17 per share, of acquisition-related expenses associated with our acquisition of MBT on September 1, 2019. Year-to-date net income totaled $116.6 million, compared to $117.4 million during the same period in 2018. Diluted earnings per share for the nine months ended September 30, 2019 totaled $2.32, compared to $2.37 in the same period of 2018. Included in the results for the nine months ended September 30, 2019 are $11.9 million, or $0.19 per share, of acquisition-related expenses associated with our acquisition of MBT.

As of September 30, 2019, total assets equaled $12.3 billion, an increase of $2.4 billion from December 31, 2018, of which the MBT acquisition accounted for $1.5 billion of the increase. Details of the MBT acquisition are discussed within NOTE 2. ACQUISITION of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q. Excluding the growth in total assets from MBT, organic asset growth totaled $989.6 million, or an annualized 13.3 percent.

Cash and cash equivalents and interest-bearing time deposits increased $256.3 million from December 31, 2018. Total investment securities increased $856.8 million from December 31, 2018 as excess liquidity generated from deposit growth was used to invest in the bond portfolio. The MBT acquisition attributed to $291.5 million of the increase in cash and cash equivalents and interest-bearing time deposits and $212.2 million of the increase in investment securities.

The Corporation's total loan portfolio increased $1.1 billion from December 31, 2018. Loans acquired as part of the MBT acquisition represented $731.3 million of the increase. Organic loan growth during the first nine months of 2019 was $346.7 million, or an annualized 6.4 percent. The largest loan segments that experienced increases were commercial and farmland real estate, commercial and industrial and residential. The largest loan segment that experienced a decrease was agricultural production financing and other loans to farmers. Additional details of the changes in the Corporation's loans and other earning assets are discussed within NOTE 4. LOANS AND ALLOWANCE of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q, and the "EARNING ASSETS" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

43

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Corporation’s allowance for loan losses totaled $80.6 million as of September 30, 2019 and equaled 0.97 percent of total loans.  The Corporation's provision expense and net charge offs for the three months ended September 30, 2019 were $600,000 and $1.3 million, respectively, compared to provision expense and net charge offs of $1.4 million and $537,000, respectively, during the same period of 2018. For the nine months ended September 30, 2019, the Corporation's provision expense and net charge offs were both $2.3 million, compared to provision expense and net charge offs of $5.6 million and $2.2 million, respectively, during the same period in 2018. Credit metrics continue to improve and are discussed within the “LOAN QUALITY/PROVISION FOR LOAN LOSSES” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Goodwill and other intangibles increased $97.8 million and $12.1 million, net of amortization, respectively, due to the MBT acquisition. Cash surrender value of life insurance increased $61.8 million, with $59.5 million of the increase as a result of the MBT acquisition.

The Corporation's tax asset, deferred and receivable, equaled $15.2 million as of September 30, 2019 and decreased $8.5 million from December 31, 2018. At December 31, 2018, the Corporation's available for sale investment portfolio had an unrealized loss of $7.5 million, compared to an unrealized gain at September 30, 2019 of $53.1 million. The change in unrealized gains/losses from December 31, 2018 to September 30, 2019 is primarily due to the changes in interest rates.  The longer term points on the yield curve have declined since year-end which increases the fair value of securities held in the portfolio. This change resulted in a deferred tax asset of $1.7 million at December 31, 2018 changing to a deferred tax liability at September 30, 2019 of $9.7 million. Offsetting this decrease in the Corporation's tax asset, deferred and receivable was an increase of $5.0 million as a result of the MBT acquisition.

The Corporation's other assets increased $51.8 million from December 31, 2018 due in part to implementation of new lease accounting guidance in ASU 2016-02, Leases (Topic 842), associated with the Corporation's leased banking center locations. As of September 30, 2019, the Corporation's right of use asset (recorded in other assets) was $21.4 million and the lease liability (recorded in other liabilities) was $22.1 million. The new lease accounting guidance and lease disclosures are discussed within NOTE 1. GENERAL and NOTE 8. LEASES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Additionally, the Corporation's derivative hedge asset (recorded in other assets) and derivative hedge liability (recorded in other liabilities), related to the Corporation's interest rate swaps with commercial banking customers, which are simultaneously hedged by offsetting interest rate swaps with a third party, increased $26.0 million and $27.0 million, respectively from December 31, 2018. The increases were primarily due to a $147.8 million increase in outstanding notional balance and yield curve rates used for valuation purposes were lower at each term point as of September 30, 2019 compared to December 31, 2018.

As of September 30, 2019, total deposits equaled $9.8 billion, an increase of $2.0 billion from December 31, 2018. MBT accounted for $1.1 billion of the deposit growth, while organic deposit growth totaled $905 million, or an annualized 15.6 percent. As interest rates have risen, the Corporation experienced a decrease in non-interest bearing deposits, which were offset by increases in interest-bearing deposits. After excluding the MBT deposits acquired, the Corporation experienced increases from December 31, 2018 in demand accounts of $600.7 million, savings accounts of $128.8 million and certificates of deposit of $192.6 million. Those increases were offset by a $17.2 million decrease in brokered deposits from December 31, 2018.

Total borrowings increased $13.9 million as of September 30, 2019, compared to December 31, 2018. Federal funds purchased decreased $104 million from December 31, 2018 as a result of excess liquidity generated from deposit growth. Securities sold under repurchase agreements increased $78.1 million compared to year end 2018, of which the MBT acquisition accounted for an increase of $94.8 million. Federal Home Loan Bank advances increased $39.6 million compared to December 31, 2018 with the MBT acquisition accounting for $10.9 million.

The Corporation's other liabilities as of September 30, 2019 increased $72.6 million compared to December 31, 2018. The MBT acquisition accounted for $9.3 million of the increase. Additionally, at September 30, 2019, the Corporation accrued $13.9 million for trade date accounting related to investment securities purchases. As a result of the implementation of the new lease accounting guidance noted above, the Corporation's lease liability totaled $22.1 million at September 30, 2019. Additionally, as noted above, the Corporation's derivative hedge liability increased by $27.0 million from December 31, 2018.

The Corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “well-capitalized” as discussed in the “CAPITAL” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

44

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NET INTEREST INCOME

Net interest income is the most significant component of our earnings, comprising 81 percent of revenues for the nine months ended September 30, 2019. Net interest income and margin are influenced by many factors, primarily the volume and mix of earning assets, funding sources, and interest rate fluctuations. Other factors include the level of accretion income on purchased loans, prepayment risk on mortgage and investment-related assets, and the composition and maturity of earning assets and interest-bearing liabilities. Loans typically generate more interest income than investment securities with similar maturities. Funding from customer deposits generally costs less than wholesale funding sources. Factors such as general economic activity, Federal Reserve Board monetary policy, and price volatility of competing alternative investments, can also exert significant influence on our ability to optimize the mix of assets and funding and the net interest income and margin.

Net interest income is the excess of interest received from earning assets over interest paid on interest-bearing liabilities. For analytical purposes, net interest income is also presented on an FTE basis in the tables that follow to reflect what tax-exempt assets would need to yield in order to achieve the same after-tax yield as a taxable asset. The federal statutory rate of 21 percent was used for all periods, adjusted for the TEFRA interest disallowance applicable to certain tax-exempt obligations. The FTE analysis portrays the income tax benefits associated with tax-exempt assets and helps to facilitate a comparison between taxable and tax-exempt assets. Management believes that it is a standard practice in the banking industry to present net interest margin and net interest income on a fully taxable equivalent basis. Therefore, management believes these measures provide useful information for both management and investors by allowing them to make peer comparisons.

For the three and nine months ended September 30, 2019, the increases in net interest income and earning assets were primarily attributable to the September 2019 MBT acquisition, in addition to, core organic loan and deposit growth and an increase in the investment securities portfolio. Details regarding the MBT acquisition and earning assets are discussed in NOTE 2. ACQUISITION of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q and the "EARNING ASSETS" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.

In the third quarter of 2019, asset yields decreased 11 basis points FTE compared to the same period in 2018 as a result of the Federal Reserve's interest rate decrease of 25 basis points at each of the Board's July and September 2019 meetings, compared to an interest rate increase at each of the Board's June and September 2018 meetings. Average earning assets increased $1.4 billion in the third quarter of 2019 compared to the third quarter of 2018. The increase in earning assets attributable to the MBT acquisition totaled $1.2 billion. Interest costs increased 36 basis points, resulting in a 47 basis point FTE decrease in net interest spread as compared to the same period in 2018. Interest costs have increased as both core deposits and wholesale funding rates increased year-over-year. Net interest margin, on a tax equivalent basis, decreased to 3.62 percent for the third quarter of 2019 compared to 4.05 percent during the same period in 2018. The Corporation recognized fair value accretion income on purchased loans, which is included in interest income, of $2.5 million, which accounted for 10 basis points of net interest margin in the third quarter of 2019. Comparatively, the Corporation recognized $3.2 million of accretion income, for the three months ended September 30, 2018, or 15 basis points of net interest margin.

In the nine months ended September 30, 2019, asset yields increased 11 basis points FTE compared to the same period in 2018. Asset yields increased primarily as a result of the Federal Reserve's interest rate increases of 25 basis points at each of the Board's March, June, September and December 2018 meetings, which were then offset by 25 basis point decreases in each of the Board's July and September 2019 meetings. Average earning assets increased $961.1 million in the nine months ended September 30, 2019 compared to the same period in 2018. Interest costs increased 44 basis points as both core deposits and wholesale funding rates increased year-over-year. Net interest margin, on a tax equivalent basis, decreased to 3.72 percent for the nine months ended September 30, 2019 compared to 3.99 percent during the same period in 2018. The Corporation recognized fair value accretion income on purchased loans, which is included in interest income, of $7.0 million, which accounted for 10 basis points of net interest margin for the nine months ended September 30, 2019. Comparatively, the Corporation recognized $10.2 million of accretion income, for the nine months ended September 30, 2018, or 16 basis points of net interest margin.

45

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables presents the Corporation’s average balance sheet, interest income/interest expense, and the average rate as a percent of average earning assets/liabilities for the three months ended September 30, 2019, and 2018.

(Dollars in Thousands)	Three Months Ended
	September 30, 2019							September 30, 2018
	Average Balance			Interest  Income / Expense		Average Rate		Average Balance			Interest  Income / Expense		Average Rate
Assets:
Interest-bearing time deposits	$	262,082		$	1,363	2.06	%	$	52,027		$	270	2.08	%
Federal Home Loan Bank stock	24,633			355		5.76		24,588			283		4.60
Investment Securities: (1)
Taxable	1,104,612			6,729		2.44		857,507			5,514		2.57
Tax-Exempt (2)	1,027,528			10,551		4.11		776,942			8,219		4.23
Total Investment Securities	2,132,140			17,280		3.24		1,634,449			13,733		3.36
Loans held for sale	21,913			274		5.00		11,038			142		5.15
Loans: (3)
Commercial	5,674,956			77,370		5.45		5,226,284			71,223		5.45
Real Estate Mortgage	822,874			9,518		4.63		739,356			8,383		4.54
Installment	715,428			9,688		5.42		655,738			8,731		5.33
Tax-Exempt (2)	538,157			5,696		4.23		467,278			4,761		4.08
Total Loans	7,773,328			102,546		5.28		7,099,694			93,240		5.25
Total Earning Assets	10,192,183			121,544		4.77	%	8,810,758			107,526		4.88	%
Net unrealized gain (loss) on securities available for sale	30,353							(15,245		)
Allowance for loan losses	(80,918		)					(77,763		)
Cash and cash equivalents	143,266							128,557
Premises and equipment	99,021							94,422
Other assets	893,837							815,951
Total Assets	$	11,277,742						$	9,756,680
Liabilities:
Interest-bearing deposits:
Interest-bearing NOW deposits	$	3,134,675		$	9,285	1.18	%	$	2,399,477		$	4,909	0.82	%
Money market deposits	1,307,647			3,766		1.14		1,062,154			1,551		0.58
Savings deposits	1,244,859			2,523		0.80		1,081,369			1,500		0.55
Certificates and other time deposits	1,736,759			9,256		2.11		1,536,697			5,725		1.49
Total Interest-bearing Deposits	7,423,940			24,830		1.33		6,079,697			13,685		0.90
Borrowings	660,107			4,370		2.59		741,092			4,629		2.50
Total Interest-bearing Liabilities	8,084,047			29,200		1.43		6,820,789			18,314		1.07
Noninterest-bearing deposits	1,498,282							1,523,928
Other liabilities	98,818							53,059
Total Liabilities	9,681,147							8,397,776
Stockholders' Equity	1,596,595							1,358,904
Total Liabilities and Stockholders' Equity	$	11,277,742		29,200				$	9,756,680		18,314
Net Interest Income (FTE)				$	92,344						$	89,212
Net Interest Spread (FTE) (4)						3.34	%						3.81	%
Net Interest Margin (FTE):
Interest Income (FTE) / Average Earning Assets						4.77	%						4.88	%
Interest Expense / Average Earning Assets						1.15	%						0.83	%
Net Interest Margin (FTE) (5)						3.62	%						4.05	%
(1) Average balance of securities is computed based on the average of the historical amortized cost balances without the effects of the fair value 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 2019 and 2018. These totals equal $3,412 and $2,726 for the three months ended September 30, 2019 and 2018, 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.

46

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in Thousands)	Nine Months Ended
	September 30, 2019							September 30, 2018
	Average Balance			Interest  Income / Expense		Average Rate		Average Balance			Interest  Income / Expense		Average Rate
Assets:
Federal Funds Sold
Interest-bearing time deposits	$	184,640		$	3,022	2.18	%	$	76,570		$	1,034	1.80	%
Federal Reserve and Federal Home Loan Bank stock	24,603			1,028		5.57		24,521			950		5.17
Investment Securities: (1)
Taxable	1,021,102			19,822		2.59		840,425			16,044		2.55
Tax-Exempt (2)	923,030			28,684		4.14		753,176			23,880		4.23
Total Investment Securities	1,944,132			48,506		3.33		1,593,601			39,924		3.34
Loans held for sale	13,618			512		5.01		9,520			363		5.08
Loans: (3)
Commercial	5,469,377			224,766		5.48		5,116,405			200,886		5.24
Real Estate Mortgage	778,778			26,526		4.54		732,469			25,174		4.58
Installment	686,055			28,351		5.51		637,140			24,986		5.23
Tax-Exempt (2)	517,082			16,325		4.21		466,926			13,910		3.97
Total Loans	7,464,910			296,480		5.30		6,962,460			265,319		5.08
Total Earning Assets	9,618,285			349,036		4.84	%	8,657,152			307,227		4.73	%
Net unrealized gain on securities available for sale	12,856							(11,616		)
Allowance for loan losses	(81,172		)					(76,944		)
Cash and cash equivalents	130,587							129,181
Premises and equipment	94,628							94,897
Other assets	848,480							817,549
Total Assets	$	10,623,664						$	9,610,219
Liabilities:
Interest-bearing deposits:
Interest-bearing NOW deposits	$	2,921,762		$	24,844	1.13	%	$	2,236,644		$	12,013	0.72	%
Money market deposits	1,222,860			10,057		1.10		1,077,792			4,270		0.53
Savings deposits	1,187,173			7,315		0.82		1,041,600			3,214		0.41
Certificates and other time deposits	1,652,141			25,295		2.04		1,504,851			15,355		1.36
Total Interest-bearing Deposits	6,983,936			67,511		1.29		5,860,887			34,852		0.79
Borrowings	636,295			12,997		2.72		754,054			13,466		2.38
Total Interest-bearing Liabilities	7,620,231			80,508		1.41		6,614,941			48,318		0.97
Noninterest-bearing deposits	1,413,120							1,605,300
Other liabilities	87,839							58,111
Total Liabilities	9,121,190							8,278,352
Stockholders' Equity	1,502,474							1,331,867
Total Liabilities and Stockholders' Equity	$	10,623,664		80,508				$	9,610,219		48,318
Net Interest Income (FTE)				$	268,528						$	258,909
Net Interest Spread (FTE) (4)						3.43	%						3.76	%
Net Interest Margin (FTE):
Interest Income (FTE) / Average Earning Assets						4.84	%						4.73	%
Interest Expense / Average Earning Assets						1.12	%						0.74	%
Net Interest Margin (FTE) (5)						3.72	%						3.99	%
(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 2019 and 2018. These totals equal $9,452 and $7,936 for the nine months ended September 30, 2019 and 2018, 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.

47

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NON-INTEREST INCOME

Non-interest income increased $2.6 million, or 13.3 percent, in the third quarter of 2019, compared to the third quarter of 2018. On September 1, 2019, the Corporation acquired MBT, which contributed $1.3 million to the third quarter 2019 increase in non-interest income. Details of the acquisition can be found in NOTE 2. ACQUISITION of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q. The increased customer base from the acquisition, in addition to organic growth, resulted in an increase in customer related line items of $3.1 million in the third quarter of 2019 when compared to the same period in 2018. The largest increases were recognized in derivative hedge income, fiduciary and wealth management fees, card payment fees and service charges on deposit accounts which accounted for $2.7 million of the customer related line items increase.

These increases were partially offset by a decrease in net realized gains on sales of available for sale securities of $892,000 in the third quarter of 2019 when compared to the same period in 2018.

During the first nine months of 2019, non-interest income increased $5.2 million, or 9.0 percent, over the same period in 2018. The MBT acquisition accounted for $1.3 million of the increase in non-interest income in the first nine months of 2019. Customer related line items increased $5.5 million with the largest increase of $2.1 million resulting from growth in derivative hedge fees. Additionally, increases in the first nine months of 2019 when compared to the same period in 2018 were noted in service charges on deposit accounts, card payment fees and fiduciary and wealth management fees, which totaled $3.5 million.

These increases were partially offset by a decrease in net realized gains on sales of available for sale securities of $640,000 in the first nine months of 2019 when compared to the same period 2018.

NON-INTEREST EXPENSE

Non-interest expense increased $12.3 million, or 22.4 percent, in the third quarter of 2019, compared to the third quarter of 2018.  The most significant factor contributing to the increase was the acquisition of MBT, as the Corporation recorded $11.2 million of acquisition-related expenses, primarily consisting of $5.2 million of contract termination and core system conversion expenses, $4.5 million of employee severance and retention expenses and $1.3 million of professional and other outside services expense. In addition to the acquisition-related expenses, MBT operations after the acquisition resulted in non-interest expense of $1.8 million, of which $1.1 million was in salaries and employee benefits. Additionally, due to growth in our customer base, outside data processing fees increased $1.0 million when compared to the third quarter of 2018.

These increases were partially offset by a decrease in FDIC expense of $1.5 million in the third quarter of 2019 when compared to the same period in 2018. The decrease was due to assessment credits being issued as a result of the FDIC insurance fund reaching the FDIC's target minimum reserve ratio.

During the first nine months of 2019, non-interest expense increased $19.3 million, or 11.9 percent, compared to the first nine months of 2018. The most significant factor contributing to the increase was the acquisition of MBT, as the Corporation recorded $11.9 million of acquisition-related expenses, primarily consisting of $5.2 million of contract termination and core system conversion expenses, $4.5 million of employee severance and retention expenses and $1.5 million of professional and other outside services expense. In addition to the acquisition-related expenses, MBT operations after the acquisition resulted in non-interest expense of $1.8 million, of which $1.1 million was in salaries and employee benefits. Additionally, increases totaling $4.4 million were noted in equipment and software, outside data processing fees, and other real estate owned and foreclosure expense. Finally, marketing expense increased $1.6 million in the first nine months of 2019, compared to the same period in 2018, primarily due to fair lending settlement expenses.

These increases were partially offset by a decrease in FDIC expense of $1.6 million in the first nine months of 2019 when compared to the same period in 2018. The decrease was due to assessment credits being issued as a result of the FDIC insurance fund reaching the FDIC's target minimum reserve ratio.

INCOME TAXES

Income tax expense for the third quarter of 2019 was $6,337,000 on pre-tax net income of $43,094,000.  For the same period in 2018, income tax expense was $8,478,000 on pre-tax net income of $49,591,000. The effective income tax rates for the third quarter of 2019 and 2018 were 14.7 percent and 17.1 percent, respectively.

Income tax expense for the nine months ended September 30, 2019 was $21,027,000 on pre-tax net income of $137,657,000. For the same period in 2018, income tax expense was $23,050,000 on pre-tax net income of $140,476,000. The effective income tax rates for the nine months ended September 30, 2019 and 2018 were 15.3 percent and 16.4 percent, respectively.

The lower effective income tax rates during the three and nine months ended September 30, 2019 when compared to the same periods in 2018 were primarily the result of an increase in tax-exempt interest income and a decrease in taxable income.

The detailed reconciliation of federal statutory to actual tax expense is shown in NOTE 14. INCOME TAX of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

48

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAPITAL

Stockholders' Equity

On September 1, 2019, the Corporation acquired 100 percent of MBT. Pursuant to the merger agreement, each MBT shareholder received 0.275 shares of the Corporation's common stock for each outstanding share of MBT common stock held. The Corporation issued approximately 6.4 million shares of common stock, which was valued at approximately $229.9 million. Details regarding the MBT acquisition are discussed in NOTE 2. ACQUISITION of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Stock Repurchase Program

On September 3, 2019, the Board of Directors of the Corporation approved a stock repurchase program of up to 3 million shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $75 million. On a share basis, the amount of common stock subject to the repurchase program represents approximately 5 percent of the Corporation's outstanding shares. The actual timing, number and share price of shares purchased under the repurchase program will be determined at the Corporation's discretion and will depend upon such factors as the market price of the stock, general market and economic conditions and applicable legal requirements. During the three and nine months ended September 30, 2019, the Corporation repurchased 516,016 shares of common stock for a total amount of $19.0 million at an average price of $36.90. All shares repurchased under the stock repurchase program were retired upon settlement.

Regulatory Capital

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

There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets, or leverage ratio, all of which are calculated as defined in the

regulations. Banks with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual levels. The appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice. Banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category.

Basel III was effective for the Corporation on January 1, 2015. Basel III requires the Corporation and the Bank to maintain a minimum ratio of CET1 capital to risk weighted assets, as defined in the regulation. Under the new Basel III rules, in order to avoid limitations on capital distributions, including dividends, the Corporation must hold a capital conservation buffer above the adequately capitalized CET1 capital to risk-weighted assets ratio. The capital conservation buffer was phased in from zero percent in 2015 to the fully-implemented 2.50 percent in 2019. Under Basel III, the Corporation and Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital.

As of September 30, 2019, the Bank met all capital adequacy requirements to be considered well capitalized. There is no threshold for well capitalized status for bank holding companies. The Corporation's and Bank's actual and required capital ratios as of September 30, 2019 and December 31, 2018 were as follows:

					Prompt Corrective Action Thresholds
	Actual				Adequately Capitalized				Well Capitalized
September 30, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital to risk-weighted assets
First Merchants Corporation	$	1,361,560	14.37	%	$	757,930	8.00	%	N/A		N/A
First Merchants Bank	1,243,540		13.05		762,218		8.00		$	952,773	10.00	%
Tier 1 capital to risk-weighted assets
First Merchants Corporation	$	1,215,989	12.83	%	$	568,448	6.00	%	N/A		N/A
First Merchants Bank	1,162,969		12.21		571,664		6.00		$	762,218	8.00	%
CET1 capital to risk-weighted assets
First Merchants Corporation	$	1,149,681	12.14	%	$	426,336	4.50	%	N/A		N/A
First Merchants Bank	1,162,969		12.21		428,748		4.50		$	619,302	6.50	%
Tier 1 capital to average assets
First Merchants Corporation	$	1,215,989	11.36	%	$	428,167	4.00	%	N/A		N/A
First Merchants Bank	1,162,969		10.88		427,441		4.00		$	534,301	5.00	%

49

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

					Prompt Corrective Action Thresholds
	Actual				Adequately Capitalized				Well Capitalized
December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total risk-based capital to risk-weighted assets
First Merchants Corporation	$	1,177,725	14.61	%	$	644,871	8.00	%	N/A		N/A
First Merchants Bank	1,092,602		13.46		649,531		8.00		$	811,914	10.00	%
Tier 1 capital to risk weighted assets
First Merchants Corporation	$	1,032,173	12.80	%	$	483,653	6.00	%	N/A		N/A
First Merchants Bank	1,012,050		12.47		487,148		6.00		$	649,531	8.00	%
CET1 capital to risk-weighted assets
First Merchants Corporation	$	966,032	11.98	%	$	362,740	4.50	%	N/A		N/A
First Merchants Bank	1,012,050		12.47		365,361		4.50		$	527,744	6.50	%
Tier 1 capital to average assets
First Merchants Corporation	$	1,032,173	10.91	%	$	378,379	4.00	%	N/A		N/A
First Merchants Bank	1,012,050		10.70		379,397		4.00		$	472,996	5.00	%

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

	September 30, 2019						December 31, 2018
(Dollars in thousands, except per share amounts)	First Merchants Corporation			First Merchants Bank			First Merchants Corporation			First Merchants Bank
Total Risk-Based Capital
Total Stockholders' Equity (GAAP)	$	1,749,012		$	1,764,062		$	1,408,260		$	1,456,220
Adjust for Accumulated Other Comprehensive (Income) Loss (1)	(25,648		)	(28,403		)	21,422			19,031
Less: Preferred Stock	(125		)	(125		)	(125		)	(125		)
Add: Qualifying Capital Securities	66,308			—			66,141			—
Less: Disallowed Goodwill and Intangible Assets	(570,098		)	(569,648		)	(463,525		)	(463,076		)
Less: Disallowed Deferred Tax Assets	(3,460		)	(2,917		)	—			—
Total Tier 1 Capital (Regulatory)	1,215,989			1,162,969			1,032,173			1,012,050
Qualifying Subordinated Debentures	65,000			—			65,000			—
Allowance for Loan Losses Includible in Tier 2 Capital	80,571			80,571			80,552			80,552
Total Risk-Based Capital (Regulatory)	$	1,361,560		$	1,243,540		$	1,177,725		$	1,092,602
Net Risk-Weighted Assets (Regulatory)	$	9,474,126		$	9,527,728		$	8,060,882		$	8,119,141
Average Assets (Regulatory)	$	10,704,184		$	10,686,025		$	9,459,477		$	9,459,925
Total Risk-Based Capital Ratio (Regulatory)	14.37		%	13.05		%	14.61		%	13.46		%
Tier 1 Capital to Risk-Weighted Assets	12.83		%	12.21		%	12.80		%	12.47		%
Tier 1 Capital to Average Assets	11.36		%	10.88		%	10.91		%	10.70		%
CET1 Capital Ratio
Total Tier 1 Capital (Regulatory)	$	1,215,989		$	1,162,969		$	1,032,173		$	1,012,050
Less: Qualified Capital Securities	(66,308		)	—			(66,141		)	—
CET1 Capital (Regulatory)	$	1,149,681		$	1,162,969		$	966,032		$	1,012,050
Net Risk-Weighted Assets (Regulatory)	$	9,474,126		$	9,527,728		$	8,060,882		$	8,119,141
CET1 Capital Ratio (Regulatory)	12.14		%	12.21		%	11.98		%	12.47		%

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

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Additionally, management believes the following tables are also meaningful when considering performance measures of the Corporation. Non-GAAP financial measures such as tangible common equity to tangible assets, return on average tangible capital and return on average tangible assets are important measures of the strength of the Corporation's capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide useful supplemental information and may assist investors in analyzing the

Corporation’s financial position without regard to the effects of intangible assets and preferred stock. Disclosure of these measures also allows analysts and banking regulators to assess our capital adequacy on these same bases.

Because these measures are not defined in GAAP or federal banking regulations, they are considered non-GAAP financial measures. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

The Corporation had a strong capital position as evidenced by the tangible common equity to tangible assets ratio of 9.95 percent at September 30, 2019, and 9.97 percent at December 31, 2018.

	Tangible Common Equity to Tangible Assets (non-GAAP)
(Dollars in thousands, except per share amounts)	September 30, 2019			December 31, 2018
Total Stockholders' Equity (GAAP)	$	1,749,012		$	1,408,260
Less: Cumulative preferred stock (GAAP)	(125		)	(125		)
Less: Intangible assets (GAAP)	(579,751		)	(469,784		)
Tangible common equity (non-GAAP)	$	1,169,136		$	938,351
Total assets (GAAP)	$	12,325,061		$	9,884,716
Less: Intangible assets (GAAP)	(579,751		)	(469,784		)
Tangible assets (non-GAAP)	$	11,745,310		$	9,414,932
Stockholders' Equity to Assets (GAAP)	14.19		%	14.25		%
Tangible common equity to tangible assets (non-GAAP)	9.95		%	9.97		%
Tangible common equity (non-GAAP)	$	1,169,136		$	938,351
Plus: Tax Benefit of intangibles (non-GAAP)	7,627			5,017
Tangible common equity, net of tax (non-GAAP)	$	1,176,763		$	943,368
Common Stock outstanding	55,346			49,350
Book Value (GAAP)	$	31.60		$	28.53
Tangible book value - common (non-GAAP)	$	21.26		$	19.12

The following table details and reconciles tangible earnings per share, return on tangible capital and tangible assets to traditional GAAP measures for the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2019			2018			2019			2018
Average goodwill (GAAP)	$	477,260		$	445,354		$	456,107		$	445,354
Average core deposit intangible (GAAP)	26,193			26,854			24,088			28,595
Average deferred tax on CDI (GAAP)	(5,405		)	(5,515		)	(4,956		)	(5,873		)
Intangible adjustment (non-GAAP)	$	498,048		$	466,693		$	475,239		$	468,076
Average stockholders' equity (GAAP)	$	1,596,595		$	1,358,904		$	1,502,474		$	1,331,867
Average cumulative preferred stock (GAAP)	(125		)	(125		)	(125		)	(125		)
Intangible adjustment (non-GAAP)	(498,048		)	(466,693		)	(475,239		)	(468,076		)
Average tangible capital (non-GAAP)	$	1,098,422		$	892,086		$	1,027,110		$	863,666
Average assets (GAAP)	$	11,277,742		$	9,756,680		$	10,623,664		$	9,610,219
Intangible adjustment (non-GAAP)	(498,048		)	(466,693		)	(475,239		)	(468,076		)
Average tangible assets (non-GAAP)	$	10,779,694		$	9,289,987		$	10,148,425		$	9,142,143
Net income available to common stockholders (GAAP)	$	36,757		$	41,113		$	116,630		$	117,426
CDI amortization, net of tax (GAAP)	1,071			1,303			3,480			4,025
Tangible net income available to common stockholders (non-GAAP)	$	37,828		$	42,416		$	120,110		$	121,451
Per Share Data:
Diluted net income available to common stockholders (GAAP)	$	0.71		$	0.83		$	2.32		$	2.37
Diluted tangible net income available to common stockholders (non-GAAP)	$	0.73		$	0.86		$	2.39		$	2.46
Ratios:
Return on average GAAP capital (ROE)	9.21		%	12.10		%	10.35		%	11.76		%
Return on average tangible capital	13.78		%	19.02		%	15.59		%	18.75		%
Return on average assets (ROA)	1.30		%	1.69		%	1.46		%	1.63		%
Return on average tangible assets	1.40		%	1.83		%	1.58		%	1.77		%

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Return on average tangible capital is tangible net income available to common stockholders (annualized) expressed as a percentage of average tangible capital.  Return on average tangible assets is tangible net income available to common stockholders (annualized) expressed as a percentage of average tangible assets.

LOAN QUALITY/PROVISION FOR LOAN LOSSES

The Corporation’s primary lending focus is small business and middle market commercial, commercial real estate and residential real estate, which results in portfolio diversification.  Commercial loans are individually underwritten and judgmentally risk rated.  They are periodically monitored and prompt corrective actions are taken on deteriorating loans.  Consumer loans are typically underwritten with statistical decision-making tools and are managed throughout their life cycle on a portfolio basis.

Loan Quality

The quality of the loan portfolio and the amount of non-performing loans may increase or decrease as a result of acquisitions, organic portfolio growth, problem loan recognition and resolution through collections, sales or charge-offs. The performance of any loan can be affected by external factors such as economic conditions, or internal factors specific to a particular borrower, such as the actions of a customer's internal management.

At September 30, 2019, non-performing loans totaled $23,304,000, a decrease of $3,947,000 from December 31, 2018 and $2,971,000 from June 30, 2019. Loans not accruing interest income totaled $22,728,000 at September 30, 2019, a decrease of $3,420,000 from December 31, 2018 and $2,907,000 from June 30, 2019. The Corporation’s coverage ratio of allowance for loan losses to non-accrual loans increased from 308.1 percent at December 31, 2018 to 354.5 percent at September 30, 2019. This non-accrual coverage ratio at June 30, 2019 was 317.0 percent. Troubled debt restructures totaled $576,000 at September 30, 2019, a decrease of $527,000 from December 31, 2018 and $64,000 from June 30, 2019. See additional information regarding the allowance for loan losses in the “Provision for Loan Losses” section of this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Other real estate owned, totaling $7,156,000 at September 30, 2019, increased $6,025,000 from June 30, 2019 and $4,977,000 from December 31, 2018. The quarter-over-quarter increase is due to the addition of collateral acquired through one relationship. For other real estate owned, current appraisals are obtained to determine fair value as management continues to aggressively market these real estate assets.

Impaired 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. 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 substantially within the contractual terms of the note.  At September 30, 2019, impaired loans totaled $16,274,000, a decrease of $5,751,000 from the December 31, 2018 balance of $22,025,000. Also at September 30, 2019, a specific allowance for losses was not deemed necessary for impaired loans totaling $10,125,000 as there were no identified losses on these credits. An allowance of $2,261,000 was recorded for the remaining balance of these impaired loans totaling $6,149,000, and was included in the Corporation’s allowance for loan losses.

The Corporation's non-performing assets plus accruing loans 90-days or more delinquent and impaired loans are presented in the table below.

(Dollars in Thousands)	September 30, 2019		December 31, 2018
Non-Performing Assets:
Non-accrual loans	$	22,728	$	26,148
Renegotiated loans	576		1,103
Non-performing loans (NPL)	23,304		27,251
Other real estate owned	7,156		2,179
Non-performing assets (NPA)	30,460		29,430
Loans 90-days or more delinquent and still accruing	82		1,855
NPAs and loans 90-days or more delinquent	$	30,542	$	31,285
Impaired Loans	$	16,274	$	22,025

The non-accrual balances in the table above include troubled debt loan restructures totaling $701,000 and $705,000 as of September 30, 2019 and December 31, 2018, respectively.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The composition of non-performing assets plus accruing loans 90-days or more delinquent is reflected in the following table.

(Dollars in Thousands)	September 30, 2019		December 31, 2018
Non-performing assets and loans 90-days or more delinquent:
Commercial and industrial loans	$	2,065	$	2,052
Agricultural production financing and other loans to farmers	3,150		679
Real estate loans:
Construction	7,418		11,606
Commercial and farmland	9,447		8,682
Residential	6,202		5,987
Home equity	2,157		1,815
Individuals' loans for household and other personal expenditures	103		110
Public finance and other commercial loans	—		354
Non-performing assets and loans 90-days or more delinquent:	$	30,542	$	31,285

Although the Corporation believes its underwriting and loan review procedures are appropriate for the various kinds of loans it makes, its results of operations and financial condition could be adversely affected in the event the quality of its loan portfolio declines.  Deterioration in the economic environment including residential and commercial real estate values may result in increased levels of loan delinquencies and credit losses.

Provision and Allowance for Loan Losses

The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings. Based on management’s judgment as to the appropriate level of the allowance for loan losses, the amount provided in any period may be greater or less than net loan losses for the same period. The determination of the provision amount and the adequacy of the allowance in any period is based on management’s continuing review and evaluation of the loan portfolio, including an internally administered loan "watch" list and independent loan reviews. The evaluation also takes into consideration identified credit problems, portfolio growth, management's judgment as to the impact of current economic conditions on the portfolio and the possibility of losses inherent in the loan portfolio that are not specifically identified.

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. An allowance may also be necessary if the historical loss and environmental factor analysis indicates losses inherent in a purchased portfolio exceed the fair value adjustment on the portion of the purchased portfolio not deemed impaired. At September 30, 2019, two purchased loans were determined to require a specific impairment of $453,000.

At September 30, 2019, the allowance for loan losses was $80,571,000, a decrease of $703,000 from June 30, 2019 and an increase of $19,000 from December 31, 2018. As a percent of loans, the allowance was 0.97 percent at September 30, 2019 compared to 1.08 percent at June 30, 2019 and 1.11 percent at December 31, 2018. The decrease in the allowance as a percentage of loans was primarily due to the addition of loans acquired in the MBT transaction. As required by current accounting guidance, these loans are accounted for at fair value and do not have a corresponding allowance for loan loss at acquisition. The provision for loan losses for the three months and nine months ended September 30, 2019 was $600,000 and $2,300,000, respectively. Comparatively, the provision for loan losses for the three and nine months ended September 30, 2018 was $1,400,000 and $5,563,000, respectively. The year-over-year decrease in the provision for loan losses for the three and nine months ended September 30, 2019 was primarily the result of improved credit quality. Specific reserves on impaired loans increased $389,000 from $1,872,000 at December 31, 2018, to $2,261,000 at September 30, 2019.

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PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net charge-offs totaling $2,281,000 were recognized for the nine months ended September 30, 2019. Comparatively, the same period in 2018 had net charge-offs of $2,189,000. For the three months ended September 30, 2019, there was one individual charge-off greater than $500,000 that totaled $1,318,000. For the nine months ended September 30, 2019, there were two individual charge-offs greater than $500,000 that totaled $3,273,000. For the three months ended September 30, 2019, there were no individual recoveries greater than $500,000. For the nine months ended September 30, 2019, there was one individual recovery greater than $500,000, which totaled $738,000. For the nine months ended September 30, 2018, there were two charge-offs greater than $500,000 that totaled $1,300,000. During the nine month period ending September 30, 2018, recoveries on a single relationship totaled $809,000. The distribution of the net charge-offs (recoveries) for the three and nine months ended September 30, 2019 and 2018 are reflected in the following table:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in Thousands)	2019			2018			2019			2018
Net charge-offs (Recoveries):
Commercial and industrial loans	$	23		$	(341	)	$	(130	)	$	(121	)
Agricultural production financing and other loans to farmers	(3		)	(4		)	13			40
Real estate loans:
Construction	1,007			(2		)	1,226			736
Commercial and farmland	(72		)	197			876			109
Residential	8			431			62			582
Home equity	25			108			(44		)	550
Individuals' loans for household and other personal expenditures	4			148			39			293
Public finance and other commercial loans	311			—			239			—
Total net charge-offs	$	1,303		$	537		$	2,281		$	2,189

Management continually evaluates the commercial loan portfolio by including consideration of specific borrower cash flow analysis and estimated collateral values, types and amounts on non-performing loans, past and anticipated loan loss experience, changes in the composition of the loan portfolio, and the current condition and amount of loans outstanding. The determination of the provision for loan losses in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio.

LIQUIDITY

Liquidity management is the process by which the Corporation ensures that adequate liquid funds are available for the holding company and its subsidiaries. These funds are necessary in order to meet financial commitments on a timely basis. These commitments include withdrawals by depositors, funding credit obligations to borrowers, paying dividends to stockholders, paying operating expenses, funding capital expenditures, and maintaining deposit reserve requirements. Liquidity is monitored and closely managed by the asset/liability committee.

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

The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $1,646,399,000 at September 30, 2019, an increase of $504,204,000, or 44.1 percent, from December 31, 2018.  Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity. Securities classified as held to maturity and that are maturing in one year or less totaled $13,833,000 at September 30, 2019. In addition, other types of assets such as cash and interest-bearing deposits with other banks, federal funds sold and loans maturing within one year are sources of liquidity.

The most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base.  Federal funds purchased and securities sold under agreements to repurchase are also considered a source of liquidity. In addition, FHLB advances are utilized as funding sources.  At September 30, 2019, total borrowings from the FHLB were $354,609,000. The Bank has pledged certain mortgage loans and investments to the FHLB. The total available remaining borrowing capacity from the FHLB at September 30, 2019 was $524,673,000.

54

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The required payments related to borrowings at September 30, 2019 are as follows:

(Dollars in Thousands)	Remaining 2019		2020		2021		2022		2023		2024		2025 and after		ASC 805 fair value adjustments at acquisition			Total
Federal funds purchased	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—		$	—
Securities sold under repurchase agreements	191,603		—		—		—		—		—		—		—			191,603
Federal Home Loan Bank advances	12,507		41,370		55,097		95,098		115,098		98		35,341		—			354,609
Subordinated debentures and term loans	—		—		—		—		—		—		142,322		(3,692		)	138,630
Total	$	204,110	$	41,370	$	55,097	$	95,098	$	115,098	$	98	$	177,663	$	(3,692	)	$	684,842

Additionally, the Corporation has entered into a number of long-term leasing arrangements to support ongoing activities. Details related to the Corporation's lease obligations are discussed within NOTE 8. LEASES of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

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

Summarized credit-related financial instruments at September 30, 2019 are as follows:

(Dollars in Thousands)	September 30, 2019
Amounts of commitments:
Loan commitments to extend credit	$	3,213,877
Standby and commercial letters of credit	31,099
	$	3,244,976

Since many of the commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.

INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK

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

It is the objective of the Corporation to monitor and manage risk exposure to net interest income caused by changes in interest rates.  It is the goal of the Corporation’s Asset/Liability management function to provide optimum and stable net interest income. To accomplish this, management uses two asset liability tools. GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation Modeling are constructed, presented and monitored quarterly. Management believes that the Corporation's liquidity and interest sensitivity position at September 30, 2019, remained adequate to meet the Corporation’s primary goal of achieving optimum interest margins while avoiding undue interest rate risk.

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

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

55

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The comparative rising 200 basis points and falling 100 basis points scenarios below, as of September 30, 2019, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario. Total rate movements (beginning point minus ending point) to each of the various driver rates utilized by management have the following results:

	September 30, 2019
	RISING	FALLING
Driver Rates	(200 Basis Points)	(100 Basis Points)
Prime	200	(100	)
Federal funds	200	(100	)
One-year CMT	200	(100	)
Three-year CMT	200	(100	)
Five-year CMT	200	(99	)
CD's	200	(25	)
FHLB advances	200	(84	)

Results for the base, rising 200 basis points, and falling 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at September 30, 2019. The net interest income shown represents cumulative net interest income over a twelve-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.

	September 30, 2019
			RISING			FALLING
(Dollars in Thousands)	Base		(200 Basis Points)			(100 Basis Points)
Net interest income	$	362,700	$	388,998		$	351,107
Variance from base			$	26,298		$	(11,593	)
Percent of change from base			7.25		%	(3.20		)%

The comparative rising 200 basis points and falling 100 basis points scenarios below, as of December 31, 2018, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario. Total rate movements (beginning point minus ending point) to each of the various driver rates utilized by management in the base simulation are as follows:

	December 31, 2018
	RISING	FALLING
Driver Rates	(200 Basis Points)	(100 Basis Points)
Prime	200	(100	)
Federal funds	200	(100	)
One-year CMT	200	(100	)
Three-year CMT	200	(100	)
Five-year CMT	200	(100	)
CD's	200	(25	)
FHLB advances	200	(100	)

Results for the base, rising 200 basis points, and falling 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at December 31, 2018. The net interest income shown represents cumulative net interest income over a twelve-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.

	December 31, 2018
			RISING			FALLING
(Dollars in Thousands)	Base		(200 Basis Points)			(100 Basis Points)
Net interest income	$	344,064	$	371,221		$	330,990
Variance from base			$	27,157		$	(13,074	)
Percent of change from base			7.89		%	(3.80		)%

56

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNING ASSETS

The following table presents the earning asset mix as of September 30, 2019 and December 31, 2018. Earning assets increased by $2,132,049,000 during the nine months ended September 30, 2019. The September 1, 2019 acquisition of MBT contributed to increases in several categories. Additional details of the MBT acquisition can be found in NOTE 2. ACQUISITION of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.  

Since December 31, 2018, interest-bearing time deposits and investment securities increased $193,138,000 and $856,838,000, respectively, of which the MBT acquisition accounted for $281,228,000 and $212,235,000 of the increase in interest-bearing time deposits and investment securities, respectively.

Loans and loans held for sale increased $1,077,925,000 from December 31, 2018, as the MBT acquisition contributed $731,260,000 to the loan growth. The largest loan segments that experienced increases were commercial and farmland real estate, commercial and industrial and residential. The largest loan segment that experienced a decrease was agricultural production financing and other loans to farmers. Additional details of the changes in the Corporation's loan portfolio are discussed within NOTE 4. LOANS AND ALLOWANCE of the Notes to Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

Federal Home Loan Bank stock increased $4,148,000 all due to the acquisition of MBT.

(Dollars in Thousands)	September 30, 2019		December 31, 2018
Interest-bearing time deposits	$	230,101	$	36,963
Investment securities available for sale	1,646,399		1,142,195
Investment securities held to maturity	843,021		490,387
Loans held for sale	7,910		4,778
Loans	8,299,260		7,224,467
Federal Home Loan Bank stock	28,736		24,588
Total	$	11,055,427	$	8,923,378

REGULATORY DEVELOPMENTS

On June 13, 2019, the Bank entered into a Settlement Agreement and Agreed Order with the United States Department of Justice (“DOJ”) to address issues raised relative to the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act (“FHA”). The Order was approved by the United States District Court for the Southern District of Indiana on August 9, 2019.

The Bank first physically entered the Indianapolis-Marion County market in February 2016 through its newly-constructed branch in the Broad Ripple neighborhood. In mid-2017, the Bank completed a system-wide fair lending assessment for the calendar year 2016, the first assessment that included Indianapolis-Marion County. Based on the analysis, the Bank concluded that it needed to enhance its mortgage lending strategy in majority-minority neighborhoods and began implementing steps to make those improvements.

In the meantime, in June 2017, the DOJ notified the Bank that an investigation of its fair lending practices has been opened. The investigation ultimately focused on the Indianapolis-Marion County market during the period between January 1, 2011 and December 31, 2016. The Settlement Agreement and Agreed Order arose from that investigation.

There was no actual finding or adjudication with respect to any matter alleged by the DOJ, and the Bank has not admitted any of the allegations or to any liability. Rather, the settlement provides an opportunity for the Bank to instead devote additional resources to continue serving the communities in which it operates, including helping meet the credit needs of all borrowers in those communities. The Bank prohibits any act or practice that discriminates in aspect of a residential real estate-related transaction in violation of the FHA or in any aspect of a credit transaction in violation of the ECOA. Nothing in the Settlement Agreement prohibits the Corporation from making future acquisitions or opening branches.

Pursuant to the Settlement Agreement, the Bank will invest $1.12 million over four years in a special loan subsidy fund that will offer residents in Indianapolis-Marion County majority-black census tracts access to home mortgage loans and home improvement loans. Subsidies may be used for down payment assistance, closing cost assistance, mortgage insurance premiums, and any other appropriate assistance measures approved by the DOJ. The maximum loan subsidy is $7,500 per loan. Up to 25 percent of the aggregate amount can be used for refinancings of existing loans.

The Bank will also open a full-service banking center in an Indianapolis-Marion county majority-black census tract and a new Loan Production Office (with an ATM) in Indianapolis-Marion County. The locations will be staffed with at least one full-time residential loan officer who is fully trained in all aspects of home mortgage and home equity lending, and whose marketing and community outreach work is consistent with standards laid out in the agreement. Additionally, the Bank will dedicate at least $125,000 per year for four years to marketing, community outreach, education and credit repair initiatives in Indianapolis-Marion County majority-black census tracts.

57

PART I: FINANCIAL INFORMATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Additionally, the Bank partnered with the Fair Housing Center of Central Indiana (“FHCCI”) on several initiatives designed to increase mortgage lending to residents in Marion County’s majority-black neighborhoods and census tracts. As part of this partnership the Bank contributed $550,000 to the FHCCI and agreed to contribute $500,000 in grants to be shared by three community development corporations over the next three years.

In the second quarter of 2019, the Bank recognized $1.2 million of expenses related to the DOJ and FHCCI agreements, which is reflected in marketing expense in the accompanying Consolidated Condensed Statements of Income.

For additional information regarding the terms of the Settlement Agreement and Agreed Order, see the Corporation’s Current Report on Form 8-K filed on June 13, 2019.

OTHER

The Securities and Exchange Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Corporation, and that address is (http://www.sec.gov).

58

PART I: FINANCIAL INFORMATION

ITEM 3. QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required under this item is included as part of Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the headings “LIQUIDITY” and “INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK”.

59

PART I: FINANCIAL INFORMATION

ITEM 4. CONTROLS AND PROCEDURES

ITEM 4.  CONTROLS AND PROCEDURES

At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no changes in the Corporation’s internal control over financial reporting identified in connection with the evaluation discussed above that occurred during the Corporation’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

60

PART II: OTHER INFORMATION

ITEM 1., ITEM 1A., ITEM 2., ITEM 3., ITEM 4. AND ITEM 5.

(table dollar amounts in thousands, except share data)

ITEM 1.  LEGAL PROCEEDINGS

There are no pending legal proceedings, other than litigation incidental to the ordinary business of the Corporation or its subsidiaries, of a material nature to which the Corporation or its subsidiaries is a party or of which any of their properties are subject. Further, there are no material legal proceedings in which any director, officer, principal shareholder, or affiliate of the Corporation, or any associate of any such director, officer or principal shareholder, is a party, or has a material interest, adverse to the Corporation or any of its subsidiaries.

None of the routine legal proceedings, individually or in the aggregate, in which the Corporation or its affiliates are involved are expected to have a material adverse impact on the financial position or the results of operations of the Corporation.

ITEM 1A.  RISK FACTORS

The Bank is operating under a Settlement Agreement and Agreed Order with the DOJ, and its failure to comply with the Agreement could materially and adversely affect our business.

The Bank is operating under a Settlement Agreement and Agreed Order with the DOJ, and its failure to comply with the Agreement could materially and adversely affect our business. Our Board of Directors and executive management team have been working diligently to comply with the Settlement Agreement and believe that they have allocated sufficient resources to address the corrective actions required by the DOJ. Compliance with and resolution of the Settlement Agreement will ultimately be determined by the DOJ. The Bank’s failure to comply with the Settlement Agreement and to successfully implement its requirements or the general perception of the Settlement Agreement by other regulators with jurisdiction over the Corporation or the Bank could have a material and adverse effect on our business, results of operation, financial condition, plans for and timing of future acquisitions and expansion, cash flows and stock price.

Otherwise, there have been no material changes to the risk factors previously disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a. None

b. None

c. Issuer Purchases of Equity Securities

The following table presents information relating to our purchases of equity securities during the three months ended September 30, 2019.

Period	Total Number of Shares Purchased (i)	Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly announced Plans or Programs (ii)	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
July, 2019	—	$	—	—	—
August, 2019	—	$	—	—	—
September, 2019	—	$	—	516,016	2,483,984

(i) The shares were purchased in connection with the exercise of certain outstanding stock options and vesting of restricted stock awards.

(ii) On September 3, 2019, the Board of Directors of the Corporation approved a stock repurchase program of up to 3 million shares of the Corporation’s outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $75,000,000. The program does not have an expiration date. However, it may be discontinued by the Board at any time. Since commencing program, the Corporation has repurchased a total 516,016 shares of common stock for a total investment of $19.0 million.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.  MINE SAFETY DISCLOSURES

Not Applicable 

ITEM 5.  OTHER INFORMATION

a. None

b. None

61

PART II: OTHER INFORMATION

ITEM 6. EXHIBITS

ITEM 6.  EXHIBITS

Exhibit No:	Description of Exhibits:
2.1	Agreement and Plan of Reorganization and Merger between First Merchants Corporation and MBT Financial Corp., dated October 9, 2018 (Incorporated by reference to registrant's Form 8-K filed on October 10, 2018) (SEC No. 000-17071)
3.1	First 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)
3.2	Bylaws 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)
4.1	First 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)
4.2	Indenture dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007) (SEC No. 000-17071)
4.3	Guarantee 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)
4.4	Form 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)
4.5	First 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)
4.6	Upon 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.
4.7	Description of Assumed Junior Subordinated Debt Securities of Independent Alliance Banks, Inc. and Agreement to Furnish Copies of Related Instruments and Documents (Incorporated by reference to registrant's Form 10-Q filed on November 9, 2017) (SEC No. 000-17071)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (2)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (2)
32	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (2)
101.INS	Inline 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.SCH	Inline XBRL Taxonomy Extension Schema Document (1)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document (1)
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document (1)
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document (1)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document (1)
104	Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)
	(1) Filed herewith.
	(2) Furnished herewith.

62

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	First Merchants Corporation
	(Registrant)
November 8, 2019	By: /s/ Michael C. Rechin
	Michael C. Rechin
	President and Chief Executive Officer
	(Principal Executive Officer)
November 8, 2019	By: /s/ Mark K. Hardwick
	Mark K. Hardwick
	Executive Vice President,
	Chief Financial Officer and Chief Operating Officer
	(Principal Financial and Accounting Officer)

63

EX-31.1

PART II: OTHER INFORMATION

ITEM 6. EXHIBITS

EXHIBIT-31.1

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Michael C. Rechin, President and Chief Executive Officer of First Merchants Corporation, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Merchants Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

November 8, 2019

By: /s/ Michael C. Rechin

Michael C. Rechin

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

PART II: OTHER INFORMATION

ITEM 6. EXHIBITS

EXHIBIT-31.2

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Mark K. Hardwick, Executive Vice President, Chief Financial Officer and Chief Operating Officer of First Merchants Corporation, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Merchants Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

11/8/2019

By: /s/ Mark K. Hardwick

Mark K. Hardwick

Executive Vice President,

Chief Financial Officer and Chief Operating Officer

(Principal Financial and Accounting Officer)

EX-32

PART II: OTHER INFORMATION

ITEM 6. EXHIBITS

EXHIBIT-32

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Merchants Corporation (the “Corporation”) on Form 10-Q for the period ending September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael C. Rechin, President and Chief Executive Officer of the Corporation, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

November 8, 2019

By: /s/ Michael C. Rechin

Michael C. Rechin

President and

Chief Executive Officer

(Principal Executive Officer)

A signed copy of this written statement required by Section 906 has been provided to First Merchants Corporation and will be retained by First Merchants Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

_____________________________________________________

In connection with the Quarterly Report of First Merchants Corporation (the “Corporation”) on Form 10-Q for the period ending September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark K. Hardwick, Executive Vice President, Chief Financial Officer and Chief Operating Officer of the Corporation, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

November 8, 2019

By: /s/ Mark K. Hardwick

Mark K. Hardwick

Executive Vice President,

Chief Financial Officer and Chief Operating Officer

(Principal Financial and Accounting Officer)

A signed copy of this written statement required by Section 906 has been provided to First Merchants Corporation and will be retained by First Merchants Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Goodwill (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of goodwill

	2019
Balance, January 1	$	445,355
Goodwill acquired	97,844
Balance, September 30	$	543,199
	2018
Balance, January 1	$	445,355
Goodwill acquired	—
Balance, December 31	$	445,355

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Disclosures About Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Schedule of fair value measurements of assets and liabilities recognized in Consolidated Condensed Balance Sheets measured at fair value

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 820-10 fair value hierarchy in which the fair value measurements fall at September 30, 2019, and December 31, 2018.

			Fair Value Measurements Using:
September 30, 2019	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	48,977	$	—	$	48,977	$	—
State and municipal	796,875		—		794,014		2,861
U.S. Government-sponsored mortgage-backed securities	800,516		—		800,512		4
Corporate obligations	31		—		—		31
Interest rate swap asset	37,899		—		37,899		—
Interest rate swap liability	39,629		—		39,629		—

			Fair Value Measurements Using:
December 31, 2018	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	13,582	$	—	$	13,582	$	—
State and municipal	606,135		—		602,842		3,293
U.S. Government-sponsored mortgage-backed securities	522,447		—		522,443		4
Corporate obligations	31		—		—		31
Interest rate swap and cap asset	12,083		—		12,083		—
Interest rate swap liability	12,636		—		12,636		—

Schedule of reconciliation of beginning and ending balances of recurring fair value measurements recognized in Consolidated Condensed Balance Sheets using significant unobservable Level 3 inputs

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying

balance sheets using significant unobservable Level 3 inputs for the three and nine months ended September 30, 2019 and 2018.

	Available for Sale Securities
	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Balance at beginning of the period	$	2,975		$	3,970		$	3,328		$	3,978
Included in other comprehensive income	6			(35		)	85			(59		)
Principal payments	(85		)	(620		)	(517		)	(604		)
Ending balance	$	2,896		$	3,315		$	2,896		$	3,315

Schedule of description of valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in Consolidated Condensed Balance Sheets

Following 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 for September 30, 2019, and December 31, 2018.

			Fair Value Measurements Using
September 30, 2019	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent)	$	6,939	$	—	$	—	$	6,939
Other real estate owned	220		—		—		220

			Fair Value Measurements Using
December 31, 2018	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent)	$	11,866	$	—	$	—	$	11,866
Other real estate owned	657		—		—		657

Schedule of unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2019 and December 31, 2018.

September 30, 2019	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted-Average)
State and municipal securities	$	2,861	Discounted cash flow	Maturity/Call date	1 month to 15 yrs
				US Muni BQ curve	A- to BBB-
				Discount rate	2% - 5%
Corporate obligations and U.S. Government-sponsored mortgage backed securities	$	35	Discounted cash flow	Risk free rate	3 month LIBOR
				plus premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	6,939	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	0% - 10% (2%)
Other real estate owned	$	220	Appraisals	Discount to reflect current market conditions	0% - 51% (31%)

December 31, 2018	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted-Average)
State and municipal securities	$	3,293	Discounted cash flow	Maturity/Call date	1 month to 20 yrs
				US Muni BQ curve	A- to BBB-
				Discount rate	.69% - 5%
Corporate obligations and equity securities	$	35	Discounted cash flow	Risk free rate	3 month LIBOR
				plus premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	11,866	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	0% - 10% (6%)
Other real estate owned	$	657	Appraisals	Discount to reflect current market conditions	0% - 10% (4%)

Schedule of estimated fair values of financial instruments

The 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 at September 30, 2019, and December 31, 2018.

			September 30, 2019
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	202,383	$	202,383	$	—	$	—
Interest-bearing time deposits	230,101		230,101		—		—
Investment securities available for sale	1,646,399		—		1,643,503		2,896
Investment securities held to maturity	843,021		—		832,750		32,536
Loans held for sale	7,910		—		7,910		—
Loans	8,218,689		—		—		8,206,069
Federal Home Loan Bank stock	28,736		—		28,736		—
Interest rate swap asset	37,899		—		37,899		—
Interest receivable	45,923		—		45,923		—
Liabilities:
Deposits	$	9,765,451	$	7,992,716	$	1,752,081	$	—
Borrowings:
Federal funds purchased	—		—		—		—
Securities sold under repurchase agreements	191,603		—		191,603		—
Federal Home Loan Bank advances	354,609		—		357,166		—
Subordinated debentures and term loans	138,630		—		124,453		—
Interest rate swap liability	39,629		—		39,629		—
Interest payable	7,855		—		7,855		—

			December 31, 2018
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	139,247	$	139,247	$	—	$	—
Interest-bearing time deposits	36,963		36,963		—		—
Investment securities available for sale	1,142,195		—		1,138,867		3,328
Investment securities held to maturity	490,387		—		481,377		7,840
Loans held for sale	4,778		—		4,778		—
Loans	7,143,915		—		—		7,004,193
Federal Home Loan Bank stock	24,588		—		24,588		—
Interest rate swap and cap asset	12,083		—		12,083		—
Interest receivable	40,881		—		40,881		—
Liabilities:
Deposits	$	7,754,593	$	6,267,879	$	1,464,129	$	—
Borrowings:
Federal funds purchased	104,000		—		104,000		—
Securities sold under repurchase agreements	113,512		—		113,437		—
Federal Home Loan Bank advances	314,986		—		318,728		—
Subordinated debentures and term loans	138,463		—		127,298		—
Interest rate swap liability	12,636		—		12,636		—
Interest payable	5,607		—		5,607		—

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Income Tax (Tables)

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Schedule of differences between income taxes at federal statutory tax rate and effective tax rate

The 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 the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 21%	$	9,050		$	10,414		$	28,908		$	29,500
Tax-exempt interest income	(2,637		)	(2,118		)	(7,307		)	(6,178		)
Share-based compensation	(11		)	(38		)	(402		)	(570		)
Tax-exempt earnings and gains on life insurance	(241		)	(197		)	(647		)	(655		)
Tax credits	(61		)	(42		)	(202		)	(65		)
Other	237			459			677			1,018
Actual Tax Expense	$	6,337		$	8,478		$	21,027		$	23,050
Effective Tax Rate	14.7		%	17.1		%	15.3		%	16.4		%

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Other Intangibles

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Other Intangibles

OTHER INTANGIBLES

Core deposit intangibles and other intangibles are recorded on the acquisition date of an entity. During the one-year measurement 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 and other intangibles are noted below.

	September 30, 2019			December 31, 2018
Gross carrying amount	$	85,869		$	85,869
Core deposit intangibles acquired	16,527			—
Accumulated amortization	(65,844		)	(61,440		)
Total other intangibles	$	36,552		$	24,429

The core deposit intangibles and other intangibles are being amortized primarily on an accelerated basis over their estimated useful lives, generally over a period of two to ten years. Estimated future amortization expense is summarized as follows:

	Amortization Expense
2019	$	1,591
2020	5,987
2021	5,429
2022	5,027
2023	4,827
After 2023	13,691
	$	36,552

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Investment Securities

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Investment Securities

INVESTMENT SECURITIES

The amortized cost, gross unrealized gains, gross unrealized losses and approximate market value of the Corporation's investment securities at the dates indicated were:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at September 30, 2019
U.S. Government-sponsored agency securities	$	48,553	$	450	$	26	$	48,977
State and municipal	754,846		42,663		634		796,875
U.S. Government-sponsored mortgage-backed securities	789,887		11,660		1,031		800,516
Corporate obligations	31		—		—		31
Total available for sale	1,593,317		54,773		1,691		1,646,399
Held to maturity at September 30, 2019
U.S. Government-sponsored agency securities	42,434		4		95		42,343
State and municipal	355,263		15,841		40		371,064
U.S. Government-sponsored mortgage-backed securities	443,824		7,024		462		450,386
Foreign investment	1,500		—		7		1,493
Total held to maturity	843,021		22,869		604		865,286
Total Investment Securities	$	2,436,338	$	77,642	$	2,295	$	2,511,685

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2018
U.S. Government-sponsored agency securities	$	13,493	$	92	$	3	$	13,582
State and municipal	605,994		5,995		5,854		606,135
U.S. Government-sponsored mortgage-backed securities	530,209		634		8,396		522,447
Corporate obligations	31		—		—		31
Total available for sale	1,149,727		6,721		14,253		1,142,195
Held to maturity at December 31, 2018
U.S. Government-sponsored agency securities	22,618		—		545		22,073
State and municipal	197,909		2,858		872		199,895
U.S. Government-sponsored mortgage-backed securities	268,860		713		3,323		266,250
Foreign investment	1,000		—		1		999
Total held to maturity	490,387		3,571		4,741		489,217
Total Investment Securities	$	1,640,114	$	10,292	$	18,994	$	1,631,412

The change in unrealized gains/losses from December 31, 2018 to September 30, 2019 is primarily due to the changes in interest rates.  The longer term points on the yield curve have declined since year-end which increases the fair value of securities held in the portfolio.

The amortized cost and fair value of available for sale and held to maturity securities at September 30, 2019 and December 31, 2018, 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 Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at September 30, 2019:
Due in one year or less	$	1,134	$	1,139	$	13,833	$	13,894
Due after one through five years	4,527		4,638		55,424		55,783
Due after five through ten years	83,254		85,475		100,501		104,733
Due after ten years	714,515		754,631		229,439		240,490
	803,430		845,883		399,197		414,900
U.S. Government-sponsored mortgage-backed securities	789,887		800,516		443,824		450,386
Total Investment Securities	$	1,593,317	$	1,646,399	$	843,021	$	865,286

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at December 31, 2018
Due in one year or less	$	13,092	$	13,144	$	4,732	$	4,730
Due after one through five years	5,311		5,378		49,054		48,473
Due after five through ten years	73,280		74,411		62,873		64,163
Due after ten years	527,835		526,815		104,868		105,601
	619,518		619,748		221,527		222,967
U.S. Government-sponsored mortgage-backed securities	530,209		522,447		268,860		266,250
Total Investment Securities	$	1,149,727	$	1,142,195	$	490,387	$	489,217

The carrying value of securities pledged as collateral, to secure borrowings and for other purposes, was $632,275,000 at September 30, 2019, and $416,155,000 at December 31, 2018.

The book value of securities sold under agreements to repurchase amounted to $187,472,000 at September 30, 2019, and $116,691,000 at December 31, 2018.

Gross gains on the sales and redemptions of available for sale securities for the three and nine months ended September 30, 2019 and 2018 are shown below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	393	$	1,285	$	3,376	$	4,016
Gross losses	—		—		—		—

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 at September 30, 2019, and December 31, 2018:

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Temporarily Impaired Available for Sale Securities at September 30, 2019
U.S. Government-sponsored agency securities	$	25,033	$	26	$	—	$	—	$	25,033	$	26
State and municipal	53,220		634		—		—		53,220		634
U.S. Government-sponsored mortgage-backed securities	155,175		939		27,238		92		182,413		1,031
Total Temporarily Impaired Available for Sale Securities	233,428		1,599		27,238		92		260,666		1,691
Temporarily Impaired Held to Maturity Securities at September 30, 2019
U.S. Government-sponsored agency securities	23,983		35		12,440		60		36,423		95
State and municipal	3,351		40		—		—		3,351		40
U.S. Government-sponsored mortgage-backed securities	122,572		426		8,567		36		131,139		462
Foreign investment	1,493		7		—		—		1,493		7
Total Temporarily Impaired Held to Maturity Securities	151,399		508		21,007		96		172,406		604
Total Temporarily Impaired Investment Securities	$	384,827	$	2,107	$	48,245	$	188	$	433,072	$	2,295

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Temporarily Impaired Available for Sale Securities at December 31, 2018
U.S. Government-sponsored agency securities	$	1,490	$	3	$	—	$	—	$	1,490	$	3
State and municipal	234,431		3,958		38,028		1,896		272,459		5,854
U.S. Government-sponsored mortgage-backed securities	196,601		2,400		217,121		5,996		413,722		8,396
Total Temporarily Impaired Available for Sale Securities	432,522		6,361		255,149		7,892		687,671		14,253
Temporarily Impaired Held to Maturity Securities at December 31, 2018
U.S. Government-sponsored agency securities	—		—		22,073		545		22,073		545
State and municipal	14,952		369		16,786		503		31,738		872
U.S. Government-sponsored mortgage-backed securities	102,828		876		87,268		2,447		190,096		3,323
Foreign investment	—		—		999		1		999		1
Total Temporarily Impaired Held to Maturity Securities	117,780		1,245		127,126		3,496		244,906		4,741
Total Temporarily Impaired Investment Securities	$	550,302	$	7,606	$	382,275	$	11,388	$	932,577	$	18,994

Certain 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.

	September 30, 2019			December 31, 2018
Investments reported at less than historical cost:
Historical cost	$	435,367		$	951,571
Fair value	433,072			932,577
Gross unrealized losses	$	2,295		$	18,994
Percent of the Corporation's investment portfolio	17.4		%	57.1		%

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 at September 30, 2019.

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.

State and Municipal Securities, U.S. Government-Sponsored Agency Securities and Foreign Investment Securities

The unrealized losses on the Corporation's investments in securities of state and political subdivisions and U.S. Government-Sponsored Agency securities were caused by interest rate increases. 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 at September 30, 2019. The state and municipal securities portfolio contains unrealized losses of $634,000 on twenty-six securities and $40,000 on two securities in the available for sale and held to maturity portfolios, respectively. The U.S. Government-Sponsored Agency securities portfolio contains unrealized losses of $26,000 on two securities in the available for sale portfolio and $95,000 on five securities in the held to maturity portfolio. The foreign investment securities portfolio contains no unrealized losses in the available for sale portfolio, and $7,000 on one security in the held to maturity portfolio.

U.S. Government-Sponsored Mortgage-Backed Securities

The 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 at September 30, 2019. The mortgage-backed securities portfolio contains unrealized losses of $1,031,000 on thirty-one securities and $462,000 on sixteen securities in the available for sale and held to maturity portfolios, respectively. All these securities are issued by a U.S. government-sponsored entity.

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Derivative Financial Instruments - Narrative (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) interest_rate_swap instrument	Dec. 31, 2018 USD ($) interest_rate_swap interest_rate_cap
Derivative [Line Items]
Estimated amount to be transferred from accumulated other comprehensive income to earnings	$ 475
Termination value of derivatives in a net liability position	39,707
Derivative collateral posted	49,255
Not Designated as Hedging Instrument
Derivative [Line Items]
Notional amount of interest rate derivatives	$ 625,549
Federal Home Loan Bank Advances
Derivative [Line Items]
Number of debt instruments held | instrument	2
Interest rate contracts | Not Designated as Hedging Instrument
Derivative [Line Items]
Increase in derivative assets	$ 25,800
Increase in derivative liabilities	27,000
Increase in outstanding notional balance	$ 147,800
Cash Flow Hedging | Interest Rate Swap
Derivative [Line Items]
Number of interest rate derivatives held | interest_rate_swap	4	4
Notional amount of interest rate derivatives	$ 46,000	$ 46,000
Cash Flow Hedging | Interest Rate Swap | Trust Preferred Debt
Derivative [Line Items]
Notional amount of interest rate derivatives	26,000
Cash Flow Hedging | Interest Rate Swap | Federal Home Loan Bank Advances
Derivative [Line Items]
Notional amount of interest rate derivatives	$ 20,000
Cash Flow Hedging | Interest Rate Cap
Derivative [Line Items]
Number of interest rate derivatives held | interest_rate_cap		1
Notional amount of interest rate derivatives		$ 13,000

XML

Transfers Accounted for as Secured Borrowings (Details) - U.S. Government-sponsored mortgage-backed securities - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets Sold under Agreements to Repurchase [Line Items]
Collateral pledged for all repurchase agreements accounted for as secured borrowings	$ 191,603	$ 113,512
Overnight and Continuous
Assets Sold under Agreements to Repurchase [Line Items]
Collateral pledged for all repurchase agreements accounted for as secured borrowings	181,412	104,883
Up to 30 Days
Assets Sold under Agreements to Repurchase [Line Items]
Collateral pledged for all repurchase agreements accounted for as secured borrowings	0	1,014
30-90 Days
Assets Sold under Agreements to Repurchase [Line Items]
Collateral pledged for all repurchase agreements accounted for as secured borrowings	1,769	7,615
Greater Than 90 Days
Assets Sold under Agreements to Repurchase [Line Items]
Collateral pledged for all repurchase agreements accounted for as secured borrowings	$ 8,422	$ 0

XML

Share-Based Compensation - Components of Share-Based Compensation Awards (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Pre-tax compensation expense	$ 1,062	$ 891	$ 2,887	$ 2,546
Income tax benefit	(226)	(217)	(1,008)	(1,105)
Total share-based compensation expense, net of income taxes	836	674	1,879	1,441
Stock and ESPP Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Pre-tax compensation expense	36	39	72	88
Income tax benefit	0	(15)	(57)	(153)
Total share-based compensation expense, net of income taxes	36	24	15	(65)
Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Pre-tax compensation expense	1,026	852	2,815	2,458
Income tax benefit	(226)	(202)	(951)	(952)
Total share-based compensation expense, net of income taxes	$ 800	$ 650	$ 1,864	$ 1,506

XML

Disclosures About Fair Value of Assets and Liabilities - Fair Value Measurements of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	$ 1,646,399	$ 1,142,195
Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	0	0
Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	1,643,503	1,138,867
Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	2,896	3,328
Fair Value, Measurements, Recurring | Interest rate swap liability | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swap liability	0	0
Fair Value, Measurements, Recurring | Interest rate swap liability | Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swap liability	39,629	12,636
Fair Value, Measurements, Recurring | Interest rate swap liability | Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swap liability	0	0
Fair Value, Measurements, Recurring | Fair Value | Interest rate swap liability
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate swap liability	39,629	12,636
U.S. Government-sponsored agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	48,977	13,582
U.S. Government-sponsored agency securities | Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	0	0
U.S. Government-sponsored agency securities | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	48,977	13,582
U.S. Government-sponsored agency securities | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	0	0
U.S. Government-sponsored agency securities | Fair Value, Measurements, Recurring | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	48,977	13,582
State and municipal
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	796,875	606,135
State and municipal | Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	0	0
State and municipal | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	794,014	602,842
State and municipal | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	2,861	3,293
State and municipal | Fair Value, Measurements, Recurring | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	796,875	606,135
U.S. Government-sponsored mortgage-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	800,516	522,447
U.S. Government-sponsored mortgage-backed securities | Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	0	0
U.S. Government-sponsored mortgage-backed securities | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	800,512	522,443
U.S. Government-sponsored mortgage-backed securities | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	4	4
U.S. Government-sponsored mortgage-backed securities | Fair Value, Measurements, Recurring | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	800,516	522,447
Corporate obligations
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	31	31
Corporate obligations | Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	0	0
Corporate obligations | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	0	0
Corporate obligations | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	31	31
Corporate obligations | Fair Value, Measurements, Recurring | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Investment securities available for sale	31	31
Interest rate swap asset | Fair Value, Measurements, Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate derivatives	0	0
Interest rate swap asset | Fair Value, Measurements, Recurring | Significant Other Observable Inputs (Level 2)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate derivatives	37,899	12,083
Interest rate swap asset | Fair Value, Measurements, Recurring | Significant Unobservable Inputs (Level 3)
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate derivatives	0	0
Interest rate swap asset | Fair Value, Measurements, Recurring | Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Interest rate derivatives	$ 37,899	$ 12,083

XML

Loans and Allowance - Credit Quality of Loan Portfolio by Loan Class (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	$ 8,299,260	$ 7,224,467
Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	2,034,311	1,726,664
Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	90,462	92,404
Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	670,138	545,729
Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	3,144,649	2,832,102
Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	1,155,403	966,421
Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	601,335	528,157
Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	131,246	99,788
Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	471,716	433,202
Commercial Pass
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	6,296,426	5,528,751
Commercial Pass | Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	1,923,043	1,660,879
Commercial Pass | Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	70,715	78,446
Commercial Pass | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	638,040	492,358
Commercial Pass | Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	2,963,113	2,669,491
Commercial Pass | Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	198,986	170,075
Commercial Pass | Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	30,813	24,653
Commercial Pass | Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Pass | Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	471,716	432,849
Commercial Special Mention
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	145,230	115,342
Commercial Special Mention | Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	62,219	23,246
Commercial Special Mention | Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	5,681	5,966
Commercial Special Mention | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	288	2,185
Commercial Special Mention | Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	73,429	76,037
Commercial Special Mention | Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	3,492	7,373
Commercial Special Mention | Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	121	535
Commercial Special Mention | Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Special Mention | Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Substandard
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	173,496	161,929
Commercial Substandard | Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	48,719	42,539
Commercial Substandard | Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	13,867	7,992
Commercial Substandard | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	1,818	24,224
Commercial Substandard | Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	101,025	84,288
Commercial Substandard | Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	7,195	2,076
Commercial Substandard | Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	872	457
Commercial Substandard | Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Substandard | Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	353
Commercial Doubtful
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	329	0
Commercial Doubtful | Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	329	0
Commercial Doubtful | Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Doubtful | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Doubtful | Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Doubtful | Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Doubtful | Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Doubtful | Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Doubtful | Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Loss
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	1	0
Commercial Loss | Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	1	0
Commercial Loss | Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Loss | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Loss | Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Loss | Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Loss | Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Loss | Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Commercial Loss | Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Consumer Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	1,676,894	1,410,521
Consumer Performing | Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Consumer Performing | Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	199	0
Consumer Performing | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	29,992	25,419
Consumer Performing | Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	7,082	2,285
Consumer Performing | Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	940,613	782,080
Consumer Performing | Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	567,865	500,996
Consumer Performing | Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	131,143	99,741
Consumer Performing | Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Consumer Non-Performing
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	6,884	7,924
Consumer Non-Performing | Commercial and industrial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Consumer Non-Performing | Agricultural production financing and other loans to farmers
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	0
Consumer Non-Performing | Construction
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	1,543
Consumer Non-Performing | Commercial and farmland
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	0	1
Consumer Non-Performing | Residential
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	5,117	4,817
Consumer Non-Performing | Home equity
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	1,664	1,516
Consumer Non-Performing | Individuals' loans for household and other personal expenditures
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	103	47
Consumer Non-Performing | Public finance and other commercial loans
Financing Receivable, Credit Quality Indicator [Line Items]
Loans	$ 0	$ 0

XML

Loans and Allowance - Changes in Allowance for Loan Losses by Loan Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Allowance for loan losses:
Beginning balance	$ 81,274	$ 77,543	$ 80,552	$ 75,032
Provision for losses	600	1,400	2,300	5,563
Recoveries on loans	596	1,175	3,035	5,066
Loans charged off	(1,899)	(1,712)	(5,316)	(7,255)
Ending balance	80,571	78,406	80,571	78,406
Commercial
Allowance for loan losses:
Beginning balance	33,202	31,467	32,657	30,420
Provision for losses	130	256	466	1,567
Recoveries on loans	149	658	1,035	2,060
Loans charged off	(480)	(313)	(1,157)	(1,979)
Ending balance	33,001	32,068	33,001	32,068
Commercial Real Estate
Allowance for loan losses:
Beginning balance	29,531	27,731	29,609	27,343
Provision for losses	370	410	1,459	1,448
Recoveries on loans	143	306	1,166	1,858
Loans charged off	(1,078)	(501)	(3,268)	(2,703)
Ending balance	28,966	27,946	28,966	27,946
Consumer
Allowance for loan losses:
Beginning balance	4,070	3,921	3,964	3,732
Provision for losses	40	159	181	493
Recoveries on loans	105	46	323	233
Loans charged off	(109)	(194)	(362)	(526)
Ending balance	4,106	3,932	4,106	3,932
Residential
Allowance for loan losses:
Beginning balance	14,471	14,424	14,322	13,537
Provision for losses	60	575	194	2,055
Recoveries on loans	199	165	511	915
Loans charged off	(232)	(704)	(529)	(2,047)
Ending balance	$ 14,498	$ 14,460	$ 14,498	$ 14,460

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Investment Securities - Investments' Gross Unrealized Losses and Fair Value Aggregated by Investment Category and Length of Time in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Fair Value
Less than 12 Months	$ 233,428	$ 432,522
12 Months or Longer	27,238	255,149
Total	260,666	687,671
Gross Unrealized Losses
Less than 12 Months	1,599	6,361
12 Months or Longer	92	7,892
Total	1,691	14,253
Fair Value
Less than 12 Months	151,399	117,780
12 Months or Longer	21,007	127,126
Total	172,406	244,906
Gross Unrealized Losses
Less than 12 Months	508	1,245
12 Months or Longer	96	3,496
Total	604	4,741
Less than 12 Months, Fair Value	384,827	550,302
12 Months or Longer, Fair Value	48,245	382,275
Total, Fair Value	433,072	932,577
Less than 12 Months, Gross Unrealized Losses	2,107	7,606
12 Months or Longer, Gross Unrealized Losses	188	11,388
Total, Gross Unrealized Losses	2,295	18,994
U.S. Government-sponsored agency securities
Fair Value
Less than 12 Months	25,033	1,490
12 Months or Longer	0	0
Total	25,033	1,490
Gross Unrealized Losses
Less than 12 Months	26	3
12 Months or Longer	0	0
Total	26	3
Fair Value
Less than 12 Months	23,983	0
12 Months or Longer	12,440	22,073
Total	36,423	22,073
Gross Unrealized Losses
Less than 12 Months	35	0
12 Months or Longer	60	545
Total	95	545
State and municipal
Fair Value
Less than 12 Months	53,220	234,431
12 Months or Longer	0	38,028
Total	53,220	272,459
Gross Unrealized Losses
Less than 12 Months	634	3,958
12 Months or Longer	0	1,896
Total	634	5,854
Fair Value
Less than 12 Months	3,351	14,952
12 Months or Longer	0	16,786
Total	3,351	31,738
Gross Unrealized Losses
Less than 12 Months	40	369
12 Months or Longer	0	503
Total	40	872
U.S. Government-sponsored mortgage-backed securities
Fair Value
Less than 12 Months	155,175	196,601
12 Months or Longer	27,238	217,121
Total	182,413	413,722
Gross Unrealized Losses
Less than 12 Months	939	2,400
12 Months or Longer	92	5,996
Total	1,031	8,396
Fair Value
Less than 12 Months	122,572	102,828
12 Months or Longer	8,567	87,268
Total	131,139	190,096
Gross Unrealized Losses
Less than 12 Months	426	876
12 Months or Longer	36	2,447
Total	462	3,323
Foreign investment
Fair Value
Less than 12 Months	1,493	0
12 Months or Longer	0	999
Total	1,493	999
Gross Unrealized Losses
Less than 12 Months	7	0
12 Months or Longer	0	1
Total	$ 7	$ 1

XML

Goodwill - Schedule of Goodwill (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Goodwill [Roll Forward]
Balance, January 1	$ 445,355	$ 445,355
Goodwill acquired	97,844	0
Balance, Period end	$ 543,199	$ 445,355

XML

Net Income Per Share - Narrative (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stock Options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Stock options not included in the earnings per share calculation (in shares)	0	0	0	0

XML

Loans and Allowance - Subsequent Default (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) loan	Sep. 30, 2018 USD ($) loan	Sep. 30, 2019 USD ($) loan	Sep. 30, 2018 USD ($) loan
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | loan	1	4	1	6
Recorded Balance | $	$ 85	$ 356	$ 85	$ 425
Commercial and farmland
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | loan	1	1	1	1
Recorded Balance | $	$ 85	$ 262	$ 85	$ 262
Residential
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | loan		2		4
Recorded Balance | $		$ 83		$ 152
Individuals' loans for household and other personal expenditures
Financing Receivable, Troubled Debt Restructuring [Line Items]
Number of Loans | loan		1		1
Recorded Balance | $		$ 11		$ 11

XML

General (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease assets	$ 21,446
Operating lease liabilities	$ 22,108
ASU 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease assets		$ 23,300
Operating lease liabilities		$ 23,800

XML

Acquisition - Pro Forma Financial Information (Details) - MBT - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Dec. 31, 2018
Business Acquisition [Line Items]
Total revenue (net interest income plus other income)	$ 120,606	$ 351,121	$ 474,842
Net income	$ 30,835	$ 110,958	$ 174,900
Basic (in dollars per share)	$ 0.55	$ 1.98	$ 3.13
Diluted (in dollars per share)	$ 0.54	$ 1.97	$ 3.12

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Investment Securities - Gross Gains on Sales and Redemptions of Available for Sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Sales and Redemptions of Available for Sale Securities:
Gross gains	$ 393	$ 1,285	$ 3,376	$ 4,016
Gross losses	$ 0	$ 0	$ 0	$ 0

XML

CONSOLIDATED CONDENSED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
ASSETS
Cash and cash equivalents	$ 202,383	$ 139,247
Interest-bearing time deposits	230,101	36,963
Investment securities available for sale	1,646,399	1,142,195
Investment securities held to maturity (fair value of $865,286 and $489,217)	843,021	490,387
Loans held for sale	7,910	4,778
Loans, net of allowance for loan losses of $80,571 and $80,552	8,218,689	7,143,915
Premises and equipment	113,446	93,420
Federal Home Loan Bank stock	28,736	24,588
Interest receivable	45,923	40,881
Goodwill	543,199	445,355
Other intangibles	36,552	24,429
Cash surrender value of life insurance	286,747	224,939
Other real estate owned	7,156	2,179
Tax asset, deferred and receivable	15,187	23,668
Other assets	99,612	47,772
TOTAL ASSETS	12,325,061	9,884,716
Deposits:
Noninterest-bearing	1,777,365	1,447,907
Interest-bearing	7,988,086	6,306,686
Total Deposits	9,765,451	7,754,593
Borrowings:
Federal funds purchased	0	104,000
Securities sold under repurchase agreements	191,603	113,512
Federal Home Loan Bank advances	354,609	314,986
Subordinated debentures and term loans	138,630	138,463
Total Borrowings	684,842	670,961
Interest payable	7,855	5,607
Other liabilities	117,901	45,295
Total Liabilities	10,576,049	8,476,456
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value: Authorized - 600 shares; Issued and outstanding - 125 shares	125	125
Common Stock, $.125 stated value: Authorized - 50,000,000 shares; Issued and outstanding - 49,280,188 and 49,158,238 shares	6,918	6,169
Additional paid-in capital	1,053,148	840,052
Retained earnings	663,173	583,336
Accumulated other comprehensive income (loss)	25,648	(21,422)
Total Stockholders' Equity	1,749,012	1,408,260
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 12,325,061	$ 9,884,716

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2019

Investments, Debt and Equity Securities [Abstract]

Schedule of amortized cost, gross unrealized gains, gross unrealized losses and approximate fair value of investment securities

The amortized cost, gross unrealized gains, gross unrealized losses and approximate market value of the Corporation's investment securities at the dates indicated were:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at September 30, 2019
U.S. Government-sponsored agency securities	$	48,553	$	450	$	26	$	48,977
State and municipal	754,846		42,663		634		796,875
U.S. Government-sponsored mortgage-backed securities	789,887		11,660		1,031		800,516
Corporate obligations	31		—		—		31
Total available for sale	1,593,317		54,773		1,691		1,646,399
Held to maturity at September 30, 2019
U.S. Government-sponsored agency securities	42,434		4		95		42,343
State and municipal	355,263		15,841		40		371,064
U.S. Government-sponsored mortgage-backed securities	443,824		7,024		462		450,386
Foreign investment	1,500		—		7		1,493
Total held to maturity	843,021		22,869		604		865,286
Total Investment Securities	$	2,436,338	$	77,642	$	2,295	$	2,511,685

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2018
U.S. Government-sponsored agency securities	$	13,493	$	92	$	3	$	13,582
State and municipal	605,994		5,995		5,854		606,135
U.S. Government-sponsored mortgage-backed securities	530,209		634		8,396		522,447
Corporate obligations	31		—		—		31
Total available for sale	1,149,727		6,721		14,253		1,142,195
Held to maturity at December 31, 2018
U.S. Government-sponsored agency securities	22,618		—		545		22,073
State and municipal	197,909		2,858		872		199,895
U.S. Government-sponsored mortgage-backed securities	268,860		713		3,323		266,250
Foreign investment	1,000		—		1		999
Total held to maturity	490,387		3,571		4,741		489,217
Total Investment Securities	$	1,640,114	$	10,292	$	18,994	$	1,631,412

Schedule of amortized cost and fair value of available for sale securities and held to maturity securities

The amortized cost and fair value of available for sale and held to maturity securities at September 30, 2019 and December 31, 2018, 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 Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at September 30, 2019:
Due in one year or less	$	1,134	$	1,139	$	13,833	$	13,894
Due after one through five years	4,527		4,638		55,424		55,783
Due after five through ten years	83,254		85,475		100,501		104,733
Due after ten years	714,515		754,631		229,439		240,490
	803,430		845,883		399,197		414,900
U.S. Government-sponsored mortgage-backed securities	789,887		800,516		443,824		450,386
Total Investment Securities	$	1,593,317	$	1,646,399	$	843,021	$	865,286

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at December 31, 2018
Due in one year or less	$	13,092	$	13,144	$	4,732	$	4,730
Due after one through five years	5,311		5,378		49,054		48,473
Due after five through ten years	73,280		74,411		62,873		64,163
Due after ten years	527,835		526,815		104,868		105,601
	619,518		619,748		221,527		222,967
U.S. Government-sponsored mortgage-backed securities	530,209		522,447		268,860		266,250
Total Investment Securities	$	1,149,727	$	1,142,195	$	490,387	$	489,217

Schedule of gross gains on sales and redemptions of available for sale securities

Gross gains on the sales and redemptions of available for sale securities for the three and nine months ended September 30, 2019 and 2018 are shown below.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	393	$	1,285	$	3,376	$	4,016
Gross losses	—		—		—		—

Schedule of investment securities with unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position

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 at September 30, 2019, and December 31, 2018:

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Temporarily Impaired Available for Sale Securities at September 30, 2019
U.S. Government-sponsored agency securities	$	25,033	$	26	$	—	$	—	$	25,033	$	26
State and municipal	53,220		634		—		—		53,220		634
U.S. Government-sponsored mortgage-backed securities	155,175		939		27,238		92		182,413		1,031
Total Temporarily Impaired Available for Sale Securities	233,428		1,599		27,238		92		260,666		1,691
Temporarily Impaired Held to Maturity Securities at September 30, 2019
U.S. Government-sponsored agency securities	23,983		35		12,440		60		36,423		95
State and municipal	3,351		40		—		—		3,351		40
U.S. Government-sponsored mortgage-backed securities	122,572		426		8,567		36		131,139		462
Foreign investment	1,493		7		—		—		1,493		7
Total Temporarily Impaired Held to Maturity Securities	151,399		508		21,007		96		172,406		604
Total Temporarily Impaired Investment Securities	$	384,827	$	2,107	$	48,245	$	188	$	433,072	$	2,295

	Less than 12 Months				12 Months or Longer				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Temporarily Impaired Available for Sale Securities at December 31, 2018
U.S. Government-sponsored agency securities	$	1,490	$	3	$	—	$	—	$	1,490	$	3
State and municipal	234,431		3,958		38,028		1,896		272,459		5,854
U.S. Government-sponsored mortgage-backed securities	196,601		2,400		217,121		5,996		413,722		8,396
Total Temporarily Impaired Available for Sale Securities	432,522		6,361		255,149		7,892		687,671		14,253
Temporarily Impaired Held to Maturity Securities at December 31, 2018
U.S. Government-sponsored agency securities	—		—		22,073		545		22,073		545
State and municipal	14,952		369		16,786		503		31,738		872
U.S. Government-sponsored mortgage-backed securities	102,828		876		87,268		2,447		190,096		3,323
Foreign investment	—		—		999		1		999		1
Total Temporarily Impaired Held to Maturity Securities	117,780		1,245		127,126		3,496		244,906		4,741
Total Temporarily Impaired Investment Securities	$	550,302	$	7,606	$	382,275	$	11,388	$	932,577	$	18,994

Schedule of investments in debt and equity securities reported in the financial statements at an amount less than their historical cost

Certain 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.

	September 30, 2019			December 31, 2018
Investments reported at less than historical cost:
Historical cost	$	435,367		$	951,571
Fair value	433,072			932,577
Gross unrealized losses	$	2,295		$	18,994
Percent of the Corporation's investment portfolio	17.4		%	57.1		%

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Unrealized holding gain (loss) on securities available for sale arising during the period, tax	$ 3,034	$ (2,596)	$ 13,436	$ (7,470)
Unrealized gain (loss) on cash flow hedges arising during the period, tax		44		212
Unrealized gain (loss) on cash flow hedges arising during the period, tax	(37)		(267)
Reclassification adjustment for net losses (gains) included in net income, tax	$ 61	$ 250	$ 657	$ 766

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Net Income Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Net Income Per Share

NET INCOME PER SHARE

Basic 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 the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended September 30,
	2019					2018
	Net Income		Weighted-Average Shares	Per Share Amount		Net Income		Weighted-Average Shares	Per Share Amount
Net income available to common stockholders	$	36,757	51,433,227	$	0.71	$	41,113	49,286,945	$	0.83
Effect of potentially dilutive stock options and restricted stock awards			136,330					205,074
Diluted net income per share	$	36,757	51,569,557	$	0.71	$	41,113	49,492,019	$	0.83

	Nine Months Ended September 30,
	2019					2018
	Net Income		Weighted-Average Shares	Per Share Amount		Net Income		Weighted-Average Shares	Per Share Amount
Net income available to common stockholders	$	116,630	50,085,701	$	2.33	$	117,426	49,244,403	$	2.38
Effect of potentially dilutive stock options and restricted stock awards			141,679					213,782
Diluted net income per share	$	116,630	50,227,380	$	2.32	$	117,426	49,458,185	$	2.37

For the three and nine months ended September 30, 2019 and 2018, there were no stock options with an option price greater than the average market price of the common shares.

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Transfers Accounted for as Secured Borrowings

9 Months Ended

Sep. 30, 2019

Banking and Thrift [Abstract]

Transfers Accounted for as Secured Borrowings

TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS

The collateral pledged for all repurchase agreements that are accounted for as secured borrowings as of September 30, 2019 and December 31, 2018 were:

	September 30, 2019
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 Days		Total
U.S. Government-sponsored mortgage-backed securities	$	181,412	$	—	$	1,769	$	8,422	$	191,603

	December 31, 2018
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 Days		Total
U.S. Government-sponsored mortgage-backed securities	$	104,883	$	1,014	$	7,615	$	—	$	113,512

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Other Intangibles - Narrative (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 01, 2019
Minimum
Finite-Lived Intangible Assets [Line Items]
Useful life of core deposit intangibles and other intangibles	2 years
Maximum
Finite-Lived Intangible Assets [Line Items]
Useful life of core deposit intangibles and other intangibles	10 years
MBT
Finite-Lived Intangible Assets [Line Items]
Core deposit intangible		$ 16,527

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Purchased Credit Impaired Loans - Accretable Yield or Income Expected to be Collected (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Accretable yield beginning balance	$ 1,914	$ 2,423	$ 2,143	$ 2,890
Additions	576	0	576	0
Accretion	(420)	(1,004)	(1,638)	(2,441)
Reclassification from nonaccretable	374	798	1,363	1,768
Disposals	(165)	(16)	(165)	(16)
Accretable yield ending balance	2,279	$ 2,201	2,279	$ 2,201
Loans acquired with deteriorated credit quality
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans acquired and accounted for under ASC 310-30, carrying amount	18,500		18,500		$ 17,300
Loans acquired and accounted for under ASC 310-30, allowance amount	$ 453		$ 453

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Investment Securities - Narrative (Details)	Sep. 30, 2019 USD ($) security	Dec. 31, 2018 USD ($)
Investments, Debt and Equity Securities [Abstract]
Carrying value of securities pledged as collateral	$ 632,275,000	$ 416,155,000
Book value of securities sold under agreements to repurchase	187,472,000	116,691,000
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Gross unrealized losses	1,691,000	14,253,000
Held-to-maturity unrealized losses	604,000	4,741,000
State and municipal
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Gross unrealized losses	$ 634,000	5,854,000
Number of securities in unrealized loss positions | security	26
Held-to-maturity unrealized losses	$ 40,000	872,000
Held-to-maturity, number of securities in unrealized loss positions | security	2
U.S. Government-sponsored agency securities
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Gross unrealized losses	$ 26,000	3,000
Number of securities in unrealized loss positions | security	2
Held-to-maturity unrealized losses	$ 95,000	545,000
Held-to-maturity, number of securities in unrealized loss positions | security	5
Foreign investment
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Gross unrealized losses	$ 0
Held-to-maturity unrealized losses	$ 7,000	1,000
Held-to-maturity, number of securities in unrealized loss positions | security	1
U.S. Government-sponsored mortgage-backed securities
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Gross unrealized losses	$ 1,031,000	8,396,000
Number of securities in unrealized loss positions | security	31
Held-to-maturity unrealized losses	$ 462,000	$ 3,323,000
Held-to-maturity, number of securities in unrealized loss positions | security	16

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Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Schedule of basic and diluted net income per share

The following table reconciles basic and diluted net income per share for the three and nine months ended September 30, 2019 and 2018.

	Three Months Ended September 30,
	2019					2018
	Net Income		Weighted-Average Shares	Per Share Amount		Net Income		Weighted-Average Shares	Per Share Amount
Net income available to common stockholders	$	36,757	51,433,227	$	0.71	$	41,113	49,286,945	$	0.83
Effect of potentially dilutive stock options and restricted stock awards			136,330					205,074
Diluted net income per share	$	36,757	51,569,557	$	0.71	$	41,113	49,492,019	$	0.83

	Nine Months Ended September 30,
	2019					2018
	Net Income		Weighted-Average Shares	Per Share Amount		Net Income		Weighted-Average Shares	Per Share Amount
Net income available to common stockholders	$	116,630	50,085,701	$	2.33	$	117,426	49,244,403	$	2.38
Effect of potentially dilutive stock options and restricted stock awards			141,679					213,782
Diluted net income per share	$	116,630	50,227,380	$	2.32	$	117,426	49,458,185	$	2.37

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Acquisition - Schedule of Acquired Loan Data (Details) - MBT - USD ($) $ in Thousands	Sep. 30, 2019	Sep. 01, 2019
Business Acquisition [Line Items]
Fair Value of Acquired Loans at Acquisition Date, Acquired receivables subject to ASC 310-30	$ 3,531	$ 3,531
Gross Contractual Amounts Receivable at Acquisition Date, Acquired receivables subject to ASC 310-30	$ 6,840	6,840
Best Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be Collected, Acquired receivables subject to ASC 310-30		2,733
Fair Value of Acquired Loans at Acquisition Date, Acquired receivables not subject to ASC 310-30		727,729
Gross Contractual Amounts Receivable at Acquisition Date, Acquired receivables not subject to ASC 310-30		907,210
Best Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be Collected, Acquired receivables not subject to ASC 310-30		$ 14,506

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General Litigation and Regulatory Examinations

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

General Litigation and Regulatory Examinations

GENERAL LITIGATION AND REGULATORY EXAMINATIONS

The 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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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Accumulated Other Comprehensive Income (Loss)

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 of September 30, 2019 and 2018:

	Accumulated Other Comprehensive Income (Loss)
	Unrealized Gains (Losses) on Securities Available for Sale			Unrealized Gains (Losses) on Cash Flow Hedges			Unrealized Gains (Losses) on Defined Benefit Plans			Total
Balance at December 31, 2018	$	(6,343	)	$	(559	)	$	(14,520	)	$	(21,422	)
Other comprehensive income before reclassifications	50,545			(1,003		)	—			49,542
Amounts reclassified from accumulated other comprehensive income	(2,667		)	195			—			(2,472		)
Period change	47,878			(808		)	—			47,070
Balance at September 30, 2019	$	41,535		$	(1,367	)	$	(14,520	)	$	25,648
Balance at December 31, 2017	$	8,970		$	(1,125	)	$	(10,753	)	$	(2,908	)
Other comprehensive income before reclassifications	(30,032		)	1,039			—			(28,993		)
Amounts reclassified from accumulated other comprehensive income	(3,173		)	291			—			(2,882		)
Period change	(33,205		)	1,330			—			(31,875		)
Reclassification adjustment under ASU 2018-02	1,932			(242		)	(2,316		)	(626		)
Balance at September 30, 2018	$	(22,303	)	$	(37	)	$	(13,069	)	$	(35,409	)

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 the three and nine months ended September 30, 2019 and 2018.

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Three Months Ended September 30,
Details about Accumulated Other Comprehensive Income (Loss) Components	2019			2018			Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains reclassified into income	$	393		$	1,285		Other income - net realized gains on sales of available for sale securities
Related income tax expense	(83		)	(270		)	Income tax expense
	$	310		$	1,015
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts	$	(104	)	$	(93	)	Interest expense - subordinated debentures and term loans
Related income tax benefit	22			20			Income tax expense
	$	(82	)	$	(73	)
Total reclassifications for the period, net of tax	$	228		$	942

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Nine Months Ended September 30,
Details about Accumulated Other Comprehensive Income (Loss) Components	2019			2018			Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains reclassified into income	$	3,376		$	4,016		Other income - net realized gains on sales of available for sale securities
Related income tax expense	(709		)	(843		)	Income tax expense
	$	2,667		$	3,173
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts	$	(247	)	$	(368	)	Interest expense - subordinated debentures and term loans
Related income tax benefit	52			77			Income tax expense
	$	(195	)	$	(291	)
Total reclassifications for the period, net of tax	$	2,472		$	2,882

⁽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 9. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements.

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CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Investment securities held to maturity - fair value	$ 865,286	$ 489,217
Loans - allowance for loan losses	$ 80,571	$ 80,552
Preferred Stock, par value (in dollars per share)	$ 1,000	$ 1,000
Preferred Stock, liquidation value per share (in dollars per share)	$ 1,000	$ 1,000
Preferred Stock, authorized (in shares)	600	600
Preferred Stock, issued (in shares)	125	125
Preferred Stock, outstanding (in shares)	125	125
Common Stock, stated value (in dollars per share)	$ 0.125	$ 0.125
Common Stock, authorized (in shares)	100,000,000	100,000,000
Common Stock, issued (in shares)	55,345,672	49,349,800
Common Stock, outstanding (in shares)	55,345,672	49,349,800

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Loans and Allowance (Tables)

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Schedule of composition of loan portfolio by loan class

The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

	September 30, 2019			December 31, 2018
Commercial and industrial loans	$	2,034,311		$	1,726,664
Agricultural production financing and other loans to farmers	90,462			92,404
Real estate loans:
Construction	670,138			545,729
Commercial and farmland	3,144,649			2,832,102
Residential	1,155,403			966,421
Home equity	601,335			528,157
Individuals' loans for household and other personal expenditures	131,246			99,788
Public finance and other commercial loans	471,716			433,202
Loans	8,299,260			7,224,467
Allowance for loan losses	(80,571		)	(80,552		)
Net Loans	$	8,218,689		$	7,143,915

Schedule of changes in allowance for loan losses

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2019 and September 30, 2018:

	Three Months Ended September 30, 2019
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, June 30, 2019	$	33,202		$	29,531		$	4,070		$	14,471		$	81,274
Provision for losses	130			370			40			60			600
Recoveries on loans	149			143			105			199			596
Loans charged off	(480		)	(1,078		)	(109		)	(232		)	(1,899		)
Balances, September 30, 2019	$	33,001		$	28,966		$	4,106		$	14,498		$	80,571

	Nine Months Ended September 30, 2019
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, December 31, 2018	$	32,657		$	29,609		$	3,964		$	14,322		$	80,552
Provision for losses	466			1,459			181			194			2,300
Recoveries on loans	1,035			1,166			323			511			3,035
Loans charged off	(1,157		)	(3,268		)	(362		)	(529		)	(5,316		)
Balances, September 30, 2019	$	33,001		$	28,966		$	4,106		$	14,498		$	80,571

	Three Months Ended September 30, 2018
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, June 30, 2018	$	31,467		$	27,731		$	3,921		$	14,424		$	77,543
Provision for losses	256			410			159			575			1,400
Recoveries on loans	658			306			46			165			1,175
Loans charged off	(313		)	(501		)	(194		)	(704		)	(1,712		)
Balances, September 30, 2018	$	32,068		$	27,946		$	3,932		$	14,460		$	78,406

	Nine Months Ended September 30, 2018
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, December 31, 2017	$	30,420		$	27,343		$	3,732		$	13,537		$	75,032
Provision for losses	1,567			1,448			493			2,055			5,563
Recoveries on loans	2,060			1,858			233			915			5,066
Loans charged off	(1,979		)	(2,703		)	(526		)	(2,047		)	(7,255		)
Balances, September 30, 2018	$	32,068		$	27,946		$	3,932		$	14,460		$	78,406

Schedule of allowance for credit losses and loan portfolio by loan segment

The tables below show the Corporation’s allowance for loan losses and loan portfolio by loan segment as of the periods indicated.

	September 30, 2019
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance Balances:
Individually evaluated for impairment	$	1,680	$	124	$	—	$	457	$	2,261
Collectively evaluated for impairment	31,321		28,842		4,106		14,041		78,310
Total Allowance for Loan Losses	$	33,001	$	28,966	$	4,106	$	14,498	$	80,571
Loan Balances:
Individually evaluated for impairment	$	4,310	$	9,371	$	4	$	2,589	$	16,274
Collectively evaluated for impairment	2,590,318		3,792,239		131,242		1,752,443		8,266,242
Loans acquired with deteriorated credit quality	1,861		13,177		—		1,706		16,744
Loans	$	2,596,489	$	3,814,787	$	131,246	$	1,756,738	$	8,299,260

	December 31, 2018
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance Balances:
Individually evaluated for impairment	$	—	$	1,435	$	1	$	436	$	1,872
Collectively evaluated for impairment	32,657		28,174		3,963		13,886		78,680
Total Allowance for Loan Losses	$	32,657	$	29,609	$	3,964	$	14,322	$	80,552
Loan Balances:
Individually evaluated for impairment	$	1,838	$	17,756	$	18	$	2,413	$	22,025
Collectively evaluated for impairment	2,248,330		3,347,686		99,770		1,490,872		7,186,658
Loans acquired with deteriorated credit quality	2,102		12,389		—		1,293		15,784
Loans	$	2,252,270	$	3,377,831	$	99,788	$	1,494,578	$	7,224,467

Schedule of non-accrual loans by loan class

The following table summarizes the Corporation’s non-accrual loans by loan class as of the periods indicated:

	September 30, 2019		December 31, 2018
Commercial and industrial loans	$	2,065	$	1,803
Agriculture production financing and other loans to farmers	3,150		679
Real estate loans:
Construction	1,027		8,667
Commercial and farmland	9,265		8,156
Residential	5,381		4,966
Home equity	1,737		1,481
Individuals' loans for household and other personal expenditures	103		42
Public finance and other commercial loans	—		354
Total	$	22,728	$	26,148

Schedule of composition of impaired loans by loan class

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:

	September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	897	$	877	$	—
Agriculture production financing and other loans to farmers	1,023		1,012		—
Real estate Loans:
Commercial and farmland	10,118		8,047		—
Residential	207		189		—
Total	$	12,245	$	10,125	$	—
Impaired loans with related allowance:
Commercial and industrial loans	$	563	$	329	$	329
Agriculture production financing and other loans to farmers	2,144		2,092		1,351
Real estate Loans:
Commercial and farmland	2,061		1,324		124
Residential	2,079		2,055		389
Home equity	362		345		68
Individuals' loans for household and other personal expenditures	4		4		—
Total	$	7,213	$	6,149	$	2,261
Total Impaired Loans	$	19,458	$	16,274	$	2,261

	December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	828	$	806	$	—
Agriculture production financing and other loans to farmers	679		679		—
Real estate Loans:
Construction	1,352		614		—
Commercial and farmland	11,176		8,994		—
Residential	118		100		—
Home equity	49		48		—
Public finance and other commercial loans	353		353		—
Total	$	14,555	$	11,594	$	—
Impaired loans with related allowance:
Real estate Loans:
Construction	$	7,978	$	7,977	$	1,429
Commercial and farmland	171		171		6
Residential	1,958		1,907		362
Home equity	376		358		74
Individuals' loans for household and other personal expenditures	18		18		1
Total	$	10,501	$	10,431	$	1,872
Total Impaired Loans	$	25,056	$	22,025	$	1,872

	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	877	$	—	$	881	$	—
Agriculture production financing and other loans to farmers	1,012		—		1,014		—
Real estate Loans:
Construction	—		—		339		—
Commercial and farmland	8,075		39		8,651		117
Residential	189		—		190		2
Total	$	10,153	$	39	$	11,075	$	119
Impaired loans with related allowance:
Commercial and industrial loans	$	329	$	—	$	329	$	—
Agriculture production financing and other loans to farmers	2,100		—		2,123		—
Real estate Loans:
Commercial and farmland	1,324		—		1,324		—
Residential	2,072		15		2,095		47
Home equity	346		3		350		9
Individuals' loans for household and other personal expenditures	4		—		5		—
Total	$	6,175	$	18	$	6,226	$	56
Total Impaired Loans	$	16,328	$	57	$	17,301	$	175

	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	979	$	—	$	994	$	—
Agriculture production financing and other loans to farmers	640		—		640		—
Real estate Loans:
Construction	614		—		930		—
Commercial and farmland	12,098		40		12,733		128
Residential	62		1		63		2
Individuals' loans for household and other personal expenditures	9		—		10		—
Total	$	14,402	$	41	$	15,370	$	130
Impaired loans with related allowance:
Real estate Loans:
Residential	1,797		13		1,812		37
Home equity	364		3		367		8
Total	$	2,161	$	16	$	2,179	$	45
Total Impaired Loans	$	16,563	$	57	$	17,549	$	175

Schedule of credit quality of loan portfolio by loan class

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.

	September 30, 2019
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss		Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	1,923,043	$	62,219	$	48,719	$	329	$	1	$	—	$	—	$	2,034,311
Agriculture production financing and other loans to farmers	70,715		5,681		13,867		—		—		199		—		90,462
Real estate Loans:
Construction	638,040		288		1,818		—		—		29,992		—		670,138
Commercial and farmland	2,963,113		73,429		101,025		—		—		7,082		—		3,144,649
Residential	198,986		3,492		7,195		—		—		940,613		5,117		1,155,403
Home equity	30,813		121		872		—		—		567,865		1,664		601,335
Individuals' loans for household and other personal expenditures	—		—		—		—		—		131,143		103		131,246
Public finance and other commercial loans	471,716		—		—		—		—		—		—		471,716
Loans	$	6,296,426	$	145,230	$	173,496	$	329	$	1	$	1,676,894	$	6,884	$	8,299,260

	December 31, 2018
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss		Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	1,660,879	$	23,246	$	42,539	$	—	$	—	$	—	$	—	$	1,726,664
Agriculture production financing and other loans to farmers	78,446		5,966		7,992		—		—		—		—		92,404
Real estate Loans:
Construction	492,358		2,185		24,224		—		—		25,419		1,543		545,729
Commercial and farmland	2,669,491		76,037		84,288		—		—		2,285		1		2,832,102
Residential	170,075		7,373		2,076		—		—		782,080		4,817		966,421
Home equity	24,653		535		457		—		—		500,996		1,516		528,157
Individuals' loans for household and other personal expenditures	—		—		—		—		—		99,741		47		99,788
Public finance and other commercial loans	432,849		—		353		—		—		—		—		433,202
Loans	$	5,528,751	$	115,342	$	161,929	$	—	$	—	$	1,410,521	$	7,924	$	7,224,467

Schedule of past due aging of loan portfolio by loan class

The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as of September 30, 2019, and December 31, 2018:

	September 30, 2019
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans 90 Days or More Past Due And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	2,026,547	$	5,468	$	231	$	—	$	2,065	$	7,764	$	2,034,311
Agriculture production financing and other loans to farmers	87,274		—		38		—		3,150		3,188		90,462
Real estate loans:
Construction	669,111		—		—		—		1,027		1,027		670,138
Commercial and farmland	3,132,460		2,219		705		—		9,265		12,189		3,144,649
Residential	1,145,240		4,238		526		18		5,381		10,163		1,155,403
Home equity	596,472		2,547		515		64		1,737		4,863		601,335
Individuals' loans for household and other personal expenditures	130,641		319		183		—		103		605		131,246
Public finance and other commercial loans	471,716		—		—		—		—		—		471,716
Loans	$	8,259,461	$	14,791	$	2,198	$	82	$	22,728	$	39,799	$	8,299,260

	December 31, 2018
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans 90 Days or More Past Due And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	1,723,337	$	1,093	$	182	$	249	$	1,803	$	3,327	$	1,726,664
Agriculture production financing and other loans to farmers	89,440		2,285		—		—		679		2,964		92,404
Real estate loans:
Construction	535,520		64		—		1,478		8,667		10,209		545,729
Commercial and farmland	2,822,515		1,253		178		—		8,156		9,587		2,832,102
Residential	959,252		1,756		430		17		4,966		7,169		966,421
Home equity	524,198		2,164		207		107		1,481		3,959		528,157
Individuals' loans for household and other personal expenditures	99,499		179		64		4		42		289		99,788
Public finance and other commercial loans	432,848		—		—		—		354		354		433,202
Loans	$	7,186,609	$	8,794	$	1,061	$	1,855	$	26,148	$	37,858	$	7,224,467

Schedules of troubled debt restructurings

The following tables summarize troubled debt restructures in the Corporation's loan portfolio that occurred during the periods indicated:

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate loans:
Residential	$	195	$	185	3	$	456	$	439	8
Total	$	195	$	185	3	$	456	$	439	8

	Three Months Ended September 30, 2018					Nine Months Ended September 30, 2018
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate loans:
Residential	$	154	$	140	4	$	490	$	487	11
Home equity	65		65		1	81		81		3
Individuals' loans for household and other personal expenditures	—		—		—	7		8		1
Total	$	219	$	205	5	$	578	$	576	15

The following tables summarize the recorded investment of troubled debt restructures as of September 30, 2019 and 2018, by modification type, that occurred during the periods indicated:

	Three Months Ended September 30, 2019
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	—	$	184	$	184
Total	$	—	$	—	$	184	$	184

	Nine Months Ended September 30, 2019
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	88	$	345	$	433
Total	$	—	$	88	$	345	$	433

	Three Months Ended September 30, 2018
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	47	$	93	$	140
Home equity	—		65		—		65
Total	$	—	$	112	$	93	$	205

	Nine Months Ended September 30, 2018
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	208	$	239	$	447
Home equity	77		76		—		153
Individuals' loans for household and other personal expenditures	—		6		—		6
Total	$	77	$	290	$	239	$	606

Schedule of troubled debt restructurings that subsequently defaulted

A loan is considered in default if it is 30-days or more past due.

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Real estate loans:
Commercial and farmland	1	$	85	1	$	85
Total	1	$	85	1	$	85

	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Real estate loans:
Commercial and farmland	1	$	262	1	$	262
Residential	2	83		4	152
Individuals' loans for household and other personal expenditures	1	11		1	11
Total	4	$	356	6	$	425

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CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Preferred	Common Stock	Additional Paid in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Beginning balance (in shares) at Dec. 31, 2017		125	49,158,238
Beginning balance at Dec. 31, 2017	$ 1,303,463	$ 125	$ 6,145	$ 834,870	$ 465,231	$ (2,908)
Comprehensive income:
Net income	117,426				117,426
Other comprehensive income (loss), net of tax	(31,875)					(31,875)
Cash dividends on common stock	(30,732)				(30,732)
Issuance of common stock related to acquisition	0
Reclassification adjustment under ASU 2018-02	0				626	(626)
Share-based compensation (in shares)			106,833
Share-based compensation	2,546		$ 13	2,533
Stock issued under employee benefit plans (in shares)			13,448
Stock issued under employee benefit plans	515		$ 2	513
Stock issued under dividend reinvestment and stock purchase plan (in shares)			18,761
Stock issued under dividend reinvestment and stock purchase plan	879		$ 2	877
Stock options exercised (in shares)			51,243
Stock options exercised	1,093		$ 6	1,087
Stock redeemed (in shares)			(43,981)
Stock redeemed	(1,889)		$ (5)	(1,884)
Ending balance (in shares) at Sep. 30, 2018		125	49,304,542
Ending balance at Sep. 30, 2018	1,361,426	$ 125	$ 6,163	837,996	552,551	(35,409)
Beginning balance (in shares) at Jun. 30, 2018		125	49,280,188
Beginning balance at Jun. 30, 2018	1,340,328	$ 125	$ 6,160	836,549	522,362	(24,868)
Comprehensive income:
Net income	41,113				41,113
Other comprehensive income (loss), net of tax	(10,541)					(10,541)
Cash dividends on common stock	(10,924)				(10,924)
Share-based compensation (in shares)			8,812
Share-based compensation	891		$ 1	890
Stock issued under employee benefit plans (in shares)			4,243
Stock issued under employee benefit plans	174		$ 2	172
Stock issued under dividend reinvestment and stock purchase plan (in shares)			6,650
Stock issued under dividend reinvestment and stock purchase plan	324			324
Stock options exercised (in shares)			6,311
Stock options exercised	140			140
Stock redeemed (in shares)			(1,662)
Stock redeemed	(79)			(79)
Ending balance (in shares) at Sep. 30, 2018		125	49,304,542
Ending balance at Sep. 30, 2018	1,361,426	$ 125	$ 6,163	837,996	552,551	(35,409)
Beginning balance (in shares) at Dec. 31, 2018		125	49,349,800
Beginning balance at Dec. 31, 2018	1,408,260	$ 125	$ 6,169	840,052	583,336	(21,422)
Comprehensive income:
Net income	116,630				116,630
Other comprehensive income (loss), net of tax	47,070					47,070
Cash dividends on common stock	(36,793)				(36,793)
Issuance of common stock related to acquisition (in shares)			6,383,806
Issuance of common stock related to acquisition	229,926		$ 798	229,128
Reclassification adjustment under ASU 2018-02						(626)
Repurchase of common stock (in shares)			(516,016)
Repurchase of common stock	(19,041)		$ (65)	(18,976)
Share-based compensation (in shares)			113,043
Share-based compensation	2,887		$ 14	2,873
Stock issued under employee benefit plans (in shares)			16,117
Stock issued under employee benefit plans	518		$ 2	516
Stock issued under dividend reinvestment and stock purchase plan (in shares)			28,949
Stock issued under dividend reinvestment and stock purchase plan	$ 1,109		$ 3	1,106
Stock options exercised (in shares)	12,950		12,950
Stock options exercised	$ 121		$ 2	119
Stock redeemed (in shares)			(42,977)
Stock redeemed	(1,675)		$ (5)	(1,670)
Ending balance (in shares) at Sep. 30, 2019		125	55,345,672
Ending balance at Sep. 30, 2019	1,749,012	$ 125	$ 6,918	1,053,148	663,173	25,648
Beginning balance (in shares) at Jun. 30, 2019		125	49,456,594
Beginning balance at Jun. 30, 2019	1,501,636	$ 125	$ 6,182	841,365	639,362	14,602
Comprehensive income:
Net income	36,757				36,757
Other comprehensive income (loss), net of tax	11,046					11,046
Cash dividends on common stock	(12,946)				(12,946)
Issuance of common stock related to acquisition (in shares)			6,383,806
Issuance of common stock related to acquisition	229,926		$ 798	229,128
Repurchase of common stock (in shares)			(516,016)
Repurchase of common stock	(19,041)		$ (65)	(18,976)
Share-based compensation (in shares)			4,405
Share-based compensation	1,062			1,062
Stock issued under employee benefit plans (in shares)			4,870
Stock issued under employee benefit plans	156		$ 1	155
Stock issued under dividend reinvestment and stock purchase plan (in shares)			10,263
Stock issued under dividend reinvestment and stock purchase plan	400		$ 1	399
Stock options exercised (in shares)			1,750
Stock options exercised	16		$ 1	15
Stock redeemed	0
Ending balance (in shares) at Sep. 30, 2019		125	55,345,672
Ending balance at Sep. 30, 2019	$ 1,749,012	$ 125	$ 6,918	$ 1,053,148	$ 663,173	$ 25,648

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Schedule of components of share-based compensation awards

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 Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Stock and ESPP Options
Pre-tax compensation expense	$	36		$	39		$	72		$	88
Income tax benefit	—			(15		)	(57		)	(153		)
Stock and ESPP option expense, net of income taxes	$	36		$	24		$	15		$	(65	)
Restricted Stock Awards
Pre-tax compensation expense	$	1,026		$	852		$	2,815		$	2,458
Income tax benefit	(226		)	(202		)	(951		)	(952		)
Restricted stock awards expense, net of income taxes	$	800		$	650		$	1,864		$	1,506
Total Share-Based Compensation
Pre-tax compensation expense	$	1,062		$	891		$	2,887		$	2,546
Income tax benefit	(226		)	(217		)	(1,008		)	(1,105		)
Total share-based compensation expense, net of income taxes	$	836		$	674		$	1,879		$	1,441

Schedule of stock option activity under stock option plans

Stock option activity under the Corporation's stock option plans as of September 30, 2019 and changes during the nine months ended September 30, 2019, were as follows:

	Number of Shares		Weighted-Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	76,300		$	12.40
Exercised	(12,950	)	$	9.32
Cancelled	—		$	—
Outstanding September 30, 2019	63,350		$	13.03	2.55	$	1,558,945
Vested and Expected to Vest at September 30, 2019	63,350		$	13.03	2.55	$	1,558,945
Exercisable at September 30, 2019	63,350		$	13.03	2.55	$	1,558,945

Schedule of Unvested RSAs outstanding

The following table summarizes information on unvested RSAs outstanding as of September 30, 2019:

	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2019	344,362		$	36.80
Granted	119,743		$	37.08
Vested	(113,043	)	$	23.61
Forfeited	(2,400	)	$	40.54
Unvested RSAs at September 30, 2019	348,662		$	41.51

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Purchased Credit Impaired Loans (Tables)

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Schedule of accretable yield, or income expected to be collected, and reclassifications from nonaccretable yield

The accretable yield, or income expected to be collected, and reclassifications from nonaccretable, are identified in the table below.

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Accretable yield beginning balance	$	1,914		$	2,143
Additions	576			576
Accretion	(420		)	(1,638		)
Reclassification from nonaccretable	374			1,363
Disposals	(165		)	(165		)
Accretable yield ending balance	$	2,279		$	2,279

	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Accretable yield beginning balance	$	2,423		$	2,890
Additions	—			—
Accretion	(1,004		)	(2,441		)
Reclassification from nonaccretable	798			1,768
Disposals	(16		)	(16		)
Accretable yield ending balance	$	2,201		$	2,201

Schedule of loans for which contractually required payments are uncertain

The following table presents loans acquired, as of the acquisition date, during the nine months ended September 30, 2019, for which it was probable that all contractually required payments would not be collected. There were no loans acquired during the nine months ended September 30, 2018.

	MBT
Contractually required payments receivable at acquisition date	$	6,840
Nonaccretable difference	2,733
Expected cash flows at acquisition date	4,107
Accretable difference	576
Basis in loans at acquisition date	$	3,531

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of fair value of derivative financial instruments and their classification on Balance Sheet

The table below presents the fair value of the Corporation’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2019, and December 31, 2018.

Asset Derivatives

Liability Derivatives

September 30, 2019

December 31, 2018

September 30, 2019

December 31, 2018

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Interest rate contracts

Other Assets

$

—

Other Assets

$

135

Other Liabilities

$

1,730

Other Liabilities

$

688

Derivatives not designated as hedging instruments:

Interest rate contracts

Other Assets

$

37,899

Other Assets

$

11,948

Other Liabilities

$

37,899

Other Liabilities

$

11,948

Schedule of amount of gain (loss) recognized in other comprehensive income

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 Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)
	Three Months Ended					Nine Months Ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Interest Rate Products	$	(178	)	$	210	$	(1,270	)	$	1,009

Schedule of derivative instruments, gain (loss) in Income Statement

The amount of gain (loss) reclassified from other comprehensive income into income is included in the table below for the periods indicated.

Derivatives Designated as Hedging Instruments under FASB ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Reclassed from Other Comprehensive Income into Income (Effective Portion)
		Three Months Ended September 30, 2019			Three Months Ended September 30, 2018
Interest rate contracts	Interest Expense	$	(104	)	$	(93	)

Derivatives Designated as Hedging Instruments under FASB ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Reclassed from Other Comprehensive Income into Income (Effective Portion)
		Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Interest rate contracts	Interest Expense	$	(247	)	$	(368	)

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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

LEASES

The Corporation adopted ASU No. 2016-02 - Leases (Topic 842), as amended, as of January 1, 2019 for certain retail branches, office space, land and equipment. The Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. Operating leases are included in the operating lease right-of use ("ROU") asset, which is included in other assets and the lease liability is included in other liabilities in our condensed balance sheets. The Corporation does not have any finance leases.

ROU assets represent the Corporation's right to use an underlying asset for the lease term and lease liabilities represent the Corporation's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Corporation's leases do not provide an implicit rate, the Corporation typically uses its incremental borrowing rate based on information available at commencement date in determining the present value of lease payments. Lease terms may include options to extend or terminate the lease. The exercise of such lease renewal options is at the Corporation's sole discretion and is not included in the present value of lease obligations unless it is reasonably certain that the option will be exercised. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Certain of the Corporation's lease agreements include rental payments adjusted periodically for inflation. The Corporation's lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Corporation does not have any material sublease agreements.

Supplemental balance sheet information related to leases is presented in the table below as of September 30, 2019.

	September 30, 2019
Operating lease assets	$	21,446
Total lease assets	$	21,446
Operating lease liabilities	$	22,108
Total Lease liabilities	$	22,108
Weighted average remaining lease term (years)
Operating leases	9.0
Weighted average discount rate
Operating leases	3.39		%

The table below presents the components of lease expense for the periods indicated.

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Lease Cost:
Operating lease cost	$	899		$	2,705
Short-term lease cost	47			120
Variable lease cost	252			763
Sublease income	$	(6	)	$	(6	)
Total lease cost	$	1,192		$	3,582

Supplemental cash flow information related to leases is presented in the tables below.

Maturity of lease liabilities	Operating Leases
Remaining 2019	$	900
2020	3,425
2021	3,147
2022	3,024
2023	2,645
2024 and after	12,777
Total lease payments	$	25,918
Less: Present value discount	3,810
Present value of lease liabilities	$	22,108
Other Information	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,521
ROU assets obtained in exchange for new operating lease liabilities	$	23,496

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Loans and Allowance

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Loans and Allowance

LOANS AND ALLOWANCE

The 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 of September 30, 2019, and December 31, 2018, were $7,910,000 and $4,778,000, respectively.

The following table illustrates the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

	September 30, 2019			December 31, 2018
Commercial and industrial loans	$	2,034,311		$	1,726,664
Agricultural production financing and other loans to farmers	90,462			92,404
Real estate loans:
Construction	670,138			545,729
Commercial and farmland	3,144,649			2,832,102
Residential	1,155,403			966,421
Home equity	601,335			528,157
Individuals' loans for household and other personal expenditures	131,246			99,788
Public finance and other commercial loans	471,716			433,202
Loans	8,299,260			7,224,467
Allowance for loan losses	(80,571		)	(80,552		)
Net Loans	$	8,218,689		$	7,143,915

Allowance, Credit Quality and Loan Portfolio

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 at September 30, 2019. 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 is uncollectable. 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.

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2019 and September 30, 2018:

	Three Months Ended September 30, 2019
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, June 30, 2019	$	33,202		$	29,531		$	4,070		$	14,471		$	81,274
Provision for losses	130			370			40			60			600
Recoveries on loans	149			143			105			199			596
Loans charged off	(480		)	(1,078		)	(109		)	(232		)	(1,899		)
Balances, September 30, 2019	$	33,001		$	28,966		$	4,106		$	14,498		$	80,571

	Nine Months Ended September 30, 2019
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, December 31, 2018	$	32,657		$	29,609		$	3,964		$	14,322		$	80,552
Provision for losses	466			1,459			181			194			2,300
Recoveries on loans	1,035			1,166			323			511			3,035
Loans charged off	(1,157		)	(3,268		)	(362		)	(529		)	(5,316		)
Balances, September 30, 2019	$	33,001		$	28,966		$	4,106		$	14,498		$	80,571

	Three Months Ended September 30, 2018
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, June 30, 2018	$	31,467		$	27,731		$	3,921		$	14,424		$	77,543
Provision for losses	256			410			159			575			1,400
Recoveries on loans	658			306			46			165			1,175
Loans charged off	(313		)	(501		)	(194		)	(704		)	(1,712		)
Balances, September 30, 2018	$	32,068		$	27,946		$	3,932		$	14,460		$	78,406

	Nine Months Ended September 30, 2018
	Commercial			Commercial Real Estate			Consumer			Residential			Total
Allowance for loan losses:
Balances, December 31, 2017	$	30,420		$	27,343		$	3,732		$	13,537		$	75,032
Provision for losses	1,567			1,448			493			2,055			5,563
Recoveries on loans	2,060			1,858			233			915			5,066
Loans charged off	(1,979		)	(2,703		)	(526		)	(2,047		)	(7,255		)
Balances, September 30, 2018	$	32,068		$	27,946		$	3,932		$	14,460		$	78,406

The tables below show the Corporation’s allowance for loan losses and loan portfolio by loan segment as of the periods indicated.

	September 30, 2019
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance Balances:
Individually evaluated for impairment	$	1,680	$	124	$	—	$	457	$	2,261
Collectively evaluated for impairment	31,321		28,842		4,106		14,041		78,310
Total Allowance for Loan Losses	$	33,001	$	28,966	$	4,106	$	14,498	$	80,571
Loan Balances:
Individually evaluated for impairment	$	4,310	$	9,371	$	4	$	2,589	$	16,274
Collectively evaluated for impairment	2,590,318		3,792,239		131,242		1,752,443		8,266,242
Loans acquired with deteriorated credit quality	1,861		13,177		—		1,706		16,744
Loans	$	2,596,489	$	3,814,787	$	131,246	$	1,756,738	$	8,299,260

	December 31, 2018
	Commercial		Commercial Real Estate		Consumer		Residential		Total
Allowance Balances:
Individually evaluated for impairment	$	—	$	1,435	$	1	$	436	$	1,872
Collectively evaluated for impairment	32,657		28,174		3,963		13,886		78,680
Total Allowance for Loan Losses	$	32,657	$	29,609	$	3,964	$	14,322	$	80,552
Loan Balances:
Individually evaluated for impairment	$	1,838	$	17,756	$	18	$	2,413	$	22,025
Collectively evaluated for impairment	2,248,330		3,347,686		99,770		1,490,872		7,186,658
Loans acquired with deteriorated credit quality	2,102		12,389		—		1,293		15,784
Loans	$	2,252,270	$	3,377,831	$	99,788	$	1,494,578	$	7,224,467

Loans 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 $1,798,000 with $453,000 of related allowance for loan losses at September 30, 2019 and $1,541,000 with no related allowance for loan losses at December 31, 2018.

The risk characteristics of the Corporation’s material portfolio segments are as follows:

Commercial

Commercial 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 estate

These 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 Residential

With 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:

	September 30, 2019		December 31, 2018
Commercial and industrial loans	$	2,065	$	1,803
Agriculture production financing and other loans to farmers	3,150		679
Real estate loans:
Construction	1,027		8,667
Commercial and farmland	9,265		8,156
Residential	5,381		4,966
Home equity	1,737		1,481
Individuals' loans for household and other personal expenditures	103		42
Public finance and other commercial loans	—		354
Total	$	22,728	$	26,148

Impaired 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 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.

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:

	September 30, 2019
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	897	$	877	$	—
Agriculture production financing and other loans to farmers	1,023		1,012		—
Real estate Loans:
Commercial and farmland	10,118		8,047		—
Residential	207		189		—
Total	$	12,245	$	10,125	$	—
Impaired loans with related allowance:
Commercial and industrial loans	$	563	$	329	$	329
Agriculture production financing and other loans to farmers	2,144		2,092		1,351
Real estate Loans:
Commercial and farmland	2,061		1,324		124
Residential	2,079		2,055		389
Home equity	362		345		68
Individuals' loans for household and other personal expenditures	4		4		—
Total	$	7,213	$	6,149	$	2,261
Total Impaired Loans	$	19,458	$	16,274	$	2,261

	December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Related Allowance
Impaired loans with no related allowance:
Commercial and industrial loans	$	828	$	806	$	—
Agriculture production financing and other loans to farmers	679		679		—
Real estate Loans:
Construction	1,352		614		—
Commercial and farmland	11,176		8,994		—
Residential	118		100		—
Home equity	49		48		—
Public finance and other commercial loans	353		353		—
Total	$	14,555	$	11,594	$	—
Impaired loans with related allowance:
Real estate Loans:
Construction	$	7,978	$	7,977	$	1,429
Commercial and farmland	171		171		6
Residential	1,958		1,907		362
Home equity	376		358		74
Individuals' loans for household and other personal expenditures	18		18		1
Total	$	10,501	$	10,431	$	1,872
Total Impaired Loans	$	25,056	$	22,025	$	1,872

	Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	877	$	—	$	881	$	—
Agriculture production financing and other loans to farmers	1,012		—		1,014		—
Real estate Loans:
Construction	—		—		339		—
Commercial and farmland	8,075		39		8,651		117
Residential	189		—		190		2
Total	$	10,153	$	39	$	11,075	$	119
Impaired loans with related allowance:
Commercial and industrial loans	$	329	$	—	$	329	$	—
Agriculture production financing and other loans to farmers	2,100		—		2,123		—
Real estate Loans:
Commercial and farmland	1,324		—		1,324		—
Residential	2,072		15		2,095		47
Home equity	346		3		350		9
Individuals' loans for household and other personal expenditures	4		—		5		—
Total	$	6,175	$	18	$	6,226	$	56
Total Impaired Loans	$	16,328	$	57	$	17,301	$	175

	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial loans	$	979	$	—	$	994	$	—
Agriculture production financing and other loans to farmers	640		—		640		—
Real estate Loans:
Construction	614		—		930		—
Commercial and farmland	12,098		40		12,733		128
Residential	62		1		63		2
Individuals' loans for household and other personal expenditures	9		—		10		—
Total	$	14,402	$	41	$	15,370	$	130
Impaired loans with related allowance:
Real estate Loans:
Residential	1,797		13		1,812		37
Home equity	364		3		367		8
Total	$	2,161	$	16	$	2,179	$	45
Total Impaired Loans	$	16,563	$	57	$	17,549	$	175

Impaired 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.

• 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:

o the 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,

o the 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,

o loans have a distinct possibility that the Corporation will sustain some loss if deficiencies are not corrected,

o unusual courses of action are needed to maintain a high probability of repayment,

o the borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments,

o the Corporation is forced into a subordinated or unsecured position due to flaws in documentation,

o loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms,

o the Corporation is seriously contemplating foreclosure or legal action due to the apparent deterioration of the loan, and

o there 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.

	September 30, 2019
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss		Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	1,923,043	$	62,219	$	48,719	$	329	$	1	$	—	$	—	$	2,034,311
Agriculture production financing and other loans to farmers	70,715		5,681		13,867		—		—		199		—		90,462
Real estate Loans:
Construction	638,040		288		1,818		—		—		29,992		—		670,138
Commercial and farmland	2,963,113		73,429		101,025		—		—		7,082		—		3,144,649
Residential	198,986		3,492		7,195		—		—		940,613		5,117		1,155,403
Home equity	30,813		121		872		—		—		567,865		1,664		601,335
Individuals' loans for household and other personal expenditures	—		—		—		—		—		131,143		103		131,246
Public finance and other commercial loans	471,716		—		—		—		—		—		—		471,716
Loans	$	6,296,426	$	145,230	$	173,496	$	329	$	1	$	1,676,894	$	6,884	$	8,299,260

	December 31, 2018
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Commercial Loss		Consumer Performing		Consumer Non-Performing		Total
Commercial and industrial loans	$	1,660,879	$	23,246	$	42,539	$	—	$	—	$	—	$	—	$	1,726,664
Agriculture production financing and other loans to farmers	78,446		5,966		7,992		—		—		—		—		92,404
Real estate Loans:
Construction	492,358		2,185		24,224		—		—		25,419		1,543		545,729
Commercial and farmland	2,669,491		76,037		84,288		—		—		2,285		1		2,832,102
Residential	170,075		7,373		2,076		—		—		782,080		4,817		966,421
Home equity	24,653		535		457		—		—		500,996		1,516		528,157
Individuals' loans for household and other personal expenditures	—		—		—		—		—		99,741		47		99,788
Public finance and other commercial loans	432,849		—		353		—		—		—		—		433,202
Loans	$	5,528,751	$	115,342	$	161,929	$	—	$	—	$	1,410,521	$	7,924	$	7,224,467

The tables below show a past due aging of the Corporation’s loan portfolio, by loan class, as of September 30, 2019, and December 31, 2018:

	September 30, 2019
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans 90 Days or More Past Due And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	2,026,547	$	5,468	$	231	$	—	$	2,065	$	7,764	$	2,034,311
Agriculture production financing and other loans to farmers	87,274		—		38		—		3,150		3,188		90,462
Real estate loans:
Construction	669,111		—		—		—		1,027		1,027		670,138
Commercial and farmland	3,132,460		2,219		705		—		9,265		12,189		3,144,649
Residential	1,145,240		4,238		526		18		5,381		10,163		1,155,403
Home equity	596,472		2,547		515		64		1,737		4,863		601,335
Individuals' loans for household and other personal expenditures	130,641		319		183		—		103		605		131,246
Public finance and other commercial loans	471,716		—		—		—		—		—		471,716
Loans	$	8,259,461	$	14,791	$	2,198	$	82	$	22,728	$	39,799	$	8,299,260

	December 31, 2018
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans 90 Days or More Past Due And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total
Commercial and industrial loans	$	1,723,337	$	1,093	$	182	$	249	$	1,803	$	3,327	$	1,726,664
Agriculture production financing and other loans to farmers	89,440		2,285		—		—		679		2,964		92,404
Real estate loans:
Construction	535,520		64		—		1,478		8,667		10,209		545,729
Commercial and farmland	2,822,515		1,253		178		—		8,156		9,587		2,832,102
Residential	959,252		1,756		430		17		4,966		7,169		966,421
Home equity	524,198		2,164		207		107		1,481		3,959		528,157
Individuals' loans for household and other personal expenditures	99,499		179		64		4		42		289		99,788
Public finance and other commercial loans	432,848		—		—		—		354		354		433,202
Loans	$	7,186,609	$	8,794	$	1,061	$	1,855	$	26,148	$	37,858	$	7,224,467

On 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 trouble 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 paid.

The following tables summarize troubled debt restructures in the Corporation's loan portfolio that occurred during the periods indicated:

	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate loans:
Residential	$	195	$	185	3	$	456	$	439	8
Total	$	195	$	185	3	$	456	$	439	8

	Three Months Ended September 30, 2018					Nine Months Ended September 30, 2018
	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans	Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans
Real estate loans:
Residential	$	154	$	140	4	$	490	$	487	11
Home equity	65		65		1	81		81		3
Individuals' loans for household and other personal expenditures	—		—		—	7		8		1
Total	$	219	$	205	5	$	578	$	576	15

The following tables summarize the recorded investment of troubled debt restructures as of September 30, 2019 and 2018, by modification type, that occurred during the periods indicated:

	Three Months Ended September 30, 2019
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	—	$	184	$	184
Total	$	—	$	—	$	184	$	184

	Nine Months Ended September 30, 2019
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	88	$	345	$	433
Total	$	—	$	88	$	345	$	433

	Three Months Ended September 30, 2018
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	47	$	93	$	140
Home equity	—		65		—		65
Total	$	—	$	112	$	93	$	205

	Nine Months Ended September 30, 2018
	Term Modification		Rate Modification		Combination		Total Modification
Real estate loans:
Residential	$	—	$	208	$	239	$	447
Home equity	77		76		—		153
Individuals' loans for household and other personal expenditures	—		6		—		6
Total	$	77	$	290	$	239	$	606

Loans secured by residential real estate made up 100 percent of the post-modification balance of troubled debt restructured loans made in the three and nine months ended September 30, 2019. The same loan classification made up 100 percent and 99 percent of the post-modification balance of troubled debt restructured loans made in the three and nine months ended September 30, 2018, respectively.

The following tables summarize troubled debt restructures that occurred during the twelve months ended September 30, 2019 and 2018, that subsequently defaulted during the period indicated and remained in default at period end. A loan is considered in default if it is 30-days or more past due.

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Real estate loans:
Commercial and farmland	1	$	85	1	$	85
Total	1	$	85	1	$	85

	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
	Number of Loans	Recorded Balance		Number of Loans	Recorded Balance
Real estate loans:
Commercial and farmland	1	$	262	1	$	262
Residential	2	83		4	152
Individuals' loans for household and other personal expenditures	1	11		1	11
Total	4	$	356	6	$	425

For 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 $683,000 and $800,000 at September 30, 2019 and December 31, 2018, respectively.

Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and 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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Leases - Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Maturity of lease liabilities
Remaining 2019	$ 900
2020	3,425
2021	3,147
2022	3,024
2023	2,645
2024 and after	12,777
Total lease payments	25,918
Less: Present value discount	3,810
Present value of lease liabilities	22,108
Other Information
Operating cash flows from operating leases	2,521
ROU assets obtained in exchange for new operating lease liabilities	$ 23,496	$ 0

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Disclosures About Fair Value of Assets and Liabilities - Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Assets:
Investment securities available for sale	$ 1,646,399	$ 1,142,195
Investment securities held to maturity	865,286	489,217
Loans held for sale	7,910	4,778
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Cash and cash equivalents	202,383	139,247
Interest-bearing time deposits	230,101	36,963
Investment securities available for sale	0	0
Investment securities held to maturity	0	0
Loans held for sale	0	0
Loans	0	0
Federal Home Loan Bank stock	0	0
Interest rate swap and cap asset	0	0
Interest receivable	0	0
Liabilities:
Deposits	7,992,716	6,267,879
Borrowings:
Federal funds purchased	0	0
Securities sold under repurchase agreements	0	0
Federal Home Loan Bank advances	0	0
Subordinated debentures and term loans	0	0
Interest rate swap liability	0	0
Interest payable	0	0
Significant Other Observable Inputs (Level 2)
Assets:
Cash and cash equivalents	0	0
Interest-bearing time deposits	0	0
Investment securities available for sale	1,643,503	1,138,867
Investment securities held to maturity	832,750	481,377
Loans held for sale	7,910	4,778
Loans	0	0
Federal Home Loan Bank stock	28,736	24,588
Interest rate swap and cap asset	37,899	12,083
Interest receivable	45,923	40,881
Liabilities:
Deposits	1,752,081	1,464,129
Borrowings:
Federal funds purchased	0	104,000
Securities sold under repurchase agreements	191,603	113,437
Federal Home Loan Bank advances	357,166	318,728
Subordinated debentures and term loans	124,453	127,298
Interest rate swap liability	39,629	12,636
Interest payable	7,855	5,607
Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents	0	0
Interest-bearing time deposits	0	0
Investment securities available for sale	2,896	3,328
Investment securities held to maturity	32,536	7,840
Loans held for sale	0	0
Loans	8,206,069	7,004,193
Federal Home Loan Bank stock	0	0
Interest rate swap and cap asset	0	0
Interest receivable	0	0
Liabilities:
Deposits	0	0
Borrowings:
Federal funds purchased	0	0
Securities sold under repurchase agreements	0	0
Federal Home Loan Bank advances	0	0
Subordinated debentures and term loans	0	0
Interest rate swap liability	0	0
Interest payable	0	0
Carrying Amount
Assets:
Cash and cash equivalents	202,383	139,247
Interest-bearing time deposits	230,101	36,963
Investment securities available for sale	1,646,399	1,142,195
Investment securities held to maturity	843,021	490,387
Loans held for sale	7,910	4,778
Loans	8,218,689	7,143,915
Federal Home Loan Bank stock	28,736	24,588
Interest rate swap and cap asset	37,899	12,083
Interest receivable	45,923	40,881
Liabilities:
Deposits	9,765,451	7,754,593
Borrowings:
Federal funds purchased	0	104,000
Securities sold under repurchase agreements	191,603	113,512
Federal Home Loan Bank advances	354,609	314,986
Subordinated debentures and term loans	138,630	138,463
Interest rate swap liability	39,629	12,636
Interest payable	$ 7,855	$ 5,607

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Share-Based Compensation - Narrative (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of average closing price to be paid by employees			85.00%
Maximum common stock purchases through advance payroll deductions in a calendar year			$ 25,000
Share-based compensation	$ 1,062,000	$ 891,000	$ 2,887,000	$ 2,546,000
Forfeiture rate			1.70%
Unrecognized compensation expense related to stock options	0		$ 0
Aggregate intrinsic value of stock options exercised			355,000	1,203,000
Cash receipts of stock options exercised			$ 121,000	$ 1,093,000
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option term			10 years
Stock options vesting percentage			100.00%
Stock Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested period			1 year
Stock Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested period			2 years
RSAs
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested period			3 years
Unrecognized compensation expense related to RSAs	8,560,000		$ 8,560,000
Unrecognized compensation expense expected recognition period			1 year 9 months 25 days
ESPP
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense related to stock options	0		$ 0
Grant date fair value of ESPP options	$ 36,000

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Derivative Financial Instruments - Effect of Derivative Financial Instruments on Income Statement (Details) - Interest rate contracts - Derivatives designated as hedging instruments - Interest Expense - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative [Line Items]
Amount of Gain (Loss) Reclassified from Other Comprehensive Income into Income (Effective Portion)	$ (104)		$ (247)
Amount of Gain (Loss) Reclassed from Other Comprehensive Income into Income (Effective Portion)		$ (93)		$ (368)

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Loans and Allowance - Allowance for Credit Losses and Loan Portfolio by Loan Segment (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Allowance Balances:
Individually evaluated for impairment	$ 2,261		$ 1,872
Collectively evaluated for impairment	78,310		78,680
Total Allowance for Loan Losses	80,571	$ 81,274	80,552	$ 78,406	$ 77,543	$ 75,032
Loan Balance [Abstract]
Individually evaluated for impairment	16,274		22,025
Collectively evaluated for impairment	8,266,242		7,186,658
Loans	8,299,260		7,224,467
Loans acquired with deteriorated credit quality
Loan Balance [Abstract]
Loans	16,744		15,784
Commercial
Allowance Balances:
Individually evaluated for impairment	1,680		0
Collectively evaluated for impairment	31,321		32,657
Total Allowance for Loan Losses	33,001	33,202	32,657	32,068	31,467	30,420
Loan Balance [Abstract]
Individually evaluated for impairment	4,310		1,838
Collectively evaluated for impairment	2,590,318		2,248,330
Loans	2,596,489		2,252,270
Commercial | Loans acquired with deteriorated credit quality
Loan Balance [Abstract]
Loans	1,861		2,102
Commercial Real Estate
Allowance Balances:
Individually evaluated for impairment	124		1,435
Collectively evaluated for impairment	28,842		28,174
Total Allowance for Loan Losses	28,966	29,531	29,609	27,946	27,731	27,343
Loan Balance [Abstract]
Individually evaluated for impairment	9,371		17,756
Collectively evaluated for impairment	3,792,239		3,347,686
Loans	3,814,787		3,377,831
Commercial Real Estate | Loans acquired with deteriorated credit quality
Loan Balance [Abstract]
Loans	13,177		12,389
Consumer
Allowance Balances:
Individually evaluated for impairment	0		1
Collectively evaluated for impairment	4,106		3,963
Total Allowance for Loan Losses	4,106	4,070	3,964	3,932	3,921	3,732
Loan Balance [Abstract]
Individually evaluated for impairment	4		18
Collectively evaluated for impairment	131,242		99,770
Loans	131,246		99,788
Residential
Allowance Balances:
Individually evaluated for impairment	457		436
Collectively evaluated for impairment	14,041		13,886
Total Allowance for Loan Losses	14,498	$ 14,471	14,322	$ 14,460	$ 14,424	$ 13,537
Loan Balance [Abstract]
Individually evaluated for impairment	2,589		2,413
Collectively evaluated for impairment	1,752,443		1,490,872
Loans	1,756,738		1,494,578
Residential | Loans acquired with deteriorated credit quality
Loan Balance [Abstract]
Loans	$ 1,706		$ 1,293

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Investment Securities - Investments in Debt and Equity Securities Reported Less than Historical Cost (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Schedule of Investments [Line Items]
Fair value	$ 433,072	$ 932,577
Investments reported at less than historical cost
Schedule of Investments [Line Items]
Historical cost	435,367	951,571
Fair value	433,072	932,577
Gross unrealized losses	$ 2,295	$ 18,994
Percent of the Corporation's investment portfolio	17.40%	57.10%

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Loans and Allowance - Past Due Aging of Loan Portfolio by Loan Class (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Financing Receivable, Past Due [Line Items]
Current	$ 8,259,461	$ 7,186,609
Non-Accrual	22,728	26,148
Total Past Due & Non-Accrual	39,799	37,858
Total	8,299,260	7,224,467
Commercial and industrial loans
Financing Receivable, Past Due [Line Items]
Current	2,026,547	1,723,337
Non-Accrual	2,065	1,803
Total Past Due & Non-Accrual	7,764	3,327
Total	2,034,311	1,726,664
Agricultural production financing and other loans to farmers
Financing Receivable, Past Due [Line Items]
Current	87,274	89,440
Non-Accrual	3,150	679
Total Past Due & Non-Accrual	3,188	2,964
Total	90,462	92,404
Construction
Financing Receivable, Past Due [Line Items]
Current	669,111	535,520
Non-Accrual	1,027	8,667
Total Past Due & Non-Accrual	1,027	10,209
Total	670,138	545,729
Commercial and farmland
Financing Receivable, Past Due [Line Items]
Current	3,132,460	2,822,515
Non-Accrual	9,265	8,156
Total Past Due & Non-Accrual	12,189	9,587
Total	3,144,649	2,832,102
Residential
Financing Receivable, Past Due [Line Items]
Current	1,145,240	959,252
Non-Accrual	5,381	4,966
Total Past Due & Non-Accrual	10,163	7,169
Total	1,155,403	966,421
Home equity
Financing Receivable, Past Due [Line Items]
Current	596,472	524,198
Non-Accrual	1,737	1,481
Total Past Due & Non-Accrual	4,863	3,959
Total	601,335	528,157
Individuals' loans for household and other personal expenditures
Financing Receivable, Past Due [Line Items]
Current	130,641	99,499
Non-Accrual	103	42
Total Past Due & Non-Accrual	605	289
Total	131,246	99,788
Public finance and other commercial loans
Financing Receivable, Past Due [Line Items]
Current	471,716	432,848
Non-Accrual	0	354
Total Past Due & Non-Accrual	0	354
Total	471,716	433,202
30-59 Days Past Due
Financing Receivable, Past Due [Line Items]
Past Due	14,791	8,794
30-59 Days Past Due | Commercial and industrial loans
Financing Receivable, Past Due [Line Items]
Past Due	5,468	1,093
30-59 Days Past Due | Agricultural production financing and other loans to farmers
Financing Receivable, Past Due [Line Items]
Past Due	0	2,285
30-59 Days Past Due | Construction
Financing Receivable, Past Due [Line Items]
Past Due	0	64
30-59 Days Past Due | Commercial and farmland
Financing Receivable, Past Due [Line Items]
Past Due	2,219	1,253
30-59 Days Past Due | Residential
Financing Receivable, Past Due [Line Items]
Past Due	4,238	1,756
30-59 Days Past Due | Home equity
Financing Receivable, Past Due [Line Items]
Past Due	2,547	2,164
30-59 Days Past Due | Individuals' loans for household and other personal expenditures
Financing Receivable, Past Due [Line Items]
Past Due	319	179
30-59 Days Past Due | Public finance and other commercial loans
Financing Receivable, Past Due [Line Items]
Past Due	0	0
60-89 Days Past Due
Financing Receivable, Past Due [Line Items]
Past Due	2,198	1,061
60-89 Days Past Due | Commercial and industrial loans
Financing Receivable, Past Due [Line Items]
Past Due	231	182
60-89 Days Past Due | Agricultural production financing and other loans to farmers
Financing Receivable, Past Due [Line Items]
Past Due	38	0
60-89 Days Past Due | Construction
Financing Receivable, Past Due [Line Items]
Past Due	0	0
60-89 Days Past Due | Commercial and farmland
Financing Receivable, Past Due [Line Items]
Past Due	705	178
60-89 Days Past Due | Residential
Financing Receivable, Past Due [Line Items]
Past Due	526	430
60-89 Days Past Due | Home equity
Financing Receivable, Past Due [Line Items]
Past Due	515	207
60-89 Days Past Due | Individuals' loans for household and other personal expenditures
Financing Receivable, Past Due [Line Items]
Past Due	183	64
60-89 Days Past Due | Public finance and other commercial loans
Financing Receivable, Past Due [Line Items]
Past Due	0	0
Loans 90 Days or More Past Due And Accruing
Financing Receivable, Past Due [Line Items]
Past Due	82	1,855
Loans 90 Days or More Past Due And Accruing | Commercial and industrial loans
Financing Receivable, Past Due [Line Items]
Past Due	0	249
Loans 90 Days or More Past Due And Accruing | Agricultural production financing and other loans to farmers
Financing Receivable, Past Due [Line Items]
Past Due	0	0
Loans 90 Days or More Past Due And Accruing | Construction
Financing Receivable, Past Due [Line Items]
Past Due	0	1,478
Loans 90 Days or More Past Due And Accruing | Commercial and farmland
Financing Receivable, Past Due [Line Items]
Past Due	0	0
Loans 90 Days or More Past Due And Accruing | Residential
Financing Receivable, Past Due [Line Items]
Past Due	18	17
Loans 90 Days or More Past Due And Accruing | Home equity
Financing Receivable, Past Due [Line Items]
Past Due	64	107
Loans 90 Days or More Past Due And Accruing | Individuals' loans for household and other personal expenditures
Financing Receivable, Past Due [Line Items]
Past Due	0	4
Loans 90 Days or More Past Due And Accruing | Public finance and other commercial loans
Financing Receivable, Past Due [Line Items]
Past Due	$ 0	$ 0

XML

Acquisition - Narrative (Details) $ in Thousands		3 Months Ended	9 Months Ended		12 Months Ended
	Sep. 01, 2019 USD ($) bank_branch shares	Sep. 30, 2019 USD ($) shares	Sep. 30, 2019 USD ($) shares	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Business Acquisition [Line Items]
Less: Common stock issued		$ 229,926	$ 229,926	$ 0
Common Stock
Business Acquisition [Line Items]
Stock issued as a part of acquisition (in shares) | shares		6,383,806	6,383,806
Less: Common stock issued		$ 798	$ 798
MBT
Business Acquisition [Line Items]
Percentage of interest acquired	100.00%
Number of banking centers acquired | bank_branch	20
Less: Common stock issued	$ 229,900
Other intangible assets	16,527
Operating revenue		4,900	4,900
Non-recurring expenses		$ 17,300	$ 18,200		$ 877
MBT | Core deposit intangibles acquired
Business Acquisition [Line Items]
Other intangible assets	$ 16,527
Acquired intangible asset, expected useful life	10 years
MBT | Common Stock
Business Acquisition [Line Items]
Number of shares of common stock	0.275
Stock issued as a part of acquisition (in shares) | shares	6,400,000

XML

Investment Securities - Amortized Cost and Approximate Fair Value of Securities (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Available for sale securities
Total Investment Securities	$ 1,593,317,000	$ 1,149,727,000
Gross Unrealized Gains	54,773,000	6,721,000
Gross Unrealized Losses	1,691,000	14,253,000
Fair Value	1,646,399,000	1,142,195,000
Held to maturity securities
Total Investment Securities	843,021,000	490,387,000
Gross Unrealized Gains	22,869,000	3,571,000
Gross Unrealized Losses	604,000	4,741,000
Fair Value	865,286,000	489,217,000
Amortized Cost	2,436,338,000	1,640,114,000
Gross Unrealized Gains	77,642,000	10,292,000
Gross Unrealized Losses	2,295,000	18,994,000
Fair Value	2,511,685,000	1,631,412,000
U.S. Government-sponsored agency securities
Available for sale securities
Total Investment Securities	48,553,000	13,493,000
Gross Unrealized Gains	450,000	92,000
Gross Unrealized Losses	26,000	3,000
Fair Value	48,977,000	13,582,000
Held to maturity securities
Total Investment Securities	42,434,000	22,618,000
Gross Unrealized Gains	4,000	0
Gross Unrealized Losses	95,000	545,000
Fair Value	42,343,000	22,073,000
State and municipal
Available for sale securities
Total Investment Securities	754,846,000	605,994,000
Gross Unrealized Gains	42,663,000	5,995,000
Gross Unrealized Losses	634,000	5,854,000
Fair Value	796,875,000	606,135,000
Held to maturity securities
Total Investment Securities	355,263,000	197,909,000
Gross Unrealized Gains	15,841,000	2,858,000
Gross Unrealized Losses	40,000	872,000
Fair Value	371,064,000	199,895,000
U.S. Government-sponsored mortgage-backed securities
Available for sale securities
Total Investment Securities	789,887,000	530,209,000
Gross Unrealized Gains	11,660,000	634,000
Gross Unrealized Losses	1,031,000	8,396,000
Fair Value	800,516,000	522,447,000
Held to maturity securities
Total Investment Securities	443,824,000	268,860,000
Gross Unrealized Gains	7,024,000	713,000
Gross Unrealized Losses	462,000	3,323,000
Fair Value	450,386,000	266,250,000
Corporate obligations
Available for sale securities
Total Investment Securities	31,000	31,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	31,000	31,000
Foreign investment
Available for sale securities
Gross Unrealized Losses	0
Held to maturity securities
Total Investment Securities	1,500,000	1,000,000
Gross Unrealized Gains	0	0
Gross Unrealized Losses	7,000	1,000
Fair Value	$ 1,493,000	$ 999,000

XML

Other Intangibles - Estimated Future Amortization Expense (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Amortization Expense
2019	$ 1,591
2020	5,987
2021	5,429
2022	5,027
2023	4,827
After 2023	13,691
Total other intangibles	$ 36,552	$ 24,429

XML

Goodwill - Narrative (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Sep. 01, 2019	Dec. 31, 2018	Dec. 31, 2017
Goodwill [Line Items]
Goodwill	$ 543,199		$ 445,355	$ 445,355
MBT
Goodwill [Line Items]
Goodwill		$ 97,844

XML

Net Income Per Share - Reconciliation of Basic and Diluted Net Income Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net Income
Net income available to common stockholders	$ 36,757	$ 41,113	$ 116,630	$ 117,426
Diluted net income per share	$ 36,757	$ 41,113	$ 116,630	$ 117,426
Weighted-Average Shares
Net income available to common stockholders (in shares)	51,433,227	49,286,945	50,085,701	49,244,403
Effect of potentially dilutive stock options and restricted stock awards (in shares)	136,330	205,074	141,679	213,782
Diluted net income per share (in shares)	51,569,557	49,492,019	50,227,380	49,458,185
Per Share Amount
Net income available to common stockholders (in dollars per share)	$ 0.71	$ 0.83	$ 2.33	$ 2.38
Diluted net income per share (in dollars per share)	$ 0.71	$ 0.83	$ 2.32	$ 2.37

XML

Loans and Allowance - Summary of Troubled Debt Restructurings by Modification Type (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification	$ 184	$ 205	$ 433	$ 606
Term Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification	0		0	77
Rate Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification	0	112	88	290
Combination
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification	184	93	345	239
Residential
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification	184	140	433	447
Residential | Term Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification			0
Residential | Rate Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification	0	47	88	208
Residential | Combination
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification	$ 184	93	$ 345	239
Home equity
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification		65		153
Home equity | Term Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification				77
Home equity | Rate Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification		65		76
Home equity | Combination
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification		$ 0		0
Individuals' loans for household and other personal expenditures
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification				6
Individuals' loans for household and other personal expenditures | Term Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification				0
Individuals' loans for household and other personal expenditures | Rate Modification
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification				6
Individuals' loans for household and other personal expenditures | Combination
Financing Receivable, Troubled Debt Restructuring [Line Items]
Modification				$ 0

XML

Acquisition (Tables)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Schedule of preliminary valuations of the fair value of assets acquired and liabilities assumed

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 Value
Cash and cash equivalents	$	10,222
Interest-bearing time deposits	281,228
Investment securities	212,235
Loans	731,260
Premises and equipment	21,664
Federal Home Loan Bank stock	4,148
Interest receivable	3,361
Cash surrender value of life insurance	59,545
Tax asset, deferred and receivable	4,970
Other assets	7,737
Deposits	(1,105,926		)
Securities sold under repurchase agreements	(94,760		)
Federal Home Loan Bank advances	(10,853		)
Other liabilities	(9,261		)
Net tangible assets acquired	115,570
Core deposit intangible	16,527
Goodwill	97,844
Purchase price	$	229,941

Schedule of acquired loan data

Acquired loan data for MBT is included in the following table:

	Fair Value of Acquired Loans at Acquisition Date		Gross Contractual Amounts Receivable at Acquisition Date		Best Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be Collected
Acquired receivables subject to ASC 310-30	$	3,531	$	6,840	$	2,733
Acquired receivables not subject to ASC 310-30	$	727,729	$	907,210	$	14,506

Schedule of pro forma financial information

The results of operations of MBT have been included in the Corporation's consolidated financial statements since the acquisition date. The following schedules includes pro forma results for the three months and nine months ended September 30, 2019 and the annual period ended December 31, 2018, as if the MBT acquisition occurred as of the beginning of the periods presented.

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Total revenue (net interest income plus other income)	$	120,606	$	351,121
Net income available to common shareholders	$	30,835	$	110,958
Earnings per share:
Basic	$	0.55	$	1.98
Diluted	$	0.54	$	1.97
			Year Ended December 31, 2018
Total revenue (net interest income plus other income)			$	474,842
Net income available to common shareholders			$	174,900
Earnings per share:
Basic			$	3.13
Diluted			$	3.12

XML

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash Flow From Operating Activities:
Net income	$ 116,630	$ 117,426
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	2,300	5,563
Depreciation and amortization	6,737	6,630
Change in deferred taxes	(1,097)	3,750
Share-based compensation	2,887	2,546
Loans originated for sale	(361,054)	(277,312)
Proceeds from sales of loans held for sale	362,084	285,297
Gains on sales of loans held for sale	(4,162)	(3,791)
Gains on sales of securities available for sale	(3,376)	(4,016)
Increase in cash surrender of life insurance	(3,060)	(2,946)
Gains on life insurance benefits	(19)	(198)
Change in interest receivable	(1,681)	(1,401)
Change in interest payable	2,191	1,530
Other adjustments	18,149	3,077
Net cash provided by operating activities	136,529	136,155
Cash Flows from Investing Activities:
Net change in interest-bearing deposits	88,090	(31,736)
Purchases of:
Securities available for sale	(435,804)	(341,433)
Securities held to maturity	(397,166)	0
Proceeds from sales of securities available for sale	102,840	126,136
Proceeds from maturities of:
Securities available for sale	89,603	56,533
Securities held to maturity	67,791	52,258
Change in Federal Home Loan Bank stock	0	(763)
Net change in loans	(352,716)	(347,054)
Net cash and cash equivalents received in acquisition	10,207	0
Proceeds from the sale of other real estate owned	1,571	2,069
Proceeds from life insurance benefits	816	2,836
Other adjustments	(6,064)	2,708
Net cash used in investing activities	(830,832)	(478,446)
Net change in :
Demand and savings deposits	729,495	342,471
Certificates of deposit and other time deposits	175,437	118,151
Borrowings	535,239	1,451,467
Repayment of borrowings	(626,971)	(1,552,068)
Cash dividends on common stock	(36,793)	(30,732)
Stock issued under employee benefit plans	518	515
Stock issued under dividend reinvestment and stock purchase plans	1,109	879
Stock options exercised	121	1,093
Stock redeemed	(1,675)	(1,889)
Repurchase of common stock	(19,041)	0
Net cash provided by financing activities	757,439	329,887
Net Change in Cash and Cash Equivalents	63,136	(12,404)
Cash and Cash Equivalents, January 1	139,247	154,905
Cash and Cash Equivalents, September 30	202,383	142,501
Additional cash flow information:
Interest paid	78,260	46,788
Income tax paid (refunded)	19,335	13,719
Loans transferred to other real estate owned	6,902	405
Fixed assets transferred to other real estate owned	965	374
Non-cash investing activities using trade date accounting	13,893	828
Investments transferred from held to maturity to available for sale in accordance with ASU 2017-12	0	30,794
ROU assets obtained in exchange for new operating lease liabilities	23,496	0
In conjunction with the acquisitions, liabilities were assumed as follows:
Fair value of assets acquired	1,450,741	0
Cash paid in acquisition	(15)	0
Less: Common stock issued	229,926	0
Liabilities assumed	$ 1,220,800	$ 0

XML

Income Tax

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Tax

INCOME TAX

The 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 the three and nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 21%	$	9,050		$	10,414		$	28,908		$	29,500
Tax-exempt interest income	(2,637		)	(2,118		)	(7,307		)	(6,178		)
Share-based compensation	(11		)	(38		)	(402		)	(570		)
Tax-exempt earnings and gains on life insurance	(241		)	(197		)	(647		)	(655		)
Tax credits	(61		)	(42		)	(202		)	(65		)
Other	237			459			677			1,018
Actual Tax Expense	$	6,337		$	8,478		$	21,027		$	23,050
Effective Tax Rate	14.7		%	17.1		%	15.3		%	16.4		%

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Oct. 31, 2019
Cover page.
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	0-17071
Entity Registrant Name	FIRST MERCHANTS CORP
Entity Incorporation, State or Country Code	IN
Entity Tax Identification Number	35-1544218
Entity Address, Address Line One	200 East Jackson Street
Entity Address, City or Town	Muncie
Entity Address, State or Province	IN
Entity Address, Postal Zip Code	47305-2814
City Area Code	765
Local Phone Number	747-1500
Title of 12(b) Security	Common Stock, $0.125 state value per share
Trading Symbol	FRME
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		55,696,408
Amendment Flag	false
Entity Central Index Key	0000712534
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31

XML

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income	$ 36,757	$ 41,113	$ 116,630	$ 117,426
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on securities available for sale arising during the period, net of tax of $3,034, $2,596, $13,436, and $7,470	11,415	(9,765)	50,545	(30,032)
Unrealized gain (loss) on cash flow hedges arising during the period, net of tax of $37, $44, $267 and $212	(141)	166	(1,003)	1,039
Reclassification adjustment for net gains included in net income, net of tax of $61, $250, $657 and $766	(228)	(942)	(2,472)	(2,882)
Total other comprehensive income (loss), net of tax	11,046	(10,541)	47,070	(31,875)
Comprehensive income	$ 47,803	$ 30,572	$ 163,700	$ 85,551

XML

Disclosures About Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Disclosures About Fair Value of Assets and Liabilities

DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

The 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 MEASUREMENTS

Assets 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.

Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the

accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Investment Securities

Where 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 backs 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 backs 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 Agreements

See information regarding the Corporation’s interest rate derivative products in NOTE 9. 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 820-10 fair value hierarchy in which the fair value measurements fall at September 30, 2019, and December 31, 2018.

			Fair Value Measurements Using:
September 30, 2019	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	48,977	$	—	$	48,977	$	—
State and municipal	796,875		—		794,014		2,861
U.S. Government-sponsored mortgage-backed securities	800,516		—		800,512		4
Corporate obligations	31		—		—		31
Interest rate swap asset	37,899		—		37,899		—
Interest rate swap liability	39,629		—		39,629		—

			Fair Value Measurements Using:
December 31, 2018	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	13,582	$	—	$	13,582	$	—
State and municipal	606,135		—		602,842		3,293
U.S. Government-sponsored mortgage-backed securities	522,447		—		522,443		4
Corporate obligations	31		—		—		31
Interest rate swap and cap asset	12,083		—		12,083		—
Interest rate swap liability	12,636		—		12,636		—

There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets or

liabilities held at September 30, 2019 or December 31, 2018.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying

balance sheets using significant unobservable Level 3 inputs for the three and nine months ended September 30, 2019 and 2018.

	Available for Sale Securities
	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Balance at beginning of the period	$	2,975		$	3,970		$	3,328		$	3,978
Included in other comprehensive income	6			(35		)	85			(59		)
Principal payments	(85		)	(620		)	(517		)	(604		)
Ending balance	$	2,896		$	3,315		$	2,896		$	3,315

Transfers Between Levels

There were no transfers in or out of Level 3 for the three and nine months ended September 30, 2019 and 2018.

Nonrecurring Measurements

Following 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 for September 30, 2019, and December 31, 2018.

			Fair Value Measurements Using
September 30, 2019	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent)	$	6,939	$	—	$	—	$	6,939
Other real estate owned	220		—		—		220

			Fair Value Measurements Using
December 31, 2018	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans (collateral dependent)	$	11,866	$	—	$	—	$	11,866
Other real estate owned	657		—		—		657

Impaired 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. During 2018 and 2019, 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 Owned

The 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.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2019 and December 31, 2018.

September 30, 2019	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted-Average)
State and municipal securities	$	2,861	Discounted cash flow	Maturity/Call date	1 month to 15 yrs
				US Muni BQ curve	A- to BBB-
				Discount rate	2% - 5%
Corporate obligations and U.S. Government-sponsored mortgage backed securities	$	35	Discounted cash flow	Risk free rate	3 month LIBOR
				plus premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	6,939	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	0% - 10% (2%)
Other real estate owned	$	220	Appraisals	Discount to reflect current market conditions	0% - 51% (31%)

December 31, 2018	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted-Average)
State and municipal securities	$	3,293	Discounted cash flow	Maturity/Call date	1 month to 20 yrs
				US Muni BQ curve	A- to BBB-
				Discount rate	.69% - 5%
Corporate obligations and equity securities	$	35	Discounted cash flow	Risk free rate	3 month LIBOR
				plus premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	11,866	Collateral based measurements	Discount to reflect current market conditions and ultimate collectability	0% - 10% (6%)
Other real estate owned	$	657	Appraisals	Discount to reflect current market conditions	0% - 10% (4%)

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 Securities

The 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.

Fair Value of Financial Instruments

The 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 at September 30, 2019, and December 31, 2018.

			September 30, 2019
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	202,383	$	202,383	$	—	$	—
Interest-bearing time deposits	230,101		230,101		—		—
Investment securities available for sale	1,646,399		—		1,643,503		2,896
Investment securities held to maturity	843,021		—		832,750		32,536
Loans held for sale	7,910		—		7,910		—
Loans	8,218,689		—		—		8,206,069
Federal Home Loan Bank stock	28,736		—		28,736		—
Interest rate swap asset	37,899		—		37,899		—
Interest receivable	45,923		—		45,923		—
Liabilities:
Deposits	$	9,765,451	$	7,992,716	$	1,752,081	$	—
Borrowings:
Federal funds purchased	—		—		—		—
Securities sold under repurchase agreements	191,603		—		191,603		—
Federal Home Loan Bank advances	354,609		—		357,166		—
Subordinated debentures and term loans	138,630		—		124,453		—
Interest rate swap liability	39,629		—		39,629		—
Interest payable	7,855		—		7,855		—

			December 31, 2018
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Amount		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	139,247	$	139,247	$	—	$	—
Interest-bearing time deposits	36,963		36,963		—		—
Investment securities available for sale	1,142,195		—		1,138,867		3,328
Investment securities held to maturity	490,387		—		481,377		7,840
Loans held for sale	4,778		—		4,778		—
Loans	7,143,915		—		—		7,004,193
Federal Home Loan Bank stock	24,588		—		24,588		—
Interest rate swap and cap asset	12,083		—		12,083		—
Interest receivable	40,881		—		40,881		—
Liabilities:
Deposits	$	7,754,593	$	6,267,879	$	1,464,129	$	—
Borrowings:
Federal funds purchased	104,000		—		104,000		—
Securities sold under repurchase agreements	113,512		—		113,437		—
Federal Home Loan Bank advances	314,986		—		318,728		—
Subordinated debentures and term loans	138,463		—		127,298		—
Interest rate swap liability	12,636		—		12,636		—
Interest payable	5,607		—		5,607		—

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Goodwill

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

GOODWILL

Goodwill is recorded on the acquisition date of an entity. During the one-year measurement 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 $97,844,000 of goodwill. Details regarding the MBT acquisition are discussed in NOTE 2. ACQUISITION of these Notes to Consolidated Condensed Financial Statements.

	2019
Balance, January 1	$	445,355
Goodwill acquired	97,844
Balance, September 30	$	543,199
	2018
Balance, January 1	$	445,355
Goodwill acquired	—
Balance, December 31	$	445,355

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Acquisition

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Acquisition

ACQUISITION

MBT Financial Corp.

On September 1, 2019, the Corporation acquired 100 percent of 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 had 20 banking centers serving the Monroe market. Pursuant to the merger agreement, each MBT shareholder received 0.275 shares of the Corporation's common stock for each outstanding share of MBT common stock held. The Corporation issued approximately 6.4 million shares 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 Value
Cash and cash equivalents	$	10,222
Interest-bearing time deposits	281,228
Investment securities	212,235
Loans	731,260
Premises and equipment	21,664
Federal Home Loan Bank stock	4,148
Interest receivable	3,361
Cash surrender value of life insurance	59,545
Tax asset, deferred and receivable	4,970
Other assets	7,737
Deposits	(1,105,926		)
Securities sold under repurchase agreements	(94,760		)
Federal Home Loan Bank advances	(10,853		)
Other liabilities	(9,261		)
Net tangible assets acquired	115,570
Core deposit intangible	16,527
Goodwill	97,844
Purchase price	$	229,941

Of the total purchase price, $16,527,000 was allocated to a core deposit intangible, which will be amortized over its estimated life of 10 years. The remaining purchase price was allocated to goodwill, which is not deductible for tax purposes.

Acquired loan data for MBT is included in the following table:

	Fair Value of Acquired Loans at Acquisition Date		Gross Contractual Amounts Receivable at Acquisition Date		Best Estimate at Acquisition Date of Contractual Cash Flows Not Expected to be Collected
Acquired receivables subject to ASC 310-30	$	3,531	$	6,840	$	2,733
Acquired receivables not subject to ASC 310-30	$	727,729	$	907,210	$	14,506

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.

Pro Forma Financial Information

The results of operations of MBT have been included in the Corporation's consolidated financial statements since the acquisition date. The following schedules includes pro forma results for the three months and nine months ended September 30, 2019 and the annual period ended December 31, 2018, as if the MBT acquisition occurred as of the beginning of the periods presented.

	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Total revenue (net interest income plus other income)	$	120,606	$	351,121
Net income available to common shareholders	$	30,835	$	110,958
Earnings per share:
Basic	$	0.55	$	1.98
Diluted	$	0.54	$	1.97
			Year Ended December 31, 2018
Total revenue (net interest income plus other income)			$	474,842
Net income available to common shareholders			$	174,900
Earnings per share:
Basic			$	3.13
Diluted			$	3.12

The 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 three months ended September 30, 2019 includes operating revenue from MBT of $4.9 million since the date of acquisition. Additionally $17.3 million, net of tax, of non-recurring expenses directly attributable to the MBT acquisition were included in the three months ended September 30, 2019 pro forma information.

The pro forma information for the nine months ended September 30, 2019, includes operating revenue from MBT $4.9 million since the date of acquisition. Additionally $18.2 million, net of tax, of non-recurring expenses directly attributable to the MBT acquisition were included in the nine months ended September 30, 2019 pro forma information.

The pro forma information for the year ended December 31, 2018 includes operating results from MBT as if the acquisition occurred at the beginning of the year. Additionally, $877,000, net of tax, of non-recurring expenses directly attributable to the MBT acquisition were included in the year ended December 31, 2018 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.

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Other Intangibles (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of core deposit

The carrying basis and accumulated amortization of recognized core deposit intangibles and other intangibles are noted below.

	September 30, 2019			December 31, 2018
Gross carrying amount	$	85,869		$	85,869
Core deposit intangibles acquired	16,527			—
Accumulated amortization	(65,844		)	(61,440		)
Total other intangibles	$	36,552		$	24,429

Schedule of estimated future amortization expense

Estimated future amortization expense is summarized as follows:

	Amortization Expense
2019	$	1,591
2020	5,987
2021	5,429
2022	5,027
2023	4,827
After 2023	13,691
	$	36,552

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Transfers Accounted for as Secured Borrowings (Tables)

9 Months Ended

Sep. 30, 2019

Banking and Thrift [Abstract]

Schedule of collateral pledged for all repurchase agreements accounted for as secured borrowings

The collateral pledged for all repurchase agreements that are accounted for as secured borrowings as of September 30, 2019 and December 31, 2018 were:

	September 30, 2019
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 Days		Total
U.S. Government-sponsored mortgage-backed securities	$	181,412	$	—	$	1,769	$	8,422	$	191,603

	December 31, 2018
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Up to 30 Days		30-90 Days		Greater Than 90 Days		Total
U.S. Government-sponsored mortgage-backed securities	$	104,883	$	1,014	$	7,615	$	—	$	113,512

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Loans and Allowance - Composition of Impaired Loans by Loan Class (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Unpaid Principal Balance
Impaired loans with no related allowance	$ 12,245		$ 12,245		$ 14,555
Impaired loans with related allowance	7,213		7,213		10,501
Total Impaired Loans	19,458		19,458		25,056
Recorded Investment
Impaired loans with no related allowance	10,125		10,125		11,594
Impaired loans with related allowance	6,149		6,149		10,431
Total Impaired Loans	16,274		16,274		22,025
Related Allowance	2,261		2,261		1,872
Average Recorded Investment
Impaired loans with no related allowance	10,153	$ 14,402	11,075	$ 15,370
Impaired loans with related allowance	6,175	2,161	6,226	2,179
Total Impaired Loans	16,328	16,563	17,301	17,549
Interest Income Recognized
Impaired loans with no related allowance	39	41	119	130
Impaired loans with related allowance	18	16	56	45
Total Impaired Loans	57	57	175	175
Commercial and industrial loans
Unpaid Principal Balance
Impaired loans with no related allowance	897		897		828
Impaired loans with related allowance	563		563
Recorded Investment
Impaired loans with no related allowance	877		877		806
Impaired loans with related allowance	329		329
Related Allowance	329		329
Average Recorded Investment
Impaired loans with no related allowance	877	979	881	994
Impaired loans with related allowance	329		329
Interest Income Recognized
Impaired loans with no related allowance	0	0	0	0
Impaired loans with related allowance	0		0
Agricultural production financing and other loans to farmers
Unpaid Principal Balance
Impaired loans with no related allowance	1,023		1,023		679
Impaired loans with related allowance	2,144		2,144
Recorded Investment
Impaired loans with no related allowance	1,012		1,012		679
Impaired loans with related allowance	2,092		2,092
Related Allowance	1,351		1,351
Average Recorded Investment
Impaired loans with no related allowance	1,012	640	1,014	640
Impaired loans with related allowance	2,100		2,123
Interest Income Recognized
Impaired loans with no related allowance	0	0	0	0
Impaired loans with related allowance	0		0
Construction
Unpaid Principal Balance
Impaired loans with no related allowance					1,352
Impaired loans with related allowance					7,978
Recorded Investment
Impaired loans with no related allowance					614
Impaired loans with related allowance					7,977
Related Allowance					1,429
Average Recorded Investment
Impaired loans with no related allowance	0	614	339	930
Interest Income Recognized
Impaired loans with no related allowance	0	0	0	0
Commercial and farmland
Unpaid Principal Balance
Impaired loans with no related allowance	10,118		10,118		11,176
Impaired loans with related allowance	2,061		2,061		171
Recorded Investment
Impaired loans with no related allowance	8,047		8,047		8,994
Impaired loans with related allowance	1,324		1,324		171
Related Allowance	124		124		6
Average Recorded Investment
Impaired loans with no related allowance	8,075	12,098	8,651	12,733
Impaired loans with related allowance	1,324		1,324
Interest Income Recognized
Impaired loans with no related allowance	39	40	117	128
Residential
Unpaid Principal Balance
Impaired loans with no related allowance	207		207		118
Impaired loans with related allowance	2,079		2,079		1,958
Recorded Investment
Impaired loans with no related allowance	189		189		100
Impaired loans with related allowance	2,055		2,055		1,907
Related Allowance	389		389		362
Average Recorded Investment
Impaired loans with no related allowance	189	62	190	63
Impaired loans with related allowance	2,072	1,797	2,095	1,812
Interest Income Recognized
Impaired loans with no related allowance	0	1	2	2
Impaired loans with related allowance	15	13	47	37
Home equity
Unpaid Principal Balance
Impaired loans with no related allowance					49
Impaired loans with related allowance	362		362		376
Recorded Investment
Impaired loans with no related allowance					48
Impaired loans with related allowance	345		345		358
Related Allowance	68		68		74
Average Recorded Investment
Impaired loans with related allowance	346	364	350	367
Interest Income Recognized
Impaired loans with related allowance	3	3	9	8
Individuals' loans for household and other personal expenditures
Unpaid Principal Balance
Impaired loans with related allowance	4		4		18
Recorded Investment
Impaired loans with related allowance	4		4		18
Related Allowance	0		0		1
Average Recorded Investment
Impaired loans with no related allowance		9		10
Impaired loans with related allowance	$ 4		5
Interest Income Recognized
Impaired loans with no related allowance		$ 0		$ 0
Impaired loans with related allowance			$ 0
Public finance and other commercial loans
Unpaid Principal Balance
Impaired loans with no related allowance					353
Recorded Investment
Impaired loans with no related allowance					$ 353

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Loans and Allowance - Composition of Loan Portfolio by Loan Class (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Dec. 31, 2017
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 8,299,260		$ 7,224,467
Allowance for loan losses	(80,571)	$ (81,274)	(80,552)	$ (78,406)	$ (77,543)	$ (75,032)
Net Loans	8,218,689		7,143,915
Commercial and industrial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	2,034,311		1,726,664
Agricultural production financing and other loans to farmers
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	90,462		92,404
Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	670,138		545,729
Commercial and farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	3,144,649		2,832,102
Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,155,403		966,421
Allowance for loan losses	(14,498)	(14,471)	(14,322)	(14,460)	(14,424)	(13,537)
Home equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	601,335		528,157
Individuals' loans for household and other personal expenditures
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	131,246		99,788
Allowance for loan losses	(4,106)	$ (4,070)	(3,964)	$ (3,932)	$ (3,921)	$ (3,732)
Public finance and other commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 471,716		$ 433,202

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Leases - Supplemental Balance Sheet Information (Details) $ in Thousands	Sep. 30, 2019 USD ($)
Leases [Abstract]
Operating lease assets	$ 21,446
Operating lease liabilities	$ 22,108
Weighted average remaining lease term (years)	9 years
Weighted average discount rate	3.39%

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Disclosures About Fair Value of Assets and Liabilities - Valuation Methodologies Used for Instruments Measured at Fair Value on Non-Recurring Basis (Details) - Fair Value, Measurements, Nonrecurring - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Impaired loans (collateral dependent)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 6,939	$ 11,866
Impaired loans (collateral dependent) | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	0	0
Impaired loans (collateral dependent) | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	0	0
Impaired loans (collateral dependent) | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	6,939	11,866
Other real estate owned
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	220	657
Other real estate owned | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	0	0
Other real estate owned | Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	0	0
Other real estate owned | Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value	$ 220	$ 657

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Accumulated Other Comprehensive Income (Loss) - Changes in Balances of Each Component (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Accumulated Other Comprehensive Income (Loss)
Beginning balance	$ 1,501,636	$ 1,340,328	$ 1,408,260	$ 1,303,463
Other comprehensive income before reclassifications			49,542	(28,993)
Amounts reclassified from accumulated other comprehensive income	(228)	(942)	(2,472)	(2,882)
Total other comprehensive income (loss), net of tax			47,070	(31,875)
Reclassification adjustment under ASU 2018-02				0
Ending balance	1,749,012	1,361,426	1,749,012	1,361,426
Total
Accumulated Other Comprehensive Income (Loss)
Beginning balance	14,602	(24,868)	(21,422)	(2,908)
Reclassification adjustment under ASU 2018-02			(626)	(626)
Ending balance	25,648	(35,409)	25,648	(35,409)
Unrealized Gains (Losses) on Securities Available for Sale
Accumulated Other Comprehensive Income (Loss)
Beginning balance			(6,343)	8,970
Other comprehensive income before reclassifications			50,545	(30,032)
Amounts reclassified from accumulated other comprehensive income			(2,667)	(3,173)
Total other comprehensive income (loss), net of tax			47,878	(33,205)
Reclassification adjustment under ASU 2018-02			1,932
Ending balance	41,535	(22,303)	41,535	(22,303)
Unrealized Gains (Losses) on Cash Flow Hedges
Accumulated Other Comprehensive Income (Loss)
Beginning balance			(559)	(1,125)
Other comprehensive income before reclassifications			(1,003)	1,039
Amounts reclassified from accumulated other comprehensive income			195	291
Total other comprehensive income (loss), net of tax			(808)	1,330
Reclassification adjustment under ASU 2018-02			(242)
Ending balance	(1,367)	(37)	(1,367)	(37)
Unrealized Gains (Losses) on Defined Benefit Plans
Accumulated Other Comprehensive Income (Loss)
Beginning balance			(14,520)	(10,753)
Other comprehensive income before reclassifications			0	0
Amounts reclassified from accumulated other comprehensive income			0	0
Total other comprehensive income (loss), net of tax			0	0
Reclassification adjustment under ASU 2018-02			(2,316)
Ending balance	$ (14,520)	$ (13,069)	$ (14,520)	$ (13,069)

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Derivative Financial Instruments - Fair Value of Derivative Financial Instruments and Their Classification on Balance Sheet (Details) - Interest rate contracts - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Derivatives designated as hedging instruments | Other Assets
Derivatives, Fair Value [Line Items]
Asset Derivatives	$ 0	$ 135
Derivatives designated as hedging instruments | Other Liabilities
Derivatives, Fair Value [Line Items]
Liability Derivatives	1,730	688
Derivatives not designated as hedging instruments | Other Assets
Derivatives, Fair Value [Line Items]
Asset Derivatives	37,899	11,948
Derivatives not designated as hedging instruments | Other Liabilities
Derivatives, Fair Value [Line Items]
Liability Derivatives	$ 37,899	$ 11,948

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Disclosures About Fair Value of Assets and Liabilities - Reconciliation of Beginning and Ending Balances of Recurring Fair Value Measurements using Significant Unobservable Level 3 Inputs (Details) - Fair Value, Measurements, Recurring - Available for Sale Securities - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Available for Sale Securities
Balance at beginning of the period	$ 2,975	$ 3,970	$ 3,328	$ 3,978
Included in other comprehensive income	6	(35)	85	(59)
Principal payments	(85)	(620)	(517)	(604)
Ending balance	$ 2,896	$ 3,315	$ 2,896	$ 3,315

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Share-Based Compensation - Stock Option Activity under Stock Option Plans (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019
Number of Shares
Beginning balance (in shares)	76,300
Exercised (in shares)	(12,950)
Cancelled (in shares)	0
Ending balance (in shares)	63,350
Vested and Expected to Vest (in shares)	63,350
Exercisable (in shares)	63,350
Weighted-Average Exercise Price
Beginning balance (in dollars per share)	$ 12.40
Exercised (in dollars per share)	9.32
Cancelled (in dollars per share)	0
Ending balance (in dollars per share)	13.03
Vested and Expected to Vest (in dollars per share)	13.03
Exercisable (in dollars per share)	$ 13.03
Weighted Average Remaining Contractual Term (in Years)
Outstanding (term)	2 years 6 months 18 days
Vested and Expected to Vest (term)	2 years 6 months 18 days
Exercisable (term)	2 years 6 months 18 days
Aggregate Intrinsic Value
Outstanding	$ 1,558,945
Vested and Expected to Vest	1,558,945
Exercisable	$ 1,558,945

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Purchased Credit Impaired Loans

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Purchased Credit Impaired Loans

PURCHASED CREDIT IMPAIRED LOANS

Purchased 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 September 30, 2019 was $18.5 million with allowance for loan loss of $453,000. The carrying amount of Purchased Credit Impaired Loans as of December 31, 2018 was $17.3 million with no required 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 September 30, 2019			Nine Months Ended September 30, 2019
Accretable yield beginning balance	$	1,914		$	2,143
Additions	576			576
Accretion	(420		)	(1,638		)
Reclassification from nonaccretable	374			1,363
Disposals	(165		)	(165		)
Accretable yield ending balance	$	2,279		$	2,279

	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Accretable yield beginning balance	$	2,423		$	2,890
Additions	—			—
Accretion	(1,004		)	(2,441		)
Reclassification from nonaccretable	798			1,768
Disposals	(16		)	(16		)
Accretable yield ending balance	$	2,201		$	2,201

The following table presents loans acquired, as of the acquisition date, during the nine months ended September 30, 2019, for which it was probable that all contractually required payments would not be collected. There were no loans acquired during the nine months ended September 30, 2018.

	MBT
Contractually required payments receivable at acquisition date	$	6,840
Nonaccretable difference	2,733
Expected cash flows at acquisition date	4,107
Accretable difference	576
Basis in loans at acquisition date	$	3,531

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General

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General

GENERAL

Financial Statement Preparation

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

The Consolidated Condensed Balance Sheet of the Corporation as of December 31, 2018, has been derived from the audited consolidated balance sheet of the Corporation as of that date. Certain information and note disclosures normally included in the Corporation’s annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2019, 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.

Recent Accounting Changes Adopted in 2019

FASB Accounting Standards Updates No. 2018-11 - Leases (Topic 842): Targeted Improvements - The FASB issued Accounting Standards Update (ASU) No. 2018-11, Leases (Topic 842): Targeted Improvements. This ASU was intended to reduce costs and ease implementation of the leases standard for financial statement preparers. ASU 2018-11 provided a new transition method and a practical expedient for separating components of a contract. ASU 2018-11 provided entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applied the new leases standard at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the Corporation's reporting for the comparative periods presented in the financial statements in the period of adoption is in accordance with GAAP in Topic 840, Leases. The Corporation must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840. The amendments did not change the existing disclosure requirements in Topic 840 (for example, they did not create interim disclosure requirements that the Corporation previously was not required to provide). The Corporation adopted this new transition method on January 1, 2019, but did not recognize a cumulative-effect adjustment to the opening balance of retained earnings at adoption. Lease disclosures are included in NOTE 8. LEASES of these Notes to Consolidated Condensed Financial Statements.

The amendments in ASU 2018-11 provided lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:

* The timing and pattern of transfer of the non-lease component(s) and associated lease component are the same.

* The lease component, if accounted for separately, would be classified as an operating lease.

An entity electing this practical expedient (including an entity that accounts for the combined component entirely in Topic 606) is required to disclose certain information, by class of underlying asset, as specified in the ASU. The Corporation elected the practical expedient to not separate non-lease components from the associated lease component at adoption, which was January 1, 2019.

FASB Accounting Standards Update No. 2018-07 - Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting - The FASB issued an Accounting Standards Update (ASU) intended to reduce cost and complexity and to improve financial reporting for non-employee share-based payments. The ASU expanded the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees is substantially aligned. The ASU supersedes Subtopic 505-50, Equity-Equity-Based Payments to Non-Employees. The Corporation adopted the standard in the first quarter of 2019 and adoption of the standard did not have a significant effect on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities - The FASB issued Accounting Standards Update (ASU) No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortened the amortization period for certain callable debt securities held at a premium to the earliest call date. Under previous GAAP, entities normally amortized the premium as an adjustment of yield over the contractual life of the instrument. Stakeholders expressed concerns with the approach on the basis that GAAP excluded certain callable debt securities from consideration of early repayment of principal even if the holder was certain the call would be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium was recorded as a loss in earnings. Further, there was diversity in practice (1) in the amortization period for premiums of callable debt securities, and (2) in how the potential for exercise of a call was factored into current impairment assessments. Another issue was that the practice in the United States was to quote, price, and trade callable debt securities using a model that incorporated consideration of calls (also referred to as “yield-to-worst” pricing). The ASU shortened the amortization period for certain callable debt securities held at a premium and required the premium to be amortized to the earliest call date. However, the amendments did not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

The Corporation was required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at adoption. The Corporation adopted ASU 2017-08 on January 1, 2019 and adoption of the standard did not have a significant effect on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update No. 2016-02 - Leases (Topic 842) - The FASB issued new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date:

• A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

• A right-of-use ("ROU") asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees are no longer provided with a source of off-balance sheet financing.

The Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. The Corporation elected to not apply ASC 842 to short-term leases (leases with a term of 12 months or less). Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Corporation expenses the lease on a straight-line basis over the lease term. The Corporation also elected the practical expedient to not separate nonlease components from lease components. Variable payments are not included as part of the consideration of a lease contract and all of the Corporation's nonlease components contain variable payments; therefore, this election will not have any impact on the ROU asset or lease liability.

The Corporation adopted this ASU on January 1, 2019 and recorded a ROU asset of $23.3 million and a lease liability of $23.8 million at adoption. Lease disclosures are included in NOTE 8. LEASES of these Notes to Consolidated Condensed Financial Statements.

Revenue Recognition

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

The majority of the Corporation's revenue-generating transactions are not subject to revenue recognition guidance, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the disclosures. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Condensed Statements of Income was not necessary. Descriptions of revenue-generating activities that are within the scope of the guidance, which are presented in our income statements are as follows:

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

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

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

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

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

New Accounting Pronouncements Not Yet Adopted

The 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 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 Contract

Summary - The FASB has 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 will be effective for fiscal years ending after December 15, 2019. For all other calendar-year companies and organizations, the changes will be effective for fiscal years ending after December 15, 2020. The Corporation plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact 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 Plans

Summary - The FASB has 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.

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.

* 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 plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact 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 Measurement

Summary - The FASB has 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 are 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 should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is 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 plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact on the Corporation’s disclosures.

FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Summary - The FASB has 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 to earnings through the provision for loan losses. Such would 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 (i.e., January 1, 2020, for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Corporation plans to adopt this ASU in the first quarter of 2020.

The Corporation expects a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016.  Third party software has been implemented and models have been developed.  The implementation team is conducting parallel runs and a model validation conducted by a third party is underway.  Any needed adjustments to the models as a result of recommendations from the model validation will be made in the fourth quarter of 2019. As such, the estimated impact of CECL will be finalized in the fourth quarter of 2019.

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

The 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 Risk

The 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 of September 30, 2019, the Corporation had four interest rate swaps with a notional amount of $46.0 million that were designated as cash flow hedges. As of December 31, 2018, the Corporation had four interest rate swaps with a notional amount of $46.0 million and one interest rate cap with a notional amount of $13.0 million 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.

During 2019, $26.0 million 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 $20.0 million of interest rate swaps were used to hedge the variable cash outflows (LIBOR-based) associated with two Federal Home Loan Bank advances. During the nine months ended September 30, 2019 and 2018, the Corporation did not recognize any ineffectiveness.

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 $475,000 from accumulated other comprehensive income to interest expense.

Non-designated Hedges

The 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 of September 30, 2019, the notional amount of customer-facing swaps was approximately $625,549,000.  This amount is offset with third party counterparties, as described above.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Corporation’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2019, and December 31, 2018.

Asset Derivatives

Liability Derivatives

September 30, 2019

December 31, 2018

September 30, 2019

December 31, 2018

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Interest rate contracts

Other Assets

$

—

Other Assets

$

135

Other Liabilities

$

1,730

Other Liabilities

$

688

Derivatives not designated as hedging instruments:

Interest rate contracts

Other Assets

$

37,899

Other Assets

$

11,948

Other Liabilities

$

37,899

Other Liabilities

$

11,948

The Corporation's derivative hedge asset and derivative hedge liability increased $25.8 million and $27.0 million, respectively from December 31, 2018. The increases are primarily due to a $147.8 million increase in outstanding notional balance. Additionally, yield curve rates used for valuation purposes were lower at each term point as of September 30, 2019 compared to December 31, 2018.

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 Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)
	Three Months Ended					Nine Months Ended
	September 30, 2019			September 30, 2018		September 30, 2019			September 30, 2018
Interest Rate Products	$	(178	)	$	210	$	(1,270	)	$	1,009

Effect of Derivative Instruments on the Income Statement

The Corporation did not recognize any gains or losses from derivative financial instruments in the Consolidated Condensed Statements of Income for the three and nine months ended September 30, 2019 and 2018.

The amount of gain (loss) reclassified from other comprehensive income into income is included in the table below for the periods indicated.

Derivatives Designated as Hedging Instruments under FASB ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Reclassed from Other Comprehensive Income into Income (Effective Portion)
		Three Months Ended September 30, 2019			Three Months Ended September 30, 2018
Interest rate contracts	Interest Expense	$	(104	)	$	(93	)

Derivatives Designated as Hedging Instruments under FASB ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Reclassed from Other Comprehensive Income into Income (Effective Portion)
		Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018
Interest rate contracts	Interest Expense	$	(247	)	$	(368	)

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 Features

The 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 of September 30, 2019, the termination value of derivatives in a net liability position related to these agreements was $39,707,000. As of September 30, 2019, the Corporation has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral of $49,255,000. The Corporation did not breach any of these provisions as of September 30, 2019, but if the Corporation had breached these provisions, it could have been required to settle its obligations under the agreements at their termination value.

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Schedule of supplemental balance sheet information

Supplemental balance sheet information related to leases is presented in the table below as of September 30, 2019.

	September 30, 2019
Operating lease assets	$	21,446
Total lease assets	$	21,446
Operating lease liabilities	$	22,108
Total Lease liabilities	$	22,108
Weighted average remaining lease term (years)
Operating leases	9.0
Weighted average discount rate
Operating leases	3.39		%

Schedule of components of lease expense

The table below presents the components of lease expense for the periods indicated.

	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Lease Cost:
Operating lease cost	$	899		$	2,705
Short-term lease cost	47			120
Variable lease cost	252			763
Sublease income	$	(6	)	$	(6	)
Total lease cost	$	1,192		$	3,582

Schedule of supplemental cash flow information

Supplemental cash flow information related to leases is presented in the tables below.

Maturity of lease liabilities	Operating Leases
Remaining 2019	$	900
2020	3,425
2021	3,147
2022	3,024
2023	2,645
2024 and after	12,777
Total lease payments	$	25,918
Less: Present value discount	3,810
Present value of lease liabilities	$	22,108
Other Information	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	2,521
ROU assets obtained in exchange for new operating lease liabilities	$	23,496

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Schedule of 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 of September 30, 2019 and 2018:

	Accumulated Other Comprehensive Income (Loss)
	Unrealized Gains (Losses) on Securities Available for Sale			Unrealized Gains (Losses) on Cash Flow Hedges			Unrealized Gains (Losses) on Defined Benefit Plans			Total
Balance at December 31, 2018	$	(6,343	)	$	(559	)	$	(14,520	)	$	(21,422	)
Other comprehensive income before reclassifications	50,545			(1,003		)	—			49,542
Amounts reclassified from accumulated other comprehensive income	(2,667		)	195			—			(2,472		)
Period change	47,878			(808		)	—			47,070
Balance at September 30, 2019	$	41,535		$	(1,367	)	$	(14,520	)	$	25,648
Balance at December 31, 2017	$	8,970		$	(1,125	)	$	(10,753	)	$	(2,908	)
Other comprehensive income before reclassifications	(30,032		)	1,039			—			(28,993		)
Amounts reclassified from accumulated other comprehensive income	(3,173		)	291			—			(2,882		)
Period change	(33,205		)	1,330			—			(31,875		)
Reclassification adjustment under ASU 2018-02	1,932			(242		)	(2,316		)	(626		)
Balance at September 30, 2018	$	(22,303	)	$	(37	)	$	(13,069	)	$	(35,409	)

Schedule of reclassification out of accumulated other comprehensive income (loss)

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 the three and nine months ended September 30, 2019 and 2018.

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Three Months Ended September 30,
Details about Accumulated Other Comprehensive Income (Loss) Components	2019			2018			Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains reclassified into income	$	393		$	1,285		Other income - net realized gains on sales of available for sale securities
Related income tax expense	(83		)	(270		)	Income tax expense
	$	310		$	1,015
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts	$	(104	)	$	(93	)	Interest expense - subordinated debentures and term loans
Related income tax benefit	22			20			Income tax expense
	$	(82	)	$	(73	)
Total reclassifications for the period, net of tax	$	228		$	942

	Amount Reclassified from Accumulated Other Comprehensive Income (Loss) For the Nine Months Ended September 30,
Details about Accumulated Other Comprehensive Income (Loss) Components	2019			2018			Affected Line Item in the Statements of Income
Unrealized gains (losses) on available for sale securities (1)
Realized securities gains reclassified into income	$	3,376		$	4,016		Other income - net realized gains on sales of available for sale securities
Related income tax expense	(709		)	(843		)	Income tax expense
	$	2,667		$	3,173
Unrealized gains (losses) on cash flow hedges (2)
Interest rate contracts	$	(247	)	$	(368	)	Interest expense - subordinated debentures and term loans
Related income tax benefit	52			77			Income tax expense
	$	(195	)	$	(291	)
Total reclassifications for the period, net of tax	$	2,472		$	2,882

⁽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 9. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Condensed Financial Statements.

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Loans and Allowance - Summary of Non-Accrual Loans by Loan Class (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 22,728	$ 26,148
Commercial and industrial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	2,065	1,803
Agricultural production financing and other loans to farmers
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	3,150	679
Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	1,027	8,667
Commercial and farmland
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	9,265	8,156
Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	5,381	4,966
Home equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	1,737	1,481
Individuals' loans for household and other personal expenditures
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	103	42
Public finance and other commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 0	$ 354

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Loans and Allowance - Narrative (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Receivables [Abstract]
Loans held for sale	$ 7,910,000		$ 7,910,000			$ 4,778,000
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	8,299,260,000		8,299,260,000			7,224,467,000
Loans - allowance for loan losses	80,571,000	$ 78,406,000	80,571,000	$ 78,406,000	$ 81,274,000	80,552,000	$ 77,543,000	$ 75,032,000
Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,756,738,000		1,756,738,000			1,494,578,000
Loans - allowance for loan losses	$ 14,498,000	$ 14,460,000	$ 14,498,000	$ 14,460,000	$ 14,471,000	14,322,000	$ 14,424,000	$ 13,537,000
Percentage of troubled debt restructured loans	100.00%	100.00%	100.00%	99.00%
Mortgage loans with formal foreclosure proceedings	$ 683,000		$ 683,000			800,000
Loans acquired with deteriorated credit quality
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	16,744,000		16,744,000			15,784,000
Loans acquired with deteriorated credit quality | Commercial and consumer loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	1,798,000		1,798,000			1,541,000
Loans - allowance for loan losses	453,000		453,000			0
Loans acquired with deteriorated credit quality | Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,706,000		$ 1,706,000			$ 1,293,000

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Disclosures About Fair Value of Assets and Liabilities - Transfers Between Levels (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Fair Value Disclosures [Abstract]
Transfers in or out of Level 3	$ 0	$ 0	$ 0	$ 0

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Share-Based Compensation - Unvested RSAs Outstanding (Details) - RSAs	9 Months Ended
	Sep. 30, 2019 $ / shares shares
Number of Shares
Unvested RSAs, Beginning Balance (in shares) | shares	344,362
Granted (in shares) | shares	119,743
Vested (in shares) | shares	(113,043)
Forfeited (in shares) | shares	(2,400)
Unvested RSAs, Ending Balance (in shares) | shares	348,662
Weighted-Average Grant Date Fair Value
Unvested RSAs, Beginning Balance (in dollars per share) | $ / shares	$ 36.80
Granted (in dollars per share) | $ / shares	37.08
Vested (in dollars per share) | $ / shares	23.61
Forfeited (in dollars per share) | $ / shares	40.54
Unvested RSAs, Ending Balance (in dollars per share) | $ / shares	$ 41.51

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Leases - Components of Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Lease Cost:
Operating lease cost	$ 899	$ 2,705
Short-term lease cost	47	120
Variable lease cost	252	763
Sublease income	(6)	(6)
Total lease cost	$ 1,192	$ 3,582

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Disclosures About Fair Value of Assets and Liabilities - Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements Other Than Goodwill (Details) - Significant Unobservable Inputs (Level 3) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
State and municipal securities | Discounted cash flow
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair Value	$ 2,861	$ 3,293
State and municipal securities | Discounted cash flow | Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Maturity/Call date	1 month	1 month
US Muni BQ curve	A-	A-
State and municipal securities | Discounted cash flow | Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Maturity/Call date	15 years	20 years
US Muni BQ curve	BBB-	BBB-
Corporate obligations and U.S. Government-sponsored mortgage backed securities | Discounted cash flow
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair Value	$ 35
Corporate obligations and equity securities | Discounted cash flow
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair Value		$ 35
Impaired loans (collateral dependent) | Collateral based measurements
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair Value	6,939	11,866
Other real estate owned | Appraisals
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Fair Value	$ 220	$ 657
Discount rate | State and municipal securities | Discounted cash flow | Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Discount rate	0.02	0.0069
Discount rate | State and municipal securities | Discounted cash flow | Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Discount rate	0.05	0.05
Risk free rate | Corporate obligations and U.S. Government-sponsored mortgage backed securities | Discounted cash flow
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Risk free rate	3 month LIBOR
Risk free rate | Corporate obligations and equity securities | Discounted cash flow
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Risk free rate		3 month LIBOR
Discount to reflect current market conditions | Corporate obligations and U.S. Government-sponsored mortgage backed securities | Discounted cash flow
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Discount rate	0.0200
Discount to reflect current market conditions | Corporate obligations and equity securities | Discounted cash flow
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Discount rate		0.0200
Discount to reflect current market conditions and ultimate collectability | Impaired loans (collateral dependent) | Collateral based measurements | Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Discount to reflect current market conditions and ultimate collectability	0	0
Discount to reflect current market conditions and ultimate collectability | Impaired loans (collateral dependent) | Collateral based measurements | Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Discount to reflect current market conditions and ultimate collectability	0.10	0.10
Discount to reflect current market conditions and ultimate collectability | Impaired loans (collateral dependent) | Collateral based measurements | Weighted Average
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Discount to reflect current market conditions and ultimate collectability	0.02	0.06
Discount to reflect current market conditions | Other real estate owned | Appraisals | Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned	0	0
Discount to reflect current market conditions | Other real estate owned | Appraisals | Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned	0.51	0.10
Discount to reflect current market conditions | Other real estate owned | Appraisals | Weighted Average
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Other real estate owned	0.31	0.04

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Accumulated Other Comprehensive Income (Loss) - Reclassifications (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Reclassification Adjustments out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of available for sale securities	$ 393	$ 1,285	$ 3,376	$ 4,016
Interest expense - subordinated debentures and term loans	2,076	2,089	6,315	6,136
Income tax expense	(6,337)	(8,478)	(21,027)	(23,050)
Total reclassifications for the period, net of tax	228	942	2,472	2,882
Unrealized gains (losses) on available for sale securities
Reclassification Adjustments out of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications for the period, net of tax	310	1,015	2,667	3,173
Unrealized gains (losses) on cash flow hedges
Reclassification Adjustments out of Accumulated Other Comprehensive Income [Line Items]
Total reclassifications for the period, net of tax	(82)	(73)	(195)	(291)
Amount Reclassified from Accumulated Other Comprehensive Income (Loss) for the Period | Unrealized gains (losses) on available for sale securities
Reclassification Adjustments out of Accumulated Other Comprehensive Income [Line Items]
Net realized gains on sales of available for sale securities	393	1,285	3,376	4,016
Income tax expense	(83)	(270)	(709)	(843)
Amount Reclassified from Accumulated Other Comprehensive Income (Loss) for the Period | Unrealized gains (losses) on cash flow hedges
Reclassification Adjustments out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	22	20	52	77
Amount Reclassified from Accumulated Other Comprehensive Income (Loss) for the Period | Unrealized gains (losses) on cash flow hedges | Interest rate contracts
Reclassification Adjustments out of Accumulated Other Comprehensive Income [Line Items]
Interest expense - subordinated debentures and term loans	$ (104)	$ (93)	$ (247)	$ (368)

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Derivative Financial Instruments - Effect of Derivative Financial Instruments on Other Comprehensive Income (Details) - Designated as Hedging Instrument - Cash Flow Hedging - Interest Rate Products - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Derivative [Line Items]
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)	$ (178)		$ (1,270)
Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)		$ 210		$ 1,009

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Acquisition - Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Sep. 01, 2019	Dec. 31, 2018	Dec. 31, 2017
Business Acquisition [Line Items]
Goodwill	$ 543,199		$ 445,355	$ 445,355
MBT
Business Acquisition [Line Items]
Cash and cash equivalents		$ 10,222
Interest-bearing time deposits		281,228
Investment securities		212,235
Loans		731,260
Premises and equipment		21,664
Federal Home Loan Bank stock		4,148
Interest receivable		3,361
Cash surrender value of life insurance		59,545
Tax asset, deferred and receivable		4,970
Other assets		7,737
Deposits		(1,105,926)
Securities sold under repurchase agreements		(94,760)
Federal Home Loan Bank advances		(10,853)
Other liabilities		(9,261)
Net tangible assets acquired		115,570
Core deposit intangible		16,527
Goodwill		97,844
Purchase price		$ 229,941

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Investment Securities - Amortized Cost and Fair Value of Available for Sale Securities and Held to Maturity Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Amortized Cost
Due in one year or less	$ 1,134	$ 13,092
Due after one through five years	4,527	5,311
Due after five through ten years	83,254	73,280
Due after ten years	714,515	527,835
Total debt securities with a single maturity date	803,430	619,518
Total Investment Securities	1,593,317	1,149,727
Fair Value
Due in one year or less	1,139	13,144
Due after one through five years	4,638	5,378
Due after five through ten years	85,475	74,411
Due after ten years	754,631	526,815
Total debt securities with a single maturity date	845,883	619,748
Total Investment Securities	1,646,399	1,142,195
Amortized Cost
Due in one year or less	13,833	4,732
Due after one through five years	55,424	49,054
Due after five through ten years	100,501	62,873
Due after ten years	229,439	104,868
Total debt securities with a single maturity date	399,197	221,527
Total Investment Securities	843,021	490,387
Fair Value
Due in one year or less	13,894	4,730
Due after one through five years	55,783	48,473
Due after five through ten years	104,733	64,163
Due after ten years	240,490	105,601
Total debt securities with a single maturity date	414,900	222,967
Investment securities held to maturity	865,286	489,217
U.S. Government-sponsored mortgage-backed securities
Amortized Cost
Without single maturity date	789,887	530,209
Total Investment Securities	789,887	530,209
Fair Value
Without single maturity date	800,516	522,447
Total Investment Securities	800,516	522,447
Amortized Cost
Without single maturity date	443,824	268,860
Total Investment Securities	443,824	268,860
Fair Value
Without single maturity date	450,386	266,250
Investment securities held to maturity	$ 450,386	$ 266,250

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Purchased Credit Impaired Loans - Loans Acquired for Which Contractually Required Payments Would not be Collected (Details) - MBT - USD ($) $ in Thousands	Sep. 30, 2019	Sep. 01, 2019
Business Combination, Separately Recognized Transactions [Line Items]
Contractually required payments receivable at acquisition date	$ 6,840	$ 6,840
Nonaccretable difference	2,733
Expected cash flows at acquisition date	4,107
Accretable difference	576
Basis in loans at acquisition date	$ 3,531	$ 3,531

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Income Tax (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 21%	$ 9,050	$ 10,414	$ 28,908	$ 29,500
Tax-exempt interest income	(2,637)	(2,118)	(7,307)	(6,178)
Share-based compensation	(11)	(38)	(402)	(570)
Tax-exempt earnings and gains on life insurance	(241)	(197)	(647)	(655)
Tax credits	(61)	(42)	(202)	(65)
Other	237	459	677	1,018
Actual Tax Expense	$ 6,337	$ 8,478	$ 21,027	$ 23,050
Federal statutory income tax rate	21.00%	21.00%	21.00%	21.00%
Effective Tax Rate	14.70%	17.10%	15.30%	16.40%

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Loans and Allowance - Summary of Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) loan	Sep. 30, 2018 USD ($) loan	Sep. 30, 2019 USD ($) loan	Sep. 30, 2018 USD ($) loan
Financing Receivable, Troubled Debt Restructuring [Line Items]
Pre-Modification Recorded Balance	$ 195	$ 219	$ 456	$ 578
Post-Modification Recorded Balance	$ 185	$ 205	$ 439	$ 576
Number of Loans | loan	3	5	8	15
Residential
Financing Receivable, Troubled Debt Restructuring [Line Items]
Pre-Modification Recorded Balance	$ 195	$ 154	$ 456	$ 490
Post-Modification Recorded Balance	$ 185	$ 140	$ 439	$ 487
Number of Loans | loan	3	4	8	11
Home equity
Financing Receivable, Troubled Debt Restructuring [Line Items]
Pre-Modification Recorded Balance		$ 65		$ 81
Post-Modification Recorded Balance		$ 65		$ 81
Number of Loans | loan		1		3
Individuals' loans for household and other personal expenditures
Financing Receivable, Troubled Debt Restructuring [Line Items]
Pre-Modification Recorded Balance				$ 7
Post-Modification Recorded Balance				$ 8
Number of Loans | loan				1

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Other Intangibles - Schedule of Core Deposit and Other Intangibles (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2017	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Gross carrying amount	$ 85,869		$ 85,869
Accumulated amortization	(65,844)		(61,440)
Total other intangibles	36,552		$ 24,429
Core deposit intangibles acquired
Finite-Lived Intangible Assets [Line Items]
Core deposit intangibles acquired	$ 16,527	$ 0

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CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Loans receivable:
Taxable	$ 96,850	$ 88,479	$ 280,155	$ 251,409
Tax exempt	4,500	3,761	12,897	10,989
Investment securities:
Taxable	6,729	5,514	19,822	16,044
Tax exempt	8,335	6,493	22,660	18,865
Deposits with financial institutions	1,363	270	3,022	1,034
Federal Home Loan Bank stock	355	283	1,028	950
Total Interest Income	118,132	104,800	339,584	299,291
INTEREST EXPENSE
Deposits	24,830	13,685	67,511	34,852
Federal funds purchased	15	229	225	670
Securities sold under repurchase agreements	385	174	1,057	519
Federal Home Loan Bank advances	1,894	2,137	5,400	6,141
Subordinated debentures and term loans	2,076	2,089	6,315	6,136
Total Interest Expense	29,200	18,314	80,508	48,318
NET INTEREST INCOME	88,932	86,486	259,076	250,973
Provision for loan losses	600	1,400	2,300	5,563
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	88,332	85,086	256,776	245,410
OTHER INCOME
Increase in cash surrender value of life insurance	1,144	961	3,060	2,946
Gains on life insurance benefits	0	0	19	198
Net gains and fees on sales of loans	2,227	1,841	5,258	5,262
Net realized gains on sales of available for sale securities	393	1,285	3,376	4,016
Other income	524	335	1,918	1,520
Total Other Income	22,116	19,527	62,443	57,279
OTHER EXPENSES
Salaries and employee benefits	38,942	32,936	104,679	97,354
Net occupancy	4,777	4,586	14,273	13,604
Equipment	4,030	3,483	11,789	10,707
Marketing	1,332	1,216	5,158	3,574
Outside data processing fees	4,435	3,422	12,048	9,848
Printing and office supplies	312	334	961	992
Intangible asset amortization	1,356	1,650	4,404	5,094
FDIC assessments	(668)	856	717	2,286
Other real estate owned and foreclosure expenses	294	455	2,362	1,219
Professional and other outside services	8,251	1,844	12,511	5,174
Other expenses	4,293	4,240	12,660	12,361
Total Other Expenses	67,354	55,022	181,562	162,213
INCOME BEFORE INCOME TAX	43,094	49,591	137,657	140,476
Income tax expense	6,337	8,478	21,027	23,050
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$ 36,757	$ 41,113	$ 116,630	$ 117,426
Per Share Data:
Basic Net Income Available to Common Stockholders (in dollars per share)	$ 0.71	$ 0.83	$ 2.33	$ 2.38
Diluted Net Income Available to Common Stockholders (in dollars per share)	0.71	0.83	2.32	2.37
Cash Dividends Paid (in dollars per share)	$ 0.26	$ 0.22	$ 0.74	$ 0.62
Average Diluted Shares Outstanding (in shares)	51,569,557	49,492,019	50,227,380	49,458,185
Service charges on deposit accounts
OTHER INCOME
Other income	$ 6,107	$ 5,619	$ 16,639	$ 15,434
Fiduciary and wealth management fees
OTHER INCOME
Other income	4,429	3,673	12,178	11,064
Card payment fees
OTHER INCOME
Other income	5,158	4,586	14,813	13,642
Other customer fees
OTHER INCOME
Other income	450	452	1,230	1,349
Derivative hedge fees
OTHER INCOME
Other income	$ 1,684	$ 775	$ 3,952	$ 1,848

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General (Policies)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Recent Accounting Changes Adopted in 2019 and New Accounting Pronouncements Not Yet Adopted

Recent Accounting Changes Adopted in 2019

FASB Accounting Standards Updates No. 2018-11 - Leases (Topic 842): Targeted Improvements - The FASB issued Accounting Standards Update (ASU) No. 2018-11, Leases (Topic 842): Targeted Improvements. This ASU was intended to reduce costs and ease implementation of the leases standard for financial statement preparers. ASU 2018-11 provided a new transition method and a practical expedient for separating components of a contract. ASU 2018-11 provided entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applied the new leases standard at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the Corporation's reporting for the comparative periods presented in the financial statements in the period of adoption is in accordance with GAAP in Topic 840, Leases. The Corporation must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840. The amendments did not change the existing disclosure requirements in Topic 840 (for example, they did not create interim disclosure requirements that the Corporation previously was not required to provide). The Corporation adopted this new transition method on January 1, 2019, but did not recognize a cumulative-effect adjustment to the opening balance of retained earnings at adoption. Lease disclosures are included in NOTE 8. LEASES of these Notes to Consolidated Condensed Financial Statements.

The amendments in ASU 2018-11 provided lessors with a practical expedient, by class of underlying asset, to not separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (Topic 606) and both of the following are met:

* The timing and pattern of transfer of the non-lease component(s) and associated lease component are the same.

* The lease component, if accounted for separately, would be classified as an operating lease.

An entity electing this practical expedient (including an entity that accounts for the combined component entirely in Topic 606) is required to disclose certain information, by class of underlying asset, as specified in the ASU. The Corporation elected the practical expedient to not separate non-lease components from the associated lease component at adoption, which was January 1, 2019.

FASB Accounting Standards Update No. 2018-07 - Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting - The FASB issued an Accounting Standards Update (ASU) intended to reduce cost and complexity and to improve financial reporting for non-employee share-based payments. The ASU expanded the scope of Topic 718, Compensation-Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees is substantially aligned. The ASU supersedes Subtopic 505-50, Equity-Equity-Based Payments to Non-Employees. The Corporation adopted the standard in the first quarter of 2019 and adoption of the standard did not have a significant effect on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities - The FASB issued Accounting Standards Update (ASU) No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The ASU shortened the amortization period for certain callable debt securities held at a premium to the earliest call date. Under previous GAAP, entities normally amortized the premium as an adjustment of yield over the contractual life of the instrument. Stakeholders expressed concerns with the approach on the basis that GAAP excluded certain callable debt securities from consideration of early repayment of principal even if the holder was certain the call would be exercised. As a result, upon the exercise of a call on a callable debt security held at a premium, the unamortized premium was recorded as a loss in earnings. Further, there was diversity in practice (1) in the amortization period for premiums of callable debt securities, and (2) in how the potential for exercise of a call was factored into current impairment assessments. Another issue was that the practice in the United States was to quote, price, and trade callable debt securities using a model that incorporated consideration of calls (also referred to as “yield-to-worst” pricing). The ASU shortened the amortization period for certain callable debt securities held at a premium and required the premium to be amortized to the earliest call date. However, the amendments did not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.

The Corporation was required to apply the amendments on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings at adoption. The Corporation adopted ASU 2017-08 on January 1, 2019 and adoption of the standard did not have a significant effect on the Corporation’s consolidated financial statements.

FASB Accounting Standards Update No. 2016-02 - Leases (Topic 842) - The FASB issued new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842). Under the new guidance, lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date:

• A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and

• A right-of-use ("ROU") asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees are no longer provided with a source of off-balance sheet financing.

The Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. The Corporation elected to not apply ASC 842 to short-term leases (leases with a term of 12 months or less). Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Corporation expenses the lease on a straight-line basis over the lease term. The Corporation also elected the practical expedient to not separate nonlease components from lease components. Variable payments are not included as part of the consideration of a lease contract and all of the Corporation's nonlease components contain variable payments; therefore, this election will not have any impact on the ROU asset or lease liability.

The Corporation adopted this ASU on January 1, 2019 and recorded a ROU asset of $23.3 million and a lease liability of $23.8 million at adoption. Lease disclosures are included in NOTE 8. LEASES of these Notes to Consolidated Condensed Financial Statements.

Revenue Recognition

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

The majority of the Corporation's revenue-generating transactions are not subject to revenue recognition guidance, including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within the disclosures. The Corporation has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Condensed Statements of Income was not necessary. Descriptions of revenue-generating activities that are within the scope of the guidance, which are presented in our income statements are as follows:

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

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

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

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

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

New Accounting Pronouncements Not Yet Adopted

The 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 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 Contract

Summary - The FASB has 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 will be effective for fiscal years ending after December 15, 2019. For all other calendar-year companies and organizations, the changes will be effective for fiscal years ending after December 15, 2020. The Corporation plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact 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 Plans

Summary - The FASB has 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.

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.

* 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 plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact 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 Measurement

Summary - The FASB has 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 are 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 should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. An entity is 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 plans to adopt the standard in the first quarter of 2020, but adoption of the standard is not expected to have a significant impact on the Corporation’s disclosures.

FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

Summary - The FASB has 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 to earnings through the provision for loan losses. Such would 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 (i.e., January 1, 2020, for calendar year entities). Early application will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Corporation plans to adopt this ASU in the first quarter of 2020.

The Corporation expects a one-time cumulative-effect adjustment to the allowance for loan losses will be recognized in retained earnings on the consolidated balance sheet as of the beginning of the first reporting period in which the new standard is effective, as is consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016.  Third party software has been implemented and models have been developed.  The implementation team is conducting parallel runs and a model validation conducted by a third party is underway.  Any needed adjustments to the models as a result of recommendations from the model validation will be made in the fourth quarter of 2019. As such, the estimated impact of CECL will be finalized in the fourth quarter of 2019.

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CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Stockholders' Equity [Abstract]
Cash dividends on common stock (in dollars per share)	$ 0.26	$ 0.22	$ 0.74	$ 0.62

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Share-Based Compensation

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

SHARE-BASED COMPENSATION

Stock 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 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 3 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 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 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 the three and nine months ended September 30, 2019 was $1,062,000 and $2,887,000, respectively, compared to $891,000 and $2,546,000, respectively, for the three and nine months ended September 30, 2018. 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 approximately 1.7 percent for the nine months ended September 30, 2019, based on historical experience.

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 Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Stock and ESPP Options
Pre-tax compensation expense	$	36		$	39		$	72		$	88
Income tax benefit	—			(15		)	(57		)	(153		)
Stock and ESPP option expense, net of income taxes	$	36		$	24		$	15		$	(65	)
Restricted Stock Awards
Pre-tax compensation expense	$	1,026		$	852		$	2,815		$	2,458
Income tax benefit	(226		)	(202		)	(951		)	(952		)
Restricted stock awards expense, net of income taxes	$	800		$	650		$	1,864		$	1,506
Total Share-Based Compensation
Pre-tax compensation expense	$	1,062		$	891		$	2,887		$	2,546
Income tax benefit	(226		)	(217		)	(1,008		)	(1,105		)
Total share-based compensation expense, net of income taxes	$	836		$	674		$	1,879		$	1,441

As of September 30, 2019, unrecognized compensation expense related to RSAs was $8,560,000 and is expected to be recognized over a weighted-average period of 1.82 years. The Corporation did not have any unrecognized compensation expense related to stock options as of September 30, 2019.

Stock option activity under the Corporation's stock option plans as of September 30, 2019 and changes during the nine months ended September 30, 2019, were as follows:

	Number of Shares		Weighted-Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding at January 1, 2019	76,300		$	12.40
Exercised	(12,950	)	$	9.32
Cancelled	—		$	—
Outstanding September 30, 2019	63,350		$	13.03	2.55	$	1,558,945
Vested and Expected to Vest at September 30, 2019	63,350		$	13.03	2.55	$	1,558,945
Exercisable at September 30, 2019	63,350		$	13.03	2.55	$	1,558,945

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 the first nine months of 2019 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 September 30, 2019.  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 the nine months ended September 30, 2019 and 2018 was $355,000 and $1,203,000, respectively. Cash receipts of stock options exercised during this same period were $121,000 and $1,093,000, respectively.

The following table summarizes information on unvested RSAs outstanding as of September 30, 2019:

	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2019	344,362		$	36.80
Granted	119,743		$	37.08
Vested	(113,043	)	$	23.61
Forfeited	(2,400	)	$	40.54
Unvested RSAs at September 30, 2019	348,662		$	41.51

The grant date fair value of ESPP options was estimated to be $36,000 at the beginning of the July 1, 2019 quarterly offering period. The ESPP options vested during the three months ending September 30, 2019, leaving no unrecognized compensation expense related to unvested ESPP options at September 30, 2019.