First Merchants (FRME) Risk Analysis

The Corporation and its third-party vendors, clients, counterparties, and other market participants use and develop artificial intelligence technologies, including machine-learning and generative artificial intelligence tools, and generative artificial intelligence models. This use may expose the Corporation to various risks and potential liabilities, including: enhanced governmental or regulatory scrutiny; litigation; ethical concerns; confidentiality and security risks; intellectual property concerns over data rights and protection; heightened susceptibility to, and increased frequency and severity of, cyberattacks; inaccurate or biased algorithms or underlying datasets; and misuse or misappropriation. These factors could adversely affect our business, reputation, and financial results. In addition, poor implementation of artificial intelligence by the Corporation or its third-party service providers could subject the Corporation to additional risks that we may not adequately predict or mitigate. Failure to strategically embrace artificial intelligence or to achieve expected effectiveness, productivity, or cost reductions from artificial intelligence adoption may result in a competitive disadvantage. We could experience a material adverse effect on our operating results, customer relationships, and growth opportunities if: we cannot offer new artificial intelligence-facilitated technologies as quickly as our competitors; our competitors develop more cost-effective solutions or product offerings; our employees do not adopt such technologies expediently; or we are unable to source necessary components, including reliable third-party technology solutions and service providers. The use of artificial intelligence solutions may also introduce operational and control risks, including potential errors in outputs, challenges in oversight and accountability, increased vulnerability to system failures or cyber incidents, and the risk that these technologies may not perform as intended under complex or unforeseen circumstances. These risks could materially disrupt our business operations and adversely affect our financial condition and reputation. The evolving legal, regulatory, and compliance framework for artificial intelligence, both in the U.S. and internationally, may impact our ability to protect our data and intellectual property against infringing use, require changes to our artificial intelligence implementation, and increase our compliance costs and the risk of non-compliance. Although the Corporation has established governance, risk management, and control frameworks intended to oversee the use of artificial intelligence, these frameworks may not identify or mitigate all current or emerging risks associated with rapidly evolving technologies. Additionally, we may not be able to control how third-party artificial intelligence solutions we use are developed or maintained, including the source and quality of training data or the frequency and nature of model updates. We may also be unable to govern or protect the integrity of the data we input into such tools, specifically how that data is retained, reused, co-mingled with other data, or disclosed, even where we have sought protections with respect to these matters.