Company: FRME
Filing Date: 2025-10-30
Form Type: 10-Q
Source: 0000712534-25-000197
Chunk: 93

Company: FIRST MERCHANTS CORP
Filing Date: 2025-10-30
Form: 10-Q
Item: Part I, Item 1
Chunk 93
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ed 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 requires the Corporation and the Bank to maintain the minimum capital and leverage ratios as defined in the regulation and as illustrated in the table below, which capital to risk-weighted asset ratios include a 2.5 percent capital conservation buffer.  Under Basel III, in order to avoid limitations on capital distributions, including dividends, the Corporation must hold a 2.5 percent capital conservation buffer above the adequately capitalized CET1 to risk-weighted assets ratio (which buffer is reflected in the required ratios below).  Under Basel III, the Corporation and Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital.  As of September 30, 2025, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules.  There is no threshold for well capitalized status for bank holding companies.  

As part of a March 27, 2020 joint statement of federal banking regulators, an interim final rule that allowed banking organizations to mitigate the effects of the CECL accounting standard on their regulatory capital was announced.  Banking organizations could elect to mitigate the estimated cumulative regulatory capital effects of CECL for up to two years.  This two-year delay was to be in addition to the three-year transition period that federal banking regulators had already made available.  While the Consolidated Appropriations Act of 2021 provided for a further extension of the mandatory adoption of CECL until January 1, 2022, the federal banking regulators elected to not provide a similar extension to the two year mitigation period applicable to regulatory capital effects.  Instead, the federal banking regulators require that, in order to utilize the additional two-year delay, banking organizations must have adopted the CECL standard no later than December 31, 2020, as required by the Coronavirus Aid, Relief and Economic Security Act, or CARES Act.  As a result, because implementation of the CECL standard was delayed by the Corporation