Company: FRME
Filing Date: 2025-07-31
Form Type: 10-Q
Source: 0000712534-25-000171
Chunk: 103

Company: FIRST MERCHANTS CORP
Filing Date: 2025-07-31
Form: 10-Q
Item: Part I, Item 1
Chunk 103
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 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 June 30, 2025, 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 those 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.

The comparative rising 200 and 100 basis points and falling 200 and 100 basis points scenarios below, as of June 30, 2025 and December 31, 2024, 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.

Results for the rising 200 and 100 basis points and falling 200 and 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at June 30,