Company: FRME
Filing Date: 2025-10-30
Form Type: 10-Q
Source: 0000712534-25-000197
Chunk: 165

Company: FIRST MERCHANTS CORP
Filing Date: 2025-10-30
Form: 10-Q
Item: Part I, Item 8
Chunk 165
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 except share data)(Unaudited)

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 mitigation 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 FeaturesThe 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, 2025, the termination value of derivatives in a net liability position related to these agreements was $10.1 million, which resulted in $1.1 million of collateral pledged to counterparties as of September 30, 2025.  While the Corporation did not breach any of these provisions as of September 30, 2025, if it had, the Corporation could have been required to settle its obligations under the agreements at their termination value.

NOTE 6

FAIR VALUES OF FINANCIAL INSTRUMENTSThe Corporation uses fair value measurements to adjust certain assets and liabilities and to provide fair value disclosures.  Accounting Standards Codification ("ASC") 820 defines fair value, establishes a framework for measuring it and expands related disclosure requirements.  It applies only when other accounting guidance requires or permits fair value measurement and does not expand its use to new circumstances.Fair value is the price that would be received to sell an asset or paid to 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.  The Corporation values its assets and liabilities in the principal market where it sells the asset or transfers the liability with the greatest volume and level of activity.  If no principal market exists, valuation is based