Company: FRME
Filing Date: 2025-02-24
Form Type: 10-K
Source: 0000712534-25-000058
Chunk: 57

Company: FIRST MERCHANTS CORP
Filing Date: 2025-02-24
Form: 10-K
Item: Item 8
Chunk 57
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 loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans.  Loans are charged off against the allowance when the collectibility of the loan is unlikely.  Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.  The allowance represents the Corporation’s best estimate of current expected credit losses on loans using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts.  Historical credit loss experience provides the basis for the estimation of expected credit losses.  The current expected credit loss (“CECL”) calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan.  The level of the ACL - Loans is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.In calculating the ACL - Loans, the loan portfolio was pooled into ten loan segments with similar risk characteristics.  Common characteristics include the type or purpose of the loan, underlying collateral and historical/expected credit loss patterns.  In developing the loan segments, the Corporation analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. The expected credit losses are measured over the life of each loan segment utilizing the Probability of Default / Loss Given Default methodology combined with economic forecast models to estimate the current expected credit loss inherent in the loan portfolio.  This approach is also leveraged to estimate the expected credit losses associated with unfunded loan commitments incorporating expected utilization rates. The Corporation sub-segmented certain commercial portfolios by risk level and certain consumer portfolios by delinquency status where appropriate.  The Corporation utilized a four-quarter reasonable and supportable economic forecast period followed by a six-quarter, straight-line reversion period to the historical macroeconomic mean for the remaining life of the loans.  Econometric modeling was performed using historical default rates and a selection of economic forecast scenarios published by Moody’s to develop a range of estimated credit losses for which to determine the best credit loss estimate within.  Macroeconomic factors utilized in the modeling process include the national unemployment rate, BBB US corporate index, CRE price index and the home price index. 

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PART II: ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATANOTES TO CONSOLIDATED FINANCIAL STATEMENTS(table dollar amounts in thousands, except share data)