Company: FRME
Filing Date: 2025-10-30
Form Type: 10-Q
Source: 0000712534-25-000197
Chunk: 157

Company: FIRST MERCHANTS CORP
Filing Date: 2025-10-30
Form: 10-Q
Item: Part I, Item 8
Chunk 157
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 credit losses is adjusted by the same amount.Allowance for Credit Losses on LoansThe Allowance for Credit Losses on Loans ("ACL - Loans") is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on loans over the contractual term.  The ACL - Loans is adjusted by the provision for credit losses, which is reported in earnings, and reduced by charge-offs for loans, net of recoveries.  Provision for credit losses on 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 uncollectibility of the loan is confirmed.  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 Losses ("CECL") calculation is performed and evaluated quarterly and losses are estimated over the expected life of the loan.  The level of the allowance for credit losses is believed to be adequate to absorb all expected future losses inherent in the loan portfolio at the measurement date.In calculating the allowance for credit losses, 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