FIRST MERCHANTS CORPFRME
FIRST MERCHANTS CORP Fair Value Disclosure
FAIR VALUES OF FINANCIAL INSTRUMENTS
The 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 on the most advantageous market — one that maximizes the asset’s sale price or minimizes the liability’s transfer cost.
Valuation inputs reflect assumptions that market participants would use to price an asset or liability. These inputs are categorized as either observable or unobservable. Observable inputs are based on market data from independent sources and reflect assumptions market participants would use. Unobservable inputs are derived from the Corporation’s own estimates, reflecting assumptions market participants might use when market data is not available. These rely on the best available information at the measurement date.
Inputs are ranked within a three-level fair value hierarchy. Level 1 inputs consist of quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are based on one or more of the following: quoted prices for similar assets, observable inputs such as interest rates or yield curves, or inputs corroborated by market data. Level 3 inputs are unobservable and reflect minimal market activity.
An input is considered to be significant if it contributes 10 percent or more to the total fair value of the asset or liability.
RECURRING AND NONRECURRING FAIR VALUE MEASUREMENTS
Assets and liabilities are considered to be measured at fair value on a recurring basis if fair value is measured regularly — such as daily, weekly, monthly, or quarterly. Recurring valuation occurs at least on the measurement date. Assets and liabilities are considered to be measured at fair value on a nonrecurring basis if the fair value measurement is not performed regularly and does not necessarily result in a change to the recorded balance sheet amount. Generally, nonrecurring valuation is the result of the application of other accounting pronouncements which require assets or liabilities to be assessed for impairment and recorded at the lower of cost or fair value. The fair value of assets or liabilities transferred in or out of Level 3 is measured on the transfer date, with any additional changes in fair value subsequent to the transfer considered to be realized or unrealized gains or losses.
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the
accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Investment Securities
Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. The Corporation did not have any Level 1 securities as of December 31, 2025. Where significant observable inputs, other than Level 1 quoted prices, are available, securities are classified within Level 2 of the valuation hierarchy. Level 2 securities include U.S. Government-sponsored agency and mortgage-backed securities, state and municipal securities, foreign investment and corporate obligations. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy and include state and municipal securities and corporate obligations. Fair values for Level 3 securities were determined using discounted cash flow models that incorporated market estimates of interest rates and volatility in markets that have not been active.
Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3.
Derivative Financial Agreements
See information regarding the Corporation’s derivative financial agreements in NOTE 12. DERIVATIVE FINANCIAL INSTRUMENTS of these Notes to Consolidated Financial Statements.
The following table presents the fair value measurements of assets and liabilities recognized in the accompanying balance sheets on a recurring basis, along with their classification within the fair value hierarchy as of December 31, 2025 and 2024.
| Fair Value Measurements Using: | ||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||||||||
| December 31, 2025 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
| Available for sale securities: | ||||||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | 76,099 | $ | — | $ | 76,099 | $ | — | ||||||||||||||||||
| State and municipal | 902,294 | — | 900,339 | 1,955 | ||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | 419,510 | — | 419,510 | — | ||||||||||||||||||||||
| Foreign investment | 1,500 | — | 1,500 | — | ||||||||||||||||||||||
| Corporate obligations | 7,699 | — | 7,668 | 31 | ||||||||||||||||||||||
| Derivative assets | 48,468 | — | 48,468 | — | ||||||||||||||||||||||
| Derivative liabilities | 47,980 | — | 47,980 | — | ||||||||||||||||||||||
| Fair Value Measurements Using: | ||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||||||||||||
| December 31, 2024 | Fair Value | (Level 1) | (Level 2) | (Level 3) | ||||||||||||||||||||||
| Available for sale securities: | ||||||||||||||||||||||||||
| U.S. Government-sponsored agency securities | $ | 79,381 | $ | — | $ | 79,381 | $ | — | ||||||||||||||||||
| State and municipal | 863,174 | — | 860,793 | 2,381 | ||||||||||||||||||||||
| U.S. Government-sponsored mortgage-backed securities | 431,622 | — | 431,618 | 4 | ||||||||||||||||||||||
| Corporate obligations | 12,298 | — | 12,267 | 31 | ||||||||||||||||||||||
| Derivative assets | 77,133 | — | 77,133 | — | ||||||||||||||||||||||
| Derivative liabilities | 76,568 | — | 76,568 | — | ||||||||||||||||||||||
LEVEL 3 RECONCILIATION
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable Level 3 inputs for year ended December 31, 2025 and 2024.
| Available for Sale Securities | |||||||||||
| For The Year Ended | |||||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| Beginning Balance | $ | 2,416 | $ | 3,310 | |||||||
| 33 | (908) | ||||||||||
| Principal payments | (463) | 14 | |||||||||
| Ending balance | $ | 1,986 | $ | 2,416 | |||||||
There were no gains or losses included in earnings that were attributable to the changes in unrealized gains or losses related to assets or liabilities held at December 31, 2025 or 2024.
TRANSFERS BETWEEN LEVELS
There were no transfers in or out of Level 3 during 2025 or 2024.
NONRECURRING MEASUREMENTS
Following is a description of valuation methodologies used for instruments measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy at December 31, 2025 and 2024.
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| December 31, 2025 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Collateral dependent loans | $ | 65,302 | — | — | $ | 65,302 | ||||||||||||||||||||
| Fair Value Measurements Using | ||||||||||||||||||||||||||
| December 31, 2024 | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Collateral dependent loans | $ | 46,810 | — | — | $ | 46,810 | ||||||||||||||||||||
Collateral Dependent Loans
Determining fair value for collateral dependent loans requires obtaining a current independent appraisal of the collateral and applying a discount factor, which includes selling costs if applicable, to the value. The fair value of real estate is generally based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically ascertained by assessing, either singularly or some combination of, asset appraisals, accounts receivable aging reports, inventory listings and or customer financial statements. Both appraised values and values based on borrower’s financial information are discounted as considered appropriate based on age and quality of the information and current market conditions.
UNOBSERVABLE (LEVEL 3) INPUTS
The following tables present quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at December 31, 2025 and 2024.
| December 31, 2025 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted-Average) | |||||||||||||||||||
| State and municipal securities | $ | 1,955 | Discounted cash flow | Maturity/Call date | 1 month to 5 years | ||||||||||||||||||
| US Muni BQ curve | BBB | ||||||||||||||||||||||
| Discount rate | 3.6% - 5.7% | ||||||||||||||||||||||
| Weighted-average coupon | 3.6% | ||||||||||||||||||||||
| Corporate obligations and U.S. Government-sponsored mortgage-backed securities | $ | 31 | Discounted cash flow | Risk free rate | 3 month CME Term SOFR plus 26bps | ||||||||||||||||||
| plus premium for illiquidity (basis points) | plus 200bps | ||||||||||||||||||||||
| Weighted-average coupon | 0% | ||||||||||||||||||||||
| Collateral dependent loans | $ | 65,302 | Collateral based measurements | Discount to reflect current market conditions and ultimate collectability | 1% - 16% | ||||||||||||||||||
| Weighted-average discount by loan balance | 1.5% | ||||||||||||||||||||||
| December 31, 2024 | Fair Value | Valuation Technique | Unobservable Inputs | Range (Weighted-Average) | |||||||||||||||||||
| State and municipal securities | $ | 2,381 | Discounted cash flow | Maturity/Call date | 1 month to 6 years | ||||||||||||||||||
| US Muni BQ curve | BBB | ||||||||||||||||||||||
| Discount rate | 3.6% - 4.7% | ||||||||||||||||||||||
| Weighted-average coupon | 3.6% | ||||||||||||||||||||||
| Corporate obligations and U.S. Government-sponsored mortgage-backed securities | $ | 35 | Discounted cash flow | Risk free rate | 3 month CME Term SOFR plus 26bps | ||||||||||||||||||
| plus premium for illiquidity (basis points) | plus 200bps | ||||||||||||||||||||||
| Weighted-average coupon | 0% | ||||||||||||||||||||||
| Collateral dependent loans | $ | 46,810 | Collateral based measurements | Discount to reflect current market conditions and ultimate collectability | 0% - 16% | ||||||||||||||||||
| Weighted-average discount by loan balance | 12.6% | ||||||||||||||||||||||
The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.
State and Municipal Securities and Corporate Obligations
The significant unobservable inputs used in the fair value measurement of the Corporation’s state and municipal securities and corporate obligations are premiums for unrated securities and marketability discounts. Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement. Generally, changes in either of those inputs will not affect the other input.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables present estimated fair values of the Corporation’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2025 and 2024.
| 2025 | |||||||||||||||||||||||||||||
| Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||||||||
| Assets at December 31: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 84,158 | $ | 84,158 | $ | — | $ | — | $ | 84,158 | |||||||||||||||||||
| Interest-bearing deposits | 196,300 | 196,300 | — | — | 196,300 | ||||||||||||||||||||||||
| Investment securities held to maturity, net of allowance for credit losses | 1,971,539 | — | 1,713,872 | 4,415 | 1,718,287 | ||||||||||||||||||||||||
| Loans held for sale | 20,079 | — | 20,079 | — | 20,079 | ||||||||||||||||||||||||
| Net loans | 13,596,110 | — | — | 13,498,304 | 13,498,304 | ||||||||||||||||||||||||
| Federal Home Loan Bank stock | 47,245 | — | 47,245 | — | 47,245 | ||||||||||||||||||||||||
| Interest receivable | 93,374 | — | 93,374 | — | 93,374 | ||||||||||||||||||||||||
| Liabilities at December 31: | |||||||||||||||||||||||||||||
| Deposits | $ | 15,294,855 | $ | 13,252,258 | $ | 2,042,782 | $ | — | $ | 15,295,040 | |||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||
| Federal funds purchased | 40,000 | — | 40,000 | — | 40,000 | ||||||||||||||||||||||||
| Securities sold under repurchase agreements | 103,755 | — | 103,747 | — | 103,747 | ||||||||||||||||||||||||
| Federal Home Loan Bank advances | 798,549 | — | 803,396 | — | 803,396 | ||||||||||||||||||||||||
| Subordinated debentures and other borrowings | 57,630 | — | 53,982 | — | 53,982 | ||||||||||||||||||||||||
| Interest payable | 18,235 | — | 18,235 | — | 18,235 | ||||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||||||||
| Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||||||||||||
| Assets at December 31: | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | 87,616 | $ | 87,616 | $ | — | $ | — | $ | 87,616 | |||||||||||||||||||
| Interest-bearing deposits | 298,891 | 298,891 | — | — | 298,891 | ||||||||||||||||||||||||
| Investment securities held to maturity, net of allowance for credit losses | 2,074,220 | — | 1,716,647 | 6,873 | 1,723,520 | ||||||||||||||||||||||||
| Loans held for sale | 18,663 | — | 18,663 | — | 18,663 | ||||||||||||||||||||||||
| Net loans | 12,661,602 | — | — | 12,437,523 | 12,437,523 | ||||||||||||||||||||||||
| Federal Home Loan Bank stock | 41,690 | — | 41,690 | — | 41,690 | ||||||||||||||||||||||||
| Interest receivable | 91,829 | — | 91,829 | — | 91,829 | ||||||||||||||||||||||||
| Liabilities at December 31: | |||||||||||||||||||||||||||||
| Deposits | $ | 14,521,626 | $ | 12,502,819 | $ | 2,010,348 | $ | — | $ | 14,513,167 | |||||||||||||||||||
| Borrowings: | |||||||||||||||||||||||||||||
| Securities sold under repurchase agreements | 142,876 | — | 142,865 | — | 142,865 | ||||||||||||||||||||||||
| Federal Home Loan Bank advances | 822,554 | — | 816,786 | — | 816,786 | ||||||||||||||||||||||||
| Subordinated debentures and other borrowings | 93,529 | — | 84,108 | — | 84,108 | ||||||||||||||||||||||||
| Interest payable | 16,102 | — | 16,102 | — | 16,102 | ||||||||||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 24, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 29, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.