First Merchants (FRME) - 2022 Q4 - Annual Report

Credit Losses and Allowances - The allowance for credit losses increased by $27.9 million during the twelve months ended December 31, 2022, primarily due to$16.6 million from PCD loans acquired in the Level One acquisition and an additional $14.0 million for non-PCD loans [136]. - The balance of the allowance for credit losses at December 31, 2022, was$223.3 million, compared to $195.4 million at the end of 2021 [136]. - The allowance for credit losses (ACL) on loans was$223.3 million as of December 31, 2022, reflecting an increase from $195.4 million in 2021 [355]. - The allowance for credit losses on investment securities held to maturity was recorded at$245,000 based on historical credit loss rates [378]. - The allowance for credit losses on off-balance sheet credit exposures is a liability account representing expected credit losses over the contractual period, with no allowance recognized if the Corporation has the unconditional right to cancel the obligation [398]. - The allowance for credit losses by loan segment as of December 31, 2022, included $102.2 million for commercial loans,$46.8 million for commercial real estate, $29.0 million for construction loans, and$45.3 million for consumer and residential loans [500]. - The corporation recorded net charge-offs of $2.7 million for the twelve months ended December 31, 2022 [500]. - The allowance for credit losses on loans was$11,512 million as of December 31, 2022, reflecting the Corporation's best estimate of current expected credit losses [487]. Financial Performance - Total charge-offs for 2022 amounted to $6.6 million, a decrease from$11.9 million in 2021, while total recoveries increased to $3.9 million from$2.6 million in 2021 [131]. - Net income for 2022 was $222,089,000, compared to$205,531,000 in 2021, representing an increase of 8.0% [362]. - Basic earnings per share for 2022 was $3.83, a marginal increase from$3.82 in 2021 [361]. - The company reported a comprehensive loss of $72,175,000 in 2022, contrasting with a comprehensive income of$185,808,000 in 2021 [362]. - Total interest income for 2022 was $605,006,000, an increase of 35.5$446,632,000 in 2021 [361]. - Net interest income after provision for credit losses was $503,448,000 in 2022, up from$410,680,000 in 2021, reflecting a 22.6% increase [361]. - Non-interest income totaled $107,941,000 in 2022, slightly down from$109,323,000 in 2021, indicating a decrease of 1.3% [361]. - Total non-interest expenses rose to $355,715,000 in 2022, a 27.4$279,213,000 in 2021 [361]. - The net cash provided by operating activities increased to $268,045,000 in 2022 from$207,382,000 in 2021, reflecting a growth of 29.2% [366]. - The company reported other comprehensive income (loss) of $(294,264,000) for the year ended December 31, 2022, compared to$(19,723,000) in the previous year [364]. Assets and Liabilities - Total assets increased to $17.94 billion in 2022, up from$15.45 billion in 2021, representing a growth of approximately 16% [359]. - The Corporation's total borrowings increased significantly to $1.31 billion in 2022 from$634.3 million in 2021, reflecting a growth of over 106% [359]. - The balance of commercial loans in the allowance for credit losses was $102.2 million, representing 38.4$122,594,000 at the end of 2022 from $167,146,000 at the end of 2021 [366]. - The Corporation's total collateral pledged for repurchase agreements as of December 31, 2022, was$167.4 million in U.S. Government-sponsored mortgage-backed securities [528]. Loans and Lending Activities - Net loans reached $11.78 billion in 2022, compared to$9.05 billion in 2021, indicating a significant increase of about 30% [359]. - The loan portfolio increased to $12,003,894 thousand as of December 31, 2022, up from$9,241,861 thousand in 2021, reflecting a significant growth in commercial and industrial loans [467]. - Total loans originated for sale decreased to $(251,306,000) in 2022 from$(548,742,000) in 2021 [366]. - Total past due loans increased to $51.0 million as of December 31, 2022, up$16.3 million from $34.7 million on December 31, 2021 [474]. - The Level One acquisition added$1.6 billion in loans, including $43.5 million of Paycheck Protection Program (PPP) loans [467]. - The corporation had$4.7 million of PPP loans as of December 31, 2022, down from $106.6 million in the previous year [467]. Acquisitions and Goodwill - The Corporation acquired Level One Bancorp, Inc. for a total purchase price of$341.7 million, which included 5.6 million shares issued and $79.3 million in cash [431]. - Goodwill increased to$712.0 million as of December 31, 2022, from $545.4 million in 2021, with$166.6 million attributed to the Level One acquisition [514]. - The Corporation allocated $18.6 million of the purchase price for Level One to other intangible assets, with$17.2 million designated for a core deposit intangible [437]. - The Level One acquisition on April 1, 2022, resulted in $11.8 million in additions to premises and equipment [509]. - Core deposit intangibles from the Level One acquisition amounted to$17.2 million, with total core deposit and other intangibles at $35.8 million as of December 31, 2022 [517]. Deposits and Funding - Total deposits rose to$14.38 billion in 2022, an increase of 12.9% from $12.73 billion in 2021 [359]. - Noninterest-bearing deposits grew to$3.17 billion in 2022, up from $2.71 billion in 2021, representing a growth of approximately 17$280.6 million, or 2.2 percent, primarily due to a decrease in non-maturity deposits of $513.5 million, offset by an increase in maturity deposits of$232.9 million [525]. - The Corporation's non-interest bearing deposits exceeded federally insured limits by approximately $54.0 million as of December 31, 2022 [443]. Interest Rates and Borrowings - The weighted average interest rate on total short-term borrowings increased to 2.4$617.6 million, with outstanding advances having interest rates ranging from 0.35% to 4.92% [528]. Investment Securities - The fair value of investment securities held to maturity was $2.29 billion, compared to$2.18 billion in 2021, showing a slight increase [359]. - The Corporation's investment securities available for sale decreased to $1.98 billion in 2022 from$2.34 billion in 2021, indicating a decline of about 15% [359]. - The total gross unrealized losses on investment securities available for sale were $297,125 as of December 31, 2022, representing 96.7$1,910,508 as of December 31, 2022, down from a historical cost of $2,207,633 [459]. - The Corporation did not record an allowance for credit losses on its investment securities available for sale, as unrealized losses were attributed to changes in interest rates rather than credit quality [451].