First Merchants (US:FRME)2021-08-08 16:00Financial Adjustments and Standards - The Corporation recorded a one-time cumulative-effect adjustment to retained earnings of $68.0 million as of January 1, 2021, due to the adoption of the CECL model[37]. - The Corporation adopted the CECL standard on January 1, 2021, allowing it to utilize the new model for the entire year of 2021[36]. - The Corporation's financial statements are prepared under the incurred loss model for 2020, while the CECL model was adopted for 2021[36]. - The Corporation's implementation of ASU No. 2019-12 regarding income taxes did not have a significant effect on its consolidated financial statements[42]. - The Corporation is assessing the impact of ASU 2020-04 on its transition away from LIBOR for its loans and financial instruments[44]. - The allowance for credit losses increased by 57% from December 31, 2020, amounting to $74.1 million, covering expected credit losses over the life of the loan portfolio[37]. - The allowance for credit losses decreased to $199,775 thousand as of June 30, 2021, from $201,082 thousand as of March 31, 2021, reflecting a reduction of approximately 1.0%[105]. - The provision for credit losses for the three months ended June 30, 2021, was a negative $1,898 thousand, indicating a reversal compared to the previous quarter[105]. Loan Portfolio and Performance - The Corporation's loan portfolio totaled $9.121 billion as of June 30, 2021, with a decrease from $9.243 billion as of December 31, 2020[71]. - Paycheck Protection Program (PPP) loans amounted to $415.8 million as of June 30, 2021, down from $667.1 million at the end of 2020[71]. - Total past due loans decreased by $4.4 million to $68.4 million as of June 30, 2021, from $72.8 million on December 31, 2020[78]. - Non-accrual loans increased to $57.6 million as of June 30, 2021, compared to $31.3 million on December 31, 2020[80]. - The total loans outstanding were $9.121 billion as of June 30, 2021, compared to $9.243 billion on December 31, 2020[78]. - The Corporation's modifications in response to COVID-19 included short-term payment deferrals and fee waivers for borrowers[83]. - The total number of troubled debt restructured loans that defaulted during the three months ended June 30, 2021 was 4, with a recorded balance of $358 million[90]. - The Corporation's loan portfolio is pooled into ten segments with similar risk characteristics for the calculation of expected credit losses[94]. Investment Securities - As of June 30, 2021, the total available for sale investment securities amounted to $2,426,900, with gross unrealized gains of $100,325 and gross unrealized losses of $7,889[53]. - The total held to maturity investment securities as of June 30, 2021, was $1,760,847, with an allowance for credit losses of $245,000 recorded on state and municipal securities[55]. - The fair value of investment securities available for sale reported at less than historical cost was $523,718, representing 21.6% of the Corporation's investments available for sale[63]. - The Corporation's investment securities available for sale experienced gross unrealized losses of $7,889 as of June 30, 2021, compared to $349 as of December 31, 2020[63]. - The total investment securities available for sale amounted to $2.334 billion in amortized cost and $2.427 billion in fair value as of June 30, 2021[66]. - The total fair value of investment securities available for sale was $2,426,900 million as of June 30, 2021, compared to $1,919,119 million on December 31, 2020, reflecting a growth of approximately 26.4%[159]. Acquisitions and Goodwill - The Corporation acquired 100% of Hoosier Trust Company for $3,225,000 in cash on April 1, 2021, with approximately $290 million in assets under management[49]. - Of the total purchase price for Hoosier, $2,247,000 was allocated to a customer relationship intangible, amortized over 10 years, and $1,467,000 to goodwill, which is tax-deductible[51]. - The Corporation recorded $1,467,000 of goodwill from the Hoosier acquisition on April 1, 2021, increasing the total goodwill balance to $545.4 million as of June 30, 2021[116][117]. - A customer relationship intangible of $2,247,000 was recognized from the Hoosier acquisition, contributing to a total core deposit and other intangibles balance of $28.4 million as of June 30, 2021[118][119]. Financial Performance - The Corporation reported a net income of $55.6 million for Q2 2021, up from $33.0 million in Q2 2020, with diluted earnings per share increasing to $1.03 from $0.62[194]. - For the six months ended June 30, 2021, net income available to common stockholders was $105.0 million, with a diluted net income per share of $1.94, compared to $67.3 million and $1.24 per share for the same period in 2020[176]. - Non-interest income reached $30.9 million for the quarter ended June 30, 2021, a $4.4 million increase or 16.6% from the second quarter of 2020[221]. - The effective tax rate for the three months ended June 30, 2021, was 15.6%, up from 12.3% in 2020[173]. - The Corporation maintained all regulatory capital ratios in excess of the "well-capitalized" definition[206]. Deposits and Borrowings - Total deposits increased to $12,203,400 million by June 30, 2021, compared to $11,361,610 million at the end of 2020, showing a growth of approximately 7.4%[159]. - The total borrowings, including securities sold under repurchase agreements, amounted to $146,904 million as of June 30, 2021, compared to $177,102 million at the end of 2020, indicating a reduction in leverage[160]. - Loan commitments to extend credit increased to $3,884.9 million as of June 30, 2021, up from $3,443.5 million at December 31, 2020, representing a growth of approximately 12.8%[114]. Employee Compensation and Stock Options - Share-based compensation for the three months ended June 30, 2021, was $1,208,000, slightly down from $1,214,000 in the same period of 2020[166]. - The aggregate intrinsic value of stock options exercised during the six months ended June 30, 2021, was $559,000, compared to $197,000 in 2020[171]. - As of June 30, 2021, unrecognized compensation expense related to RSAs was $7.5 million, expected to be recognized over a weighted-average period of 1.79 years[169]. - The Corporation's stock options outstanding as of June 30, 2021, totaled 28,500 shares, with a weighted-average exercise price of $17.14[170]. COVID-19 Impact - The Corporation continues to support customers affected by COVID-19 by providing assistance and originating loans under the PPP[187]. - As of June 30, 2021, $40.3 million in loan balances remained in deferral due to COVID-19 related modifications[190].