First Merchants (US:FRME)2020-02-28 16:52Loan Losses and Provisions - The allowance for loan losses at December 31, 2019, was $80,284,000, a decrease from $80,552,000 in 2018[136]. - Provisions for loan losses in 2019 were $2,800,000, significantly lower than $7,227,000 in 2018, reflecting a decrease of about 61%[131]. - The provision for loan losses decreased to $2.8 million in 2019 from $7.2 million in 2018, indicating a reduction of about 61%[370]. - The allowance for loan losses is based on ongoing assessments of probable losses, with provisions charged against current operating results[395]. - The Corporation's allowance for credit losses is expected to increase by 55-65% due to the adoption of the Current Expected Credit Loss (CECL) model, which covers expected credit losses over the life of the loan portfolio[456]. Charge-offs and Recoveries - Total charge-offs for 2019 amounted to $6,621,000, down from $7,983,000 in 2018, representing a reduction of approximately 17%[131]. - Net charge-offs for 2019 were $3,068,000, compared to $1,707,000 in 2018, indicating an increase of approximately 80%[131]. - The total recoveries in 2019 were $3,553,000, down from $6,276,000 in 2018, indicating a decrease of approximately 43%[131]. - The ratio of net charge-offs to average loans outstanding during 2019 was 0.04%, up from 0.02% in 2018[131]. Financial Performance - Net income available to common stockholders for 2019 was $164.5 million, compared to $159.1 million in 2018, reflecting a growth of about 3%[370]. - Net income for 2019 was $164,460,000, representing an increase of 3.3% from $159,139,000 in 2018[371]. - Comprehensive income for 2019 reached $213,756,000, up from $141,251,000 in 2018, indicating a significant growth of 51.3%[371]. - The Corporation's total other income increased to $86.7 million in 2019, up from $76.5 million in 2018, representing a growth of approximately 13.5%[370]. - Total revenue for the year ended December 31, 2019, was $474.891 million, a slight decrease from $476.878 million in 2018, representing a decline of approximately 0.4%[464]. Assets and Liabilities - Total assets increased to $12.46 billion as of December 31, 2019, up from $9.88 billion in 2018, representing a growth of approximately 26.4%[369]. - The total liabilities increased to $10.67 billion in 2019, compared to $8.48 billion in 2018, which is an increase of approximately 26.0%[369]. - The total investment securities amounted to $2.617591 billion as of December 31, 2019, with gross unrealized gains of $73.889 million and gross unrealized losses of $2.756 million[471]. - The fair value of temporarily impaired investment securities was $395.416 million at December 31, 2019, which was approximately 15.2% of the Corporation's available for sale and held to maturity investment portfolio[473]. Loans and Loan Portfolio - The loan portfolio increased to $8,459,310,000 at December 31, 2019, up from $7,224,467,000 in 2018, representing a growth of approximately 17.1%[485]. - Total loans amounted to $8,459,310,000 as of December 31, 2019, up from $7,224,467,000 in 2018, representing an increase of 17.06%[496]. - The Corporation's commercial and industrial loans rose to $2,109,879,000 in 2019, compared to $1,726,664,000 in 2018, indicating a growth of approximately 22.2%[485]. - The residential real estate loans increased to $1,143,217,000 in 2019, up from $966,421,000 in 2018, reflecting a growth of about 18.3%[485]. - The total balance of commercial and industrial loans was $2,109,879,000, with non-performing loans at $1,668,247,000[512]. Acquisitions - The Corporation completed the acquisition of MBT and its subsidiary Monroe Bank & Trust for an acquisition price of $229.9 million, which included $98.6 million of Goodwill[365]. - The Corporation acquired 100% of MBT Financial Corp. on September 1, 2019, issuing approximately 6.4 million shares valued at approximately $229.9 million[458]. - Goodwill from the MBT acquisition amounted to $98.6 million, reflecting expected synergies and economies of scale[458]. - Core deposit intangibles acquired from the MBT acquisition amounted to $16,527,000, with total core deposit and other intangibles valued at $34,962,000 as of December 31, 2019[531][533]. Cash Flow and Dividends - Cash flow from operating activities for 2019 was $178,407,000, slightly down from $180,235,000 in 2018[375]. - The company issued cash dividends on common stock of $51,276,000 in 2019, compared to $41,660,000 in 2018, reflecting a 23.5% increase[375]. Risk Management and Credit Quality - The Corporation's strategy for credit risk management includes credit policies and underwriting criteria significantly below legal lending limits[395]. - The corporation's risk management strategies include monitoring economic conditions that may impact borrower repayment capabilities[500]. - The Corporation's overall credit quality assessment is based on the financial health of borrowers and the adequacy of collateral pledged[513]. - The risk grading system includes categories such as pass, special mention, substandard, doubtful, and loss, with all large commercial credit grades reviewed at least annually[509]. Accounting and Reporting - The Corporation adopted several accounting standards updates in 2019, including ASU 2018-11 for leases, which did not significantly affect its consolidated financial statements[429][432][434]. - The Corporation's income tax provisions include deferred income tax for significant temporary differences in recognizing income and expenses[425]. - The Corporation recorded a Right-of-Use (ROU) asset of $23.3 million and a lease liability of $23.8 million upon the adoption of the new accounting standard on January 1, 2019[437].