First Merchants (US:FRME)2020-08-07 14:16Part I. Financial Information This section provides the company's financial statements and management's analysis of its financial condition and operational results Financial Statements This section presents the unaudited consolidated condensed financial statements for First Merchants Corporation as of June 30, 2020, and for the three and six-month periods then ended, reflecting significant impacts from the COVID-19 pandemic Consolidated Condensed Balance Sheets Total assets grew to $13.82 billion as of June 30, 2020, primarily driven by increases in net loans and total deposits, while stockholders' equity remained stable Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $13,819,378 | $12,457,254 | +10.9% | | Loans, net | $9,177,422 | $8,379,026 | +9.5% | | Total Deposits | $10,965,988 | $9,839,956 | +11.4% | | Total Borrowings | $867,164 | $732,703 | +18.3% | | Total Stockholders' Equity | $1,809,095 | $1,786,437 | +1.3% | Consolidated Condensed Statements of Income Net income for Q2 2020 decreased to $33.0 million due to a significant increase in the provision for loan losses, reflecting the economic impact of COVID-19 Q2 2020 vs. Q2 2019 Performance (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $93,018 | $85,278 | +9.1% | | Provision for loan losses | $21,895 | $500 | +4279.0% | | Net Income Available to Common Stockholders | $32,992 | $41,056 | -19.6% | | Diluted EPS | $0.62 | $0.83 | -25.3% | Six Months Ended June 30 Performance (in thousands, except per share data) | Metric | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $186,895 | $170,144 | +9.8% | | Provision for loan losses | $41,647 | $1,700 | +2349.8% | | Net Income Available to Common Stockholders | $67,255 | $79,873 | -15.8% | | Diluted EPS | $1.24 | $1.61 | -23.0% | Consolidated Condensed Statements of Comprehensive Income Comprehensive income for Q2 2020 was $43.2 million, a decrease primarily due to lower net income, partially offset by unrealized gains on available-for-sale securities Comprehensive Income Summary (in thousands) | Component | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | | :--- | :--- | :--- | | Net income | $32,992 | $41,056 | | Other comprehensive income, net of tax | $10,189 | $16,197 | | Comprehensive income | $43,181 | $57,253 | Consolidated Condensed Statements of Stockholders' Equity Stockholders' equity increased to $1.81 billion by June 30, 2020, driven by net income and other comprehensive income, partially offset by common stock repurchases and cash dividends - During the first six months of 2020, the Corporation repurchased 1,634,437 shares of common stock for a total of $55.9 million19 Consolidated Condensed Statements of Cash Flows Net cash provided by operating activities was $114.7 million, while investing activities used $1.24 billion, and financing activities provided $1.18 billion, resulting in a net increase in cash and cash equivalents Cash Flow Summary - Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $114,708 | $83,008 | | Net cash used in investing activities | ($1,239,642) | ($756,780) | | Net cash provided by financing activities | $1,177,492 | $662,710 | | Net Change in Cash and Cash Equivalents | $52,558 | ($11,062) | Notes to Consolidated Condensed Financial Statements Detailed notes cover accounting policies, the impact of COVID-19, the MBT Financial Corp acquisition, and specifics on CECL implementation delay, loan modifications, and PPP loans - The Corporation elected to delay the implementation of the Current Expected Credit Loss (CECL) model, as permitted by the CARES Act3772 - During the first six months of 2020, loan modifications were completed on approximately $1.1 billion of loans, representing 12.1% of the portfolio34102198 - The acquisition of MBT Financial Corp. on September 1, 2019, resulted in $98.6 million of goodwill and a core deposit intangible of $16.5 million4648 - The Bank funded over 5,000 Paycheck Protection Program (PPP) loans totaling $882.9 million (net of fees) as of June 30, 202071194 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the significant impact of the COVID-19 pandemic on financial results, including PPP participation, loan modifications, increased loan loss provisions, and asset and deposit growth - Net income for Q2 2020 was $33.0 million ($0.62 per share), down from $41.1 million ($0.83 per share) in Q2 2019, primarily due to a $21.9 million provision for loan losses driven by the economic outlook related to COVID-19202206 - Total assets grew by $1.4 billion (10.9%) since year-end 2019 to $13.8 billion, largely due to the origination of $882.9 million in PPP loans and strong deposit growth of $1.1 billion204209 - Net interest margin on a tax equivalent basis decreased to 3.19% for Q2 2020 from 3.71% in Q2 2019, impacted by FOMC rate cuts and the addition of low-yielding PPP loans217 - The allowance for loan losses increased to 1.30% of total loans (1.44% excluding PPP loans) at June 30, 2020, up from 0.95% at year-end 2019267 Quantitative and Qualitative Disclosures About Market Risk The Corporation is asset-sensitive, with net interest income projected to increase by 6.7% in a +200 basis point interest rate shock scenario - The company's simulation modeling as of June 30, 2020, shows that a 200 basis point parallel upward shift in interest rates would increase net interest income by 6.7% over a 12-month horizon285 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting identified - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report296 - There were no changes in internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls297 Part II. Other Information This section covers legal proceedings, new risk factors related to COVID-19 and PPP, unregistered sales of equity securities, and other required disclosures Legal Proceedings There are no pending material legal proceedings against the Corporation or its subsidiaries beyond routine litigation incidental to business operations - There are no material legal proceedings pending against the Corporation or its subsidiaries, other than routine litigation incidental to its business299 Risk Factors New risk factors include the uncertain economic impact of the COVID-19 pandemic, potential for increased credit losses, and litigation risk associated with PPP loan processing - The ongoing COVID-19 pandemic is identified as a significant risk factor, with potential adverse impacts on business, financial results, credit quality, and net interest income302 - Participation as a lender in the PPP exposes the Corporation to risks of litigation from clients regarding loan processing and the risk that the SBA may not fully honor its loan guarantees if deficiencies are found in origination or servicing307309 Unregistered Sales of Equity Securities and Use of Proceeds The Corporation repurchased 304 shares during Q2 2020 to satisfy employee tax withholding obligations on vested restricted stock awards, not as part of a public plan - During the second quarter of 2020, the company repurchased 304 shares at an average price of $26.16 per share to satisfy employee tax withholding obligations on vested restricted stock311 Defaults Upon Senior Securities No defaults upon senior securities were reported for the period Mine Safety Disclosures This item is not applicable to the Corporation Other Information No other information was reported under this item for the period Exhibits This section lists exhibits filed with the Form 10-Q, including corporate documents, agreements, and CEO/CFO certifications