First Merchants (US:FRME)2021-02-28 16:00Loan Losses and Provisions - The allowance for loan losses increased to $130,648,000 as of December 31, 2020, from $80,284,000 in 2019, reflecting a rise in specific reserves and economic conditions due to the COVID-19 pandemic [145]. - Provisions for loan losses were recorded at $58,673,000 in 2020, compared to $2,800,000 in 2019, indicating a proactive approach to anticipated credit losses [143]. - The provision for loan losses significantly increased to $58.7 million in 2020 compared to $2.8 million in 2019, highlighting a proactive approach to potential credit risks [400]. - Total charge-offs for 2020 amounted to $10,485,000, a significant increase from $6,621,000 in 2019, with net charge-offs at $8,309,000 [143]. - The ratio of net charge-offs to average loans outstanding was 0.09% in 2020, up from 0.04% in 2019, highlighting a deterioration in loan quality [143]. - Non-accrual loans surged to $61.471 million in 2020, compared to $15.949 million in 2019, representing an increase of 285.5% [523]. - Impaired loans with related allowance totaled $49.513 million in 2020, with a related allowance of $12.901 million, compared to $5.139 million in 2019 with an allowance of $689,000, showing a substantial increase in both categories [525]. - The Corporation's allowance for loan losses as a percentage of net loans was approximately 1.43% as of December 31, 2020 [515]. - Total allowance for loan losses increased to $130.648 million as of December 31, 2020, compared to $80.284 million in 2019, reflecting a significant rise of 62.5% [518]. Financial Performance - Total assets increased to $14.07 billion in 2020 from $12.46 billion in 2019, representing a growth of approximately 12.93% [398]. - Net interest income after provision for loan losses decreased to $323.5 million in 2020 from $353.9 million in 2019, a decline of about 8.6% [400]. - Net income available to common stockholders was $148.6 million in 2020, down from $164.5 million in 2019, a decrease of about 9.7% [400]. - Comprehensive income for 2020 was $195,562, down from $213,756 in 2019, reflecting a decline of 8.5% [401]. - Basic earnings per share decreased to $2.75 in 2020 from $3.20 in 2019, a decline of about 14.06% [400]. - Total other income increased to $109.9 million in 2020 from $86.7 million in 2019, a rise of about 26.7% [400]. - Net income for 2020 was $148,600, a decrease of 9.66% from $164,460 in 2019 [401]. Loans and Lending Activities - The Corporation's net loans increased to $9.11 billion in 2020 from $8.38 billion in 2019, reflecting a growth of approximately 8.7% [398]. - The total loans outstanding as of December 31, 2020, were $9.24 billion, compared to $8.46 billion in 2019, reflecting an overall growth of 9.2% [505]. - The Corporation had over 4,400 Paycheck Protection Program (PPP) loans totaling $667.1 million as of December 31, 2020, with an interest income recognized of $6.2 million from these loans [505]. - The Corporation's loan portfolio composition included $2.78 billion in commercial and industrial loans, a significant increase from $2.11 billion in 2019 [505]. - The Corporation's loan portfolio primarily focuses on small business and middle market commercial lending, contributing to portfolio diversification [504]. - Loans classified as held for sale are carried at the principal amount outstanding, approximating fair value due to short duration [420]. Deposits and Borrowings - Total deposits rose to $11.36 billion in 2020, up from $9.84 billion in 2019, indicating a growth of approximately 15.4% [398]. - Demand deposits rose by $1.57 billion to $6.82 billion, while savings deposits increased by $765.5 million to $3.66 billion compared to 2019 [560]. - The total short-term borrowings decreased to $232,199,000 in 2020 from $284,316,000 in 2019, indicating a reduction in reliance on short-term financing [157]. - The weighted average interest rate on total short-term borrowings was 0.6% in 2020, down from 1.1% in 2019, reflecting lower borrowing costs [158]. Acquisitions and Investments - The Corporation announced the acquisition of Hoosier Trust Company for $3,225,000 in cash, expected to close in Q2 2021, pending regulatory approval [480]. - The Corporation acquired MBT Financial Corp. for approximately $229.9 million, issuing about 6.4 million shares of common stock, with the expectation of income accretion and market expansion in Michigan [482]. - The Corporation's total investment securities as of December 31, 2020, amounted to $3,199,412,000, with gross unrealized gains of $164,956,000 [493]. - The fair value of acquired loans from MBT included $729,047,000 in receivables not subject to ASC 310-30, with expected cash flows of $14,722,000 not anticipated to be collected [485]. COVID-19 Impact and Response - The COVID-19 pandemic has significantly impacted commercial activity, leading to decreased demand for the Corporation's products and services [458]. - The Corporation has offered short-term loan modifications in response to COVID-19, including payment deferrals and fee waivers [423]. - The COVID-19 relief package included $284 billion in funding for the Paycheck Protection Program, impacting the Corporation's financial strategies [469]. - The Corporation has delayed the implementation of the Current Expected Credit Loss (CECL) standard to January 1, 2021, due to the provisions of the CARES Act [507]. Accounting and Regulatory Changes - The Corporation adopted ASU 2016-13 effective January 1, 2021, modifying the accounting for loan loss allowances from an incurred loss model to an expected loss model [433]. - The Corporation adopted FASB Accounting Standards Update No. 2018-15 in Q1 2020, which did not have a significant effect on its consolidated financial statements [459]. - The Corporation performed goodwill impairment tests on September 30, 2020, and December 31, 2020, concluding that goodwill was not impaired [468]. - The Corporation's goodwill from the MBT acquisition was valued at $98,563,000, reflecting expected synergies and economies of scale [484].