FIRST MERCHANTS CORP [FRME] Filings

10-Q 1 frme-20220630.htm 10-Q frme-20220630

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to _______

FIRST MERCHANTS CORPORATION

(Exact name of registrant as specified in its charter)


Indiana
(State or other jurisdiction of incorporation)
001-41342			35-1544218
(Commission File Number)			(IRS Employer Identification No.)

200 East Jackson Street, Muncie, IN 47305-2814

(Address of principal executive offices) (Zip code)

(Registrant’s telephone number, including area code): (765) 747-1500

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.125 stated value per share	FRME	The Nasdaq Stock Market LLC
Depositary Shares, each representing a 1/100th interest in a share of Non-Cumulative Perpetual Preferred Stock, Series A	FRMEP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-Accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2022, there were 59,490,370 outstanding common shares of the registrant.

Table of Contents

TABLE OF CONTENTS

FIRST MERCHANTS CORPORATION


		Page No.
Glossary of Defined Terms		3

Part I. Financial Information
Item 1.	Financial Statements:
	Consolidated Condensed Balance Sheets	4
	Consolidated Condensed Statements of Income	5
	Consolidated Condensed Statements of Comprehensive Income (Loss)	6
	Consolidated Condensed Statements of Stockholders' Equity	7
	Consolidated Condensed Statements of Cash Flows	9
	Notes to Consolidated Condensed Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	59

Part II. Other Information
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3.	Defaults Upon Senior Securities	60
Item 4.	Mine Safety Disclosures	60
Item 5.	Other Information	60
Item 6.	Exhibits	61

Signatures		62

Table of Contents

GLOSSARY OF DEFINED TERMS

FIRST MERCHANTS CORPORATION




2021 CAA			The 2021 Consolidated Appropriations Act, signed into law on December 27, 2020, which included the Economic Aid to Hard-Hit-Small Businesses, Nonprofits, and Venues Act, amending the CARES Act.
ACL			Allowance for Credit Losses
Ameribor			The American interbank offered rate, a potential replacement for LIBOR, is a benchmark interest rate calculated as a volume-weighted average of the daily transactions in overnight unsecured loans on the American Financial Exchange, LLC, a self-regulated electronic exchange for direct lending by American banks and financial institutions.
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Bank			First Merchants Bank, a wholly-owned subsidiary of the Corporation
CARES Act			Coronavirus Aid, Relief and Economic Security Act
CECL			FASB Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, adopted by the Corporation on January 1, 2021.
CET1			Common Equity Tier 1




Corporation			First Merchants Corporation
COVID or COVID-19			2019 novel coronavirus disease, which was declared a pandemic by the World Health Organization on March 11, 2020.
ESPP			Employee Stock Purchase Plan
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
Federal Reserve			Board of Governors of the Federal Reserve System
FHLB			Federal Home Loan Bank
FOMC			Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
FTE			Fully taxable equivalent
GAAP			U.S. Generally Accepted Accounting Principles
Hoosier			Hoosier Trust Company, which was acquired by the Bank on April 1, 2021.
IRS			Internal Revenue Service



Level One			Level One Bancorp, Inc., which was acquired by the Corporation on April 1, 2022.
OREO			Other real estate owned
PPP			Paycheck Protection Program, which was established by the CARES Act and implemented by the SBA to provide small business loans.

PCD			Purchased credit deteriorated loans
RSA			Restricted Stock Awards
SBA			Small Business Administration

TEFRA			Tax Equity and Fiscal Responsibility Act

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED BALANCE SHEETS


	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS
Cash and due from banks	$	212,559	$	167,146
Interest-bearing deposits	136,702		474,154
Investment securities available for sale	2,296,351		2,344,551
Investment securities held to maturity, net of allowance for credit losses of $245 and $245 (fair value of $2,025,524 and $2,202,503)	2,333,679		2,179,802
Loans held for sale	9,060		11,187
Loans	11,397,417		9,241,861
Less: Allowance for credit losses - loans	(226,275)		(195,397)
Net loans	11,171,142		9,046,464
Premises and equipment	117,757		105,655
Federal Home Loan Bank stock	38,111		28,736
Interest receivable	68,728		57,187

Goodwill	713,201		545,385
Other intangibles	40,448		25,475
Cash surrender value of life insurance	323,013		291,041
Other real estate owned	6,521		558
Tax asset, deferred and receivable	114,965		35,641
Other assets	198,255		140,167
TOTAL ASSETS	$	17,780,492	$	15,453,149
LIABILITIES
Deposits:
Noninterest-bearing	$	3,435,331	$	2,709,646
Interest-bearing	11,135,538		10,022,931
Total Deposits	14,570,869		12,732,577
Borrowings:
Federal funds purchased	100,000		—
Securities sold under repurchase agreements	186,468		181,577
Federal Home Loan Bank advances	598,865		334,055
Subordinated debentures and other borrowings	151,299		118,618
Total Borrowings	1,036,632		634,250
Interest payable	2,978		2,762
Other liabilities	192,372		170,989
Total Liabilities	15,802,851		13,540,578
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY




Preferred Stock, $1,000 par value, $1,000 liquidation value:
Authorized - 600 cumulative shares
Issued and outstanding - 125 cumulative shares	125		125
Preferred Stock, Series A, no par value, $2,500 liquidation preference:
Authorized - 10,000 non-cumulative perpetual shares
Issued and outstanding - 10,000 non-cumulative perpetual shares	25,000		—
Common Stock, $0.125 stated value:
Authorized - 100,000,000 shares
Issued and outstanding - 59,059,866 and 53,410,411 shares	7,383		6,676
Additional paid-in capital	1,226,378		985,818
Retained earnings	917,311		864,839
Accumulated other comprehensive income (loss)	(198,556)		55,113
Total Stockholders' Equity	1,977,641		1,912,571
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	17,780,492	$	15,453,149

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
INTEREST INCOME
Loans receivable:
Taxable	$	106,787	$	87,002	$	185,862	$	172,107
Tax exempt	5,990		5,545		11,694		10,884
Investment securities:
Taxable	10,372		7,440		18,882		14,135
Tax exempt	17,212		13,071		33,087		25,456

Deposits with financial institutions	610		129		840		243
Federal Home Loan Bank stock	175		88		321		266
Total Interest Income	141,146		113,275		250,686		223,091
INTEREST EXPENSE
Deposits	8,485		5,823		12,779		12,023
Federal funds purchased	76		2		76		4
Securities sold under repurchase agreements	134		75		223		162
Federal Home Loan Bank advances	1,774		1,452		2,992		2,894
Subordinated debentures and other borrowings	2,016		1,659		3,675		3,316
Total Interest Expense	12,485		9,011		19,745		18,399
NET INTEREST INCOME	128,661		104,264		230,941		204,692
Provision for credit losses	16,755		—		16,755		—
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES	111,906		104,264		214,186		204,692
OTHER INCOME
Service charges on deposit accounts	7,690		5,596		14,109		10,860
Fiduciary and wealth management fees	7,634		7,510		14,966		13,932
Card payment fees	5,175		4,159		10,898		8,526
Net gains and fees on sales of loans	3,226		8,325		5,425		12,311
Derivative hedge fees	1,444		943		2,362		1,260
Other customer fees	662		368		1,072		736
Increase in cash surrender value of life insurance	1,279		1,205		2,455		2,394
Gains on life insurance benefits	29		—		549		147
Net realized gains on sales of available for sale securities	90		1,761		656		3,560
Other income	1,048		1,017		1,682		1,249
Total Other Income	28,277		30,884		54,174		54,975
OTHER EXPENSES
Salaries and employee benefits	56,041		42,438		98,560		81,249
Net occupancy	6,648		5,615		12,835		12,106
Equipment	6,720		4,848		11,800		9,878
Marketing	1,414		1,122		2,150		2,246
Outside data processing fees	4,881		4,698		9,244		8,942
Printing and office supplies	381		313		726		596
Intangible asset amortization	2,303		1,464		3,669		2,821
FDIC assessments	2,924		1,461		5,116		2,829
Other real estate owned and foreclosure expenses	(266)		178		298		912
Professional and other outside services	10,267		2,976		13,220		5,519
Other expenses	6,000		4,182		12,020		8,295
Total Other Expenses	97,313		69,295		169,638		135,393
INCOME BEFORE INCOME TAX	42,870		65,853		98,722		124,274
Income tax expense	3,879		10,294		11,145		19,246
NET INCOME	38,991		55,559		87,577		105,028
Preferred stock dividends	469		—		469		—
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	38,522	$	55,559	$	87,108	$	105,028
Per Share Data:
Basic Net Income Available to Common Stockholders	$	0.64	$	1.03	$	1.55	$	1.95
Diluted Net Income Available to Common Stockholders	$	0.63	$	1.03	$	1.54	$	1.94
Cash Dividends Paid	$	0.32	$	0.29	$	0.61	$	0.55
Average Diluted Common Shares Outstanding (in thousands)	59,308		54,184		56,516		54,159

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	38,991	$	55,559	$	87,577	$	105,028
Other comprehensive income/( loss):
Unrealized gains/(losses) on securities available-for-sale:
Unrealized holding gain/(loss) arising during the period	(144,709)		32,238		(321,275)		(15,673)
Reclassification adjustment for losses/(gains) included in net income	(90)		(1,761)		(656)		(3,560)
Tax effect	30,408		(6,400)		67,606		4,039
Net of tax	(114,391)		24,077		(254,325)		(15,194)

Unrealized gain/(loss) on cash flow hedges:
Unrealized holding gain/(loss) arising during the period	110		(16)		413		42
Reclassification adjustment for losses/(gains) included in net income	178		260		418		513
Tax effect	(61)		(51)		(175)		(117)
Net of tax	227		193		656		438






Total other comprehensive income/(loss), net of tax	(114,164)		24,270		(253,669)		(14,756)
Comprehensive income/(loss)	$	(75,173)	$	79,829	$	(166,092)	$	90,272

See NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(table dollar amounts in thousands, except share data)

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)



	Three Months Ended June 30, 2022
	Cumulative Preferred Stock			Non-Cumulative Preferred Stock			Common Stock			Additional				Accumulated Other
	Shares	Amount		Shares	Amount		Shares	Amount		Paid in Capital		Retained Earnings		Comprehensive Loss		Total
Balances, March 31, 2022	125	$	125	—	$	—	53,424,823	$	6,678	$	987,404	$	897,818	$	(84,392)	$	1,807,633


Comprehensive loss:
Net income	—	—		—	—		—	—		—		38,991		—		38,991
Other comprehensive loss, net of tax	—	—		—	—		—	—		—		—		(114,164)		(114,164)
Cash dividends on preferred stock ($46.88 per share)	—	—		—	—		—	—		—		(469)		—		(469)
Cash dividends on common stock ($0.32 per share)	—	—		—	—		—	—		—		(19,029)		—		(19,029)
Issuance of stock related to acquisition	—	—		10,000	25,000		5,588,962	699		236,690		—		—		262,389


Share-based compensation	—	—		—	—		5,834	1		1,143		—		—		1,144
Stock issued under employee benefit plans	—	—		—	—		9,055	1		316		—		—		317
Stock issued under dividend reinvestment and stock purchase plan	—	—		—	—		14,285	1		536		—		—		537
Stock options exercised	—	—		—	—		17,095	3		296		—		—		299
Restricted shares withheld for taxes	—	—		—	—		(188)	—		(7)		—		—		(7)
Balances, June 30, 2022	125	$	125	10,000	$	25,000	59,059,866	$	7,383	$	1,226,378	$	917,311	$	(198,556)	$	1,977,641



	Three Months Ended June 30, 2021
	Cumulative Preferred Stock			Common Stock		Additional				Accumulated Other
	Shares	Amount			Shares	Amount		Paid in Capital		Retained Earnings		Comprehensive Income		Total
Balances, March 31, 2021	125	$	125		53,953,723	$	6,744	$	1,007,300	$	755,877	$	35,810	$	1,805,856
Comprehensive income::
Net income	—	—			—	—		—		55,559		—		55,559
Other comprehensive income, net of tax	—	—			—	—		—		—		24,270		24,270

Cash dividends on common stock ($0.29 per share)	—	—			—	—		—		(15,770)		—		(15,770)



Share-based compensation	—	—			375	—		1,208		—		—		1,208
Stock issued under employee benefit plans	—	—			4,185	1		161		—		—		162
Stock issued under dividend reinvestment and stock purchase plan	—	—			11,103	2		486		—		—		488
Stock options exercised	—	—

FIRST MERCHANTS CORP [FRME] Filings
FIRST MERCHANTS CORP [FRMEP] Filings
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-01]
10-Q	[2021-11-03]
10-Q	[2021-08-09]
10-Q	[2021-05-10]
10-K	[2021-03-01]
10-Q	[2020-11-09]
10-Q	[2020-08-07]
10-Q	[2020-05-08]
10-K	[2020-02-28]
10-Q	[2019-11-08]
10-Q	[2019-08-07]
10-Q	[2019-05-10]
10-K	[2019-02-27]
10-Q	[2018-11-09]
10-Q	[2018-08-09]
10-Q	[2018-05-10]
10-K	[2018-03-01]
10-Q	[2017-11-09]
10-Q	[2017-08-09]
10-Q	[2017-05-10]
10-K	[2017-03-01]
10-Q	[2016-11-09]
10-Q	[2016-08-09]
10-Q	[2016-05-09]
10-K	[2016-02-29]
10-Q	[2015-11-06]
10-Q	[2015-08-07]
10-Q	[2015-05-06]
10-K	[2015-02-27]
10-Q	[2014-11-06]
10-Q	[2014-08-08]
10-Q	[2014-05-09]
10-K	[2014-03-14]
10-Q	[2013-11-08]
10-Q	[2013-08-09]
10-Q	[2013-05-10]
10-K	[2013-03-15]
10-Q	[2012-11-09]
10-Q	[2012-08-09]
10-Q	[2012-05-10]
10-K	[2012-03-15]

FIRST MERCHANTS CORP [FRME] Filings

FIRST MERCHANTS CORP [FRMEP] Filings