First Merchants Corporation Announces Third Quarter 2020 Earnings per Share

Rhea-AI Summary

First Merchants Corporation (NASDAQ - FRME) reported a third-quarter 2020 net income of $36.2 million, down from $36.8 million year-over-year. Earnings per share were $0.67, compared to $0.71 in Q3 2019. Year-to-date net income totaled $103.5 million, a decline from $116.6 million in the prior year. Total assets reached $13.7 billion, with loans increasing by 11.3% to $9.2 billion, largely due to $901 million in Payroll Protection Program loans. Deposits rose 11.7% to $10.9 billion. The allowance for loan losses increased to $126.7 million, reflecting heightened credit risk from the COVID-19 pandemic.

Positive

• Net-interest income grew to $92.9 million, nearly $4 million higher than Q3 2019.
• Non-interest income increased by $4 million year-over-year to $26.2 million.
• Gains from the sale of mortgage loans reached a record $5.8 million.

Negative

• Net income decreased by $0.6 million compared to Q3 2019.
• Earnings per share dropped from $0.71 to $0.67 year-over-year.
• Year-to-date net income declined by $13.1 million compared to the previous year.

MUNCIE, Ind., Oct. 28, 2020 (GLOBE NEWSWIRE) -- First Merchants Corporation (NASDAQ - FRME) has reported third quarter 2020 net income of $36.2 million compared to $36.8 million during the same period in 2019.  Earnings per share for the period totaled $.67 per share compared to the third quarter of 2019 result of $.71 per share.  Year-to-date net income totaled $103.5 million compared to $116.6 million during the nine months ended September 30, 2019.  Year-to-date earnings per share totaled $1.91 compared to $2.32 during the same period in 2019.

Total assets equaled $13.7 billion as of September 30, 2020 and loans totaled $9.2 billion.  The Corporation’s loan portfolio increased by $940 million, or 11.3 percent, during the past twelve months.  Payroll Protection Program (PPP) loans accounted for $901 million of the period’s loan growth.  Investments increased $444 million, or 17.8 percent, during the same period and now total $2.9 billion.  Total deposits equaled $10.9 billion as of quarter-end and increased by $1.1 billion, or 11.7 percent.    

The loan to deposit ratio now totals 84.8 percent and the loan to asset ratio totals 67.3 percent.  As of September 30, 2020, the Corporation’s total risk-based capital ratio equaled 14.38 percent, the common equity tier 1 capital ratio equaled 12.02 percent, and the tangible common equity ratio totaled 9.57 percent.  Excluding PPP loans, our tangible common equity ratio totaled 10.19 percent.

The Corporation’s provision expense totaled $12.5 million and net charge-offs for the quarter totaled $6.9 million.  The allowance for loan losses totaled $126.7 million as of September 30, 2020, up from $80.6 million as of September 30, 2019.  The Corporation chose to defer the adoption of the current expected credit loss (“CECL”) model; therefore, the allowance for loan losses was calculated under the incurred loss method.  Allowance for loan losses was 1.37% of total loans, 1.65% including remaining fair value marks with allowance, and 1.83% excluding PPP loans from total loans.  The $51.9 million increase in year-to-date provision expense primarily reflects our view of increased credit risk related to the COVID-19 pandemic. 

Michael C. Rechin, President and Chief Executive Officer, stated, “Our third quarter results highlight increased earnings power as our net interest margin stabilizes while our fee levels reflect increasing activity in customer spending and treasury technology use.  Our clients and businesses remain healthy and resilient.  Their determination and results mirror the First Merchants’ employee base and the Bank’s performance.  Our earnings also increased due to a reduced provision level.  The provision level and resultant loan loss reserve reflect a loan portfolio which is granular, diversified and actively reviewed.  First Merchants’ exposure to higher risk industries is modest in any peer comparison and is borne out by the low level of customers (2%) utilizing the deferrals and modifications provided through the CARES Act.  Capital preservation and capital composition are strengths that will serve us well as we assess the recessionary climate that likely remains through 2021.” 

“My confidence regarding 2021 and our longer term future also reflects the executive succession plan announced September 29, 2020.  Our Board of Directors’ decision to choose internal candidates to lead First Merchants augers well for high performance and cultural continuity.  Mark Hardwick, who will become CEO on January 1, 2021, in tandem with Mike Stewart as President and Michele Kawiecki as Chief Financial Officer, form a trio who are experienced, skilled, and trusted.  I am excited about First Merchants’ future and the opportunity to expertly serve our communities, shareholders and teammates.”

Net-interest income for the quarter totaled $92.9 million, up nearly $4 million from the third quarter of 2019 despite margin compression year-over-year of 47 basis points.  Linked quarter net-interest margin stabilized as the decline totaled just 4 basis points, two basis points due to fair value accretion and one basis point due to the impact of PPP loans.  Yields on earning assets totaled 3.58 percent and the cost of supporting liabilities totaled 43 basis points resulting in quarterly net interest margin of 3.15 percent.

Non-interest income totaled $26.2 million for the quarter, a $4 million increase over the third quarter of 2019.  Gains from the sale of mortgage loans reached record levels totaling $5.8 million for the quarter.  Non-interest expense totaled $64.7 million for the quarter compared to $67.4 million in the third quarter of 2019, which included $11.2 million of acquisition related expense. 

CONFERENCE CALL

First Merchants Corporation will conduct a third quarter earnings conference call and web cast at 2:30 p.m. (ET) on Wednesday, October 28, 2020.

To participate, dial (Toll Free) 877-507-0578 and reference First Merchants Corporation's third quarter earnings release. International callers please call +1 412-317-1073.  A replay of the call will be available until November 26, 2020. To access a replay of the call, US participants should dial (Toll Free) 877-344-7529, Canada participants should dial 855-669-9658, or for International participants, dial +1 412-317-0088. The replay access code is 10147757.

In order to view the web cast and presentation slides, please go to http://services.choruscall.com/links/frme201026.html during the time of the call.  A replay of the web cast will be available until October 28, 2021.

Detailed financial results are reported on the attached pages.

About First Merchants Corporation

First Merchants Corporation is a financial holding company headquartered in Muncie, Indiana. The Corporation has one full-service bank charter, First Merchants Bank.  The Bank also operates as First Merchants Private Wealth Advisors (as a division of First Merchants Bank).

First Merchants Corporation’s common stock is traded on the NASDAQ Global Select Market System under the symbol FRME. Quotations are carried in daily newspapers and can be found on the company’s Internet web page (http://www.firstmerchants.com).

FIRST MERCHANTS and the Shield Logo are federally registered trademarks of First Merchants Corporation.

Forward-Looking Statements

This release contains forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often, but not always, be identified by the use of words like “believe”, “continue”, “pattern”, “estimate”, “project”, “intend”, “anticipate”, “expect” and similar expressions or future or conditional verbs such as “will”, would”, “should”, “could”, “might”, “can”, “may”, or similar expressions. These statements include statements of First Merchants’ goals, intentions and expectations; statements regarding the First Merchants’ business plan and growth strategies; statements regarding the asset quality of First Merchants’ loan and investment portfolios; and estimates of First Merchants’ risks and future costs and benefits. These forward-looking statements are subject to significant risks, assumptions and uncertainties that may cause results to differ materially from those set forth in forward-looking statements, including, among other things: possible changes in monetary and fiscal policies, and laws and regulations; the effects of easing restrictions on participants in the financial services industry; the cost and other effects of legal and administrative cases; possible changes in the credit worthiness of customers and the possible impairment of collectability of loans; fluctuations in market rates of interest; competitive factors in the banking industry; changes in the banking legislation or regulatory requirements of federal and state agencies applicable to bank holding companies and banks like First Merchants’ affiliate bank; continued availability of earnings and excess capital sufficient for the lawful and prudent declaration of dividends; changes in market, economic, operational, liquidity, credit and interest rate risks associated with the First Merchants’ business; and other risks and factors identified in each of First Merchants’ filings with the Securities and Exchange Commission. First Merchants does not undertake any obligation to update any forward-looking statement, whether written or oral, relating to the matters discussed in this press release. In addition, First Merchants’ past results of operations do not necessarily indicate its anticipated future results.

CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)	September 30,
	2020					2019
ASSETS
Cash and cash equivalents	$	164,632				$	202,383
Interest-bearing deposits	273,936					230,101
Investment securities	2,933,286					2,489,420
Loans held for sale	3,183					7,910
Loans	9,243,833					8,299,260
Less: Allowance for loan losses	(126,726		)			(80,571		)
Net loans	9,117,107					8,218,689
Premises and equipment	112,959					113,446
Federal Home Loan Bank stock	28,736					28,736
Interest receivable	52,992					45,923
Goodwill and other intangibles	574,369					579,751
Cash surrender value of life insurance	291,543					286,747
Other real estate owned	6,942					7,156
Tax asset, deferred and receivable	21,762					15,187
Other assets	155,903					99,612
TOTAL ASSETS	$	13,737,350				$	12,325,061
LIABILITIES
Deposits:
Noninterest-bearing	$	2,187,607				$	1,777,365
Interest-bearing	8,718,546					7,988,086
Total Deposits	10,906,153					9,765,451
Borrowings:
Federal funds purchased	80,000					—
Securities sold under repurchase agreements	187,732					191,603
Federal Home Loan Bank advances	399,522					354,609
Subordinated debentures and other borrowings	118,320					138,630
Total Borrowings	785,574					684,842
Interest payable	5,038					7,855
Other liabilities	206,929					117,901
Total Liabilities	11,903,694					10,576,049
STOCKHOLDERS' EQUITY
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:
Authorized -- 600 shares
Issued and outstanding - 125 shares	125				<

FAQ

What were First Merchants Corporation's earnings for Q3 2020?

First Merchants Corporation reported a net income of $36.2 million for Q3 2020.

How much did First Merchants Corporation's net income decline compared to Q3 2019?

Net income decreased by $0.6 million compared to Q3 2019.

What is the stock performance outlook for FRME in light of the latest earnings report?

The outlook may reflect cautious sentiment due to declining year-to-date earnings and increased allowance for loan losses.

How did the total assets of First Merchants Corporation change by September 30, 2020?

Total assets were reported at $13.7 billion as of September 30, 2020.

What was the increase in First Merchants Corporation's loan portfolio?

The loan portfolio increased by $940 million or 11.3% over the past twelve months.