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First Merchants Corporation announces second quarter earnings

First Merchants Corporation has reported second quarter 2020 net income of $33 million compared to $41.1 million during the same period in 2019.  Earnings per share for the period totaled $.62 per share compared to the second quarter of 2019 result of $.83 per share.  Year-to-date net income totaled $67.3 million compared to $79.9 million during the six months ended June 30, 2019.  Year-to-date earnings per share totaled $1.24 compared to $1.61 during the same period in 2019.

Total assets equaled $13.8 billion as of the quarter-ended June 30, 2020 and loans totaled $9.3 billion.  The Corporation’s loan portfolio increased by $1.8 billion, or 23.7 percent, during the past twelve months.  Investments increased $696 million, or 33.3 percent, during the same period and now totals $2.8 billion.  Total deposits equaled $11 billion as of quarter-end and increased by $2.6 billion, or 31.8 percent, from the same period in 2019.  Our acquisition of Monroe Bank & Trust (“MBT”), which closed on September 1, 2019, accounted for $733 million of loan growth and $1.1 billion of deposit growth.  Additionally, Payroll Protection Program (“PPP”) loans accounted for $883 million of the period’s loan growth.

The loan to deposit ratio now totals 84.8 percent and loan to asset ratio totals 67.3 percent.  As of June 30, 2020, the Corporation’s total risk-based capital ratio equaled 14.2 percent, the common equity tier 1 capital ratio equaled 11.8 percent, and the tangible common equity ratio totaled 9.31 percent.  Excluding PPP loans, our tangible common equity ratio totaled 9.93 percent.

The Corporation’s provision expense totaled $21.9 million and net charge-offs for the quarter totaled just $230,000.  The allowance for loan losses totaled $121.1 million as of June 30, 2020, up from $81.3 million as of June 30, 2019.   The Corporation chose to defer the adoption of the current expected credit loss (“CECL”) model so allowance for loan losses were calculated under the incurred loss method.  Allowance for loan losses is 1.30% of total loans, 1.62% including remaining fair value marks with allowance, and 1.79% excluding PPP loans from total loans. The increased year-to-date provision expense of $41.6 million primarily reflects our view of increased credit risk related to the COVID-19 pandemic. Remaining fair value marks on purchased loans is $29.3 million.

Net-interest income for the quarter totaled $93 million, down $859,000 from the first quarter of 2020, as linked quarterly net interest margin declined by 27 basis points totaling 3.19 percent.  Yields on earning assets decreased by 66 basis points totaling 3.72 percent and the cost of supporting liabilities decreased by 39 basis points and totaled 53 basis points.  The addition of $883 million of PPP loans negatively impacted margin by 6 basis points, but the major driver was the decline in LIBOR from 99 basis points as of March 31, 2020 to just 16 basis points on June 30, 2020.

Non-interest income totaled $26.5 million for the quarter, a $4.9 million increase over the second quarter of 2019, but a $3.3 million decrease from the first quarter of 2020.  Gains from the sale of mortgage loans remain strong given the rate environment, while service charges on deposit accounts were less than planned due to higher than normal average balances per account.  Non-interest expense totaled $60 million for the quarter compared to $57.6 million in the second quarter of 2019 and $66.2 million in the first quarter of 2020.  The primary drivers of the linked quarterly results were a $2.3 million deferral of salary expense related to PPP loan originations, a $1.1 million reduction in bonus accruals and a $1.6 million decrease in processing fees related to termination of a debit card rewards program.


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