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Regulatory Capital and Dividends | 12 Months Ended
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Dec. 31, 2020
Banking and Thrift, Interest [Abstract] |
Regulatory Capital and Dividends | REGULATORY CAPITAL AND DIVIDENDS Regulatory Capital Capital adequacy is an important indicator of financial stability and performance. The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category. The assigned capital category is largely determined by four ratios that are calculated according to the regulations: total risk-based capital, tier 1 risk-based capital, CET1, and tier 1 leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity. The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios. There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and tier 1 capital to risk-weighted assets, and of tier 1 capital to average assets, or leverage ratio, all of which are calculated as defined in the regulations. Banks with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual levels. The appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice. Banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category. Basel III was effective for the Corporation on January 1, 2015 and requires the Corporation and the Bank to maintain the minimum capital and leverage ratios as defined in the regulation and as illustrated in the table below, which capital to risk-weighted asset ratios include a 2.5 percent capital conservation buffer. Under Basel III, in order to avoid limitations on capital distributions, including dividends, the Corporation must hold a 2.5 percent capital conservation buffer above the adequately capitalized CET1 to risk-weighted assets ratio (which buffer is reflected in the required ratios below). Under Basel III, the Corporation and Bank elected to opt-out of including accumulated other comprehensive income in regulatory capital. As of December 31, 2020, the Bank met all capital adequacy requirements to be considered well capitalized under the fully phased-in Basel III capital rules. There is no threshold for well capitalized status for bank holding companies. The Corporation's and Bank's actual and required capital ratios as of December 31, 2020 and December 31, 2019 were as follows:
|  |  |  |  | Prompt Corrective Action Thresholds
| Actual |  | Basel III Minimum Capital Required |  | Well Capitalized
December 31, 2020 | Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
Total risk-based capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,475,551 |  |  | 14.36 | % |  | $ | 1,079,015 |  |  | 10.50 | % |  | N/A |  | N/A
First Merchants Bank | 1,412,805 |  |  | 13.70 |  |  | 1,082,430 |  |  | 10.50 |  |  | $ | 1,030,886 |  |  | 10.00 | %
Tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,282,070 |  |  | 12.48 | % |  | $ | 873,488 |  |  | 8.50 | % |  | N/A |  | N/A
First Merchants Bank | 1,283,922 |  |  | 12.45 |  |  | 876,253 |  |  | 8.50 |  |  | $ | 824,708 |  |  | 8.00 | %
Common equity tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,235,702 |  |  | 12.02 | % |  | $ | 719,343 |  |  | 7.00 | % |  | N/A |  | N/A
First Merchants Bank | 1,283,922 |  |  | 12.45 |  |  | 721,620 |  |  | 7.00 |  |  | $ | 670,076 |  |  | 6.50 | %
Tier 1 capital to average assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,282,070 |  |  | 9.57 | % |  | $ | 536,123 |  |  | 4.00 | % |  | N/A |  | N/A
First Merchants Bank | 1,283,922 |  |  | 9.59 |  |  | 535,279 |  |  | 4.00 |  |  | $ | 669,098 |  |  | 5.00 | %
|  |  |  |  | Prompt Corrective Action Thresholds
| Actual |  | Basel III Minimum Capital Required |  | Well Capitalized
December 31, 2019 | Amount |  | Ratio |  | Amount |  | Ratio |  | Amount |  | Ratio
Total risk-based capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,400,617 |  |  | 14.29 | % |  | $ | 1,028,930 |  |  | 10.50 | % |  | N/A |  | N/A
First Merchants Bank | 1,267,649 |  |  | 12.87 |  |  | 1,033,926 |  |  | 10.50 |  |  | $ | 984,691 |  |  | 10.00 | %
Tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,255,333 |  |  | 12.81 | % |  | $ | 832,943 |  |  | 8.50 | % |  | N/A |  | N/A
First Merchants Bank | 1,187,365 |  |  | 12.06 |  |  | 836,988 |  |  | 8.50 |  |  | $ | 787,753 |  |  | 8.00 | %
Common equity tier 1 capital to risk-weighted assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,188,970 |  |  | 12.13 | % |  | $ | 685,953 |  |  | 7.00 | % |  | N/A |  | N/A
First Merchants Bank | 1,187,365 |  |  | 12.06 |  |  | 689,284 |  |  | 7.00 |  |  | $ | 640,049 |  |  | 6.50 | %
Tier 1 capital to average assets |  |  |  |  |  |  |  |  |  |  |
First Merchants Corporation | $ | 1,255,333 |  |  | 10.54 | % |  | $ | 476,383 |  |  | 4.00 | % |  | N/A |  | N/A
First Merchants Bank | 1,187,365 |  |  | 9.99 |  |  | 475,564 |  |  | 4.00 |  |  | $ | 594,455 |  |  | 5.00 | %
On April 9, 2020, federal banking regulators issued an interim final rule to modify the Basel III regulatory capital rules applicable to banking organizations to allow those organizations participating in the PPP to neutralize the regulatory capital effects of participating in the program. The interim final rule, which became effective April 13, 2020, clarifies that PPP loans receive a zero percent risk weight for purposes of determining risk-weighted assets and the CET1, Tier 1 and Total Risk-Based capital ratios. At December 31, 2020, risk-weighted assets included $667.1 million of PPP loans at a zero risk weight. Additionally, in order to facilitate use of the PPPL Facility, the agencies have clarified that banking organizations, including the Corporation and the Bank, are allowed to neutralize the regulatory effects of PPP covered loans on the risk-based capital ratios, as well as PPP covered loans pledged under the PPPL Facility on the leverage capital ratios. At December 31, 2020, the Corporation did not have an outstanding balance with the PPPL Facility; therefore there were no adjustments to the leverage ratio for PPP loans. Management believes that all of the above capital ratios are meaningful measurements for evaluating the safety and soundness of the Corporation. Traditionally, the banking regulators have assessed bank and bank holding company capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. The Federal Reserve focuses its assessment of capital adequacy on a component of Tier 1 capital known as CET1. Because the Federal Reserve has long indicated that voting common shareholders' equity (essentially Tier 1 risk-based capital less preferred stock and non-controlling interest in subsidiaries) generally should be the dominant element in Tier 1 risk-based capital, this focus on CET1 is consistent with existing capital adequacy categories. Tier I regulatory capital consists primarily of total stockholders’ equity and subordinated debentures issued to business trusts categorized as qualifying borrowings, less non-qualifying intangible assets and unrealized net securities gains or losses. Because these measures are not defined in GAAP, they are considered non-GAAP financial measures. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. For a reconciliation of GAAP measures to regulatory measures (non-GAAP), see additional details within the “Capital” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as Item 7 of this Annual Report on Form 10-K. Dividends The Corporation's principal source of funds for dividend payments to shareholders is dividends received from the Bank. Banking regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the bank’s retained income (as defined under the regulations) for the current year plus those for the previous two years, subject to the capital requirements described above. As of December 31, 2020, the amount available for dividends from the Corporation’s subsidiaries (both banking and non-banking), without prior regulatory approval or notice, was $207,182,000. Additionally, the Corporation has a Dividend Reinvestment and Stock Purchase Plan, enabling stockholders to elect to have their cash dividends on all shares automatically reinvested in additional shares of the Corporation’s common stock. In addition, stockholders may elect to make optional cash payments up to an aggregate of $5,000 per quarter for the purchase of additional shares of common stock. The stock is credited to participant accounts at fair market value. Dividends are reinvested on a quarterly basis. Stockholders' Equity On September 1, 2019, the Corporation acquired 100 percent of MBT. Pursuant to the merger agreement, each MBT shareholder received 0.275 shares of the Corporation's common stock for each outstanding share of MBT common stock held. The Corporation issued approximately 6.4 million shares of common stock, which was valued at approximately $229.9 million. Details regarding the MBT acquisition are discussed in NOTE 2. ACQUISITIONS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. Stock Repurchase Program On September 3, 2019, the Board of Directors of the Corporation approved a stock repurchase program of up to 3 million shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program was not to exceed $75 million. On a share basis, the amount of common stock subject to the repurchase program represented approximately 5 percent of the Corporation's outstanding shares. During the first quarter of 2020, the Corporation repurchased 1,634,437 of its common shares for $55.9 million at an average price of $34.21, which resulted in the aggregate investment in share repurchases to equal $75.0 million, the maximum allowable under the plan. On January 27, 2021, the Board of Directors of the Corporation approved a stock repurchase program of up to 3,333,000 shares of the Corporation's outstanding common stock; provided, however, that the total aggregate investment in shares repurchased under the program may not exceed $100,000,000. On a share basis, the amount of common stock subject to the repurchase program represents approximately 6 percent of the Corporation's outstanding shares. Details regarding the 2021 stock repurchase program are discussed in NOTE 27. SUBSEQUENT EVENTS of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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- Definition The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1F -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958575-112826 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1 -Subparagraph (c)(2) -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958568-112826 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958568-112826 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958569-112826 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1 -Subparagraph (a)(2) -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958568-112826 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1 -Subparagraph (a)(1) -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958568-112826 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1 -Subparagraph (e) -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958568-112826 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 505 -Section 50 -Paragraph 1D -URI http://asc.fasb.org/extlink&oid=117337116&loc=SL5958573-112826 + Details
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