<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) of THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995
Commission File Number 0-17071
FIRST MERCHANTS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its character)
INDIANA 35-1544218
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
200 EAST JACKSON STREET - MUNCIE, IN 47305-2814
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
(317) 747-1500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name former address and former fiscal year,
if changed since last report.)
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 X No
----- -----
As of October 30, 1995, there were outstanding 5,049,873 common shares,
without par value, of the registrant.
Page 1 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
INDEX
Page No.
--------
PART I. Financial information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet. . . . . . . . . . . . . .3
Consolidated Condensed Statement of Income. . . . . . . . . . .4
Consolidated Condensed Statement of Changes in
Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . .5
Consolidated Condensed Statement of Cash Flows. . . . . . . . .6
Notes to Consolidated Condensed Financial Statements. . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 10
PART II. Other Information:
Item 6. Exhibits and Reports of Form 8-K. . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Page 2 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollar in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS:
Cash and due from banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,849 $ 42,684
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,998 3,675
--------- ---------
Cash and cash equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . 46,847 46,359
Interest-bearing time deposits . . . . . . . . . . . . . . . . . . . . . . . . 93 23
Securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . 135,819 99,363
Securities held to maturity (fair value $77,946 and $76,522) . . . . . . . . . 77,698 77,677
Federal Reserve and Federal Home Loan Bank stock . . . . . . . . . . . . . . . 1,892 1,879
Loans:
Loans, net of unearned interest. . . . . . . . . . . . . . . . . . . . . . . 407,484 401,605
Less: Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . 5,114 4,998
--------- ---------
Net loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,370 396,607
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,211 9,545
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,370 5,627
Core deposit intangibles and goodwill. . . . . . . . . . . . . . . . . . . . . 1,878 1,977
Others assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,126 5,549
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 686,304 $ 644,606
--------- ---------
--------- ---------
LIABILITIES:
Deposits:
Noninterest bearing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,682 $ 99,667
Interest bearing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461,649 430,163
--------- ---------
Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537,331 529,830
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66,243 39,189
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,926 1,320
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,598 3,249
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 608,098 573,588
STOCKHOLDERS' EQUITY:
Preferred stock, no-par value:
Authorized and unissued -- 500,000 shares
Common stock, $.125 stated value:
Authorized --- 20,000,000 shares
Issued and outstanding -- 5,056,911 and 3,366,346 shares . . . . . . . . . . 632 421
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 15,929 16,231
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,323 56,886
Net unrealized gains (losses) on securities available for sale . . . . . . . . 322 (2,520)
--------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 78,206 71,018
--------- ---------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . . . $ 686,304 $ 644,606
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated condensed financial statements.
Page 3 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . $ 9,590 $ 8,301 $ 27,952 $ 23,280
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . 35 20 80 64
Securities:. . . . . . . . . . . . . . . . . . . . . . . .
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . 2,211 2,039 6,271 6,586
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . 647 617 1,810 1,817
Federal Reserve and Federal Home Loan Bank stock . . . . . 37 25 110 73
Federal funds sold . . . . . . . . . . . . . . . . . . . . 275 14 594 84
Interest-bearing time deposits . . . . . . . . . . . . . . 1 2 2
--------- --------- --------- ---------
Total interest income. . . . . . . . . . . . . . . . . 12,796 11,016 36,819 31,906
Interest Expense:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 5,088 3,600 14,090 10,440
Short-term borrowings. . . . . . . . . . . . . . . . . . . 752 591 1,846 1,448
--------- --------- --------- ---------
Total interest expense . . . . . . . . . . . . . . . . 5,840 4,191 15,936 11,888
--------- --------- --------- ---------
Net interest income. . . . . . . . . . . . . . . . . . . . . 6,956 6,825 20,883 20,018
Provision for loan losses. . . . . . . . . . . . . . . . . . 160 201 480 593
--------- --------- --------- ---------
Net interest income after provision for loan losses. . . . . 6,796 6,624 20,403 19,425
Other Income:
Securities gains (losses), net . . . . . . . . . . . . . . (66) 11
Other income . . . . . . . . . . . . . . . . . . . . . . . 1,902 1,557 5,179 4,686
--------- --------- --------- ---------
Total other income . . . . . . . . . . . . . . . . . . . . . 1,902 1,557 5,113 4,697
Total other expenses . . . . . . . . . . . . . . . . . . . . 4,870 4,758 14,173 13,668
--------- --------- --------- ---------
Income before income tax . . . . . . . . . . . . . . . . . . 3,828 3,423 11,343 10,454
Income tax expense . . . . . . . . . . . . . . . . . . . . . 1,414 1,196 4,009 3,621
--------- --------- --------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,414 $ 2,227 $ 7,334 $ 6,833
--------- --------- --------- ---------
--------- --------- --------- ---------
Per Share:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ .48 $ .44 $ 1.45 $ 1.35
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . .20 .19 .57 .52
Weighted average shares outstanding. . . . . . . . . . . . . 5,062,748 5,086,058 5,056,568 5,080,419
</TABLE>
See notes to consolidated condensed financial statements.
Page 4 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
BALANCES, JANUARY 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 71,018 $ 68,804
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,334 6,833
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,898) (2,640)
Stock issued under employee benefit plans. . . . . . . . . . . . . . . . . . . . 277 250
Stock issued under dividend reinvestment and stock purchase plan . . . . . . . . 327 261
Stock options exercised. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 94
Stock redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (893) (638)
Change in net unrealized gains (losses) on securities available for sale . . . . 2,842 (1,690)
--------- ---------
BALANCES, SEPTEMBER 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,206 $ 71,274
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated condensed financial statements.
Page 5 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,334 $ 6,833
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480 593
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . 899 842
Securities amortization, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 533 825
Change in interest receivable . . . . . . . . . . . . . . . . . . . . . . . . . . (620) (214)
Change in interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 606 1
Loans originated for resale . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,852)
Proceeds from sales of loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,859
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8
-------- --------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . 9,303 8,888
INVESTING ACTIVITIES:
Net change in interest-bearing time deposits. . . . . . . . . . . . . . . . . . . . (70) 254
Purchases of:
Securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . (53,645) (18,204)
Securities held for maturity . . . . . . . . . . . . . . . . . . . . . . . . . . (29,107) (28,382)
Proceeds from maturities of:
Securities available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . 10,318 23,870
Securities held to maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . 28,856 34,875
Proceeds from sales of securities available for sale . . . . . . . . . . . . . . . 11,196
Net change in loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,518) (17,044)
Purchases of premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . (1,565) (540)
Other investing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 467
-------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . (40,382) (4,704)
FINANCING ACTIVITIES:
Net change in noninterest-bearing, NOW, money market and savings deposits . . . . . (39,766) (4,076)
Net change in certificates of deposit and other time deposits . . . . . . . . . . . 47,267 3,469
Net change in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 27,054 (4,357)
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,898) (2,640)
Stock issued under employee benefit plans . . . . . . . . . . . . . . . . . . . . . 277 250
Stock issued under dividend reinvestment and stock purchase plan. . . . . . . . . . 327 261
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 94
Stock redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (893) (638)
-------- --------
Net cash provided (used) by financing activities. . . . . . . . . . . . . . . . . 31,567 (7,637)
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . . 488 (3,453)
Cash and Cash Equivalents, January 1 . . . . . . . . . . . . . . . . . . . . . . . . 46,359 26,567
-------- --------
Cash and Cash Equivalents, September 30. . . . . . . . . . . . . . . . . . . . . . . $ 46,847 $ 23,114
-------- --------
-------- --------
</TABLE>
See notes to consolidated condensed financial statements.
Page 6 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(Dollar amounts in thousands)
(Unaudited)
NOTE 1. General
The significant accounting policies followed by First Merchants Corporation
("Corporation") and its wholly owned subsidiaries for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting, except for the changes in methods of accounting
discussed more fully in Note 2. All adjustments which are in the opinion
of management necessary for a fair statement of the results for the periods
reported have been included in the accompanying consolidated financial
statements.
NOTE 2. Changes In Method of Accounting
In May, 1993, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards No. 115 (SFAS No. 115), ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. The statement requires
that securities be classified in three categories and provides specific
accounting treatment for each. Trading securities are bought and held
primarily for sale in the near term and are carried at fair value, with
unrealized holding gains and losses included in earnings; held-to-maturity
securities, for which the intent is to hold to maturity, are carried at
amortized cost; and available-for-sale securities are all others and are
carried at fair value with unrealized holding gains and losses excluded
from earnings and reported as a separate component of stockholders' equity.
The Corporation adopted SFAS No. 115 on January 1, 1994. At that date,
securities with an approximate carrying value of $107,569,000 were
reclassified as available for sale. This reclassification resulted in an
increase in total stockholders' equity, net of tax, of $644,000.
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 (SFAS No. 114), ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN. The Statement requires that impaired
loans that are within the scope of this Statement be measured based on the
present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent.
The Corporation adopted SFAS No. 114 on January 1, 1995. The adoption of
No. 114 did not have a material impact on the financial condition or the
results of operations of the Corporation.
NOTE 3. Securities
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Securities available for sale at September 30, 1995:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . $ 2,544 $ 12 $ 13 $ 2,543
Federal agencies. . . . . . . . . . . . . . . . . . . . 64,191 772 258 64,705
State and municipal . . . . . . . . . . . . . . . . . . 16,567 307 90 16,784
Mortgage and other asset-backed securities. . . . . . . 25,167 154 215 25,106
Other Securities. . . . . . . . . . . . . . . . . . . . 250 250
Corporate obligations . . . . . . . . . . . . . . . . . 26,566 120 255 26,431
--------- ---------- ---------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . . $135,285 $1,365 $831 $135,819
--------- ---------- ---------- --------
--------- ---------- ---------- --------
</TABLE>
Page 7 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Securities held to maturity at September 30, 1995:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . $ 7,104 $ 8 $ 25 $ 7,087
Federal agencies. . . . . . . . . . . . . . . . . . . . 22,227 44 89 22,182
State and municipal . . . . . . . . . . . . . . . . . . 44,104 412 132 44,384
Mortgage and other asset-backed securities. . . . . . . 2,143 34 2,177
Corporate obligations . . . . . . . . . . . . . . . . . 2,120 2 6 2,116
-------- ---- ------ -------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 77,698 $500 $ 252 $77,946
-------- ---- ------ -------
-------- ---- ------ -------
Securities available for sale at December 31, 1994:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . $ 11,817 $ 550 $11,267
Federal agencies. . . . . . . . . . . . . . . . . . . . 35,565 1,271 34,294
State and municipal . . . . . . . . . . . . . . . . . . 9,762 $ 31 385 9,408
Mortgage and other asset-backed securities. . . . . . . 22,171 29 836 21,364
Corporate obligations . . . . . . . . . . . . . . . . . 24,221 4 1,195 23,030
-------- ---- ------ -------
Total . . . . . . . . . . . . . . . . . . . . . . . . $103,536 $ 64 $4,237 $99,363
-------- ---- ------ -------
-------- ---- ------ -------
Securities held to maturity at December 31, 1994:
U.S. Treasury . . . . . . . . . . . . . . . . . . . . . $ 12,630 $ 21 $ 222 $12,429
Federal agencies. . . . . . . . . . . . . . . . . . . . 24,529 29 469 24,089
State and municipal . . . . . . . . . . . . . . . . . . 38,117 211 680 37,648
Mortgage and other asset-backed securities. . . . . . . 370 370
Corporate obligations . . . . . . . . . . . . . . . . . 2,031 45 1,986
-------- ---- ------ -------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 77,677 $261 $1,416 $76,522
-------- ---- ------ -------
-------- ---- ------ -------
COST
-------------------
SEPT. 30, DEC. 30,
1995 1994
--------- --------
<S> <C> <C>
Federal Reserve and Federal Home Loan Bank stock:
Federal Reserve Bank stock. . . . . . . . . . . . . . . . $ 307 $ 307
Federal Home Loan stock . . . . . . . . . . . . . . . . . 1,585 1,572
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $1,892 $1,879
------ ------
------ ------
</TABLE>
Page 8 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
(Unaudited)
NOTE 4. Loans and Allowance
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Loans:
Commercial and industrial loans. . . . . . . . . . . . . . . . . . . . . . . $ 76,789 $ 78,943
Bankers' acceptances and loans to financial institutions . . . . . . . . . . 2,600
Agricultural production financing and other loans to farmers . . . . . . . . 7,002 5,310
Real estate loans:
Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,244 8,126
Commercial and farmland . . . . . . . . . . . . . . . . . . . . . . . . . 66,367 64,110
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166,672 164,760
Individuals' loans for household and other personal expenditures . . . . . . 75,815 78,041
Tax exempt loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889 1,204
Other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,106 1,111
------------- ------------
Total loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $407,484 $401,605
------------- ------------
------------- ------------
Nonperforming Loans:
Nonaccruing loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 354 $ 326
Loans contractually past due 90 days or more other than nonaccruing. . . . . 902 703
Restructured loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 689 754
Nine Months Ended
September 30,
-----------------
1995 1994
------ ------
<S> <C> <C>
Allowance for loan losses:
Balances, January 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,998 $4,800
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480 593
Recoveries on loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 249
Loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (489) (522)
------ ------
Balances, September 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,114 $5,120
------ ------
------ ------
</TABLE>
NOTE 5. Stockholders' Equity
On August 8, 1995, the Board of Directors of the Corporation declared a
three-for-two stock split on its common shares. The new shares were
distributed on October 27, 1995, to holders of record on October 20, 1995.
All per share and weighted average share amounts have been restated to give
effect of the stock split.
Page 9 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Corporation has recorded 19 consecutive years of growth in operating
earnings per share, reaching $1.81 in 1994, an increase of 9.1 per cent over
1993.
Return on assets, which exceeded 1 per cent for the first time in 1988,
rose to 1.44 per cent in 1994, from 1.39 per cent in 1993, and 1.29 per cent
in 1992.
Return on equity exceeded 12 per cent for the first time in 1989, was
12.71 per cent in 1992, 13.01 per cent in 1993, and 13.06 per cent in 1994.
Improvement was achieved in each of these ratios during the first nine
months of 1995, as compared to the same period in 1994.
- Earning per share were $1.45, up 7.4 per cent from $1.35
- Return on assets was 1.50 per cent increasing from 1.44 per cent
- Return on equity totalled 13.06 per cent compared to 13.04 per cent for
the first nine months of 1994
CAPITAL
First Merchants Corporation's capital strength continues to exceed
regulatory minimums and peer group averages. Management believes that strong
capital is a distinct advantage in the competitive environment in which the
Corporation operates, and will provide a solid foundation for continued
growth, and instilling customer confidence. First Merchants Corporation and
its subsidiaries have received honors from various financial rating services
recognizing the Banks for safety and soundness. Earnings asset quality and
capital strength were considered in the ratings.
Regulatory capital guidelines require a Tier I risk-based capital ratio of
4.0 per cent, a total risk-based capital ratio of 8.0 per cent and a leverage
ratio of 4.0 per cent.
The Corporation's capital ratios exceed regulatory requirements as shown
in the following table.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
------------- ------------ -------------
<S> <C> <C> <C>
Capital to Asset . . . . . . . . . . . . . . . 11.40% 11.02% 11.42%
Tier 1 risk-based capital ratio. . . . . . . . 17.00 16.28 16.68
Total risk-based capital ratio . . . . . . . . 18.15 17.41 17.87
Leverage ratio . . . . . . . . . . . . . . . . 11.33 11.54 11.32
</TABLE>
The Corporation has an employee stock purchase plan and an employee stock
option plan. Activity under this program is detailed in the Consolidated
Condensed Statement of Changes in Stockholders' Equity. The transactions
under these plans have not had a material effect in the Corporation's capital
position.
On August 8, 1995, the Board of Directors of the Corporation declared a
three-for-two stock split on its common shares. The new shares were
distributed on October 27, 1995, to holders of record on October 20, 1995.
All per share and weighted average share amounts have been restated to give
effect of the stock split.
Page 10 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
ASSET QUALITY/PROVISION FOR LOAN LOSSES
First Merchants Corporation's asset quality and loan loss experience has
consistently been superior to that of its peer group, as summarized below.
Asset quality has been a major factor in the Corporation's ability to
generate consistent profit improvement.
The allowance for loan losses is maintained through the provision for loan
losses, which is a charge against earnings. The amount provided for loan
losses, and the determination of the adequacy of the allowance are based on a
continuous review of the loan portfolio, including an internally administered
loan "watch" list. The evaluation takes into consideration identified credit
problems as well as the possibility of losses inherent in the loan portfolio
that cannot be specifically identified.
The following table summarizes the risk elements for First Merchants
Corporation and its peer group, consisting of bank holding companies with
average assets between $500 million and $1 billion. The statistics were
provided by the Federal Reserve System.
<TABLE>
<CAPTION>
Non-Performing Loans
as a Per Cent of Loans
------------------------
First Merchants Peer
Corporation Group
--------------- -----
<S> <C> <C>
September 30, 1995 . . . . . . . . . . . .31% N/A
December 31, 1994. . . . . . . . . . . . .26 .98%
December 31, 1993. . . . . . . . . . . . .30 1.62
December 31, 1992. . . . . . . . . . . . .41 1.82
December 31, 1991. . . . . . . . . . . . .86 2.54
December 31, 1990. . . . . . . . . . . . 1.09 2.57
(1) Accruing loans past due 90 days or more, and non-accruing loans, but excluding restructured loans.
</TABLE>
On September 30, 1995, the loan loss reserve stood at $5,114,000. As a
per cent of loans, the reserve stood at 1.26 per cent compared to 1.24 per cent
at year end 1994, and 1.27 per cent at year end 1993. The provision for loan
losses for the first nine months of 1995 declined to $480,000 from $593,000
for the same period of 1994, based on management's analysis of the adequacy
of the reserve in light of improving credit quality in the loan portfolio.
Page 11 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
The following table presents loan loss experience for the years indicated and
compares the Corporation's loss experience to its peer group (table dollar
amounts in thousands).
<TABLE>
<CAPTION>
Sept. 30, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1995 1994 1993 1992 1991
--------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at January 1 . . . . . . . . . . . $ 4,998 $ 4,800 $ 4,351 $ 3,867 $ 3,254
Addition resulting from acquisition. . . . 252
------- ------- ------- ------- -------
Chargeoffs:
Commercial . . . . . . . . . . . . . . . . 134 526 391 588 806
Real estate mortgage . . . . . . . . . . . 41 129 100 41
Installment. . . . . . . . . . . . . . . . 355 346 388 552 511
------- ------- ------- ------- -------
Total chargeoffs . . . . . . . . . . . . 489 913 908 1,240 1,358
------- ------- ------- ------- -------
Recoveries:
Commercial . . . . . . . . . . . . . . . . 61 216 240 215 227
Real estate mortgage . . . . . . . . . . . 3 30 5 38 7
Installment. . . . . . . . . . . . . . . . 61 83 98 114 84
------- ------- ------- ------- -------
Total recoveries . . . . . . . . . . . . 125 329 343 367 318
------- ------- ------- ------- -------
Net chargeoffs . . . . . . . . . . . . . . . 364 584 565 873 1,040
------- ------- ------- ------- -------
Provision for loan losses. . . . . . . . . . 480 782 1,014 1,357 1,401
------- ------- ------- ------- -------
Balance, end of period . . . . . . . . . . . $ 5,114 $ 4,998 $ 4,800 $ 4,351 $ 3,867
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of net chargeoffs during the period
to average loans during the period -
annualized. . . . . . . . . . . . . . . . . .12% .15% .16% .26% .35%
Peer Group . . . . . . . . . . . . . . . . . N/A .25% .49% .65% .95%
</TABLE>
Page 12 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
LIQUIDITY AND INTEREST SENSITIVITY
Asset/Liability Management has been an important factor in the
Corporation's ability to record consistent earnings growth through periods of
interest rate volatility and product deregulation. Management and the Board
of Directors monitor the Corporation's liquidity and interest sensitivity
positions at regular meetings to ensure that changes in interest rates will
not adversely affect earnings. Decisions regarding investment and the
pricing of loan and deposit products are made after analysis of reports
designed to measure liquidity, rate sensitivity, the Corporation's exposure
to changes in net interest income given various rate scenarios, and the
economic and competitive environments.
First Merchants Corporation's liquidity and interest sensitivity
position at September 30, 1995, remained adequate to meet the Corporation's
primary goal of achieving optimum interest margins while avoiding undue
interest rate risk. The table below presents the Corporation's interest rate
sensitivity analysis as of September 30, 1995 (table dollar amounts in
thousands).
<TABLE>
<CAPTION>
Interest-Rate Sensitivity Analysis
At September 30, 1995
----------------------------------------------------
1-180 181-365 1-5 Beyond
Days Days Years 5 Years Total
--------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Federal funds sold and interest-bearing
time deposits. . . . . . . . . . . . . . . $ 21,091 $ 21,091
Securities. . . . . . . . . . . . . . . . . 57,655 $ 19,420 $ 124,698 $ 13,636 215,409
Loans . . . . . . . . . . . . . . . . . . . 210,278 43,171 105,125 48,910 407,484
--------- -------- --------- --------- ---------
Total rate-sensitive assets . . . . . . . . . 289,024 62,591 229,823 62,546 643,984
--------- -------- --------- --------- ---------
Rate-sensitive liabilities:
Interest-bearing deposits . . . . . . . . . 206,679 34,282 220,632 56 461,649
Short-term borrowings . . . . . . . . . . . 65,243 1,000 66,243
--------- -------- --------- --------- ---------
Total rate-sensitive liabilities. . . . . . . 271,922 35,282 220,632 56 527,892
--------- -------- --------- --------- ---------
Interest rate sensitivity gap by period . . . $ 17,102 $ 27,309 $ 9,191 $ 62,490
Cumulative gap. . . . . . . . . . . . . . . . 17,102 44,411 53,602 116,092
Cumulative ratio at September 30, 1995. . . . 106% 114% 110% 122%
Cumulative ratio at December 31, 1994 . . . . 106% 121% 114% 125%
</TABLE>
Page 13 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
EARNING ASSETS
Earning assets declined $.8 million during 1994 but increased $59.8
million during the first nine months of 1995. Growth over the nine month
period, ending September 30, 1995, occurred in loans, short-term investments,
and securities.
The following table presents the earning asset mix for the years ended
1993, 1994 and at September 30, 1995 (table dollar amounts in millions.)
<TABLE>
<CAPTION>
Earning Assets
-------------------------------------------
September 30, December 31, December 31,
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Federal funds sold and interest bearing
time deposits . . . . . . . . . . . . . $ 21.1 $ 3.7 $ 1.9
Securities available for sale. . . . . . . 135.8 99.3
Securities held to maturity. . . . . . . . 77.7 77.7 204.3
Federal Reserve and Federal Home
Loan Bank stock . . . . . . . . . . . . . 1.9 1.9 1.9
Loans. . . . . . . . . . . . . . . . . . . 407.5 401.6 376.9
------------- ------------ ------------
Total . . . . . . . . . . . . . . . . . . $ 644.0 $ 584.2 $ 585.0
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
DEPOSITS AND BORROWINGS
The following table presents the level of deposits and short-term
borrowings (Federal funds purchased, repurchase agreements with customers,
borrowing from Federal Home Loan Bank, and U.S. Treasury demand notes) based
on period end levels and average daily balances for the past two years and
most recent quarter (table dollar amounts in millions).
<TABLE>
<CAPTION>
Period End Balances Average Balances
----------------------- ----------------------
Short-term Short-term
Deposits Borrowings Deposits Borrowings
--------- ---------- -------- ----------
<S> <C> <C> <C> <C>
September 30, 1995 . . . $ 537.3 $ 66.2 $ 528.9 $ 44.5
December 31, 1994. . . . 529.8 39.2 514.0 45.6
December 31, 1993. . . . 506.3 46.9 517.8 35.3
</TABLE>
Page 14 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
NET INTEREST INCOME
Net interest income is the primary source of the Corporation's earnings.
It is a function of net interest margin and the level of average earning
assets.
The table below presents the Corporation's interest income, interest
expense, and net interest income on a fully taxable equivalent basis (FTE) as
a per cent of average earning assets for the four-year period ending in 1994
and the first nine months of 1995 (table dollar amounts in thousands).
<TABLE>
<CAPTION>
Interest Income Interest Expense Net Interest
(FTE) as a Per as a Per Cent Income (FTE) as Average Net Interest
Cent of Average of Average a Per Cent of Earning Income
Earning Assets Earning Assets Earning Assets Assets (FTE)
--------------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1995 (1) . . 8.15% 3.43% 4.72% $619,008 $29,201
1994 . . . . 7.44 2.70 4.74 597,102 28,282
1993 . . . . 7.38 2.81 4.57 587,009 26,806
1992 . . . . 8.31 3.65 4.66 566,467 26,400
1991 . . . . 9.48 5.05 4.43 525,799 23,277
(1) First nine months annualized
</TABLE>
Asset yields improved slightly in 1994 (.06 per cent), while interest
expense declined 11 basis points. The resulting "spread" increase of .17 per
cent (4.74% vs 4.57%) accounted for approximately two-thirds of the
$1,476,000 increase in net interest income (FTE). The remaining increase is
attributable to growth in average earning assets of $10,093,000.
During the first nine months of 1995, interest income (FTE) as a per
cent of average earning assets increased .71 per cent while interest expense
as a per cent of average earning assets grew by .73 per cent. Consequently,
net interest income (FTE) as a per cent of average earning assets declined
.02 per cent. The increase in net interest income (FTE) is due to growth in
average earning assets of over $21.9 million.
The Corporation does consider the effect of changing rates in its loan
and deposit pricing and structure decisions, and in its investment strategy;
and expects no significant change in net interest income as a result of
interest rate changes.
Page 15 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
OTHER INCOME
The Corporation has placed emphasis on the growth of non-interest income
in recent years by offering a wide range of fee-based services. Fee
schedules are regularly reviewed by a pricing committee to ensure that the
products and services offered by the Corporation are priced to be competitive
and profitable.
Other income declined in 1994 by $290,000, or 4.4 per cent. The decline
is attributable to two factors:
1. Loss on the sale of securities of $31,000 compared to gains of
$395,000 in 1993, a change of $426,000.
2. A $126,000 (5.0 per cent) decline in deposit service charges.
The first factor is not relevant to the underlying fee income potential
of the Corporation. Without that change, fee income would have increased
from $6,194,000 to $6,329,000 (2.2 per cent).
During the first nine months of 1995, other income equaled $5,113,000,
or $416,000 (8.9 per cent) above the first nine month 1994 level of
$4,697,000. Trust revenues grew $101,000, or 5.3 per cent; and approximately
$8,000,000 of the Corporations student aid loans were sold in July 1995 at a
gain of $205,000, accounting for most of the increase..
OTHER EXPENSE
Total "other expenses" represent non-interest operating expenses of the
Corporation. Those expenses amounted to $18,434,000 in 1994, an increase of
$219,000 or 1.2 per cent from the prior year. Most of the change in 1994 is
attributable to two factors:
1. During the fourth quarter of 1993, First Merchants Bank, N.A. assumed
responsibility for the data processing function for the Corporation and
its subsidiaries. The agreement with an outside party to provide data
processing was terminated. The cost of conversion equipment and
software was approximately $1,700,000. The equipment and software costs
are being depreciated on a straight-line method based on useful life of
the assets. The Corporation estimates that data processing costs under
the new arrangement declined by approximately $400,000 (net of
additional salary, employee benefit, equipment, and software costs.)
2. Salary and benefit expense increased by $928,000 or 10.2 per cent. About
one-fourth of that increase is attributable to the change in data
processing (described above). The rest is attributable to normal salary
increases and key additions to staff.
During the first nine months of 1995 other expenses were $14,173,000, up
$505,000 or 3.7 per cent from the same period in 1994. Salary and benefit
expenses grew $428,000 (5.7 per cent), premises and equipment expense
increased $166,000 (8.2 per cent), marketing expense rose $146,000 (42.0 per
cent), and stationery printing and supplies expense increased by $135,000
(24.3 per cent). These increases totaled $875,000 in the aggregate, and were
offset by a refund from the state of Indiana for intangibles taxes paid in
1988 and 1989 in the amount of $238,000 and by a reduction in deposit
insurance premiums of $308,000.
INCOME TAXES
The increase in 1994 tax expense was attributable to a $1,198,000
increase in pre-tax net income.
During the first six months of 1995, income tax expense grew $170,000
from the same period one year earlier, primarily due to a $889,000 increase
in pre-tax net income.
Page 16 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
The following table presents a breakdown, of federal and state income
taxes (table dollar amount in thousands).
<TABLE>
<CAPTION>
Nine Months Ended Twelve Months Ended
September 30, December 31,
------------------ -------------------
<S> <C> <C> <C> <C>
1995 1994 1994 1993
------- ------- ------- -------
Federal taxes. . . $ 3,043 $ 2,733 $ 3,735 $ 3,272
State taxes. . . . 966 888 1,172 1,124
------- ------- ------- -------
Total. . . . . $ 4,009 $ 3,621 $ 4,907 $ 4,396
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
INFLATION
Changing prices of goods, services and capital affect the financial
position of every business enterprise. The level of market interest rates
and the price of funds loaned or borrowed fluctuate due to changes in the
rate of inflation and various other factors, including government monetary
policy.
Fluctuating interest rates affect First Merchants' net interest income,
loan volume, and other operating expenses, such as employees' salaries and
benefits, reflecting the effects of escalating prices, as well as increased
levels of operations and other factors. As the inflation rate increases, the
purchasing power of the dollar decreases. Those holding fixed rate monetary
assets incur a loss while those holding fixed rate monetary liabilities enjoy
a gain. The nature of a bank holding company's operations is such that there
will be an excess of monetary assets over monetary liabilities and, thus, a
bank holding company will tend to suffer from an increase in the rate of
inflation and benefit from a decrease.
Page 17 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27. Financial Data Schedule
(b) Form 8-K was filed August 15, 1995 for a 3 for 2 stock split
dividend effective October 27, 1995.
Page 18 of 19
<PAGE>
FIRST MERCHANTS CORPORATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST MERCHANTS CORPORATION
(Registrant)
Date November 9, 1995 by /s/ STEFAN S. ANDERSON
----------------------- -----------------------------------------
Stefan S. Anderson
President and Director
Date November 9, 1995 by /s/ JAMES L. THRASH
----------------------- -----------------------------------------
James L. Thrash
Chief Financial & Principal
Accounting Officer
Page 19 of 19
<PAGE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME
FOUND ON PAGE 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 25,849
<INT-BEARING-DEPOSITS> 93
<FED-FUNDS-SOLD> 20,998
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 135,819
<INVESTMENTS-CARRYING> 77,698
<INVESTMENTS-MARKET> 77,946
<LOANS> 407,484
<ALLOWANCE> 5,114
<TOTAL-ASSETS> 686,304
<DEPOSITS> 537,331
<SHORT-TERM> 66,243
<LIABILITIES-OTHER> 4,524
<LONG-TERM> 0
<COMMON> 632
0
0
<OTHER-SE> 77,574
<TOTAL-LIABILITIES-AND-EQUITY> 686,304
<INTEREST-LOAN> 28,032
<INTEREST-INVEST> 8,191
<INTEREST-OTHER> 596
<INTEREST-TOTAL> 36,819
<INTEREST-DEPOSIT> 14,090
<INTEREST-EXPENSE> 15,936
<INTEREST-INCOME-NET> 20,883
<LOAN-LOSSES> 480
<SECURITIES-GAINS> (66)
<EXPENSE-OTHER> 14,173
<INCOME-PRETAX> 11,343
<INCOME-PRE-EXTRAORDINARY> 7,334
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,334
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
