<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------
DATE OF REPORT: October 2, 1996
--------------------
FIRST MERCHANTS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
--------------------
INDIANA 0-17071 35-1544218
(State of Incorporation) (SEC File No.) (IRS Employer ID No.)
200 East Jackson Street
P.O. Box 792
Muncie, Indiana 47305-2814
(Address of Principal Executive Offices)
(317) 747-1500
(Registrant's Telephone Number)
Page 1 of 43 Pages
Exhibit Index on Page 6
<PAGE>
ITEM 1. Not Applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On October 2, 1996, First Merchants Corporation acquired all of the assets
of Randolph County Bancorp through the merger of Randolph County Bancorp with
and into First Merchants Corporation (the "Merger"). Randolph County Bancorp's
principal asset was the shares of common stock of its wholly-owned subsidiary,
The Randolph County Bank (the "Bank"). The Bank is an Indiana state chartered
commercial bank providing various commercial and consumer banking services to
its customers located primarily in the Winchester, Indiana community and the
surrounding area. As a result of the Merger, the Bank became the fifth wholly-
owned subsidiary of First Merchants Corporation, joining First Merchants Bank,
National Association, Pendleton Banking Company, First United Bank and The Union
County National Bank of Liberty. First Merchants Corporation accounted for the
Merger under the pooling of interests method of accounting.
Pursuant to the terms of the Merger, shareholders of Randolph County
Bancorp receive twenty and 53/100 (20.53) shares of First Merchants Corporation
common stock for each share of Randolph County Bancorp common stock held. Cash
will be paid for fractional shares of First Merchants Corporation common stock
resulting from the exchange ratio. Based on the exchange ratio, shareholders of
Randolph County Bancorp will receive approximately Five Hundred Sixty-five
Thousand Seven Hundred Five (565,705) shares of First Merchants Corporation
common stock. The terms of the Merger were agreed upon in arm's length
negotiations between the respective managements of First Merchants Corporation
and Randolph County Bancorp.
For further information regarding the terms of the Merger, see the
Agreement of Reorganization and Merger between First Merchants Corporation and
Randolph County Bancorp dated January 17, 1996, which is incorporated into this
Form 8-K by reference and filed as an exhibit hereto.
ITEMS 3-6. Not Applicable.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
(i) Independent Auditor's Report.
(ii) Consolidated Balance Sheet as of December 31, 1995
and 1994.
2
<PAGE>
(iii) Consolidated Statement of Income for the Years Ended
December 31, 1995, 1994 and 1993.
(iv) Consolidated Statement of Changes in Stockholders'
Equity for the Years Ended December 31, 1995, 1994
and 1993.
(v) Consolidated Statement of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993.
(vi) Notes to Consolidated Financial Statements.
(vii) Consolidated Condensed Balance Sheet as of June 30,
1996 (unaudited).
(viii) Consolidated Condensed Statement of Income for the
Six Months Ended June 30, 1996 and 1995 (unaudited).
(ix) Consolidated Condensed Statement of Changes in
Stockholders' Equity for the Six Months Ended June
30, 1996 (unaudited).
(x) Consolidated Condensed Statement of Cash Flows for
the Six Months Ended June 30, 1996 and 1995
(unaudited).
(xi) Notes to Consolidated Condensed Financial Statements
(unaudited).
(b) Pro Forma Financial Information.
(i) Pro Forma Condensed Combined Financial Information
Including Balance Sheet as of December 31, 1995 and
Statements of Income for each of the Years in the
Three-Year Period Ended December 31, 1995.
(ii) Pro Forma Condensed Combined Financial Information
Including Balance Sheet as of June 30, 1996 and
Statement of Income for the Six Months Ended June 30,
1996.
3
<PAGE>
(c) Exhibits.
(2) Agreement of Reorganization and Merger by and between
First Merchants Corporation and Randolph County
Bancorp dated January 17, 1996. (Incorporated by
reference to First Merchants Corporation's
Registration Statement on Form S-4 [SEC File
No. 33-02349] ordered effective on May 9, 1996.)
(23) Consent of Geo. S. Olive & Co., LLC
ITEM 8. Not Applicable.
4
<PAGE>
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 hereunto duly authorized.
DATE: October 14, 1996.
FIRST MERCHANTS CORPORATION
By: /s/ Larry R. Helms
-----------------------------------
Larry R. Helms,
Senior Vice President
5
<PAGE>
INDEX OF FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
(i) Independent Auditor's Report. . . . . . . . . . . . . . . . . . 9
(ii) Consolidated Balance Sheet as of
December 31, 1995 and 1994. . . . . . . . . . . . . . . . . . . 10
(iii) Consolidated Statement of Income
for the Years Ended December 31,
1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . 11
(iv) Consolidated Statement of Changes
in Stockholders' Equity for the
Years Ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 13
(v) Consolidated Statement of
Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . 14
(vi) Notes to Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(vii) Consolidated Condensed Balance Sheet as of
June 30, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . 28
(viii) Consolidated Condensed Statement of
Income for the Six Months
Ended June 30, 1996 and 1995 (unaudited). . . . . . . . . . . . 29
(ix) Consolidated Condensed Statement of Changes
in Stockholders' Equity for the
Six Months Ended June 30, 1996 and 1995 (unaudited) . . . . . . 30
(x) Consolidated Condensed Statement of Cash
Flows for the Six Months Ended
June 30, 1996 and 1995 (unaudited). . . . . . . . . . . . . . . 31
(xi) Notes to Consolidated Condensed Financial
Statements (unaudited). . . . . . . . . . . . . . . . . . . . . 32
(b) Pro Forma Financial Information.
(i) Pro Forma Condensed Combined
Financial Information Including
Balance Sheet as of December 31, 1995
6
<PAGE>
and Statements of Income for each of
the Years in the Three-Year Period
Ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . 33
(ii) Pro Forma Condensed Combined
Financial Information Including
Balance Sheet as of June 30, 1996
and Statement of Income for the Six
Months Ended June 30, 1996. . . . . . . . . . . . . . . . . . . 39
(c) Exhibits.
(2) Agreement of Reorganization and
Merger by and between First
Merchants Corporation and Randolph
County Bancorp dated January 17, 1996 . . . . . . . . . . . . . (A)
(23) Consent of Geo. S. Olive & Co., LLC . . . . . . . . . . . . . . 43
(A) Incorporated by reference to First Merchants Corporation's Registration
Statement on Form S-4 (SEC File No. 33-02349) ordered effective on May 9,
1996.
7
<PAGE>
RANDOLPH COUNTY BANCORP
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1995 and 1994
8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
Randolph County Bancorp
Winchester, Indiana
We have audited the consolidated balance sheet of Randolph County Bancorp and
subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Randolph County Bancorp and subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
January 17, 1996, except for the last
paragraph of the note on Loans and
Allowance as to which the date is
March 19, 1996
9
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,080,023 $ 2,503,628
Federal funds sold 1,400,000 1,050,000
------------------------------------
Cash and cash equivalents 5,480,023 3,553,628
Interest-bearing deposits 103,595
Investment securities
Available for sale 22,029,295
Held to maturity 28,776,202
------------------------------------
Total investment securities 22,029,295 28,776,202
Loans 43,493,754 43,778,184
Allowance for loan losses (593,580) (489,409)
------------------------------------
Net loans 42,900,174 43,288,775
Premises and equipment 1,331,159 1,459,800
Interest receivable 1,082,609 1,037,736
Other assets 292,182 315,625
------------------------------------
Total assets $73,219,037 $78,431,766
------------------------------------
------------------------------------
LIABILITIES
Deposits
Noninterest bearing $ 7,333,464 $ 6,537,517
Interest bearing 56,107,793 62,243,689
------------------------------------
Total deposits 63,441,257 68,781,206
Due to broker 387,591 795,000
Interest payable 380,724 304,932
Other liabilities 256,405 223,635
------------------------------------
Total liabilities 64,465,977 70,104,773
------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $100 stated value
Authorized 60,000 shares
Issued and outstanding 27,555 and 27,567 shares 2,755,500 2,756,700
Paid-in capital 709,036 709,344
Retained earnings 5,250,057 4,860,949
Net unrealized gain on securities available for sale 38,467
------------------------------------
Total stockholders' equity 8,753,060 8,326,993
------------------------------------
Total liabilities and stockholders' equity $73,219,037 $78,431,766
------------------------------------
------------------------------------
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable
Taxable $3,857,471 $3,446,748 $3,358,934
Tax exempt 26,112 34,340 34,793
Investment securities
Taxable 854,488 1,024,299 1,182,463
Tax exempt 340,132 435,395 586,638
Federal funds sold 68,798 27,523 46,706
Deposits with financial institutions 5,297 1,055
----------------------------------------------
Total interest income 5,152,298 4,968,305 5,210,589
----------------------------------------------
INTEREST EXPENSE
Deposits 2,489,584 2,326,572 2,532,477
Short-term borrowings 8,636 44,095 3,927
----------------------------------------------
Total interest expense 2,498,220 2,370,667 2,536,404
----------------------------------------------
NET INTEREST INCOME 2,654,078 2,597,638 2,674,185
Provision for loan losses 408,000 120,000 240,000
----------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES 2,246,078 2,477,638 2,434,185
----------------------------------------------
OTHER INCOME
Fiduciary activities 35,680 59,705 45,635
Service charges on deposit accounts 143,992 119,292 112,264
Other customer fees 28,425 36,184 27,246
Security gain 220,000
Other income 14,715 26,494 12,775
----------------------------------------------
Total other income 222,812 241,675 417,920
----------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 812,950 822,890 773,491
Net occupancy expenses 143,934 152,663 56,404
Equipment expenses 77,953 62,107 45,691
Data processing fees 71,209 70,211 66,583
Deposit insurance expense 78,431 156,958 151,157
Printing and office supplies 45,087 53,839 48,686
Advertising 46,250 44,650 39,500
Legal and professional fees 69,685 50,541 40,457
Director and committee fees 65,900 71,050 69,800
Other expenses 123,128 129,372 111,848
----------------------------------------------
Total other expenses 1,534,527 1,614,281 1,403,617
----------------------------------------------
(continued)
</TABLE>
11
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING METHOD $ 934,363 $1,105,032 $1,448,488
Income tax expense 267,337 302,931 409,877
----------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING METHOD 667,026 802,101 1,038,611
CUMULATIVE EFFECT OF CHANGE IN METHOD OF
ACCOUNTING FOR INCOME TAXES 33,500
----------------------------------------------
NET INCOME $ 667,026 $ 802,101 $1,072,111
----------------------------------------------
----------------------------------------------
PER SHARE
Income before cumulative effect of change
in accounting method $24.20 $29.10 $37.68
Net income 24.20 29.10 38.89
WEIGHTED AVERAGE SHARES OUTSTANDING 27,565 27,567 27,567
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
COMMON STOCK GAIN ON
---------------------------- SECURITIES
SHARES PAID-IN RETAINED AVAILABLE
OUTSTANDING AMOUNT CAPITAL EARNINGS FOR SALE TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993 9,189 $ 918,900 $709,344 $5,270,204 $6,898,448
Net income for 1993 1,072,111 1,072,111
Cash dividends ($11.50 per share) (169,997) (169,997)
200% stock dividend 18,378 1,837,800 (1,837,800)
----------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1993 27,567 2,756,700 709,344 4,334,518 7,800,562
Net income for 1994 802,101 802,101
Cash dividends ($10 per share) (275,670) (275,670)
----------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 27,567 2,756,700 709,344 4,860,949 8,326,993
Net income for 1995 667,026 667,026
Cash dividends ($10 per share) (275,586) (275,586)
Unrealized gain on securities
available for sale, net of taxes of
$15,237 $38,467 38,467
Purchase of stock (12) (1,200) (308) (2,332) (3,840)
----------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 27,555 $2,755,500 $709,036 $5,250,057 $38,467 $8,753,060
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 667,026 $ 802,101 $1,072,111
Adjustments to reconcile net income
to net cash provided by operating
activities
Provision for loan losses 408,000 120,000 240,000
Depreciation and amortization 130,957 100,449 36,353
Deferred income tax (15,862) 27,159 (76,018)
Investment securities amortization, net 95,274 361,978 312,138
Security gain (220,000)
Net change in
Interest receivable (44,873) 68,134 (60,642)
Interest payable 75,792 47,644 (48,100)
Other assets 111,231 (263,005) 110,380
Other adjustments 48,578 3,474 (61,023)
----------------------------------------------
Net cash provided by operating activities 1,476,123 1,267,934 1,305,199
----------------------------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (103,595) 100,000
Purchases of securities held to maturity (8,133,079) (11,802,796) (19,940,074)
Proceeds from maturities and payments of securities held
to maturity 14,441,000 16,055,577 17,880,875
Net change in loans (132,280) (3,718,068) (5,110,851)
Purchases of premises and equipment (2,316) (707,920) (483,189)
Premiums paid on life insurance (744,800)
Refunds of life insurance premiums 744,800
Other 82,053 47,510
----------------------------------------------
Net cash provided (used) by investing activities 6,069,730 653,646 (8,250,529)
----------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, NOW, money market and savings
deposits (3,256,441) (8,282,200) 2,268,738
Certificates of deposit (2,083,507) 5,519,650 799,827
Cash dividends (275,670) (179,186) (169,997)
Purchase of stock (3,840)
----------------------------------------------
Net cash provided (used) by financing activities (5,619,458) (2,941,736) 2,898,568
----------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,926,395 (1,020,156) (4,046,762)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,553,628 4,573,784 8,620,546
----------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $5,480,023 $3,553,628 $4,573,784
----------------------------------------------
----------------------------------------------
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $2,422,418 $2,429,994 $2,584,504
Income tax paid 249,253 404,195 419,860
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Randolph County Bancorp ("Company"),
and its wholly owned subsidiary, The Randolph County Bank ("Bank"), conform to
generally accepted accounting principles and reporting practices followed by the
banking industry. The more significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a bank holding company whose principal activity is the ownership
and management of the Bank. The Bank operates under a state bank charter and
provides full banking services, including trust services. As a state bank, the
Bank is subject to the regulation of the Department of Financial Institutions,
State of Indiana and the Federal Deposit Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives deposits
from customers located primarily in Randolph County, Indiana and surrounding
counties. The Bank's loans are generally secured by specific items of
collateral including real property, consumer assets and business assets.
Although the Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent upon economic conditions
in the agricultural industry.
CONSOLIDATION--The consolidated financial statements include the accounts of the
Company and the Bank after elimination of all material intercompany transactions
and accounts.
INVESTMENT SECURITIES--The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, on January 1, 1994.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost. Debt securities not classified as
held to maturity are classified as available for sale. Securities available for
sale are carried at fair value with unrealized gains and losses reported
separately in stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At January 1, 1994, the Bank determined there were no securities which should be
reclassified as available for sale, and therefore there was no change in total
stockholders' equity.
Prior to the adoption of SFAS No. 115, investment securities were carried at
cost, adjusted for amortization of premiums and discounts. Realized gains and
losses on sales were included in other income. Gains and losses on the sale of
securities were determined on the specific-identification method.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans, except for installment loans with
add-on interest, for which a method that approximates the level yield method is
used. Loans are placed in a nonaccrual status when the collection of interest
becomes doubtful. Interest income previously accrued but not deemed collectible
is reversed and charged against current income. Interest on nonaccrual loans is
then recognized as income when collected.
Allowance for loan losses is maintained to absorb potential loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that, as of
December 31, 1995, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the area within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method for bank premises and
the declining-balance method for equipment based principally on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
Advertising costs are expensed as incurred.
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The
Company files consolidated income tax returns with its subsidiary.
Earnings per share have been computed based upon the weighted average common
shares outstanding during each year.
- - ACQUISITION OF COMPANY
In January, 1996, the Company signed a definitive agreement to be acquired by
First Merchants Corporation ("First"), Muncie, Indiana. The agreement provides
that each stockholder of the Company would receive shares of First common stock
for each common share of Company stock held. The proposed transaction is
subject to the approval of the Company's stockholders and appropriate regulatory
authorities.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
- - RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at December 31, 1995, was
$586,000.
- - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
1995
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
U.S. Treasury $ 3,709 $ 23 $ 8 $ 3,724
Federal agencies 4,892 28 10 4,910
State and municipal 8,428 50 18 8,460
Corporate obligations 4,937 25 27 4,935
----------------------------------------------------------
Total investment securities $21,966 $126 $63 $22,029
----------------------------------------------------------
----------------------------------------------------------
1994
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------------------
Held to maturity
U.S. Treasury $ 5,468 $182 $ 5,286
Federal agencies 4,999 120 4,879
State and municipal 9,826 $20 84 9,762
Corporate obligations 8,483 5 185 8,303
----------------------------------------------------------
Total investment securities $28,776 $25 $571 $28,230
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
The amortized cost and estimated market value of securities available for sale
at December 31, 1995, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
1995
------------------------------------
AMORTIZED FAIR
MATURITY DISTRIBUTION AT DECEMBER 31 COST VALUE
- ------------------------------------------------------------------------------
Within one year $ 9,073 $ 9,073
One to five years 12,406 12,454
Five to ten years 352 367
After ten years 135 135
------------------------------------
Totals $21,966 $22,029
------------------------------------
------------------------------------
Securities with a carrying value of $103,000 and $99,600 were pledged at
December 31, 1995 and 1994 to secure certain deposits and for other purposes as
permitted or required by law.
There were no sales of investment securities during 1995, 1994 or 1993.
However, a gain of $220,000 was realized in 1993 from proceeds of an investment
security previously written off in 1992. The tax expense on this gain was
$87,000 in the year ended December 31, 1993.
On December 31, 1995, the Bank transferred all securities from held to maturity
to available for sale in accordance with a transition reclassification allowed
by the Financial Accounting Standards Board. Such securities had a carrying
value of $21,966,000 and a fair value of $22,029,000.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
LOANS AND ALLOWANCE
DECEMBER 31 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial loans $ 3,230 $ 3,578
Real estate loans (includes $10,111 and $9,687 secured
by farmland) 22,590 18,848
Agricultural production financing and other loans to
farmers 6,063 5,681
Individuals' loans for household and other personal
expenditures 12,988 17,016
Tax-exempt loans 85 90
Other loans 5 47
----------------------------
44,961 45,260
Unearned interest on loans (1,467) (1,482)
----------------------------
Total loans $43,494 $43,778
----------------------------
----------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance for loan losses
Balances, January 1 $489 $567 $382
Provision for losses 408 120 240
Recoveries on loans 21 20 16
Loans charged off (324) (218) (71)
-------------------------------------------
Balances, December 31 $594 $489 $567
-------------------------------------------
-------------------------------------------
Nonperforming loans
Nonaccruing loans $33
Loans contractually past due 90 days or more other
than nonaccruing $36 $343 $45
</TABLE>
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
The Company adopted SFAS No. 114 and No. 118 ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN and ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -
INCOME RECOGNITION AND DISCLOSURES on January 1, 1995. The adoption of SFAS No.
114 and 118 did not have a material impact on the Company's financial position
or results of operations. Impaired loans totaled $631,000 at December 31, 1995.
An allowance for losses at December 31, 1995, was not deemed necessary for
impaired loans totaling $525,000, but an allowance of $73,000 was recorded for
the remaining balance of impaired loans of $106,000. The average balance of
impaired loans for 1995 was $572,000. Interest income and cash receipts of
interest totaled $47,000 and $37,000 during the period in 1995 that the loans
were impaired.
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties were as follows:
1995 1994
- ------------------------------------------------------------------------------
Balances, January 1 $963 $795
Changes in composition of related parties (442)
New loans, including renewals 84 1,167
Payments, etc., including renewals (96) (999)
-------------------------
Balances, December 31 $509 $963
-------------------------
-------------------------
On March 19, 1996, the Company charged off $188,000 in loans to a single
borrower. In conjucnction with the chargeoff, a provision for loan losses of
$188,000 was also recorded. These transactions were the result of information
related to the borrower which became available subsequent to December 31, 1995
and discussions with regulatory authorities. Both of these transactions are
reflected in the December 31, 1995 consolidated financial statements.
- - PREMISES AND EQUIPMENT
DECEMBER 31 1995 1994
- ------------------------------------------------------------------------------
Land $ 223 $ 223
Buildings 1,208 1,203
Equipment 511 512
---------------------------
Total cost 1,942 1,938
Accumulated depreciation (611) (478)
---------------------------
Net $1,331 $1,460
---------------------------
---------------------------
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
DEPOSITS
DECEMBER 31 1995 1994
- ------------------------------------------------------------------------------
Noninterest bearing $ 7,333 $ 6,538
Interest-bearing demand 9,446 10,464
Savings deposits 9,949 12,981
Certificates and other time deposits
of $100,000 or more 5,476 4,279
Other certificates and time deposits 31,237 34,519
----------------------------
Total deposits $63,441 $68,781
----------------------------
----------------------------
Certificates maturing in years ending December 31:
1996 $25,555
1997 6,109
1998 4,154
1999 642
2000 253
--------------
$36,713
--------------
--------------
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
INCOME TAX
YEAR ENDED DECEMBER 31 1995 1994 1993
- --------------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $196 $188 $339
State 87 88 147
Deferred
Federal (12) 19 (55)
State (4) 8 (21)
-----------------------------------
Total income tax expense $267 $303 $410
-----------------------------------
-----------------------------------
Reconciliation of federal statutory to
actual tax expense
Federal statutory income tax at 34% $318 $376 $492
Tax exempt interest (107) (139) (183)
Effect of state income taxes 55 63 83
Other 1 3 18
-----------------------------------
Actual tax expense $267 $303 $410
-----------------------------------
-----------------------------------
A cumulative net deferred tax asset is included in other assets.The components
of the asset are as follows:
DECEMBER 31 1995 1994
- ------------------------------------------------------------------------------
Differences in depreciation methods $(32) $(17)
Differences in accounting for loan losses 187 143
State income tax (14) (13)
Differences in accounting for pensions (19) (2)
Differences in accounting for securities
available for sale (25)
Other 5
-----------------------------------
$ 102 $111
-----------------------------------
-----------------------------------
Assets $192 $151
Liabilities (90) (32)
-----------------------------------
$ 102 $119
-----------------------------------
-----------------------------------
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Bank's exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Bank uses the same credit policies in making such commitments
as it does for instruments that are included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
1995 1994
- --------------------------------------------------------------------------------
Commitments to extend credit $2,746 $3,276
Standby letters of credit 55 55
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the Bank upon extension of credit is based on management's credit
evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Company and Bank are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Company.
- - RESTRICTION ON DIVIDENDS
Without prior approval, the Bank is restricted by Indiana law and regulations of
the Department of Financial Institutions, State of Indiana, and the Federal
Deposit Insurance Corporation as to the maximum amount of dividends it can pay
to its parent to the balance of the undivided profits account, adjusted for
defined bad debts. As a practical matter, the Bank restricts dividends to a
lesser amount because of the need to maintain an adequate capital structure.
At December 31, 1995, total stockholders' equity of the Bank was $8,756,000 of
which $6,152,000 was restricted from dividend distribution to the Company.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
PENSION PLAN
The Bank's defined-benefit pension plan covers substantially all of its
employees. The benefits are based primarily on years of service and employees'
pay near retirement. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future. Pension expense was $52,000 for 1995, $77,000 for 1994 and
$50,000 for 1993.
The following tables set forth the plan's funded status and amounts recognized
in the consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
Accumulated benefit obligation including vested benefits of $1,481
and $1,287 $1,510 $1,309
----------------------------
Projected benefit obligation for service rendered to date $(1,890) $(1,591)
Plan assets at fair value, primarily time deposits in financial institutions 1,678 1,411
----------------------------
Projected benefit obligation in excess of plan assets (212) (180)
Unrecognized net loss from experience different than that assumed 211 149
Unrecognized prior service cost 153 158
Unrecognized net asset at January 1, 1987 being recognized over 17
years (108) (123)
----------------------------
Prepaid pension cost included in other assets $ 44 $ 4
----------------------------
----------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pension expense includes the following components
Service cost - benefits earned during the year $57 $65 $52
Interest cost on projected benefit obligation 105 100 98
Actual return on plan assets (246) (6) (21)
Net amortization and deferral 136 (82) (79)
-----------------------------------------
$52 $77 $50
-----------------------------------------
-----------------------------------------
Assumptions used in the accounting were:
Discount rate 6.25% 6.75% 6.00%
Rate of increase in compensation 4.00% 4.00% 4.50%
Expected long-term rate of return on assets 8.00% 7.00% 7.00%
</TABLE>
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING DEPOSITS--The fair value of interest-bearing time deposits
approximates carrying value.
INVESTMENT SECURITIES--Fair values are based on quoted market prices.
LOANS-For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans, are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE--The fair values of interest receivable/payable
approximate carrying values.
DEPOSITS--The fair values of noninterest-bearing and interest-bearing demand
accounts are equal to the amount payable on demand at the balance sheet date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly maturities
on such time deposits.
DUE TO BROKER--The fair value of due to broker approximates carrying value.
The estimated fair values of the Company's financial instruments are as follows:
1995
----------------------------
CARRYING FAIR
DECEMBER 31 AMOUNT VALUE
- ------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 5,480 $ 5,480
Interest-bearing deposits 104 104
Investment securities available for sale 22,029 22,029
Loans, net 42,900 42,939
Interest receivable 1,083 1,083
LIABILITIES
Deposits 63,441 63,409
Interest payable 381 381
Due to broker 388 388
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
CONDENSED BALANCE SHEET
DECEMBER 31 1995 1994
- ------------------------------------------------------------------------------
ASSETS
Cash $ 7 $ 2
Investment in subsidiary 8,756 8,321
Other assets 200 197
----------------------------
Total assets $ 8,963 $ 8,520
----------------------------
----------------------------
LIABILITIES
Dividend payable $ 193 $ 193
Other liabilities 17
----------------------------
Total liabilities 210 193
STOCKHOLDERS' EQUITY 8,753 8,327
----------------------------
Total liabilities and
stockholders' equity $8,963 $8,520
----------------------------
----------------------------
CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1995 1994 1993
- -----------------------------------------------------------------------------
Income--dividends from subsidiary $281 $279 $ 174
Expense--other expense 18 2 1
--------------------------------
Income before income tax and equity in
undistributed income of subsidiary 263 277 173
Income tax benefit 7 1
--------------------------------
Income before equity in undistributed
income of subsidiary 270 278 173
Equity in undistributed income of
subsidiary 397 524 899
--------------------------------
NET INCOME $667 $802 $1,072
--------------------------------
--------------------------------
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1995 1994 1993
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $667 $802 $1,072
Adjustments to reconcile net income to
net cash provided by operating activities
Equity in undistributed income of
subsidiary (397) (524) (899)
Change in
Other assets (3) (101) (4)
Other liabilities 18
--------------------------------
Net cash provided by operating
activities 285 177 169
--------------------------------
FINANCING ACTIVITIES
Cash dividends (276) (179) (165)
Purchase of stock (4)
--------------------------------
Net cash used by financing activities (280) (179) (165)
--------------------------------
NET INCREASE (DECREASE) IN CASH 5 (2) 4
CASH AT BEGINNING OF YEAR 2 4
--------------------------------
CASH AT END OF YEAR $ 7 $ 2 $ 4
--------------------------------
--------------------------------
27
<PAGE>
RANDOLPH COUNTY BANCORP
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
Cash and due from banks $ 2,066,900
Interest-bearing deposits 107,319
Investment securities available for sale 24,270,905
Loans 44,829,303
Allowance for loan losses (665,663)
-----------------
Net loans 44,163,640
Premises and equipment 1,273,289
Interest receivable 1,088,399
Other assets 326,214
-----------------
Total assets $ 73,296,666
-----------------
-----------------
LIABILITIES
Deposits
Noninterest bearing $ 5,333,893
Interest bearing 57,053,987
-----------------
Total deposits 62,387,880
Federal funds purchased 1,500,000
Interest payable 407,725
Other liabilities 62,317
-----------------
Total liabilities 64,357,922
-----------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Common stock, $100 stated value
Authorized - 60,000 shares
Issued and outstanding - 27,555 shares 2,755,500
Paid-in capital 709,036
Retained earnings 5,593,391
Net unrealized gain on securities available for sale (119,183)
-----------------
Total stockholders' equity 8,938,744
-----------------
Total liabilities and stockholders' equity $ 73,296,666
-----------------
-----------------
See notes to consolidated condensed financial statements.
28
<PAGE>
RANDOLPH COUNTY BANCORP
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
SIX MONTHS ENDED JUNE 30
-------------------------------
1996 1995
-------------------------------
INTEREST INCOME
Loans receivable $1,994,342 $1,867,882
Investment securities 593,654 624,834
Federal funds sold 53,597 9,289
Deposits with financial institutions 3,625 1,634
-------------------------------
Total interest income 2,645,218 2,503,639
-------------------------------
INTEREST EXPENSE
Deposits 1,240,992 1,217,456
Short-term borrowings 7,869 8,636
-------------------------------
Total interest expense 1,248,861 1,226,092
-------------------------------
NET INTEREST INCOME 1,396,357 1,277,547
Provision for loan losses 90,000 60,000
-------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 1,306,357 1,217,547
-------------------------------
OTHER INCOME
Fiduciary 3,984 1,425
Service charges on deposit accounts 85,792 55,682
Other customer fees 21,897 14,333
Other income 7,960 9,442
-------------------------------
Total other income 119,633 80,882
-------------------------------
OTHER EXPENSES
Salaries and employee benefits 421,074 422,495
Net occupancy expenses 77,604 71,417
Equipment expenses 33,010 41,737
Data processing fees 29,847 29,356
Deposit insurance expense 1,000 77,138
Printing and office supplies 22,822 21,886
Advertising 18,586 23,094
Legal and professional fees 26,473 23,231
Director and committee fees 30,300 35,100
Other expenses 141,082 57,620
-------------------------------
Total other expenses 801,798 803,074
-------------------------------
INCOME BEFORE INCOME TAX 624,192 495,355
Income tax expense 198,193 142,955
-------------------------------
NET INCOME $ 425,999 $ 352,400
-------------------------------
-------------------------------
PER SHARE
Net income $ 15.45 $ 12.78
WEIGHTED AVERAGE SHARES OUTSTANDING 27,565 27,567
See notes to consolidated condensed financial statements.
29
<PAGE>
RANDOLPH COUNTY BANCORP
CONSOLIDATED CONDENSED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
1996 1995
-------------------------------
Balances, January 1 $8,753,060 $8,326,993
Net income 425,999 352,400
Cash dividends (82,665) (82,701)
Change in unrealized gain (loss) on
securities available for sale, net of
taxes of $103,402 (157,650)
-------------------------------
Balances, June 30 $8,938,744 $8,596,692
-------------------------------
-------------------------------
See notes to consolidated condensed financial statements.
30
<PAGE>
RANDOLPH COUNTY BANCORP
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
-------------------------------------
1996 1995
-------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 425,999 $ 352,400
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses 90,000 60,000
Depreciation and amortization 57,870 67,037
Investment securities amortization, net 58,082 51,606
Net change in
Interest receivable (5,790) 81,025
Interest payable 27,001 48,377
Other adjustments 34,373 92,037
-------------------------------------
Net cash provided by operating activities 687,535 752,482
-------------------------------------
INVESTING ACTIVITIES
Net change in interest-bearing deposits (3,724) (100,000)
Purchase of securities held to maturity (2,843,274)
Purchase of securities available for sale (9,983,335)
Proceeds from maturities of securities available for sale 7,035,000
Proceeds from maturities of securities held to maturity 8,516,000
Net change in loans (1,373,790) (1,151,960)
Purchase of premises and equipment (1,850)
Other 12,786 58,040
-------------------------------------
Net cash provided (used) by investing activities (4,313,063) 4,476,956
-------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, NOW, money market and
savings deposits (2,055,575) (4,899,998)
Certificates of deposit 1,002,198 (1,041,491)
Net increase in short-term borrowings 1,500,000
Cash dividends (234,218) (192,969)
-------------------------------------
Net cash used by financing activities 212,405 (6,134,458)
-------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,413,123) (905,020)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,480,023 3,553,628
-------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,066,900 $ 2,648,608
-------------------------------------
-------------------------------------
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
RANDOLPH COUNTY BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1: General
The significant accounting policies followed by Randolph County Bancorp
(Corporation) and its wholly owned subsidiary for interim financial reporting
are consistent with the accounting polices followed for annual financial
reporting. All adjustments which are in the opinion of management necessary for
a fair statement of the results for the period reported have been included in
the accompanying consolidated financial statements.
Note 2: Acquisition
On October 2, 1996, First Merchants Corporation of Muncie, Indiana (First
Merchants) acquired all of the assets of the Corporation through the merger of
the Corporation with and into First Merchants. Pursuant to the terms of the
merger agreement, stockholders of the Corporation receive 20.53 shares of First
Merchants common stock for each share of the Corporation common stock held.
32
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as of
December 31, 1995, and the pro forma combined condensed statements of income for
each of the years in the three-year period ended December 31, 1995, give effect
to the Merger based on the historical consolidated financial statements of First
Merchants Corporation ("First Merchants") and its subsidiaries and the
historical consolidated financial statements of Randolph County Bancorp
("Randolph County") and its subsidiary under the assumptions and adjustments set
forth in the accompanying notes to the pro forma financial statements.
The pro forma financial statements have been prepared by the managements of
First Merchants and Randolph County based upon their respective financial
statements. These pro forma statements, which include results of operations as
if the Merger had been consummated at the beginning of each period presented,
may not be indicative of the results that actually would have occurred if the
Merger had been in effect on the dates indicated or which may be obtained in the
future.
The following pro forma combined condensed balance sheet and condensed
statements of income include:
(a) First Merchant's historical consolidated financial information.
(b) Randolph County's historical consolidated financial information.
(c) The combined statements of First Merchants and Randolph County, which
have been designated herein as "First Merchants/Randolph County Pro
Forma Combined."
(d) Union National Bancorp's ("Union National") historical consolidated
financial information, which has been designated herein as "Union
National." On August 1, 1996, Union National was merged with and
into First Merchants. The merger was accounted for as a pooling of
interests; accordingly, historical financial data for Union National
is included for all periods presented.
(e) The combined statements of First Merchants, Randolph County and Union
National which have been designated herein as "Pro Forma Combined."
33
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
December 31, 1995
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
PRO FORMA FIRST MERCHANTS PRO FORMA
ADJUSTMENTS RANDOLPH COUNTY/ ADJUSTMENTS
FIRST RANDOLPH INCREASE PRO FORMA UNION INCREASE PRO FORMA
MERCHANTS COUNTY (DECREASE) COMBINED NATIONAL (DECREASE) COMBINED
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 31,432 $ 4,080 $ 35,512 $ 3,461 $ 38,973
Federal funds sold 37,500 1,400 38,900 38,900
Interest-bearing deposits 155 104 259 259
Investment securities:
Available for sale 143,120 22,029 165,149 60,789 225,938
Held to maturity 58,214 58,214 2,464 60,678
--------------------------------------------------------------------------------------------
Total investment securities 201,334 22,029 223,363 63,253 286,616
Mortgage loans held for sale 736 736 736
Loans 418,994 43,494 462,488 89,850 552,338
Allowance for loan losses ( 4,957) ( 594) ( 5,551) ( 1,144) ( 6,695)
--------------------------------------------------------------------------------------------
Net loans 414,037 42,900 456,937 88,706 545,643
Premises and equipment 10,476 1,331 11,807 3,027 14,834
Goodwill 1,845 1,845 1,845
Other assets 10,344 1,375 11,719 2,631 14,350
--------------------------------------------------------------------------------------------
Total Assets $ 707,859 $ 73,219 $ 781,078 $161,078 $ 942,156
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Liabilities:
Deposits $ 588,156 63,441 $ 651,597 $132,339 $ 783,936
Repurchase agreements 27,293 27,293 1,594 28,887
Other short-term borrowings 6,682 6,682 1,808 8,490
Federal Home Loan Bank advances 1,000 1,000 8,000 9,000
Other liabilities 4,255 1,025 5,280 1,596 6,876
--------------------------------------------------------------------------------------------
Total Liabilities 627,386 64,466 691,852 145,337 $ 837,189
--------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 632 2,756 ( 2,686)(1) 702 970 ( 852) (2) 820
Additional paid - in capital 15,852 709 2,686(1) 19,247 1,957 852 (2) 22,056
Retained earnings 62,836 5,250 68,086 12,119 80,205
Net unrealized gain on securities
available for sale 1,153 38 1,191 695 1,886
--------------------------------------------------------------------------------------------
Total Stockholders' Equity 80,473 8,753 89,226 15,741 104,967
--------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $707,859 $ 73,219 $ 781,078 $161,078 $ 942,156
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma consolidated balance sheet
34
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET (Unaudited)
The following pro forma adjustments are necessary to record the Merger and
pending merger.
[1] To reflect exchange of shares of Randolph County common stock for shares of
First Merchants common stock, retaining the historical cost basis of
assets, liabilities and equity through the treatment as a pooling of
interest. A total of 565,704 shares of First Merchants common stock will
be issued at the exchange ratio of 20.53 shares of First Merchants common
stock for each of the 27,555 issued and outstanding shares of Randolph
County common stock as of December 31, 1995, resulting in a transfer from
common stock to additional paid-in capital of $2,686,000 to reflect the
decrease in the aggregate par value of the issued and outstanding shares of
First Merchants common stock relative to the aggregate par value of the
currently outstanding shares of Randolph County common stock.
Common stock $ (2,686)
Additional paid-in capital $ 2,686
[2] To reflect exchange of shares of Union National common stock for shares of
First Merchants common stock, retaining the historical cost basis of
assets, liabilities and equity through the treatment as a pooling of
interest. A total of 942,685 shares of First Merchants common stock will
be issued at the exchange ratio of 4.86 shares of First Merchants common
stock for each of the 193,968 issued and outstanding shares of Union
National common stock as of December 31, 1995, resulting in a transfer from
common stock to additional paid-in capital of $852,000 to reflect the
decrease in the aggregate par value of the issued and outstanding shares
of First Merchants common stock relative to the aggregate par value of the
currently outstanding shares of Union National common stock.
Common stock $ (852)
Additional paid-in capital $ 852
35
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1995
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
FIRST
MERCHANTS/
PRO FORMA RANDOLPH PRO FORMA
ADJUSTMENTS COUNTY ADJUSTMENTS
FIRST RANDOLPH INCREASE PRO FORMA UNION INCREASE PRO FORMA
MERCHANTS COUNTY (DECREASE) COMBINED NATIONAL (DECREASE) COMBINED
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 49,964 $ 5,152 $ 55,116 $ 11,332 $ 66,448
Interest expense 22,083 2,498 24,581 6,770 31,351
--------------------------------------------------------------------------------------------
Net interest income 27,881 2,654 30,535 4,562 35,097
Provision for loan losses 640 408 1,048 340 1,388
--------------------------------------------------------------------------------------------
Net interest income after provision
for loan losses 27,241 2,246 29,487 4,222 33,709
Total other income 6,907 223 7,130 463 7,593
Total other expenses 18,842 1,535 20,377 2,617 22,994
--------------------------------------------------------------------------------------------
Income before income taxes 15,306 934 16,240 2,068 18,308
Income taxes 5,448 267 5,715 545 6,260
--------------------------------------------------------------------------------------------
Net income $ 9,858 $ 667 $ 10,525 $ 1,523 $ 12,048
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
Net income per common share $ 1.95 $ 1.87 $ 1.84
Average Shares Outstanding $5,055,169 $5,621,078 $6,564,214
</TABLE>
36
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1994
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
FIRST
MERCHANTS/
PRO FORMA RANDOLPH PRO FORMA
ADJUSTMENTS COUNTY ADJUSTMENTS
FIRST RANDOLPH INCREASE PRO FORMA UNION INCREASE PRO FORMA
MERCHANTS COUNTY (DECREASE) COMBINED NATIONAL (DECREASE) COMBINED
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 43,114 $ 4,968 $ 48,082 $ 9,684 $ 57,766
Interest expense 16,131 2,370 18,501 5,327 23,828
-----------------------------------------------------------------------------------------------------
Net interest income 26,983 2,598 29,581 4,357 33,938
Provision for loan losses 782 120 902 300 1,202
-----------------------------------------------------------------------------------------------------
Net interest income
after provision for loan
losses 26,201 2,478 28,679 4,057 32,736
Total other income 6,298 241 6,539 379 6,918
Total other expenses 18,434 1,614 20,048 2,584 22,632
-----------------------------------------------------------------------------------------------------
Income before income taxes 14,065 1,105 15,170 1,852 17,022
Income taxes 4,907 303 5,210 449 5,659
-----------------------------------------------------------------------------------------------------
Net income $ 9,158 $ 802 $ 9,960 $ 1,403 $ 11,363
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Net income per common share $ 1.80 $ 1.76 $ 1.72
Average Shares Outstanding 5,077,307 5,643,257 6,587,564
</TABLE>
37
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Year Ended December 31, 1993
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
PRO FORMA FIRST PRO FORMA
ADJUSTMENTS MERCHANTS/ ADJUSTMENTS
FIRST RANDOLPH INCREASE RANDOLPH COUNTY UNION INCREASE PRO FORMA
MERCHANTS COUNTY (DECREASE) PRO FORMA NATIONAL (DECREASE) COMBINED
COMBINED
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 42,006 $ 5,210 $ 47,216 $ 9,365 $ 56,581
Interest expense 16,498 2,536 19,034 5,022 24,056
---------------------------------------------------------------------------------------------
Net interest income 25,508 2,674 28,182 4,343 32,525
Provision for loan losses 1,014 240 1,254 400 1,654
---------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 24,494 2,434 26,928 3,943 30,871
Total other income 6,589 418 7,007 343 7,350
Total other expenses 18,215 1,403 19,618 2,490 22,108
---------------------------------------------------------------------------------------------
Income before income taxes 12,868 1,449 14,317 1,796 16,113
Income taxes 4,396 410 4,806 444 5,250
---------------------------------------------------------------------------------------------
Net income(1) $ 8,472 $ 1,039 $ 9,511 $ 1,352 $ 10,863
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net income per common share $ 1.65 $ 1.67 $ 1.64
Average Shares Outstanding 5,124,626 5,690,576 6,634,145
(1) Net income excludes the cumulative effect of change in accounting for income taxes.
</TABLE>
38
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed balance sheet as of June
30, 1996, and the pro forma combined condensed statement of income for the
year ended June 30, 1996, give effect to the Merger based on the historical
consolidated financial statements of First Merchants Corporation ("First
Merchants") and its subsidiaries and the historical consolidated financial
statements of Randolph County Bancorp ("Randolph County") and its subsidiary
under the assumptions and adjustments set forth in the accompanying notes to
the pro forma financial statements.
The pro forma financial statements have been prepared by the managements of
First Merchants and Randolph County based upon their respective financial
statements. These pro forma statements, which include results of operations
as if the Merger had been consummated at the beginning of each period
presented, may not be indicative of the results that actually would have
occurred if the Merger had been in effect on the dates indicated or which may
be obtained in the future.
The following pro forma combined condensed balance sheet and condensed
statements of income include:
(a) First Merchant's historical consolidated financial information.
(b) Randolph County's historical consolidated financial information.
(c) The combined statements of First Merchants and Randolph County,
which have been designated herein as "First Merchants/Randolph
County Pro Forma Combined."
(d) Union National Bancorp's ("Union National") historical
consolidated financial information, which has been designated
herein as "Union National." On August 1, 1996, First Merchants
acquired for shares of First Merchants common stock, all of the
issued and outstanding common stock of Union National. The
transaction will be accounted for as a pooling of interests;
accordingly, historical financial data for Union National is
included for all periods presented.
(e) The combined statements of First Merchants, Randolph County and
Union National which have been designated herein as "Pro Forma
Combined."
39
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
FIRST
MERCHANTS/
PRO FORMA RANDOLPH PRO FORMA
ADJUSTMENTS COUNTY ADJUSTMENTS
FIRST RANDOLPH INCREASE PRO FORMA UNION INCREASE PRO FORMA
MERCHANTS COUNTY (DECREASE) COMBINED NATIONAL (DECREASE) COMBINED
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Cash and due from banks $ 31,106 $ 2,067 $ 33,173 $ 3,627 $ 36,800
Federal funds sold 15,100 15,100 15,100
Interest-bearing deposits 107 107 107
Investment securities:
Available for sale 145,992 24,271 170,263 56,984 227,247
Held to maturity 51,015 51,015 3,025 54,040
---------------------------------------------------------------------------------------------
Total investment securities 197,007 24,271 221,278 60,009 281,287
---------------------------------------------------------------------------------------------
Loans 439,926 44,829 484,755 99,170 583,925
Allowance for loan losses (4,919) (665) (5,584) (1,047) (6,631)
---------------------------------------------------------------------------------------------
Net loans 435,007 44,164 479,171 98,123 577,294
Premises and equipment 10,467 1,273 11,740 3,021 14,761
Goodwill 1,780 1,780 1,780
Other assets 13,742 1,415 15,157 2,795 17,952
---------------------------------------------------------------------------------------------
Total Assets $ 704,209 $ 73,297 $777,506 $167,575 $945,081
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Liabilities:
Deposits $ 574,225 $ 62,388 $ 636,613 $ 135,851 $772,464
Short-term borrowings 41,611 1,500 43,111 5,274 48,385
Federal Home Loan Bank advances 9,000 9,000
Other liabilities 5,872 470 6,342 1,609 7,951
---------------------------------------------------------------------------------------------
Total Liabilities 621,708 64,358 686,066 151,734 837,800
---------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock 633 2,756 (2,686)(1) 703 970 (852)(2) 821
Additional paid -in capital 16,132 709 2,686 (1) 19,527 1,957 852 (2) 22,336
Retained earnings 65,971 5,593 71,564 12,800 84,364
Net unrealized gain (loss) on
securities available for sale (235) (119) (354) 114 (240)
---------------------------------------------------------------------------------------------
Total Stockholders' Equity 82,501 8,939 91,440 15,841 107,281
---------------------------------------------------------------------------------------------
Total Liabilities and
Stockholders' Equity $ 704,209 $ 73,297 $ 777,506 $ 167,575 $945,081
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
See notes to pro forma consolidated balance sheet
40
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET (Unaudited)
The following pro forma adjustments are necessary to record the Mergers.
[1] To reflect exchange of shares of Randolph County common stock for shares
of First Merchants common stock, retaining the historical cost basis of
assets, liabilities and equity through the treatment as a pooling of
interest. A total of 565,705 shares of First Merchants common stock were
issued at the exchange ratio of 20.53 shares of First Merchants common
stock for each of the 27,555 issued and outstanding shares of Randolph
County common stock as of June 30, 1996, resulting in a transfer from
common stock to additional paid-in capital of $2,686,000 to reflect the
decrease in the aggregate par value of the issued and outstanding shares
of First Merchants common stock relative to the aggregate par value of
the currently outstanding shares of Randolph County common stock.
Common stock $ (2,686)
Additional paid-in capital $ 2,686
[2] To reflect exchange of shares of Union National common stock for shares
of First Merchants common stock, retaining the historical cost basis of
assets, liabilities and equity through the treatment as a pooling of
interest. A total of 942,685 shares of First Merchants common stock were
issued at the exchange ratio of 4.86 shares of First Merchants common stock
for each of the 193,968 issued and outstanding shares of Union National
common stock as of June 30, 1996, resulting in a transfer from common stock
to additional paid-in capital of 852,000 to reflect the decrease in the
aggregate par value of the issued and outstanding shares of First Merchants
common stock relative to the aggregate par value of the currently
outstanding shares of Union National common stock.
Common stock $ (852)
Additional paid-in capital $ 852
41
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
Six Months Ended June 30, 1996
(Unaudited)
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
PRO FORMA FIRST MERCHANTS/ PRO FORMA
ADJUSTMENTS RANDOLPH COUNTY ADJUSTMENTS
FIRST RANDOLPH INCREASE PRO FORMA UNION INCREASE PRO FORMA
MERCHANTS COUNTY (DECREASE) COMBINED NATIONAL (DECREASE) COMBINED
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 25,376 $ 2,645 $ 28,021 $ 5,993 $ 34,014
Interest expense 11,176 1,249 12,425 3,467 15,892
-----------------------------------------------------------------------------------------------------
Net interest income 14,200 1,396 15,596 2,526 18,122
Provision for loan losses 320 90 410 170 580
-----------------------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 13,880 1,306 15,186 2,356 17,542
Total other income 3,610 120 3,730 239 3,969
Total other expenses 9,546 802 10,348 1,446 11,794
-----------------------------------------------------------------------------------------------------
Income before income
taxes 7,944 624 8,568 1,149 9,717
Income taxes 2,785 198 2,983 333 3,316
-----------------------------------------------------------------------------------------------------
Net income $ 5,159 $ 426 $ 5,585 $ 816 $ 6,401
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Net income per common
share $ 1.02 $ 0.99 $ 0.97
Average Shares
Outstanding 5,062,259 5,627,964 6,570,649
</TABLE>
42
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report, dated January 17, 1996, except for the last
paragraph of the note on Loans and Allowance as to which the date is March 19,
1996, on the consolidated financial statements of Randolph County Bancorp
included herein in the Current Report on Form 8-K of First Merchants
Corporation, dated October 2, 1996.
GEO S. OLIVE & CO. LLC
Indianapolis, Indiana
October 11, 1996
43
