FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
---------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File Number: 33-9540
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First Merchants Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
West Virginia 55-0670580
------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Fourth Avenue and Washington Street, Montgomery, WV 25136
----------------------------------------------------------
(Address of principal executive offices, Zip Code)
(304) 442-2475
----------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of share outstanding of each of the issuer's classes of
common stock, as of August 10, 1995.
576,000 shares of voting common stock, par value $2 per share.
(page 1 of 17)
FIRST MERCHANTS BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets (Unaudited)
June 30, 1995 and December 31, 1994 . . . . . . . . . 3
Consolidated Statements of Income
(Unaudited) for the Six Months
Ended June 30, 1995 and 1994. . . . . . . . . . . . . 4
Consolidated Statements of Stockholders'
Equity (Unaudited) for the Six Months
Ended June 30, 1995 and 1994. . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended
June 30, 1995 and 1994. . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . Not applicable
Item 2. Changes in Securities . . . . . . . . Not applicable
Item 3. Defaults Upon Senior Securities . . . Not applicable
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . Not applicable
Item 5. Other Information . . . . . . . . . . Not applicable
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 16
(2)
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
FIRST MERCHANTS BANCORP, INC. AND SUBSIDIARY
JUNE 30 DECEMBER 31
1995 1994
(UNAUDITED)
ASSETS ------------ ------------
Cash and due from banks $5,105,349 $5,211,650
Federal funds sold 730,000 810,000
------------ ------------
CASH AND CASH EQUIVALENTS 5,835,349 6,021,650
Interest-bearing deposits in other banks 619,398 670,734
Securities available for sale (cost: 06-30-95 -
$11,573,785: 12-31-94 - $16,204,906) 11,132,967 14,888,731
Securities held to maturity (approximate market
value: 6-30-95 - $29,524,430;
12-31-94 - $28,304,476) 28,787,751 28,648,209
Loans - gross 58,141,267 59,015,396
Less: Unearned income (139,249) (141,203)
Allowance for loan losses (475,947) (460,000)
------------ ------------
LOANS - NET 57,526,071 58,414,193
Premises and equipment 3,778,063 3,452,390
Other assets 3,154,713 3,195,202
------------ ------------
TOTAL ASSETS $110,834,312 $115,291,109
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing $13,854,004 $13,674,107
Interest bearing 81,973,379 81,867,045
------------ ------------
TOTAL DEPOSITS 95,827,383 95,541,152
Short-term borrowings:
Securities sold under agreements
to repurchase 2,643,856 8,634,139
Other short-term borrowings 738,724 509,881
------------ ------------
TOTAL SHORT-TERM BORROWINGS 3,382,580 9,144,020
Other liabilities 1,175,847 1,144,151
------------ ------------
TOTAL LIABILITIES 100,385,810 105,829,323
Stockholders' equity:
Common stock, $2 par value, 1,000,000 shares
authorized, 576,000 shares issued and
outstanding 1,152,000 1,152,000
Surplus 649,343 649,343
Retained earnings 8,911,649 8,450,153
Net unrealized (loss) gain on Securities
available for sale, net of related taxes
of $(176,228) and $(526,465), respectively (264,490) (789,710)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,448,502 9,461,786
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $110,834,312 $115,291,109
============ ============
See notes to consolidated financial statements.
(3)
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
FIRST MERCHANTS BANCORP, INC. AND SUBSIDIARY
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
---------- ---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans $1,361,520 $1,191,396 $2,616,914 $2,350,378
Int. and dividends on sec.:
Taxable 510,535 433,432 1,060,285 865,436
Nontaxable 160,755 195,697 329,581 390,606
Int. on federal funds sold 13,731 11,811 25,228 22,808
Int. on dep. other banks 14,163 21 284 30,013 44,557
---------- ---------- ---------- ----------
TOTAL INTEREST INCOME 2,060,704 1,853,620 4,062,021 3,673,785
INTEREST EXPENSE
Interest on deposits 782,886 679,592 1,507,809 1,359,332
Int. on short-term borrowing 26,386 24,873 83,267 49,906
---------- ---------- ---------- ----------
TOTAL INTEREST EXPENSE 809,272 704,465 1,591,076 1,409,238
---------- ---------- ---------- ----------
NET INTEREST INCOME 1,251,432 1,149,155 2,470,945 2,264,547
PROVISION FOR LOAN LOSSES 18,000 25,500 36,000 51,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,233,432 1,123,655 2,434,945 2,213,547
OTHER INCOME
Ser. charges on dep. accts 101,929 80,458 190,205 153,575
Other ser. charges and fees 12,381 13,380 23,212 24,775
Other income 30,476 34,970 85,616 84,677
Investment sec. gains, net (3,935) 0 (3,935) 8,300
---------- ---------- ---------- ----------
TOTAL OTHER INCOME 140,851 128,808 295,098 271,327
OTHER EXPENSE
Sal. and employee benefits 464,504 443,933 935,646 904,990
Occupancy exp. of premises 79,344 76,125 159,457 147,883
Furn. and equipment expense 68,425 72,924 139,871 144,726
Other operating expenses 331,641 330,704 668,924 640,776
---------- ---------- ---------- ----------
TOTAL OTHER EXPENSE 943,914 923,686 1,903,898 1,838,375
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 430,369 328,777 826,145 646,499
INCOME TAXES 114,915 71,077 214,889 140,776
---------- ---------- ---------- ----------
NET INCOME $315,454 $257,700 $611,256 $505,723
========== ========== ========== ==========
EARNINGS PER COMMON SHARE :
Net income $.55 $.45 $1.06 $.88
======== ======== ======== ========
AVERAGE SHARES OUTSTANDING 576,000 576,000 576,000 576,000
======== ======== ======== ========
See notes to consolidated financial statements.
(4)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FIRST MERCHANTS BANCORP, INC. AND SUBSIDIARY
Net
Unrealized
(Loss) Gain Total
Common Retained on St'holders'
Stock Surplus Earnings Securities Equity
---------- ---------- ---------- ---------- ----------
Balance at
Dec. 31, 1994 $1,152,000 $649,343 $8,450,153 $(789,710) $9,461,786
Net income 611,256 611,256
Cash dividends
declared
($.26 per share) (149,760) (149,760)
Change in net
unrealized gain
(loss) on
Securities AFS
net of taxes of
$(350,237) 525,220 525,220
---------- ---------- ---------- ---------- ----------
Balance at
June 30, 1995 $1,152,000 $649,343 $8,911,649 $(264,490)$10,448,502
========== ========== ========== ========== ==========
Balance at
Dec. 31, 1993 $1,152,000 $649,343 $7,665,033 $304,990 $9,771,366
Net income 505,723 505,723
Cash dividends
declared
($.26 per share) (149,760) (149,760)
Change in net
unrealized gain
(loss) on
securities AFS
net of taxes
of (426,107) (639,162) (639,162)
---------- ---------- ---------- ---------- ----------
Balance at
June 30, 1994 $1,152,000 $649,343 $8,020,996 $(334,172) $9,488,167
========== ========== ========== ========== ==========
See notes to consolidated financial statements.
(5)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FIRST MERCHANTS BANCORP, INC. AND SUBSIDIARY
SIX MONTHS ENDED
JUNE 30 JUNE 30
1995 1994
---------- ----------
OPERATING ACTIVITIES
Net income $611,256 $505,723
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Net amortization (23,406) 77,944
Provision for loan losses 36,000 51,000
Depreciation 101,330 104,009
Securities, gain net (3,936) (8,300)
Purchases of trading securities 0 0
Proceeds from sales of trading securities 0 0
Increase in other assets (270,156) (396,638)
Increase (Decrease) in other liabilities 129,616 (209,005)
Gain on sale of premises and equipment (6,659)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 574,045 124,733
INVESTING ACTIVITIES
Purchases of securities held to maturity (2,237,949) (1,827,491)
Purchases of securities available for sale (18,500) (1,498,276)
Proceeds from maturities and calls of securities
held to maturity 2,125,408 1,794,544
Proceeds from sales of securities
held to maturity 0 0
Proceeds from sales of securities
available for sale 4,643,392 630,000
Proceeds from maturities of securities
available for sale 6,579 125,000
Net decrease in short-term investments 51,336 548,591
Net decrease (increase) in loans 818,889 808,344
Purchases of premises and equipment (437,008) (18,586)
Proceeds from sale of other real estate owned 10,396 0
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 4,962,543 562,331
FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits 179,897 2,563,129
Net increase in interest-bearing deposits 106,334 695,738
Net (decrease) in repurchase agreements (5,990,283) (3,661,100)
Net increase (decrease) in other
short-term borrowings 228,843 (148,586)
Cash dividends paid (247,680) (149,760)
---------- ----------
NET CASH (USED IN ) PROVIDED BY
FINANCING ACTIVITIES (5,722,889) (700,579)
---------- ----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (186,301) (13,515)
Cash and cash equivalents at beginning of period 6,021,650 5,146,864
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 5,835,349 5,133,349
========== ==========
See notes to consolidated financial statements.
(6)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FIRST MERCHANTS BANCORP, INC. AND SUBSIDIARY
June 30, 1995
NOTE A - GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information, and with the instructions to Form 10-Q and
Article 10 of Regulation S-X, and conform to general reporting practices
within the banking industry. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The accounting and reporting
policies followed in the preparation of these financial statements are
consistent with those applied in the preparation of the Consolidated
Financial Statements of First Merchants Bancorp, Inc. and Subsidiary (the
Company) as of and for the year ended December 31, 1994. The notes included
herein should be read in conjunction with the notes to consolidated
financial statements included in the 1994 annual report on Form 10-k.
In the opinion of management, all adjustments necessary for a fair
presentation of financial position and results of operations for the interim
periods have been made. Such adjustments are of a normal recurring nature.
Operating results for the three and six months ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1995.
NOTE B - INCOME TAXES
The principal reasons for the difference between the effective tax rate and
the statutory federal tax rate are tax exempt interest and state income tax
expense.
At the end of each month, the Company makes its best estimate of the
effective tax rate expected for the year and uses this rate in providing for
income taxes on an interim basis.
NOTE C - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various commitments to extend
credit under standby letters of credit and lines of credit which are not
reflected in the accompanying financial statements. As of June 30, 1995 the
Company's subsidiary had commitments outstanding to extend credit under
standby letters of credit and lines of credit of approximately $491,000 and
$2,067,000, respectively. Such commitments have essentially the same credit
risk as that involved in extending loans to customers and are subject to the
Company's standard credit policies. Historically, substantially all standby
letters of credit expire unfunded. Management does not anticipate any
material losses as a result of these commitments.
NOTE D - ACCOUNTING PRONOUNCEMENTS WITH DELAYED EFFECTIVE DATES
The Company adopted the provisions of FASB Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," effective January 1, 1995. Statement
114 requires that certain impaired loans be measured based on the present
value of expected future cash flows, discounted at the effective interest
rate of the loan, or, as a practical expedient, the loan may be valued at
the fair value of the collateral if the loan is collateral dependent.
Adoption of the Statement was not material to the Company's financial
condition.
(7)
NOTE E - PENDING MERGER
On March 14, 1995, the Company's Board of Directors approved a plan of
merger whereunder the Company will be acquired by City Holding Company. The
proposed merger has received the approval of regulatory authorities and will
be consummated upon the approval of shareholders. The shareholders meeting
has been scheduled for August 29th, 1995.
(8)
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SUMMARY OF CHANGES IN FINANCIAL POSITION
First Merchants' total assets as of June 30, 1995 decreased approximately
$4.5 million or 3.9% when compared with December 31, 1994. This decrease
was primarily due to a decline in short-term financial instruments
classified as loans of approximately $9 million, which was offset by an
increase in actual loans of approximately $8.1 million, and a decline of
approximately $3.6 million in securities available for sale. The $9 million
decrease in short-term financial instrument classified as loans primarily
resulted from a decline in securities sold under agreement to repurchase of
$6 million. The remaining $3 million decrease along with the $3.8 million
decrease in securities available for sale resulted from sales of these
instruments to fund the actual loan growth of $8.1 million.
As noted previously, net loans outstanding, exclusive of certain short-term
instruments classified as loans, increased approximately $8.1 million during
the first six months of 1995. The majority of this increase can be
attributed to an increase in the installment (or consumer) loan portfolio of
approximately $5.8 million, a $1.2 million increase in the real estate loan
portfolio, and a $1.1 million increase in the commercial loan portfolio.
For financial statement purposes, purchases of commercial loan
participations and commercial paper are classified as net loans outstanding.
The following table provides a comparative analysis of the loan portfolio
segregated by the typical loan products offered by Merchants National to its
customers and short-term financial instruments classified as loans:
6-30-95 12-31-94
----------- -----------
Loans, net of unearned income
and allowance for loan losses $56,033,001 $47,913,738
Short-term financial instruments
classified as loans 1,493,070 10,500,455
----------- -----------
Net loans outstanding $57,526,071 $58,414,193
=========== ===========
Historically, the Company has purchased the short-term financial instruments
classified as loans to match the maturities of repurchase agreements and
volatile deposits. With the decrease in repurchase agreements and increase
in loan volume previously discussed, management has reduced its holdings of
these instruments. Management has directed its marketing efforts towards
generating additional loan demand through more competitive pricing of its
loan products in an effort to preserve its net yield on earning assets. A
more detailed discussion of this strategy may be found in the Net Interest
Income section here of.
Securities sold under agreement to repurchase decreased during the first
half of 1995. This was a result of more aggressive bidding by other banks
for public funds during the first six months of 1995.
The net unrealized loss on Securities available for sale decreased by
approximately $525,000, net of related taxes of approximately $350,000,
during the first six months of 1995. This decrease can be attributed to a
decline in interest rates during the first six months of the year which has
resulted in increasing market values of securities classified as available
for sale.
(9)
As of June 30, 1995, management is not aware of any current recommendations
by regulatory authorities, which if implemented, would have or are
reasonably likely to have a material effect on the Company's liquidity,
capital resources or operations. There are also no known trends, demands,
commitments, or uncertainties that have had, or that are reasonably expected
to have, a material favorable or unfavorable impact on the financial results
of the Company.
SUMMARY OF RESULTS OF OPERATIONS
First Merchants' consolidated net income for the three and six months ended
June 30, 1995 increased approximately $58,000 or 22.41% and $106,000 or
20.87% respectively, when compared with the corresponding periods of the
preceding year. A more detailed discussion by income statement category
follows:
NET INTEREST INCOME
The Company's net interest income increased approximately $110,000 and
$221,000 for the three and six months ended June 30, 1995, respectively,
when compared with the corresponding periods of the preceding year. The
Company's net yield on earning assets increased from 4.97% during the first
six months of 1994 to 5.34% during the first six months of 1995. The
following table presents the weighted yield on earning assets, weighted cost
of funds and net yield on earning assets for each of the periods presented:
SIX MONTHS ENDED
6-30-95 6-30-94
--------- ---------
WEIGHTED YIELD ON EARNING ASSETS (1) 8.55% 7.81%
WEIGHTED COST OF RATE SENSITIVE LIABILITIES 3.78 3.27
NET YIELD ON EARNING ASSETS 5.34 4.97
(1) Weighted average yields on assets exempt from federal income taxes have
been computed on a fully tax equivalent basis assuming a tax rate of 34
percent.
The liability sensitive financial position of Merchants National makes the
Company somewhat vulnerable should interest rates rise dramatically within a
short period of time. Management is aware of the potential negative impact
this would have on earnings, and has taken steps to control this risk by
shortening the maturity of its earning assets, and by designating a
substantial portion of the investment portfolio as available for sale so it
can be used to off-set dramatic shifts in the interest rate. Investments
are primarily limited to traditional debt securities. The following tables
present the subsidiary bank's asset (liability) sensitivity position:
(10)
JUNE 30, 1995:
REPRICING FREQUENCY
------------------------------------------
0 - 30 31 - 90 91 - 365 365+
DAYS DAYS DAYS DAYS TOTAL
--------- --------- --------- --------- ---------
(In Thousands of Dollars)
Interest bearing
deposits with
other banks $ 25 $ 594 $ 619
Federal funds sold 730 730
Securities available
for sale 6,545 4,524 64 11,133
Securities held
to maturity 254 4,204 24,329 28,787
Loans 13,446 3,684 13,854 27,157 58,141
--------- --------- --------- --------- ---------
TOTAL EARNING ASSETS 21,000 3,684 23,176 51,550 99,410
Interest bearing
demand deposits $12,559 $12,559
Savings deposits 29,644 438 30,082
Time deposits 4,300 5,640 12,628 $16,764 39,332
Short-term borrowings 2,963 419 3,382
--------- --------- --------- --------- ---------
TOTAL RATE SENSITIVE
LIABILITIES 49,466 6,059 13,066 16,764 85,355
--------- --------- --------- --------- ---------
ASSET (LIABILITY)
SENSITIVITY
AT 6-30-95 $(28,466) $ (2,375) $ 10,110 $ 34,786 $ 14,055
========= ========= ========= ========= =========
Cumulative gap (28,466) (30,841) (20,731) 14,055
========= ========= ========= =========
(11)
DECEMBER 31, 1994:
REPRICING FREQUENCY
------------------------------------------
0 - 30 31 - 90 91 - 365 365+
DAYS DAYS DAYS DAYS TOTAL
--------- --------- --------- --------- ---------
(In Thousands of Dollars)
Interest bearing
deposits with
other banks 29 642 671
Federal funds sold 810 810
Securities available
for sale 7,246 7,247 396 14,889
Securities held
to maturity 750 510 1,001 26,387 28,648
Loans 20,262 6,612 12,000 19,540 58,414
--------- --------- --------- --------- ---------
TOTAL EARNING ASSETS 29,097 7,122 20,890 46,323 103,432
Interest bearing
demand deposits 13,942 13,942
Savings deposits 32,248 113 32,361
Time deposits 4,457 5,525 13,803 11,779 35,564
Short-term borrowings 5,952 3,192 9,144
--------- --------- --------- --------- ---------
TOTAL RATE SENSITIVE
LIABILITIES 56,599 8,717 13,916 11,779 91,011
--------- --------- --------- --------- ---------
ASSET (LIABILITY)
SENSITIVITY
AT 12-31-94 (27,502) (1,595) 6,974 34,544 12,421
========= ========= ========= ========= =========
Cumulative gap (27,502 (29,097) (22,123) 12,421
========= ========= ========= =========
The analysis above is a "static gap" presentation applicable at a particular
point in time. Various assumptions and estimates have been made by
management in determining maturity and repayment patterns for purposes of
these tables.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three and six months ended June 30,
1995 decreased $7,500 and $15,000, respectively, when compared with the
corresponding periods of the preceding year.
The provision for loan losses is based on the Company's normal quarterly
review of the adequacy of the allowance for loan losses. A portion of the
allowance is allocated to specific loans which have been identified as
potentially uncollectible either in part or in full as a result of the
Company's quarterly reviews. The remainder of the allowance is unallocated,
and is based on the Company's historical charge-off percentages and the
estimated risk inherent in the portfolio. The allowance for loan losses as
(12)
a percentage of net long-term loans outstanding as of each of the respective
balance sheet dates is presented in the following table:
6-30-95 12-31-94
------------ ------------
Allowance for loan losses $475,947 $460,000
Long-term loans outstanding 56,033,001 47,913,738
Percentage of allowance to net
long-term loans outstanding 0.85% 0.96%
Transactions in the allowance for loan losses are summarized as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
-------------------- --------------------
Balance at beginning of period $474,166 $462,189 $460,000 $445,000
Provision charged to operations 18,000 25,500 36,000 51,000
Loans charged off (19,372) (37,610) (30,878) (49,868)
Recoveries 3,153 3,955 10,825 7,902
-------- -------- -------- --------
Balance at end of period $475,947 $454,034 $475,947 $454,034
======== ======== ======== ========
Nonperforming assets as of each of the respective balance sheet dates presented
are as follows:
6-30-95 12-31-94
------------ ------------
Accruing loans greater than 90
days past due $279,501 $201,975
Troubled debt restructuring 0 0
Nonaccrual loans 59,991 14,286
----------- -----------
$339,492 $216,261
=========== ===========
As a percentage of long-term
loans outstanding 0.61% 0.45%
=========== ===========
Other real estate owned 56,685 17,185
=========== ===========
Allowance for loan losses as a
percentage of nonperforming loans 140% 213%
=========== ===========
For purposes of calculating the above percentages, short-term loans
representing commercial loan participations with average maturities of 30 days
and commercial paper were excluded from net loans outstanding. Such
instruments are acquired to match maturities of repurchase agreements and other
(13)
volatile deposits. This strategy serves to reduce the Company's interest rate
risk as well as to prevent potential liquidity concerns. In management's
opinion, these are extremely low-risk loans which do not warrant an allocation
of the allowance for loan losses.
OTHER INCOME
Noninterest income for the three and six months ended June 30, 1995 increased
approximately $12,000 and $24,000, respectively, when compared with the
corresponding periods of the preceding year. The principle reason for the
increases in the periods ending June 30, 1995 when compared to the
corresponding periods of the preceding year is an increase in the volume of
returned check charges.
OTHER EXPENSE
Noninterest expense for the three and six months ended June 30, 1995 increased
approximately $20,000 and $66,000, respectively, when compared with the
corresponding periods of the preceding year. These increase were primarily due
to increases in the Company's other operating expenses and salaries and
employee benefits.
INCOME TAXES
At the end of each month, the Company makes its best estimate of the effective
tax rate expected for the year and uses this rate in providing for income taxes
on an interim basis.
The estimated effective tax rate for 1995, as of June 30, was 26.01% as
compared with an effective tax rate for the year ended December 31, 1994 of
22.97%.
LIQUIDITY
First Merchants currently has a strong liquidity position and material changes
in such position are not expected. In addition to assuring the availability
of adequate funds to meet its cash flow requirements, First Merchants'
management closely monitors its liquidity position in order to reduce exposure
to interest rate risk. This is accomplished largely by matching maturities of
assets and liabilities, particularly volatile funds such as securities sold
under agreements to repurchase and large denomination certificates of deposit.
The major internal sources of liquidity are balances maintained by Merchants
National with its correspondent banks as well as cash on hand. A significant
volume of U.S. Government securities for which there is an active national
market and the various short-term financial instruments classified as loans
complement the balance of cash and cash equivalents. First Merchants has also
demonstrated the ability to obtain external financing in the event such needs
arise. Management does not anticipate the need to sell securities to meet its
cash requirements in the ordinary course of business.
In order to reduce the Bank's liability sensitive financial position,
management has attempted to invest more heavily in short-term financial
instruments and has generally shortened the maturities of securities purchased
for the long-term portion of the investment portfolio.
(14)
CAPITAL RESOURCES
The ratio of average equity to average assets was 9.13% and 8.82% for the six
months ended June 30, 1995 and the year ended December 31, 1994, respectively.
The subsidiary bank's total risk-based capital ratio approximated 15.51% at
June 30, 1995, while the ratio of Tier One capital to risk-weighted assets
approximated 14.79%. Both of these ratios were above the regulatory minimums
of 8% for qualifying total capital to risk-weighted assets and 4% for Tier One
capital to risk-weighted assets. First Merchants is not subject to the risk-
based capital guidelines since consolidated total assets are less than $150
million.
The Company's primary source of funds for payment of dividends to stockholders
is dividends received from Merchants National; however, certain restrictions
exist regarding the ability of the subsidiary bank to transfer funds to the
Company in the form of cash dividends. Federal banking regulations require
regulatory approval prior to declaring dividends in excess of the current
year's retained net profits, combined with retained net profits for the two
preceding years.
As of June 30, 1995, the Bank's retained net profits available for distribution
to the Company as dividends without regulatory approval approximate $1,610,000
plus retained net profits for the interim period through the date of
declaration.
(15)
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) The company has filed one report on Form 8-K in the six months
ended June 30, 1995. This report was filed in order to report that
management had entered into a change of control agreement with City
Holding Company.
Exhibit Index
27 Financial Data Schedule As Attached
(16)
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 BANCORP, INC.
-------------------------------
(Registrant)
Date August 10, 1995 /s/ George F. Davis
------------------- -------------------------------
George F. Davis, President,
Chief Executive Officer and
Chief Financial Officer
(17)
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