SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities and Exchange Act of 1934
FEBRUARY 4, 1997
Date of Report (Date of earliest event reported)
First Merchants Acceptance Corporation
(Exact name of registrant a specified in its charter)
Delaware 0-24686 36-3759045
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
570 Lake Cook Road, Suite 126, Deerfield, Illinois 60015
(Address of principal executive offices) (Zip Code)
847-948-9300
(Registrant's telephone number)
Item 5. OTHER EVENTS
On February 4, 1997 First Merchants Acceptance Corporation issued a press
release announcing its operating results with respect to the Fourth Quarter
and year ended 1996. A copy of the press release is attached hereto as
Exhibit 99.1
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit 99.1 Press Release issued by First Merchants Acceptance Corporation on
February 4, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST MERCHANTS ACCEPTANCE
CORPORATION
Mitchell C. Kahn
President and Chief Executive Officer
Dated: FEBRUARY 4, 1997
<PAGE>
Contacts: Thomas R. Ehmann
Vice President & Chief Financial Officer
(847) 948-9300
Tina E. Nally - Assistant
(847) 267-8777
Larry Parnell
Amen & Associates
(212) 448-4257
FOR IMMEDIATE RELEASE
FIRST MERCHANTS REPORTS 1996 ANNUAL AND FOURTH QUARTER RESULTS;
Increased Charge-Offs And Additions To Credit Loss Reserves
Deerfield, Illinois - February 4, 1997 - First Merchants Acceptance
Corporation (NASDAQ: FMAC) today announced earnings for the year and fourth
quarter ended December 31, 1996.
For the year ended December 31, 1996, First Merchants reported earnings of
$10.5 million, or $1.56 per share, an increase of 16%, as compared to $6.7
million, or $1.35 per share for the year ended December 31, 1995. Net
earnings for the quarter ended December 31, 1996, were $1.0 million, or $0.15
per share, a decline compared to $2.5 million, or $0.38 per share in the year
ago quarter. The Company's results reflect higher than anticipated
charge-offs and additions to loss reserves taken in the fourth quarter.
"In the latter part of 1996, we introduced a new credit scoring and risk
management system. While our delinquency is still below that of our peers,
by using these new analytical tools, we concluded in early December that
charge-offs would likely increase in the short term, so we have added to our
loss reserves," said Mitchell C. Kahn, President and Chief Executive
Officer. "Before deciding upon this course of action, we reviewed the issues
in detail with our Board of Directors and together determined that this was
the prudent and appropriate decision. We see ourselves as a conservative
Company and our conservatism has consistently served us well," he added.
"The bulk of the fourth quarter charge-offs resulted from loans originated
prior to introducing our current credit scoring tools," noted Mr. Kahn. "A
thorough risk analysis was performed using our latest generation credit
scoring system, and it indicated that the paper purchased for the portfolio
in the second half of 1996 is of higher quality than that previously purchased.
However, we believe the charge-off rate in the first half of 1997 will be
higher than the levels experienced in the corresponding 1996 periods due to
normal portfolio seasoning. We do not expect the charge-off rate to increase
significantly from the fourth quarter. More importantly, we have strengthened
our loss reserves and collection procedures."
Total credit loss reserves, including the allowance for credit losses and
reserves attributable to contracts sold or held for sale, increased to 8.2%
of serviced finance receivables compared with 7.6% at September 30, 1996. The
allowance for credit losses at December 31, 1996 was $17.2 million or 7.0% of
owned finance receivables (excluding contracts held for sale) compared to
$17.1 million or 6.0% at September 30, 1996. At December 31, 1996, accounts
61 or more days past due were 2.1% of net receivables - serviced, as compared
to 1.8% at September 30, 1996. Net charge-offs as a percentage of average
net finance receivables - serviced were 6.8% for the year ended December 31,
1996, as compared to 5.2% for the prior year period.
Review of Operations
For the full year 1996, the Company purchased $525.8 million in finance
contracts, up significantly from the $257.9 million purchased in 1995. The
Company purchased $130.5 million in finance contracts during the 1996 fourth
quarter, a 30% increase over the $100.1 million purchased in the fourth
quarter of last year. Increased originations were attained through expansion
of the sales force and greater geographic coverage.
"As we look to 1997, we expect that originations will remain stable in the
near-term as our dealer network adjusts to our upward migration on the
non-prime credit quality spectrum. We believe that First Merchants will
continue to be recognized for its commitment to quality, professionalism and
prudence, and that our dealers will respond affirmatively. We expect credit
quality on new business will continue to improve in 1997, even more than
during the second half of 1996, and the interests of our shareholders and
lenders will be well served," said Mr. Kahn.
The Company is committed to becoming a low cost provider and made progress in
that regard by reducing on-going expenses to 8.1% of average net receivables
serviced for 1996 from 9.5% for 1995. This was accomplished even with the
increased costs associated with the introduction of new credit scoring and
risk management tools and development work on new information and servicing
systems.
During 1996, the Company implemented its "Hub and Spoke" strategy by
consolidating 26 dealer service centers and expanding the geographic coverage
of its sales force. "The 'Hub and Spoke' strategy has been very well received
by our dealers. This approach extends our national presence and improves our
service and operating efficiency at the same time", said Mr. Kahn. The
Company recorded charges of $1.4 million for severance, employee benefits and
other costs involved in its expense reduction efforts.
During 1996, First Merchants implemented its first cooperative arrangement
with a financial institution, Magna Bank of St. Louis, to refer non-prime
automobile lending business to the Company. The Company also entered into
affiliations with two national used car super stores, Car Max and AutoNation
USA, to purchase higher quality non-prime paper.
This past year saw First Merchants expand its financing base through a strong
securitization program, which included three private and two public
transactions totaling more than $530 million. The Company expects to
continue its securitization program as a key part of its 1997 funding
strategy.
"We are upbeat about 1997 and confident that the Company is taking the
necessary steps to continue to improve credit quality and eliminate the
factors that contributed to the downturn in fourth quarter earnings. We
believe that our depth of experienced management, combined with the many
quality control and efficiency initiatives we implemented during 1996 will
contribute to the continued growth and success of First Merchants. Our
previously announced decision to buy back up to 500,000 shares of our stock
on the open market is but one example of our firm belief that the foundation of
this Company is sound and the future for First Merchants continues to be full
of opportunity," Mr. Kahn concluded.
First Merchants Acceptance Corporation is a national specialty finance
company, primarily engaged in financing the purchase of used automobiles by
consumers who have limited access to traditional sources of credit. The
Company acquires dealer-originated retail installment contracts from
franchised and independent automobile dealers and financial institutions in
37 states.
This press release contains forward-looking statements regarding future
events and future performance of the Company that involve risks and
uncertainties that could materially affect actual results. Investors should
refer to documents that the Company files from time to time with the Securities
and Exchange Commission for a description of certain factors that could cause
actual results to vary from current expectations and forward-looking
statements contained in this press release. Such filings include, without
limitation, the Company's Form 10-K, Form 10-Q and Form 8-K reports.
<PAGE>
First Merchants Acceptance Corporation
Unaudited Financial Highlights
(Amounts in thousands, except net earnings per share
and number of installment contracts)
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31 DECEMBER 31
1996 1995 1996 1995
REVENUES:
INTEREST INCOME -
FINANCE CONTRACTS $ 17,007 13,466 70,870 38,210
OTHER PORTFOLIO INCOME 489 522 2,035 1,338
GAIN ON SALE OF FINANCE
RECEIVABLES 8,038 - 22,925 -
SERVICING FEES AND OTHER
INCOME 2,379 - 4,822 -
- ---------------------------------------------------------------------------
TOTAL REVENUES: 27,913 13,988 100,652 39,548
- ---------------------------------------------------------------------------
EXPENSES:
INTEREST EXPENSE 5,646 3,294 21,822 10,754
PROVISION FOR CREDIT LOSSES 9,860 1,050 21,860 1,700
OPERATING EXPENSES:
EMPLOYEE COMPENSATION AND
RELATED COSTS 6,118 3,494 23,542 10,263
OTHER 4,634 2,135 16,182 6,027
- --------------------------------------------------------------------------
TOTAL EXPENSES: 26,258 9,973 83,406 28,744
- --------------------------------------------------------------------------
EARNINGS BEFORE INCOME
TAXES 1,655 4,015 17,246 10,804
INCOME TAXES 646 1,524 6,726 4,103
- --------------------------------------------------------------------------
NET EARNINGS $ 1,009 2,491 10,520 6,701
- --------------------------------------------------------------------------
NET EARNINGS PER SHARE $ 0.15 0.38 1.56 1.35
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING 6,736 6,496 6,742 4,980
OTHER OPERATING DATA
AVERAGE NET RECEIVABLES
(ANR) SERVICED $603,220 241,732 474,362 171,737
AVERAGE NET RECEIVABLES
(ANR) OWNED 333,713 241,732 346,904 171,737
AVERAGE INDEBTEDNESS 274,029 149,624 272,939 118,173
INSTALLMENT CONTRACTS
PURCHASED:
DOLLAR AMOUNT $130,514 100,131 525,795 257,947
NUMBER 10,700 9,550 45,488 25,336
<PAGE>
FIRST MERCHANTS ACCEPTANCE CORPORATION
UNAUDITED FINANCIAL HIGHLIGHTS
(AMOUNTS IN THOUSANDS, EXCEPT NET EARNINGS PER SHARE
AND NUMBER OF INSTALLMENT CONTRACTS)
DECEMBER 31 DECEMBER 31
1996 1995
FINANCIAL POSITION
TOTAL ASSETS $ 339,606 $ 282,274
FINANCE RECEIVABLES - OWNED 244,362 251,908
ALLOWANCE FOR CREDIT LOSSES (17,182) (14,301)
----------- ------------
NET RECEIVABLES $ 227,180 $ 237,607
FINANCE RECEIVABLES HELD
FOR SALE,NET 42,758 32,265
EXCESS SERVICING RECEIVABLE 22,349 -
BORROWING UNDER SENIOR REVOLVING
CREDIT FACILITY 33,300 104,000
NOTES PAYABLE-SECURITIZED
POOL,NET 133,709 70,378
SUBORDINATED NOTES,NET 63,760 13,896
STOCKHOLDERS' EQUITY 94,738 84,279
BOOK VALUE PER SHARE $ 14.51 $ 12.92
RECEIVABLE PORTFOLIO DATA
FINANCE RECEIVALBES -
SERVICED $ 641,199 $ 284,173
NUMBER OF INSTALLMENT
CONTRACTS
OUTSTANDING - SERVICED 63,605 31,082
CREDIT QUALITY DATA
61 OR MORE DAYS PAST DUE -
SERVICED 2.1% 0.7%
NET CHARGE-OFFS FOR THE PERIOD
AND AS A PERCENTAGE OF AVERAGE
FINANCE RECEIVABLES -
SERVICED:
LAST THREE MONTHS $ 13,412 $ 3,463
8.9% 5.7%
LAST TWELVE MONTHS $ 32,307 $ 8,969
6.8% 5.2%
CREDIT LOSS RESERVES AS A
PERCENTAGE OF FINANCE
RECEIVALBES - SERVICED 8.2% 5.2%
