FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] 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 0-17071
First Merchants Corporation
(Exact name of registrant as specified in its charter)
Indiana 35-1544218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Jackson Street
Muncie, IN 47305-2814
(Address of principal executive office) (Zip code)
(765) 747-1500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes [x] No [ ]
As of May 6, 2004, there were 18,537,346 outstanding common shares, without par
value, of the registrant.
FIRST MERCHANTS CORPORATION
FORM 10-Q
INDEX
Page No.
PART I. Financial information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets........................3
Consolidated Condensed Statements of Income..................4
Consolidated Condensed Statements of
Comprehensive Income.........................................5
Consolidated Condensed Statements of
Stockholders' Equity.........................................6
Consolidated Condensed Statements of Cash Flows..............7
Notes to Consolidated Condensed Financial Statements.........8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................24
Item 4. Controls and Procedures.....................................24
PART II. Other Information:
Item 1. Legal Proceedings...........................................25
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities.......................25
Item 3. Defaults Upon Senior Securities.............................25
Item 4. Submission of Matters to a Vote of Security Holders.........25
Item 5. Other Information...........................................25
Item 6. Exhibits and Reports of Form 8-K............................26
Signatures...................................................................28
Exhibit Index................................................................29
Page 2
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
March 31, December 31,
2004 2003
------------ ------------
(Unaudited)
ASSETS:
Cash and due from banks ....................................... $ 60,366 $ 77,112
Federal funds sold ............................................ 0 32,415
----------- -----------
Cash and cash equivalents ................................... 60,366 109,527
Interest-bearing deposits...................................... 10,674 8,141
Investment securities available for sale ...................... 370,469 348,860
Investment securities held to maturity ........................ 6,505 7,937
Mortgage loans held for sale................................... 3,883 3,043
Loans, net of allowance for loan losses of $26,459 and $25,493. 2,293,644 2,328,010
Premises and equipment ........................................ 38,972 39,639
Federal Reserve and Federal Home Loan Bank Stock............... 21,956 15,502
Interest receivable ........................................... 15,061 16,840
Goodwill ...................................................... 118,715 118,679
Core deposit intangibles ...................................... 23,152 24,044
Cash surrender value of life insurance......................... 40,843 37,927
Other assets .................................................. 20,901 18,663
----------- -----------
Total assets .............................................. $ 3,025,141 $ 3,076,812
=========== ===========
LIABILITIES:
Deposits:
Noninterest-bearing ......................................... $ 303,694 $ 338,201
Interest-bearing ............................................ 2,009,726 2,023,900
----------- -----------
Total deposits ............................................ 2,313,420 2,362,101
Borrowings .................................................... 372,356 383,170
Interest payable .............................................. 4,542 4,680
Other liabilities.............................................. 25,676 22,896
----------- -----------
Total liabilities ......................................... 2,715,994 2,772,847
STOCKHOLDERS' EQUITY:
Perferred stock, no-par value:
Authorized and unissued - 500,000 shares ....................
Common Stock, $.125 stated value:
Authorized --- 50,000,000 shares ............................
Issued and outstanding - 18,532,769 and 18,512,834 shares.... 2,317 2,314
Additional paid-in capital .................................... 150,679 150,310
Retained earnings ............................................. 151,771 149,096
Accumulated other comprehensive income ........................ 4,380 2,245
----------- -----------
Total stockholders' equity ................................ 309,147 303,965
----------- -----------
Total liabilities and stockholders' equity . $ 3,025,141 $ 3,076,812
=========== ===========
See notes to consolidated condensed financial statements.
Page 3
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2004 2003
Interest Income:
Loans receivable
Taxable ................................................... $ 34,227 $ 35,173
Tax exempt ................................................ 163 165
Investment securities
Taxable ................................................... 1,949 1,679
Tax exempt ................................................ 1,430 1,631
Federal funds sold .......................................... 18 113
Deposits with financial institutions ........................ 109 22
Federal Reserve and Federal Home Loan Bank stock ............ 328 198
-------- --------
Total interest income ..................................... 38,224 38,981
-------- --------
Interest expense:
Deposits .................................................... 8,190 8,884
Borrowings .................................................. 4,402 4,087
-------- --------
Total interest expense .................................... 12,592 12,971
-------- --------
Net Interest Income ........................................... 25,632 26,010
Provision for loan losses ..................................... 1,372 4,601
-------- --------
Net Interest Income After Provision for Loan Losses ........... 24,260 21,409
-------- --------
Other Income:
Net realized gains on sales of available-for-sale securities. 37 371
Other income ................................................ 8,179 7,915
-------- --------
Total other income ............................................ 8,216 8,286
Total other expenses .......................................... 22,564 21,441
-------- --------
Income before income tax ...................................... 9,912 8,254
Income tax expense ............................................ 2,977 2,596
-------- --------
Net Income .................................................... $ 6,935 $ 5,658
======== ========
Per share:(1)
Basic ..................................................... .37 .32
Diluted ................................................... .37 .32
Dividends ................................................. .23 .22
(1) Prior period per share amounts have been restated for the 5% stock dividend
paid in September 2003.
See notes to consolidated condensed financial statements.
Page 4
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31
----------------------
2004 2003
--------- ---------
Net Income...................................................................... $ 6,735 $ 5,658
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities available for sale:
Unrealized holding gains (losses) arising during the period, net of
income tax (expense) benefit of $(1,438), and $117........................ 2,157 (175)
Less: Reclassification adjustment for gains included
in net income, net of income tax expense of $15 and $148.................. 22 223
--------- ---------
2,135 (398)
--------- ---------
Comprehensive income ........................................................... $ 8,870 $ 5,260
========= =========
See notes to consolidated condensed financial statements
Page 5
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
2004 2003
--------- ---------
Balances, January 1 ............................................ $ 303,965 $ 261,129
Net income ..................................................... 6,935 5,658
Cash dividends ................................................. (4,260) (4,024)
Other comprehensive income (loss), net of tax................... 2,135 (398)
Stock issued under dividend reinvestment and stock purchase plan 342 279
Stock options exercised ........................................ 95 25
Stock Redeemed ................................................. (65)
Issuance of stock in acquisitions............................... 26,839
Cash paid in lieu of fractional shares.......................... 116
--------- ---------
Balances, March 31 ............................................. $ 309,147 $ 289,624
========= =========
See notes to consolidated condensed financial statements
Page 6
FIRST MERCHANTS CORPORATION
FORM 10-Q
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
------------------------------------
2004 2003
---------------- ----------------
Cash Flows From Operating Activities:
Net income........................................................................ $ 6,935 $ 5,658
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses....................................................... 1,372 4,601
Depreciation and amortization................................................... 1,288 1,084
Mortgage loans originated for sale.............................................. (25,054) (58,705)
Proceeds from sales of mortgage loans........................................... 24,214 66,692
Change in interest receivable................................................... 1,779 1,419
Change in interest payable...................................................... (138) (681)
Other adjustments............................................................... (141) 5,895
---------------- ----------------
Net cash provided by operating activities..................................... 10,255 25,963
---------------- ----------------
Cash Flows From Investing Activities:
Net change in interest-bearing deposits........................................... (2,533) (1,602)
Purchases of
Securities available for sale................................................... (41,837) (65,037)
Proceeds from maturities of
Securities available for sale................................................... 19,314 56,845
Securities held to maturity..................................................... 425
Proceeds from sales of
Securities available for sale................................................... 4,728 25,779
Purchase of Federal Reserve and
Federal Home Loan Bank Stock.................................................... (6,454)
Net change in loans............................................................... 32,994 14,616
Other adjustments................................................................. (624) (69)
Net cash paid in acquisition...................................................... (7,793)
---------------- ----------------
Net cash provided by investing activities..................................... 5,588 23,164
---------------- ----------------
Cash Flows From Financing Activities:
Net change in
Demand and savings deposits..................................................... (37,002) (20,515)
Certificates of deposit and other time deposits................................. (11,680) (1,039)
Borrowings...................................................................... (12,434) (6,294)
Cash dividends.................................................................... (4,260) (4,024)
Stock issued under dividend reinvestment and stock purchase plan.................. 342 280
Stock options exercised........................................................... 95 25
Stock redeemed.................................................................... (65)
Cash paid in lieu of fractional shares............................................ 116
---------------- ----------------
Net cash used by financing activities......................................... (65,004) (31,451)
---------------- ----------------
Net Change in Cash and Cash Equivalents............................................. (49,161) 17,676
Cash and Cash Equivalents, January 1................................................ 109,527 119,038
---------------- ----------------
Cash and Cash Equivalents, March 31................................................. $ 60,366 $ 136,714
================ ================
See notes to consolidated condensed financial statements.
Page 7
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 1. General
The significant accounting policies followed by First Merchants Corporation
("Corporation") and its wholly owned subsidiaries for interim financial
reporting are consistent with the accounting policies followed for annual
financial reporting. All adjustments which are of a normal recurring nature and
are in the opinion of management necessary for a fair statement of the results
for the periods reported have been included in the accompanying consolidated
condensed financial statements.
The consolidated condensed balance sheet of the Corporation as of December 31,
2003 has been derived from the audited consolidated balance sheet of the
Corporation as of that date. Certain information and note disclosures normally
included in the Corporation's annual financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted. These consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Corporation's Form 10-K annual
report filed with the Securities and Exchange Commission.
The results of operations for the three month period ended March 31, 2004 are
not necessarily indicative of the results to be expected for the year.
Stock options are granted for a fixed number of shares to employees. The
Corporation's stock option plans are accounted for in accordance with Accounting
Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to
Employees, and related interpretations. APB No. 25 requires compensation expense
for stock options to be recognized only if the market price of the underlying
stock exceeds the exercise price on the date of the grant. For all grants, no
stock-based employee compensation cost is reflected in net income, as options
granted under those plans had an exercise price equal to the market value of the
underlying common stock on the grant date.
The following table illustrates the effect on net income and earnings per share
if the Corporation has applied the fair value provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.
Three Months Ended
March 31,
2004 2003
-------------------------
Net income, as reported ..................................... $ 6,935 $ 5,658
Add: Total stock-based employee compensation
cost included in reported net income, net
of income taxes........................................... 6
Less: Total stock-based employee compensation
cost determined under the fair value based
method, net of income taxes .............................. (230) (246)
---------- ----------
Pro forma net income ........................................ $ 6,705 $ 5,418
========== ==========
Earnings per share:
Basic - as reported ...................................... $ .37 $ .32
Basic - pro forma ........................................ .36 .31
Diluted - as reported .................................... .37 .32
Diluted - pro forma ...................................... .36 .31
Page 8
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 1. General (continued)
The Corporation makes its Annual Report on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, available on its website at www.firstmerchants.com without
charge, as soon as reasonably practicable after such reports are electronically
filed with, or furnished to, the Securities and Exchange Commission.
Additionally, upon request the Corporation will also provide without charge, a
copy of its Form 10-Q to any shareholder by mail. Requests should be sent to Mr.
Brian Edwards, Shareholder Relations Officer, First Merchants Corporation, P.O.
Box 792, Muncie, IN 47308-0792.
NOTE 2. Investment Securities
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale at March 31, 2004
U.S. Treasury .................... $ 1,498 $ $ 1,498
Federal agencies.................. 34,378 672 $ (3) 35,047
State and municipal .............. 114,302 8,271 (40) 122,533
Mortgage-backed securities ....... 187,392 1,489 (772) 188,109
Other asset-backed securities..... 643 643
Corporate obligations............. 500 10 510
Marketable equity securities...... 22,124 5 22,129
-------- -------- -------- --------
Total available for sale ..... 360,837 10,447 (815) 370,469
-------- -------- -------- --------
Held to maturity at March 31, 2004
State and municipal............... 6,436 418 6,854
Mortgage-backed securities........ 69 69
-------- -------- -------- --------
Total held to maturity ....... 6,505 418 6,923
-------- -------- -------- --------
Total investment securities .. $367,342 $ 10,865 $ (815) $377,392
======== ======== ======== ========
Page 9
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale at December 31, 2003
U.S. Treasury ....................... $ 1,498 $ 1,498
Federal agencies .................... 38,290 $ 523 $ (52) 38,761
State and municipal ................. 118,794 6,932 (86) 125,640
Mortgage-backed securities .......... 174,208 813 (1,817) 173,204
Corporate obligations ............... 500 16 516
Marketable equity securities ........ 9,237 4 9,241
-------- -------- -------- --------
Total available for sale ......... 342,527 8,288 (1,955) 348,860
-------- -------- -------- --------
Held to maturity at December 31, 2003
State and municipal ................. 7,860 389 8,249
Mortgage-backed securities .......... 77 77
-------- -------- -------- --------
Total held to maturity ........... 7,937 389 8,326
-------- -------- -------- --------
Total investment securities ...... $350,464 $ 8,677 $ (1,955) $357,186
======== ======== ======== ========
Page 10
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 3. Loans and Allowance
March 31, December 31,
2004 2003
---- ----
Loans:
Commercial and industrial loans .............................................. $ 439,019 $ 443,140
Agricultural production financing and other loans to farmers ................. 89,055 95,048
Real estate loans:
Construction ............................................................... 144,622 149,865
Commercial and farmland .................................................... 574,504 564,578
Residential ................................................................ 847,554 866,477
Individuals' loans for household and other personal expenditures ............. 197,188 196,093
Tax-exempt loans ............................................................. 7,348 16,363
Other loans .................................................................. 20,813 21,939
----------- -----------
2,320,103 2,353,503
Allowance for loan losses..................................................... (26,459) (25,493)
----------- -----------
Total Loans............................................................... $ 2,293,644 $ 2,328,010
=========== ===========
Three Months Ended
March 31,
2004 2003
----------- -----------
Allowance for loan losses:
Balances, January 1 .......................................................... $ 25,493 $ 22,417
Allowance acquired in acquisition............................................. 3,727
Provision for losses ......................................................... 1,372 4,601
Recoveries on loans .......................................................... 297 496
Loans charged off ............................................................ (703) (1,508)
----------- -----------
Balances, March 31............................................................ $ 26,459 $ 29,733
=========== ===========
Information on nonaccruing, contractually
past due 90 days or more other than
nonaccruing and restructured loans is March 31, December 31,
summarized below: 2004 2003
================================================================================
As of:
Non-accrual loans................................ $ 19,914 $ 19,453
Loans contractually past due 90 days
or more other than nonaccruing................. 4,770 6,530
Restructured loans............................... 957 641
-------- --------
Total........................................ $ 25,641 $ 26,624
======== ========
Page 11
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
NOTE 4. Net Income Per Share
Three Months Ended March 31,
2004 2003
------------------------------------------- --------------------------------------------
Weighted- Weighted-
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic net income per share:
Net income available to
common stockholders................. $ 6,935 18,518,282 $ .37 $ 5,658 17,565,405 $ .32
========== ==========
Effect of dilutive stock options........ 127,289 110,228
---------- ------------ ---------- ------------
Diluted net income per share:
Net income available to
common stockholders
and assumed conversions............. $ 6,935 18,645,571 $ .37 $ 5,658 17,675,633 $ .32
========== ============ ========== ========== ============ ==========
Options to purchase 234,285 and 239,235 share for the three months ended March
31, 2004 and 2003 were not included in the earnings per share calculation
because the exercise price exceded the average market price.
Page 12
FIRST MERCHANTS CORPORATION
FORM 10-Q
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Table dollars in thousands)
(Unaudited)
Note 5. Defined Benefit Pension Costs
The Corporation has defined benefit pension plans covering substantially all
employees. The plans provide benefits that are based on the employees'
compensation and years of service. The Corporation uses an actuarial calculation
to determine pension plan costs.
The following represents the pension cost for the three months ended March 31.
Three Months Ended
March 31,
2004 2003
-------------------------
Pension Cost
- ------------
Service cost............................................ $ 550 $ 392
Interest cost .......................................... 698 654
Expected return on plan assets ......................... (660) (630)
Amortization of the transition asset.................... (38) (38)
Amortization of prior service cost...................... 34 34
Amortization of the net loss............................ 88 65
---------- ----------
Total Pension Cost................................ $ 672 $ 477
========== ==========
Page 13
FIRST MERCHANTS CORPORATION
FORM 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- --------------
FORWARD-LOOKING STATEMENTS
The Corporation from time to time includes forward-looking statements in
its oral and written communication. The Corporation may include forward-looking
statements in filings with the Securities and Exchange Commission, such as this
Form 10-Q, in other written materials and in oral statements made by senior
management to analysts, investors, representatives of the media and others. The
Corporation intends these forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and the Corporation is including this
statement for purposes of these safe harbor provisions. Forward-looking
statements can often be identified by the use of words like "believe",
"continue", "pattern", "estimate", "project", "intend", "anticipate", "expect"
and similar expressions or future or conditional verbs such as "will", "would",
"should", "could", "might", "can", "may", or similar expressions. These
forward-looking statements include:
* statements of the Corporation's goals, intentions and expectations;
* statements regarding the Corporation's business plan and growth
strategies;
* statements regarding the asset quality of the Corporation's loan and
investment portfolios; and
* estimates of the Corporation's risks and future costs and benefits.
These forward-looking statements are subject to significant risks,
assumptions and uncertainties, including, among other things, the following
important factors which could affect the actual outcome of future events:
* fluctuations in market rates of interest and loan and deposit pricing,
which could negatively affect the Corporation's net interest margin,
asset valuations and expense expectations;
* adverse changes in the economy, which might affect the Corporation's
business prospects and could cause credit-related losses and expenses;
* adverse developments in the Corporation's loan and investment
portfolios;
* competitive factors in the banking industry, such as the trend towards
consolidation in the Corporation's market;
* changes in the banking legislation or the regulatory requirements of
federal and state agencies applicable to bank holding companies and
banks like the Corporation's affiliate banks;
* acquisitions of other businesses by the Corporation and integration of
such acquired businesses;
* changes in market, economic, operational, liquidity, credit and interest
rate risks associated with the Corporation's business; and
* the continued availability of earnings and excess capital sufficient
for the lawful and prudent declaration and payment of cash dividends.
Because of these and other uncertainties, the Corporation's actual future
results may be materially different from the results indicated by these forward-
looking statements. In addition, the Corporation's past results of operations do
not necessarily indicate its future results.
Page 14
FIRST MERCHANTS CORPORATION
FORM 10-Q
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations continued
- ------------------------
CRITICAL ACCOUNTING POLICIES
Generally accepted accounting principles are complex and require
management to apply significant judgments to various accounting, reporting and
disclosure matters. Management of the Corporation must use assumptions and
estimates to apply these principles where actual measurement is not possible or
practical. For a complete discussion of the Corporation's significant accounting
policies, see "Notes to the Consolidated Financial Statements" in the
Corporation's 2003 Annual Report. Certain policies are considered critical
because they are highly dependent upon subjective or complex judgments,
assumptions and estimates. Changes in such estimates may have a significant
impact on the financial statements. Management has reviewed the application of
these policies with the Audit Committee of the Corporation's Board of Directors.
For a discussion of applying critical accounting policies, see "Critical
Accounting Policies" beginning on page 4 in the Corporation's 2003 Annual
Report.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 2004, equaled
$6,935,000, compared to $5,658,000 in the same period of 2003. Diluted earnings
per share were $.37, an increase of 15.6 percent from the $.32 reported for the
first quarter 2003.
Annualized returns on average assets and average stockholders' equity
for the three months ended March 31, 2004 were .91 percent and 9.05 percent,
respectively, compared with .83 percent and 8.29 percent for the same period of
2003.
The increases in diluted earning per share, return on equity and return
on assets are primarily due to decreased provision for loans losses and a first
quarter 2004 increase in net interest margin, as compared to the fourth quarter
margin of 2003. For further analysis, see the respective sections of
Management's Discussion and Analysis of Financial Conditions and Results of
Operations.
Page 15
FIRST MERCHANTS CORPORATION
FORM 10-Q
CAPITAL
The Corporation's regulatory capital continues to exceed regulatory
"well capitalized" standards. Tier I regulatory capital consists primarily of
total stockholders' equity and trust-preferred securities, less non-qualifying
intangible assets and unrealized net securities gains. The Corporation's Tier I
capital to average assets ratio was 7.5 percent at March 31, 2004 and 7.4
percent at year end 2003. In addition, at March 31, 2004, the Corporation had a
Tier I risk-based capital ratio of 9.6 percent and total risk-based capital
ratio of 11.9 percent. Regulatory capital guidelines require a Tier I risk-based
capital ratio of 4.0 percent and a total risk-based capital ratio of 8.0
percent.
The Corporation's GAAP capital ratio, defined as total stockholders'
equity to total assets, equaled 10.2 percent as of March 31, 2004, up from
9.9 percent in 2003. When the Corporation acquires other companies, GAAP
capital increases by the entire amount of the purchase price.
The Corporation's tangible capital ratio, defined as total
stockholders' equity less intangibles net of tax to total assets less
intangibles net of tax, equaled 6.1 percent as of March 31, 2004, up from 5.8
percent in 2003.
Management believes that all of the above capital ratios are meaningful
measurements for evaluating the safety and soundness of the Corporation.
Additionally, management believes the following table is also meaningful when
considering performance measures of the Corporation. The table details and
reconciles tangible earnings per share, return on tangible capital and tangible
assets to traditional GAAP measures.
March 31, December 31,
(Dollars in Thousands) 2004 2003
Average Goodwill .......................... $ 112,281 $ 107,232
Average Core Deposit Intangible (CDI) ..... 23,423 24,393
Average Deferred Tax on CDI ............... (8,562) (8,951)
----------- -----------
Intangible Adjustment ................... $ 127,142 $ 122,674
=========== ===========
Average Stockholders' Equity (GAAP Capital) $ 306,592 $ 293,603
Intangible Adjustment ..................... (127,142) (122,674)
----------- -----------
Average Tangible Capital ................ $ 179,450 $ 170,929
=========== ===========
Average Assets ............................ $ 3,041,837 $ 2,960,195
Intangible Adjustment ..................... (127,142) (122,674)
----------- -----------
Average Tangible Assets ................. $ 2,914,695 $ 2,837,521
=========== ===========
Net Income ................................ $ 6,935 $ 27,571
CDI Amortization, net of tax .............. 567 2,341
----------- -----------
Tangible Net Income ..................... $ 7,502 $ 29,912
=========== ===========
Diluted Earnings per Share ................ $ 0.37 $ 1.50
Diluted Tangible Earnings per Share ....... $ 0.40 $ 1.63
Return on Average GAAP Capital ............ 9.05% 9.39%
Return on Average Tangible Capital ........ 16.72% 17.50%
Return on Average Assets .................. 0.91% 0.93%
Return on Average Tangible Assets ......... 1.03% 1.05%
Page 16
FIRST MERCHANTS CORPORATION
FORM 10-Q
ASSET QUALITY/PROVISION FOR LOAN LOSSES
The allowance for loan losses is maintained through the provision
for loan losses, which is a charge against earnings. The amount provided for
loan losses and the determination of the adequacy of the allowance are based on
a continuous review of the loan portfolio, including an internally administered
loan "watch" list and an independent loan review primarily provided by an
outside accounting firm. The evaluation takes into consideration identified
credit problems, as well as the possibility of losses inherent in the loan
portfolio that are not specifically identified.
At March 31, 2004, non-performing loans totaled $25,641,000, a
decrease during the period of $983,000 from December 31, 2003, as noted in the
table on the following page.
At March 31, 2004, impaired loans totaled $46,230,000, an increase of
$1,458,000 from December 31, 2003. At March 31, 2004, an allowance for losses
was not deemed necessary for impaired loans totaling $33,084,000, but an
allowance of $6,442,000 was recorded for the remaining balance of impaired loans
of $13,146,000 and is included in the Corporation's allowance for loan losses.
The average balance of impaired loans for the first three months of 2004 was
$41,191,000.
At December 31, 2003, impaired loans totaled $44,772,000. An allowance
for losses was not deemed necessary for impaired loans totaling $32,047,000, but
an allowance of $5,728,000 was recorded for the remaining balance of impaired
loans of $12,725,000 and is included in the Corporation's allowance for loan
losses. The average balance of impaired loans for 2003 was $50,245,000.
At March 31, 2004, the allowance for loan losses was $26,459,000, an
increase of $966,000 from year end 2003. As a percent of loans, the allowance
was 1.14 percent at March 31, 2004 compared with 1.08 percent at December 31,
2003.
The provision for loan losses for the first three months of 2004 was
$1,372,000, a decrease of $3,229,000 from $4,601,000 for the same period in
2003. The Corporation's provision for loan losses reflects reduced net
chargeoffs and non-performing loans, resulting in decreased provision expense.
Current declines in the amount of non-performing loans and average impaired loan
balances indicate that loan asset quality has improved during the first quarter
of 2004.
Page 17
FIRST MERCHANTS CORPORATION
FORM 10-Q
LIQUIDITY
Liquidity management is the process by which the Corporation ensures that
adequate liquid funds are available for the Corporation and its subsidiaries.
These funds are necessary in order for the Corporation and its subsidiaries to
meet financial commitments on a timely basis. These commitments include
withdrawals by depositors, funding credit obligations to borrowers, paying
dividends to shareholders, paying operating expenses, funding capital
expenditures, and maintaining deposit reserve requirements. Liquidity is
monitored and closely managed by the asset/liability committees at each
subsidiary and by the Corporation's asset/liability committee.
The liquidity of the Corporation is dependent upon the receipt of
dividends from its bank subsidiaries, which are subject to certain regulatory
limitations and access to other funding sources. Liquidity of the Corporation's
bank subsidiaries is derived primarily from core deposit growth, principal
payments received on loans, the sale and maturity of investment securities, net
cash provided by operating activities, and access to other funding sources. The
most stable source of liability-funded liquidity for both the long-term and
short-term is deposit growth and retention in the core deposit base. In
addition, the Corporation utilizes advances from the Federal Home Loan Bank
("FHLB") and a revolving line of credit with LaSalle Bank, N.A. as a funding
source. At March 31, 2004, total borrowings from the FHLB were $226,132,000. The
Corporation's bank subsidiaries have pledged certain mortgage loans and certain
investments to the FHLB. The total available remaining borrowing capacity from
the FHLB at March 31, 2004, was $182,716,000. At March 31, 2004, the
Corporation's revolving line of credit had a balance of $10,594,000 and a
remaining borrowing capacity of $9,406,000. The principal source of asset-funded
liquidity is investment securities classified as available-for-sale, the market
values of which totaled $370,469,000 at March 31, 2004, an increase of
$21,609,000 or 6.2% over December 31, 2003. Securities classified as
held-to-maturity that are maturing within a short period of time can also be a
source of liquidity. Securities classified as held-to-maturity and that are
maturing in one year or less totaled $860,000 at March 31, 2004. In addition,
other types of assets such as cash and due from banks, federal funds sold and
securities purchased under agreements to resell, and loans and interest-bearing
deposits with other banks maturing within one year are sources of liquidity.
In the normal course of business, the Corporation is a party to a number
of other off-balance sheet activities that contain credit, market and
operational risk that are not reflected in whole or in part in the Corporation's
consolidated financial statements. Such activities include: traditional
off-balance sheet credit-related financial instruments, commitments under
operating leases and long-term debt.
The Corporation provides customers with off-balance sheet credit support
through loan commitments and standby letters of credit. Summarized
credit-related financial instruments at March 31, 2004 are as follows:
At March 31,
(Dollars in thousands) 2004
================================================================================
Amounts of commitments:
Loan commitments to extend credit ............................... $ 537,001
Standby letters of credit ....................................... 27,736
----------
$ 564,737
==========
Since many of the commitments are expected to expire unused or be only
partially used, the total amount of unused commitments in the preceding table
does not necessarily represent future cash requirements.
In addition to owned banking facilities, the Corporation has entered into a
number of long-term leasing arrangements to support the ongoing activities of
the Corporation. The required payments under such commitments and long-term debt
at March 31, 2004 are as follows:
2004 2005 2006 2007 2008 2009 Total
(Dollars in thousands) remaining and after
=======================================================================================================
Operating leases ......... $ 1,153 $ 1,443 $ 1,327 $ 1,112 $ 916 $ 3,255 $ 9,206
Long-term debt ........... 76,662 24,500 25,882 18,995 51,464 173,497 371,000
-------- -------- -------- -------- -------- -------- --------
Total .................... $ 77,815 $ 25,943 $ 27,209 $ 20,107 $ 52,380 $176,752 $380,206
======== ======== ======== ======== ======== ======== ========
Page 18
FIRST MERCHANTS CORPORATION
FORM 10-Q
INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK
Asset/Liability Management has been an important factor in the
Corporation's ability to record consistent earnings growth through periods of
interest rate volatility and product deregulation. Management and the Board of
Directors monitor the Corporation's liquidity and interest sensitivity positions
at regular meetings to review how changes in interest rates may affect earnings.
Decisions regarding investment and the pricing of loan and deposit products are
made after analysis of reports designed to measure liquidity, rate sensitivity,
the Corporation's exposure to changes in net interest income given various rate
scenarios and the economic and competitive environments.
It is the objective of the Corporation to monitor and manage risk
exposure to net interest income caused by changes in interest rates. It is the
goal of the Corporation's Asset Liability function to provide optimum and stable
net interest income. To accomplish this, management uses two asset liability
tools. GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation
Modeling are both constructed, presented, and monitored quarterly.
Management believes that the Corporation's liquidity and interest
sensitivity position at March 31 , 2004, remained adequate to meet the
Corporation's primary goal of achieving optimum interest margins while avoiding
undue interest rate risk.
The Corporation places its greatest credence in net interest income
simulation modeling. The GAP/Interest Rate Sensitivity Report is believed by the
Corporation's management to have two major shortfalls. The GAP/Interest Rate
Sensitivity Report fails to precisely gauge how often an interest rate sensitive
product reprices, nor is it able to measure the magnitude of potential future
rate movements.
Net interest income simulation modeling, or earnings-at-risk, measures
the sensitivity of net interest income to various interest rate movements. The
Corporation's asset liability process monitors simulated net interest income
under three separate interest rate scenarios; base, rising and falling.
Estimated net interest income for each scenario is calculated over a 12-month
horizon. The immediate and parallel changes to the base case scenario used in
the model are presented below. The interest rate scenarios are used for
analytical purposes and do not necessarily represent management's view of future
market movements. Rather, these are intended to provide a measure of the degree
of volatility interest rate movements may introduce into the earnings of the
Corporation.
The base scenario is highly dependent on numerous assumptions embedded
in the model, including assumptions related to future interest rates. While the
base sensitivity analysis incorporates management's best estimate of interest
rate and balance sheet dynamics under various market rate movements, the actual
behavior and resulting earnings impact will likely differ from that projected.
For mortgage-related assets, the base simulation model captures the expected
prepayment behavior under changing interest rate environments. Assumptions and
methodologies regarding the interest rate or balance behavior of indeterminate
maturity products, e.g., savings, money market, NOW and demand deposits reflect
management's best estimate of expected future behavior.
Page 19
FIRST MERCHANTS CORPORATION
FORM 10-Q
The comparative rising and falling scenarios for the period ended December 31,
2004 assume further interest rate changes in addition to the base simulation
discussed above. These changes are immediate and parallel changes to the base
case scenario. In addition, total rate movements (beginning point minus ending
point) to each of the various driver rates utilized by management in the base
simulation for the period ended December 31, 2004 are as follows:
Driver Rates RISING FALLING
================================================================================
Prime 200 Basis Points (200) Basis Points
Federal Funds 200 (100)
One-Year T-Bill 200 (138)
Two-Year T-Bill 200 (194)
Interest Checking 100 (14)
MMIA Savings 100 (24)
First Flex 100 (24)
CD's 200 (59)
FHLB Advances 200 (117)
Results for the base, rising and falling interest rate scenarios are listed
below. The net interest income shown represents cumulative net interest income
over a 12-month time horizon. Balance sheet assumptions used for the base
scenario are the same for the rising and falling simulations.
BASE RISING FALLING
===============================================================================
Net Interest Income (dollars in thousands) $100,873 $102,792 $ 87,217
Variance from base $ 1,919 $(13,655)
Percent of change from base 1.90% (13.54)%
Page 20
FIRST MERCHANTS CORPORATION
FORM 10-Q
EARNING ASSETS
The following table presents the earning asset mix as of March 31,
2004, and December 31, 2003.
Loans decreased approximately $32.7 million from December 31, 2003 to
March 31, 2004, while investment securities increased by $20.2 million during
the same period.
- ----------------------------------------------------------------------------------------------------
EARNING ASSETS
(Dollars in Millions) March 31, December 31,
2004 2003
- ---------------------------------------------------------------------------------------------------
Federal funds sold and interest-bearing deposits $ 10.7 $ 40.6
Investment securities available for sale ....... 370.5 348.9
Investment securities held to maturity ......... 6.5 7.9
Mortgage loans held for sale ................... 3.8 3.0
Loans .......................................... 2,320.1 2,353.6
Federal Reserve and Federal Home Loan Bank stock 22.0 15.5
---------- ----------
Total ..................... $ 2,733.6 $ 2,769.5
========== ==========
- --------------------------------------------------------------------------------
DEPOSITS AND BORROWINGS
The following table presents the level of deposits and borrowed funds
(Federal funds purchased, repurchase agreements, U.S. Treasury demand notes,
Federal Home Loan Bank advances, subordinated debentures and other borrowed
funds)at March 31, 2004, and December 31, 2003.
- --------------------------------------------------------------------------------
(Dollars in Millions) March 31, December 31,
2003 2003
---------- ------------
Deposits ........................................ $ 2,313.4 $ 2,362.1
Securities sold under repurchase agreements...... 42.0 71.1
Federal funds purchased
and U.S. Treasury demand notes................ 3.3
Federal Home Loan Bank advances ................. 226.1 212.8
Subordinated debentures, revolving credit lines
and term loans................................ 99.6 97.8
Other borrowed funds ............................ 1.4 1.5
The Corporation has continued to leverage its capital position with
Federal Home Loan Bank advances, as well as repurchase agreements which are
pledged against acquired investment securities as collateral for the borrowings.
The interest rate risk is included as part of the Corporation's interest
simulation discussed in Management's Discussion and Analysis under the headings
"LIQUIDITY" and "INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK".
Page 21
FIRST MERCHANTS CORPORATION
FORM 10-Q
NET INTEREST INCOME
Net Interest Income is the primary source of the Corporation's
earnings. It is a function of net interest margin and the level of average
earning assets. The table below presents the Corporation's asset yields,
interest expense, and net interest income as a percent of average earning assets
for the three months ended March 31, 2004 and 2003.
Annualized net interest income (FTE) for the three months ended March
31, 2004 decreased by $2.2 million, or 2.0 percent over the same period in 2003.
For the same period interest income and interest expense, as a percent of
average earning assets, decreased 78 basis points and 27 basis points
respectively. This resulted in a 51 basis point decline in net interest income,
as a percent of average earning assets, from the first quarter 2003 margin of
4.38 percent. Federal Reserve Bank rate reductions during 2003 significantly
contributed to this margin compression; however, management's ability to
favorably reprice deposit interest costs caused the first quarter of 2004 net
interest margin of 3.87 percent to increase 9 basis points, as compared to the
fourth quarter 2003 net interest margin of 3.78 percent.
Three Months Ended
March 31,
(Dollars in Thousands) 2004 2003
Annualized Net Interest Income........................ $ 102,528 $ 104,040
Annualized FTE Adjustment............................. $ 3,433 $ 4,096
Annualized Net Interest Income
On a Fully Taxable Equivalent Basis................. $ 105,961 $ 108,136
Average Earning Assets................................ $2,739,297 $2,464,319
Interest Income (FTE) as a Percent
of Average Earning Assets........................... 5.71% 6.49%
Interest Expense as a Percent
of Average Earning Assets........................... 1.84% 2.11%
Net Interest Income (FTE) as a Percent
of Average Earning Assets........................... 3.87% 4.38%
Average earning assets include the average balance of securities classified as
available for sale, computed based on the average of the historical amortized
cost balances without the effects of the fair value adjustment. In addition,
annualized amounts are computed utilizing a 30/360 day basis.
Page 22
FIRST MERCHANTS CORPORATION
FORM 10-Q
OTHER INCOME
Other income in the first quarter of 2004 was $70,000 or .8 percent
lower than the same quarter of 2003. There were no significant fluctuations of
specific income areas in comparing the first quarter of 2004 to the same period
in 2003.
OTHER EXPENSES
Total other expenses represent non-interest operating expenses of the
Corporation. Total other expenses during the first quarter of 2004 exceeded the
same period of the prior year by $1,123,000, or 5.2 percent.
Two areas account for most of the increase:
1. Salaries and benefit expense grew $1,247,000 or 10.6 percent, due to
normal salary increases, staff additions and additional salary cost
related to the March 1, 2003 acquisition of Commerce National Bank.
2. Prepayment penalties for early prepayment of FHLB advances were
$340,000 for the first quarter of 2003. There were no such penalties
incurred during the first quarter of 2004.
Page 23
FIRST MERCHANTS CORPORATION
FORM 10-Q
INCOME TAXES
Income tax expense, for the three months ended March 31, 2004,
increased by $381,000 from the same period in 2003. The effective tax rate was
30.0 and 31.5 percent for the 2004 and 2003 periods.
OTHER
The Securities and Exchange Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
the Corporation, and that address is (http://www.sec.gov).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The information required under this item is included as part of Management's
Discussion and Analysis of Financial Condition and Results of Operations, under
the headings "LIQUIDITY" and "INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET
RISK".
Item 4. Controls and Procedures
- -------------------------------------------------------------------
At the end of the period covered by this report, the Corporation carried out an
evaluation, under the supervision and with the participation of the
Corporation's management, including the Corporation's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
it's disclosure controls and procedures. Based upon that evaluation, the
Corporation's Chief Executive Officer and Chief Financial Officer concluded that
the Corporation's disclosure controls and procedures are effective. Disclosure
controls and procedures are controls and procedures that are designed to ensure
that information required to be disclosed in Corporation reports filed or
submitted under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
There have been no changes in the Corporation's internal controls over financial
reporting identified in connection with the evaluation referenced above that
occurred during the Corporation's last fiscal quarter that have materially
affected, or is reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
Page 24
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
None
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities
- ---------------------------------------------------
a. None
b. None
c. None
d. None
e. Issuer Purchases of Equity Securities
The following table presents information related to repurchases of common stock
the Corporation made during the three months ended March 31, 2004.
Issuer Purchases of Equity Securities
- -------------------------------------
Maximum Number of Shares
Total Number of that May Yet
Total Number of Average Price Paid Shares Purchased Be Purchased Under
Period Shares Purchased per share Under the Program the Programs
- ----------------------------------------------------------------------------------------------------------------------
January 1-31, 2004 (1) - - - -
February 1-10, 2004 (1) - - - -
February 11-29, 2004 (2) - - - 250,000
March 1-31, 2004 (2) - - - 250,000
- ----------------------------------------------------------------------------------------------------------------------
Total - - - 250,000
(1) In February 2003, the Board of Directors of the Corporation authorized
management to repurchase up to 250,000 shares of its common stock on the
open market through February 10, 2004. The price and timing of the common
stock repurchases were to be within the discretion of management. There
were no shares repurchased under this program.
(2) In February 2004, the Board of Directors of the Corporation authorized
management to repurchase up to 250,000 shares of its common stock on the
open market through February 8, 2005. The price and timing of the common
stock repurchases shall be within the discretion of management. As of
March 31, 2004, there have been no shares repurchased under this program.
In March 2004, the Corporation redeemed common shares from employees or former
employees to facilitate the exercise of stock options outstanding under the
Corporation's stock option plans. The number of shares purchased totaled 2,511
shares, and the average price paid per share was $25.79.
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None
Item 5. Other Information
- --------------------------
a. None
b. None
Page 25
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. Exhibits
Exhibit No.: Description of Exhibit: Form 10-Q Page No.:
------------ ------------------------- -------------------
31.1 Certification of Chief 30
Executive Officer Pursuant
to Section 302 of the
Sarbanes - Oxley Act of
2002
31.2 Certification of Chief 31
Financial Officer Pursuant
to Section 302 of the
Sarbanes - Oxley Act of
2002
32 Certifications Pursuant to 32
18 U.S.C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002
Page 26
FIRST MERCHANTS CORPORATION
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K continued
- ---------------------------------------------------
b. Reports on Form 8-K
A report on Form 8-K, dated January 21, 2004, was filed on
January 21, 2004 under report items number 9 and 7, concerning the
Press Release announcing fourth quarter 2003 earnings.
Under report item number 7, the following exhibit was included in
this Form 8-K.
(c) Exhibit
(99) Press Release, dated January 21, 2004, issued by
First Merchants Corporation
A report on Form 8-K, dated February 13, 2004, was filed on
February 13, 2004 under report item number 5, concerning the
Corporation's declaration of a cash dividend on its shares of
common stock to be paid on March 19, 2004. The dividend was
payable to shareholders of record on March 5, 2004.
Under report item number 7, the following exhibit was included in
the Form 8-K.
(c) Exhibit
(99) Press release dated February 13, 2004.
A report on Form 8-K, dated March 5, 2004 was filed on March 5,
2004 under report item 9, concerning the Corporation's mailing of
its 2003 Annual Report to Shareholders to its shareholders of
record on February 13, 2004.
Under report item number 9, the following exhibit was included in
this Form 8-K.
(c) Exhibit
(99) 2003 Annual Report to Shareholders (Furnished
pursuant to Regulation FD)
Page 27
FIRST MERCHANTS CORPORATION
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
First Merchants Corporation
---------------------------
(Registrant)
Date 5/10/04 by /s/ Michael L. Cox
--------------------------- -------------------------------------
Michael L. Cox
President and Chief Executive Officer
Date 5/10/04 by /s/ Mark K. Hardwick
--------------------------- -------------------------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Page 28
FIRST MERCHANTS CORPORATION
FORM 10-Q
INDEX TO EXHIBITS
INDEX TO EXHIBITS
(a)3. Exhibits:
Exhibit No.: Description of Exhibit: Form 10-Q Page No.:
------------ ------------------------- -------------------
31.1 Certification of Chief 30
Executive Officer Pursuant
to Section 302 of the
Sarbanes - Oxley Act of
2002
31.2 Certification of Chief 31
Financial Officer Pursuant
to Section 302 of the
Sarbanes - Oxley Act of
2002
32 Certifications Pursuant to 32
18 U.S.C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley
Act of 2002
Page 29
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Michael L. Cox, President and Chief Executive Officer of First Merchants
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Merchants
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report, based on such evaluation;
and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board or directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 10, 2004 /s/Michael L. Cox
----------------------------------------
Michael L. Cox
President and Chief Executive Officer
Page 30
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Mark K. Hardwick, Senior Vice President and Chief Financial Officer of First
Merchants Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-Q of First Merchants
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the
end of the period covered by this report, based on such evaluation;
and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board or directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 10, 2004 /s/Mark K. Hardwick
----------------------------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
Page 31
Exhibit 32
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of First Merchants Corporation (the
"Corporation") on Form 10-Q for the period ending March 31, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I
Michael L. Cox, President and Chief Executive Officer of the Corporation, do
hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Corporation.
Date May 10, 2004 by /s/ Michael L. Cox
--------------------------- -------------------------------------
Michael L. Cox
President and Chief Executive Officer
A signed copy of this written statement required by Section 906 has been
provided to First Merchants Corporation and will be retained by First Merchants
Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.
In connection with the quarterly report of First Merchants Corporation (the
"Corporation") on Form 10-Q for the period ending March 31, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I Mark
K. Hardwick, Senior Vice President and Chief Financial Officer of the
Corporation, do hereby certify, in accordance with 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Corporation.
Date May 10, 2004 by /s/ Mark K. Hardwick
--------------------------- -------------------------------------
Mark K. Hardwick
Senior Vice President and
Chief Financial Officer
(Principal Financial and Chief
Accounting Officer)
A signed copy of this written statement required by Section 906 has been
provided to First Merchants Corporation and will be retained by First Merchants
Corporation and furnished to the Securities and Exchange Commission or its staff
upon request.
Page 32