STOCKHOLDER INFORMATION
[GRAPHIC: MAP; FIRST MERCHANTS CORPORATION MARKET AREA]
First
Merchants
Corporation
Market Area
Corporate Office
200 East Jackson Street
Muncie, IN 47305
317-747-1500
First Merchants Corporation of Muncie, Indiana, was organized in September
1982, as the bank holding company for The Merchants National Bank, now First
Merchants Bank, N.A., an institution which has served Muncie and the surrounding
communities since 1893.
In November, 1988, First Merchants acquired Pendleton Banking Company of
Pendleton, Indiana, a commercial bank which was organized in 1872.
In July, 1991, the Corporation acquired First United Bank of Middletown,
Indiana, which was established in 1882.
First Merchants Corporation currently provides services through 21 offices
located in Delaware, Madison, and Henry counties, Indiana.
Subsidiaries of First Merchants Corporation conduct a full range of banking
operations, including commercial, industrial, consumer and real estate lending,
deposit and investment services, and other banking services. First Merchants
Bank, with more than $820,000,000 in fiduciary assets at market value, operates
one of the ten largest trust departments in Indiana.
First Merchants Corporation is committed to the sound management of its
subsidiaries and to leading its east central Indiana marketplace in meeting
customer banking needs and expectations.
STOCK PRICE AND DIVIDEND INFORMATION
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PRICE PER SHARE
QUARTER HIGH LOW DIVIDENDS DECLARED
1994 1993 1994 1993 1994 1993
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
First Quarter $30.75 $30.75 $28.50 $27.00 $.25 $.22
Second Quarter 29.50 29.00 28.00 26.50 .25 .22
Third Quarter 33.75 30.50 28.50 26.50 .28 .25
Fourth Quarter 33.50 31.25 30.50 29.00 .28 .25
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The table above lists per share bid prices and dividend payments during 1993 and
1994, as adjusted for the 3-for-2 stock split of January, 1993.
Prices are as reported by the National Association of Securities Dealers
Automated Quotation - National Market System.
STOCK INFORMATION
COMMON STOCK LISTING
First Merchants Corporation common stock is traded over-the-counter on the
NASDAQ National Market System. Quotations are carried in many daily papers.
The NASDAQ symbol is FRME (Cusip #320817-10-9). At the close of business on
December 31, 1994, the number of shares outstanding was 3,366,346. There were
1,061 stockholders of record on that date.
STOCK TRANSFER AGENT AND REGISTRAR
First Merchants Bank, N.A.
Corporate Trust Department
P.O. Box 792
Muncie, Indiana 47308-0792
GENERAL STOCKHOLDER INQUIRIES
Stockholders and interested investors may obtain information about the
Corporation upon written request or by calling:
Mr. Douglas B. Harris
Assistant Vice President
Investor Services
First Merchants Corporation
P.O. Box 792
Muncie, Indiana 47308-0792
317-747-1346
1-800-262-4261
MARKET MAKERS
The following firms make a market in First Merchants Corporation stock:
City Securities Corporation
Herzog, Heine, Geduld, Inc.
Howe, Barnes & Johnson, Inc.
David A. Noyes and Company
Raffensperger, Hughes & Co.
Sandler, O'Neill & Partners, L.P.
FORM 10-K AND
FINANCIAL INFORMATION
First Merchants Corporation, upon request and without charge, will furnish
stockholders, security analysts, and investors a copy of Form 10-K filed with
the Securities and Exchange Commission. Please contact:
Mr. James Thrash
Senior Vice President
and Chief Financial Officer
First Merchants Corporation
P.O. Box 792
Muncie, Indiana 47308-0792
317-747-1390
1-800-262-4261
ANNUAL MEETING
The Annual Meeting of Stockholders of First Merchants Corporation will be held
Thursday, March 30, 1995, 3:30 p.m., at the Horizon Convention Center, 401 South
High Street, Muncie, Indiana.
INDEPENDENT AUDITOR'S REPORT
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To the Stockholders & Board of Directors
First Merchants Corporation
Muncie, Indiana
We have audited the consolidated balance sheet of First Merchants Corporation
and subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in stockholder's equity and cash flows for each of
the three years in the period ended December 31, 1994 (pages 7-22). These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of First
Merchants Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in the notes to the Consolidated Financial Statements, the
Corporation changed its method of accounting for investments in securities in
1994 and for income taxes in 1993.
GEO S. OLIVE & CO. LLC
Indianapolis, Indiana
January 20, 1995
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TABLE OF CONTENTS
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA. . . . . . . . . . . . . 1
MANAGEMENT'S DISCUSSION & ANALYSIS . . . . . . . . . . . . . . . . . . 2
CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . 11
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994 1993 1992 1991 1990
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OPERATIONS
Net Interest Income
Fully Taxable Equivalent Basis . . . . . $ 28,282 $ 26,806 $ 26,400 $ 23,277 $ 20,055
Less Tax Equivalent Adjustment . . . . . . 1,299 1,298 1,190 1,320 983
. . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income. . . . . . . . . . . . 26,983 25,508 25,210 21,957 19,072
Provision for Loan Losses. . . . . . . . . 782 1,014 1,357 1,401 1,295
. . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income
After Provision for Loan Losses. . . . . 26,201 24,494 23,853 20,556 17,777
Total Other Income . . . . . . . . . . . . 6,298 6,588 5,576 5,229 4,671
Total Other Expenses . . . . . . . . . . . 18,434 18,214 17,603 15,792 13,401
. . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Income Tax Expense
and Change in Accounting Method. . . . . 14,065 12,868 11,826 9,993 9,047
Income Tax Expense . . . . . . . . . . . . 4,907 4,396 4,041 3,234 3,023
. . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Change in Accounting
Method . . . . . . . . . . . . . . . . . 9,158 8,472 7,785 6,759 6,024
Change in Accounting Method for
Income Taxes . . . . . . . . . . . . . . 227
. . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . $ 9,158 $ 8,699 $ 7,785 $ 6,759 $ 6,024
. . . . . . . . . . . . . . . . . . . . . . . . .
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PER SHARE DATA (1)
Income Before Change in Accounting
Method . . . . . . . . . . . . . . . . . $ 2.71 $ 2.48 $ 2.30 $ 2.09 $ 1.90
Net Income . . . . . . . . . . . . . . . . 2.71 2.55 2.30 2.09 1.90
Cash Dividends Paid. . . . . . . . . . . . 1.06 .94 .85 .79 .71
December 31 Book Value . . . . . . . . . . 21.10 20.30 18.79 17.36 16.29
December 31 Market Value (BID PRICE) . . . 31.25 29.00 28.50 18.67 13.83
AVERAGE BALANCES
Total Assets . . . . . . . . . . . . . . . $634,868 $626,398 $603,067 $560,412 $511,097
Total Loans. . . . . . . . . . . . . . . . 388,639 357,028 329,750 300,276 272,122
Total Deposits . . . . . . . . . . . . . . 514,029 517,826 501,526 441,302 408,804
Total Stockholders' Equity . . . . . . . . 70,104 66,887 61,246 54,473 49,906
YEAR-END BALANCES
Total Assets . . . . . . . . . . . . . . . $644,606 $626,113 $616,859 $596,573 $541,124
Total Loans. . . . . . . . . . . . . . . . 401,605 376,872 350,308 323,382 287,787
Total Deposits . . . . . . . . . . . . . . 529,830 506,302 511,971 484,824 429,675
Total Stockholders' Equity . . . . . . . . 71,018 68,804 63,935 58,472 51,277
FINANCIAL RATIOS
Return on Average Assets . . . . . . . . . 1.44% 1.39% 1.29% 1.21% 1.18%
Return on Average Stockholders' Equity . . 13.06 13.01 12.71 12.41 12.07
Average Earning Assets to Total Assets . . 94.05 93.71 93.93 93.82 93.55
Allowance for Loan Losses
as % of Total Loans . . . . . . . . . 1.24 1.27 1.24 1.20 1.13
Dividend Payout Ratio. . . . . . . . . . . 39.11 36.86 36.96 37.79 37.37
Average Stockholder's Equity to
Average Assets . . . . . . . . . . . . . 11.04 10.68 10.16 9.72 9.76
Tax Equivalent Yield on Earning Assets . . 7.44 7.38 8.31 9.48 10.09
Cost of Supporting Liabilities . . . . . . 2.70 2.81 3.65 5.05 5.90
Net Interest Margin on Earning Assets. . . 4.74 4.57 4.66 4.43 4.19
<FN>
(1) Restated for 3-for-2 stock split distributed January, 1993.
The amounts include First United Bank, subsequent to its acquisition on July 31,
1991
1
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MANAGEMENT'S DISCUSSION & ANALYSIS
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[Graphic; bar chart; Return on Average Assets]
[Graphic; bar chart; Return on Average Equity]
RESULTS OF OPERATION
Net income before cumulative effect of change in accounting method for the
year amounted to $9,158,000 or $2.71 per share, an increase of 9.3 per cent over
1993 at $2.48 per share.
Earnings per share for 1993 included $.07 per share resulting from the
required adoption in the first quarter of Statement of Financial Accounting
Standard No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES, a non-recurring
event. Total 1993 earnings per share amounted to $2.55.
Return on assets, increased to a record level of 1.44 per cent, up from
1.39 per cent in 1993.
Return on equity was 13.06 per cent in 1994, 13.01 per cent in 1993, and
12.71 per cent in 1992.
In 1994, First Merchants Corporation ("Corporation") recorded the
nineteenth consecutive year of improvement in net income on both an aggregate
and per share basis.
CAPITAL
The Corporation's capital strength continues to exceed regulatory minimums
and peer group averages. Management believes that strong capital is a distinct
advantage in the competitive environment in which the Corporation operates and
will provide a solid foundation for continued growth.
The Corporation's capital ratio was 11.02 per cent at year-end 1994 and
10.99 per cent at December 31, 1993. At December 31, 1994, the Corporation had
a Tier I risk-based capital ratio of 16.28 per cent, total risk-based capital
ratio of 17.41 per cent, and a leverage ratio of 11.54 per cent. Regulatory
capital guidelines require a Tier I risk-based capital ratio of 4.0 per cent and
a total risk-based capital ratio of 8.0 per cent.
The Corporation has an employee stock purchase plan and an employee stock
option plan. Activity under these plans is described in Note 11 to the
Consolidated Financial Statements.
The transactions under these plans have not had a material effect on the
Corporation's capital position.
On March 31, 1994, stockholders approved the 1994 Stock Option Plan. Under
the terms of the plan, 210,000 shares of Corporation common stock are reserved
for the granting of options to certain employees and non-employee directors.
The exercise price of the shares may not be less than the fair market value of
the shares upon the grant of the option. Options become 100 per cent vested
when granted and fully exercisable generally six months after the date of the
grant, for a period of ten years.
On March 31, 1994, stockholders approved the 1994 Employee Stock Purchase
Plan. A total of 112,500 shares of the Corporation's common stock are reserved
for issuance pursuant to the plan. The terms of the plan are described in Note
11 to the Consolidated Financial Statements.
ASSET QUALITY/PROVISION FOR LOAN LOSSES
The Corporation's asset quality and loan loss experience has consistently
been superior to that of its peer group, as summarized on the following page.
Asset quality has been a major factor in the Corporation's ability to generate
consistent profit improvement.
The allowance for loan losses is maintained through the provision for loan
losses, which is a charge against earnings.
The amount provided for loan losses and the determination of the adequacy
of the allowance are based on a continuous review of the loan portfolio,
including an internally administered loan review program. The evaluation takes
into consideration identified credit problems, as well as the possibility of
losses inherent in the loan portfolio that cannot be specifically identified.
The following table summarizes the risk elements for the Corporation and
its peer group consisting of bank holding companies with average assets between
$500 million and $1 billion. The peer group statistics were provided by the
Federal Reserve System. The table indicates that the Corporation's loan quality
compares favorably with the peer group.
2
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MANAGEMENT'S DISCUSSION & ANALYSIS
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ASSET QUALITY/PROVISION FOR LOAN LOSSES (CONTINUED)
[Graphic; bar chart; Net Loan Losses]
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NON-PERFORMING LOANS (1) at DECEMBER 31 as a PER CENT of LOANS
FIRST MERCHANTS PEER
CORPORATION GROUP
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1994 . . . . . . . . . . . . . . . . . . . . . .26% NA
1993 . . . . . . . . . . . . . . . . . . . . . .30 1.54%
1992 . . . . . . . . . . . . . . . . . . . . . .41 1.87
1991 . . . . . . . . . . . . . . . . . . . . . .86 2.59
1990 . . . . . . . . . . . . . . . . . . . . . 1.09 2.62
(1) Accruing loans past due 90 days or more, and non-accruing loans, but
excluding restructured loans. December 31, 1994, peer group comparisons are
not yet available.
At December 31, 1994, the allowance for loan losses was $4,998,000, up 4.1
per cent from year end 1993. As a per cent of loans, the allowance was 1.24 per
cent, down from 1.27 per cent at year end 1993.
The table below presents loan loss experience for the years indicated and
compares the Corporation's loss experience to that of its peer group. Again,
the Corporation compares favorably.
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1994 1993 1992 1991 1990
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(DOLLARS IN THOUSANDS)
Allowance for loan losses:
Balance at January 1 . . . . . . $4,800 $4,351 $3,867 $3,254 $2,915
Addition resulting
from acquisition. . . . . . . 252
. . . . . . . . . . . . . . . . . . . .
Chargeoffs:
Commercial. . . . . . . . . . 526 391 588 806 614
Real estate mortgage. . . . . 41 129 100 41 46
Installment . . . . . . . . . 346 388 552 511 590
. . . . . . . . . . . . . . . . . . . .
Total chargeoffs. . . . . . 913 908 1,240 1,358 1,250
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Recoveries:
Commercial. . . . . . . . . . 216 240 215 227 195
Real estate mortgage. . . . . 30 5 38 7 1
Installment . . . . . . . . . 83 98 114 84 98
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Total recoveries. . . . . . 329 343 367 318 294
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Net chargeoffs . . . . . . . . . 584 565 873 1,040 956
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Provision for loan losses. . . . 782 1,014 1,357 1,401 1,295
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Balance at December 31 . . . . . $4,998 $4,800 $4,351 $3,867 $3,254
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Ratio of net chargeoffs during
the period to average loans
outstanding during the period. . .15% .16% .26% .35% .35%
Peer Group . . . . . . . . . . . . NA .49 .63 .95 .93
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As a result of Management's assessment of loan quality and the adequacy of
the allowance for loan losses, the 1994 provision for loan losses at $782,000
represented a $232,000 decrease from 1993. The amount provided exceeded net
chargeoffs by $198,000.
3
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MANAGEMENT'S DISCUSSION & ANALYSIS
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LIQUIDITY AND INTEREST SENSITIVITY
Asset/Liability Management has been an important factor in the
Corporation's ability to record consistent earnings growth through periods of
interest rate volatility and product deregulation. Management and the Board of
Directors monitor the Corporation's liquidity and interest sensitivity positions
at regular meetings to ensure that changes in interest rates will not adversely
affect earnings. Decisions regarding investment and the pricing of loan and
deposit products are made after analysis of reports designed to measure
liquidity, rate sensitivity, the Corporation's exposure to changes in net
interest income given various rate scenarios, and the economic and competitive
environments.
The Corporation's liquidity and interest sensitivity position at December
31, 1994, remained adequate to meet the Corporation's primary goal of achieving
optimum interest margins while avoiding undue interest rate risk. The table
below presents the Corporation's interest rate sensitivity analysis as of
December 31, 1994.
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INTEREST-RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
AT DECEMBER 31, 1994
1-180 DAYS 181-365 DAYS 1-5 YEARS BEYOND 5 YEARS TOTAL
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Rate-Sensitive Assets:
Federal funds sold and
interest-bearing time deposits . . . . . . . . . . $ 3,698 $ 3,698
Securities available for sale. . . . . . . . . . . . 13,852 $ 9,364 $ 72,775 $ 3,372 99,363
Securities held to maturity. . . . . . . . . . . . . 16,800 16,409 40,996 3,472 77,677
Loans. . . . . . . . . . . . . . . . . . . . . . . . 207,590 47,136 104,792 42,087 401,605
Federal Reserve and
Federal Home Loan Bank stock . . . . . . . . . . . 1,572 307 1,879
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total rate-sensitive assets. . . . . . . . . . . . 243,512 72,909 218,563 49,238 584,222
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate-Sensitive Liabilities:
Savings and time deposits. . . . . . . . . . . . . . 191,190 31,546 207,305 122 430,163
Other borrowed funds . . . . . . . . . . . . . . . . 39,189 39,189
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total rate-sensitive liabilities . . . . . . . . . 230,379 31,546 207,305 122 469,352
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate sensitivity gap by period. . . . . . . . $ 13,133 $ 41,363 $ 11,258 $ 49,116
Cumulative gap . . . . . . . . . . . . . . . . . . . . 13,133 54,496 65,754 114,870
Cumulative ratio at December 31, 1994. . . . . . . . . 105.7% 120.8% 114.0% 124.5%
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EARNING ASSETS
Earning assets declined $.8 million during 1994 after increasing $12.7
million during 1993. The Corporation shifted emphasis to loans from investments
to more profitably configure the balance sheet.
The following table presents the earning asset mix for the years ended
1994, 1993, and 1992.
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EARNING ASSETS
(DOLLARS IN MILLIONS)
DECEMBER 31
1994 1993 1992
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold and interest-bearing
time deposits. . . . . . . . . . . . . . . $ 3.7 $ 1.9 $ 25.7
Securities available for sale. . . . . . . . 99.3
Securities held to maturity. . . . . . . . . 77.7 204.3 196.0
Loans. . . . . . . . . . . . . . . . . . . . 401.6 376.9 350.3
Federal Reserve and Federal Home Loan
Bank stock . . . . . . . . . . . . . . . . 1.9 1.9 .3
. . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . $ 584.2 $ 585.0 $ 572.3
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4
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MANAGEMENT'S DISCUSSION & ANALYSIS
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DEPOSITS AND SHORT-TERM BORROWINGS
The following tables present the level of deposits and short-term
borrowings (Federal funds purchased, repurchase agreements with customers and
U.S. Treasury demand notes) based on both year-end levels and daily average
balances for the past three years:
AS OF DECEMBER 31
SHORT-TERM
DEPOSITS BORROWINGS
1994 $529,830,000 $39,189,000
1993 506,302,000 46,890,000
1992 511,971,000 37,073,000
AVERAGE BALANCES
SHORT-TERM
DEPOSITS BORROWINGS
1994 $514,029,000 $45,639,000
1993 517,826,000 35,317,000
1992 501,526,000 35,796,000
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 per cent of average earning assets for the five-
year period ending in 1994. Asset yields improved slightly in 1994 (.06 per
cent), while interest expense declined 11 basis points. The resulting "spread"
increase of .17 per cent (4.74% vs 4.57%) accounted for approximately two-thirds
of the $1,476,000 increase in fully taxable equivalent net interest income. The
remaining increase is attributable to growth in average earning assets of
$10,093,000 (see table below).
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTEREST INCOME INTEREST EXPENSE NET INTEREST INCOME NET INTEREST INCOME
(FTE) AS A PER CENT AS A PER CENT (FTE) AS A PER CENT AVERAGE ON A
OF AVERAGE OF AVERAGE OF AVERAGE EARNING FULLY TAXABLE
EARNING ASSETS EARNING ASSETS EARNING ASSETS ASSETS EQUIVALENT BASIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1994 7.44% 2.70% 4.74% $597,102 $28,282
1993 7.38 2.81 4.57 587,009 26,806
1992 8.31 3.65 4.66 566,467 26,400
1991 9.48 5.05 4.43 525,799 23,277
1990 10.09 5.90 4.19 478,113 20,055
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INCOME
The Corporation has placed emphasis on the growth of non-interest income in
recent years by offering a wide range of fee-based services. Fee schedules are
regularly reviewed by a pricing committee to ensure that the products and
services offered by the Corporation are priced to be competitive and profitable.
Other income reached $6,588,000 in 1993, an increase of 18.2 per cent over
the prior year. Most of the increase was experienced in the major categories:
1. Trust revenues grew $180,000, or 8.1 per cent;
2. Service charges on deposit accounts were up by $250,000, or 11.1 per
cent;
3. Securities gains totalled $395,000, an increase of $328,000, or 493.4
per cent.
Other income declined in 1994 by $290,000, or 4.4 per cent. The decline is
attributable to two factors:
1. Loss on the sale of securities of $31,000 compared to gains of
$395,000 in 1993, a change of $426,000.
2. A $126,000 (5.0%) decline in deposit service charges.
The first factor is not relevant to the underlying fee income potential of
the Corporation. Without that change, fee income would have increased from
$6,194,000 to $6,329,000 (2.2 per cent).
OTHER EXPENSE
Total "other expenses" represent non-interest operating expenses of the
Corporation. Those expenses amounted to $18,434,000 in 1994, an increase of 1.2
per cent from the prior year.
Salary and benefit expenses, which account for one-half of the
Corporation's non-interest operation expenses, increased by $928,000, or 10.2
per cent. About one-fourth of that increase is attributable to the change in
the Corporation's data processing function described below. The rest is
attributable to normal salary increases and to key additions to staff.
5 (CONTINUED)
MANAGEMENT'S DISCUSSION & ANALYSIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER EXPENSE (CONTINUED)
In 1993, other expenses increased $611,000 to $18,215,000, an increase of
3.5 per cent. Salary and benefit expenses increased by $330,000, or 3.8 per
cent, and premises and equipment expenses rose $254,000, or 12.8 per cent.
In the fourth quarter of 1993, First Merchants assumed responsibility for
the data processing function for the Corporation and its subsidiaries. The
agreement with an outside party to provide data processing was terminated.
The cost of the conversion, equipment, and software was approximately
$1,700,000. The equipment and software costs will be depreciated on a straight-
line method based on useful lives of the assets. The Corporation estimates
that data processing costs declined under the new arrangement (net of
additional salary, benefit, equipment, and software costs) by more than
$400,000.
INCOME TAXES
The increase in 1994 tax expense of $512,000 is attributable to a
$1,198,000 increase in net pre-tax income.
The following is a breakdown, by year, of federal and state income taxes:
. . . . . . . . . . . . . . . . . . . . .
FEDERAL AND STATE INCOME TAXES
1994 1993
(DOLLARS IN THOUSANDS)
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Federal taxes $3,735 $3,272
State taxes 1,172 1,124
. . . . . . . .
Total $4,907 $4,396
. . . . . . . . . . . . . . . . . . . . .
During 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES. As a result, the
beginning deferred tax asset was increased by $227,329, which is reported as the
cumulative effect of a change in accounting method in the income statement.
ACCOUNTING MATTERS
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114 (SFAS No. 114), ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN. The Statement requires that impaired
loans that are within the scope of SFAS No. 114 be measured based on the present
value of expected future cash flows, discounted at the loan's effective interest
rate; at the loan's observable market price; or the fair value of the
collateral, if the loan is collateral dependent. Adoption of SFAS No. 114 is
required in 1995, with earlier adoption permitted. The Corporation has not
determined the impact of SFAS No. 114 on its financial condition and results of
operations, but expects it to be immaterial.
Also in May, 1993, the FASB issued Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. This Statement requires that investment securities be
classified as either held-to-maturity securities, which are reported at
amortized cost; trading securities, which are reported at fair value, with
unrealized gains and losses included in earnings; or available-for-sale
securities, which are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholders'
equity. SFAS No. 115 was adopted as of January 1, 1994. At that date,
securities with a carrying value of $107,569,000 were reclassified as available
for sale. This reclassification resulted in an increase in total stockholders'
equity, net of tax, of $644,000.
During 1994, the market value of securities available for sale (net of
taxes) declined by $3,164,000 and the unrealized loss of those securities (net
of taxes) was $2,520,000 on December 31, 1994.
INFLATION
Changing prices of goods, services, and capital affect the financial
position of every business enterprise. The level of market interest rates and
the price of funds loaned or borrowed fluctuate due to changes in the rate of
inflation and various other factors, including government monetary policy.
Fluctuating interest rates affect the Corporation's net interest income,
loan volume, and other operating expenses, such as employees' salaries and
benefits, reflecting the effects of escalating prices, as well as increased
levels of operations and other factors. As the inflation rate increases, the
purchasing power of the dollar decreases. Those holding fixed-rate monetary
assets incur a loss, while those holding fixed rate monetary liabilities enjoy a
gain. The nature of a bank holding company's operations is such that there will
be an excess of monetary assets over monetary liabilities, and, thus, a bank
holding company will tend to suffer from an increase in the rate of inflation
and benefit from a decrease.
6
. . . . .
. . . . .
CONSOLIDATED BALANCE SHEET
December 31
-------------------------------
1994 1993
---- ----
ASSETS:
Cash and due from banks. . . . . . . . $ 42,684,174 $ 24,942,428
Federal funds sold . . . . . . . . . . 3,675,000 1,625,000
------------- ------------
Cash and cash equivalents. . . . . . 46,359,174 26,567,428
Interest-bearing time deposits . . . . 23,117 253,854
Securities available for sale. . . . . 99,363,240
Securities held to maturity
(approximate market value
$76,522,000 and $207,442,000) . . . . 77,676,818 204,363,290
Loans:
Loans. . . . . . . . . . . . . . . . 401,604,848 376,871,651
Less: Allowance for loan losses . . 4,997,847 4,800,366
------------- ------------
Net Loans. . . . . . . . . . . . . 396,607,001 372,071,285
Premises and equipment . . . . . . . . 9,545,153 9,440,635
Federal Reserve and Federal Home
Loan Bank Stock. . . . . . . . . . . 1,879,300 1,879,300
Interest receivable. . . . . . . . . . 5,627,391 5,664,780
Core deposit intangibles and goodwill. 1,976,594 2,107,771
Other assets . . . . . . . . . . . . . 5,548,184 3,764,616
------------- ------------
Total assets. . . . . . . . . . . $644,605,972 $626,112,959
------------- ------------
------------- ------------
LIABILITIES:
Deposits:
Noninterest bearing. . . . . . . . . $ 99,667,435 $ 74,546,331
Interest bearing . . . . . . . . . . 430,162,771 431,755,835
------------- ------------
Total deposits . . . . . . . . . . 529,830,206 506,302,166
Short-term borrowings. . . . . . . . . 39,188,990 46,890,127
Interest payable . . . . . . . . . . . 1,319,917 1,226,167
Other liabilities. . . . . . . . . . . 3,248,790 2,890,228
------------- ------------
Total liabilities. . . . . . . . . 573,587,903 557,308,688
STOCKHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized and unissued--500,000
shares . . . . . . . . . . . . . . .
Common stock, $.125 stated value:. . .
Authorized--20,000,000 shares. . . .
Issued and outstanding--3,366,346
and 3,389,591 shares . . . . . . . 420,793 423,699
Additional paid-in capital . . . . . . 16,230,765 17,068,603
Retained earnings. . . . . . . . . . . 56,886,450 51,311,969
Net unrealized loss on securities
available for sale . . . . . . . . . ( 2,519,939)
------------- ------------
Total stockholders' equity . . . . 71,018,069 68,804,271
------------- ------------
Total liabilities and
stockholders'equity. . . . . . . $644,605,972 $626,112,959
------------- ------------
------------- ------------
See notes to consolidated financial statements.
7
=
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31
----------------------------------------------
1994 1993 1992
---- ---- ----
INTEREST INCOME
Loans, including fees:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,721,626 $28,704,848 $29,636,313
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,412 122,422 155,339
Securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,552,888 10,264,922 13,341,891
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,434,992 2,396,031 2,153,806
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . 217,035 453,805 475,065
Interest-bearing time deposits . . . . . . . . . . . . . . . . . . . 1,743 35,295 124,023
Federal Reserve and Federal Home Loan Bank stock . . . . . . . . . . 102,785 28,933 18,432
------------ ----------- -----------
Total interest income. . . . . . . . . . . . . . . . . . . . . . . 43,114,481 42,006,256 45,904,869
------------ ----------- -----------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,294,358 15,431,588 19,313,198
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . 1,836,794 1,066,592 1,381,953
------------ ----------- -----------
Total Interest expense . . . . . . . . . . . . . . . . . . . . . . 16,131,152 16,498,180 20,695,151
------------ ----------- -----------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . 26,983,329 25,508,076 25,209,718
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . 782,000 1,013,765 1,356,536
------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,201,329 24,494,311 23,853,182
------------ ----------- -----------
OTHER INCOME
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,549,660 2,408,632 2,228,936
Service charges on deposit accounts. . . . . . . . . . . . . . . . . 2,380,166 2,506,483 2,256,646
Other customer fees. . . . . . . . . . . . . . . . . . . . . . . . . 1,061,332 1,049,751 793,743
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . ( 31,317) 394,551 66,488
Other operating income . . . . . . . . . . . . . . . . . . . . . . . 337,927 228,794 230,218
------------ ----------- -----------
Total other income . . . . . . . . . . . . . . . . . . . . . . . . 6,297,768 6,588,211 5,576,031
------------ ----------- -----------
OTHER EXPENSES
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . 10,051,455 9,123,874 8,793,835
Net occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . 1,106,107 1,096,771 1,000,987
Equipment expenses . . . . . . . . . . . . . . . . . . . . . . . . . 1,586,398 1,138,180 979,755
Computer processing fees . . . . . . . . . . . . . . . . . . . . . . 130,882 1,176,957 1,341,464
Deposit insurance expense. . . . . . . . . . . . . . . . . . . . . . 1,134,194 1,138,463 1,087,072
Printing and office supplies . . . . . . . . . . . . . . . . . . . . 760,646 771,593 688,813
Marketing expense. . . . . . . . . . . . . . . . . . . . . . . . . . 484,657 525,685 494,629
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . 3,179,536 3,243,368 3,217,229
------------ ----------- -----------
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . 18,433,875 18,214,891 17,603,784
------------ ----------- -----------
INCOME BEFORE INCOME TAX AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING METHOD. . . . . . . . . . . . . . . . . . . . . 14,065,222 12,867,631 11,825,429
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . 4,907,459 4,395,920 4,040,729
------------ ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD . . . . 9,157,763 8,471,711 7,784,700
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES . 227,329
------------ ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,157,763 $ 8,699,040 $ 7,784,700
------------ ----------- -----------
------------ ----------- -----------
PER SHARE
Income before cumulative effect of change in accounting method . . . $ 2.71 $ 2.48 $ 2.30
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.71 $ 2.55 $ 2.30
WEIGHTED AVERAGES SHARES OUTSTANDING . . . . . . . . . . . . . . . . . 3,384,871 3,416,417 3,385,349
See notes to consolidated financial statements.
8
=
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Net Unrealized
Gain (Loss)
Common Stock Additional On Securities
------------------- Paid-In Retained Available for
Shares Amount Capital Earnings Sale Total
------ ------ ------- -------- ---- -----
BALANCES, JANUARY 1, 1992. . . . . . . . . 2,244,847 $ 280,606 $ 17,260,573 $ 40,931,038 $ 58,472,217
Net income for 1992. . . . . . . . . . . 7,784,700 7,784,700
Cash dividends ($.85 per share). . . . . (2,890,082) ( 2,890,082)
Stock issued under employee benefit
plans. . . . . . . . . . . . . . . . . 9,499 1,187 189,564 190,751
Stock issued under dividend
reinvestment and stock purchase
plan . . . . . . . . . . . . . . . . . 4,787 599 185,130 185,729
Stock options exercised. . . . . . . . . 9,850 1,231 220,819 222,050
Stock redeemed . . . . . . . . . . . . . ( 841) ( 105) ( 30,701) (30,806)
Three-for-two stock split. . . . . . . . 1,134,071 141,759 ( 141,759)
---------- ---------- ------------ ------------ ------------- ------------
BALANCES, DECEMBER 31, 1992. . . . . . . . 3,402,213 425,277 17,683,626 45,825,656 63,934,559
Net Income for 1993. . . . . . . . . . . 8,699,040 8,699,040
Cash dividends ($.94 per share). . . . . (3,212,727) (3,212,727)
Stock issued under employee benefit
plans. . . . . . . . . . . . . . . . . 11,817 1,477 246,286 247,763
Stock issued under dividend
reinvestment and stock purchase
plan . . . . . . . . . . . . . . . . . 9,858 1,232 285,717 286,949
Stock options exercised. . . . . . . . . 9,299 1,163 153,222 154,385
Stock redeemed . . . . . . . . . . . . . ( 43,500) ( 5,438) ( 1,296,000) ( 1,301,438)
Cash paid in lieu of
issuing fractional shares. . . . . . . ( 96) ( 12) ( 4,248) ( 4,260)
---------- ---------- ------------ ------------ ------------- ------------
BALANCES, DECEMBER 31, 1993. . . . . . . . 3,389,591 423,699 17,068,603 51,311,969 68,804,271
Net Income for 1994. . . . . . . . . . . 9,157,763 9,157,763
Cash dividends ($1.06 per share) . . . . (3,583,282) ( 3,583,282)
Cumulative effect of change in method
of accounting for securities . . . . . $ 643,896 643,896
Net change in unrealized gain (loss)
on securities available for sale . . . (3,163,835) ( 3,163,835)
Stock issued under employee benefit
plans. . . . . . . . . . . . . . . . . 10,543 1,318 248,485 249,803
Stock issued under dividend
reinvestment and stock purchase
plan . . . . . . . . . . . . . . . . . 11,670 1,459 355,745 357,204
Stock options exercised. . . . . . . . . 4,875 609 107,275 107,884
Stock redeemed . . . . . . . . . . . . . ( 50,333) ( 6,292) ( 1,549,343) ( 1,555,635)
---------- ---------- ------------ ------------ ------------- ------------
BALANCES, DECEMBER 31, 1994. . . . . . . . 3,366,346 $ 420,793 $ 16,230,765 $ 56,886,450 $( 2,519,939) $ 71,018,069
---------- ---------- ------------ ------------ ------------- ------------
---------- ---------- ------------ ------------ ------------- ------------
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOW
Year ended December 31
----------------------------------------------------
1994 1993 1992
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 9,157,763 $ 8,699,040 $ 7,784,700
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . 782,000 1,013,765 1,356,536
Depreciation and amortization. . . . . . . . . . . 1,125,697 696,782 619,329
Amortization of goodwill and intangibles . . . . . 131,177 131,181 131,181
Deferred income tax. . . . . . . . . . . . . . . . ( 127,976) ( 542,266) ( 647,526)
Securities amortization, net . . . . . . . . . . . 1,161,783 987,365 868,416
Securities losses (gains), net . . . . . . . . . . 31,317 ( 394,551) ( 66,488)
(Continued)
9
=
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
Year ended December 31
----------------------------------------------------
1994 1993 1992
---- ---- ----
Net change in:
Interest receivable. . . . . . . . . . . . . . . ( 28,505) 191,612 1,246,585
Interest payable . . . . . . . . . . . . . . . . 93,750 ( 279,409) ( 509,719)
Other adjustments. . . . . . . . . . . . . . . . . 163,867 829,887 ( 86,524)
----------- ------------ ------------
Net cash provided by operating activities. . . 12,490,873 11,333,406 10,696,490
----------- ------------ ------------
INVESTING ACTIVITIES:
Net change in interest-bearing time deposits . . . . 230,737 1,250,620 2,147
Purchases of:
Securities available for sale. . . . . . . . . . . ( 24,216,114)
Securities held to maturity. . . . . . . . . . . . ( 30,833,553) (120,299,746) ( 97,182,863)
Proceeds from maturities of:
Securities available for sale. . . . . . . . . . . 12,424,651
Securities held to maturity. . . . . . . . . . . . 49,498,914 104,327,097 104,880,500
Proceeds from sales of:
Securities available for sale. . . . . . . . . . . 15,083,461
Securities held to maturity. . . . . . . . . . . . 5,430,571 4,506,249
Net change in loans. . . . . . . . . . . . . . . . . ( 25,767,003) ( 27,530,846) ( 28,659,226)
Purchases of premises and equipment. . . . . . . . . ( 1,230,215) ( 2,642,213) ( 1,374,976)
Other investing activities . . . . . . . . . . . . . 707,118 683,511 698,700
----------- ------------ ------------
Net cash used by investing activities. . . . . (4,102,004) ( 38,781,006) ( 17,129,469)
----------- ------------ ------------
FINANCING ACTIVITIES:
Net change in:
Noninterest-bearing, NOW, money market
and savings deposits . . . . . . . . . . . . . . $ 24,818,997 $ 12,890,301 $ 31,562,748
Certificates of deposit and other time deposits. . ( 1,290,957) (18,559,253) ( 4,392,319)
Short-term borrowings. . . . . . . . . . . . . . . ( 7,701,137) 9,817,127 (11,990,228)
Cash dividends . . . . . . . . . . . . . . . . . . . ( 3,583,282) ( 3,212,727) ( 2,890,082)
Stock issued under employee benefit plans. . . . . . 249,803 247,763 190,751
Stock issued under dividend reinvestment
and stock purchase plan. . . . . . . . . . . . . . 357,204 286,949 185,729
Stock options exercised. . . . . . . . . . . . . . . 107,884 154,385 222,050
Stock redeemed . . . . . . . . . . . . . . . . . . . ( 1,555,635) ( 1,301,438) ( 30,806)
Cash paid in lieu of issuing fractional shares. . . ( 4,260)
------------ ------------ ------------
Net cash provided by financing activities. . . . 11,402,877 318,847 12,857,843
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . 19,791,746 (27,128,753) 6,424,864
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR. . . . . . . . . . . . . . . . . . 26,567,428 53,696,181 47,271,317
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR. . . . . . . . . . . . . . . . . . . . . $ 46,359,174 $ 26,567,428 $ 53,696,181
------------ ------------ ------------
------------ ------------ ------------
ADDITIONAL CASH FLOWS INFORMATION: . . . . . . . . . .
Interest paid. . . . . . . . . . . . . . . . . . . . $ 16,037,402 $ 16,777,589 $ 21,204,870
Income tax paid. . . . . . . . . . . . . . . . . . . 4,997,385 5,004,469 4,615,519
See notes to consolidated financial statements.
10
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 1
ACCOUNTING POLICIES
The accounting and reporting policies of First Merchants Corporation
("Corporation"), and its wholly owned subsidiaries, First Merchants Bank, N.A.,
Pendleton Banking Company, and First United Bank ("Banks"), conform to generally
accepted accounting principles and reporting practices followed by the banking
industry. The more significant of the policies are described below.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Corporation and the Banks, after elimination of all material intercompany
transactions and accounts.
DESCRIPTION OF BUSINESS - The Banks generate commercial, mortgage, and consumer
loans and receive deposits from customers located primarily in central Indiana.
The Banks' loans are generally secured by specific items of collateral,
including real property, consumer assets, and business assets. Although the
Banks have a diversified loan portfolio, a substantial portion of their debtors'
ability to honor their contracts is dependent upon economic conditions in the
automotive industry.
SECURITIES - The Corporation adopted Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, on January 1, 1994.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as available
for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately through stockholders' equity,
net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At January 1, 1994, investment securities with an approximate carrying value of
$107,569,000 were reclassified as available for sale. This reclassification
resulted in an increase in total stockholders' equity, net of taxes, of
$644,000.
Prior to the adoption of SFAS No. 115, investment securities were carried at
cost, adjusted for amortization of premiums and discounts, and securities held
for sale and marketable equity securities were carried at the lower of aggregate
cost or market. Realized gains and losses on sales were included in other
income. Unrealized losses on securities held for sale were included in other
income. Unrealized losses on marketable equity securities were charged to
stockholders' equity. Gains and losses on the sale of securities were
determined on the specific-identification method.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. Loans are placed in a nonaccrual
status when the collection of interest becomes doubtful. Interest income
previously accrued, but not deemed collectible, is reversed and charged against
current income. Interest on these loans is then recognized as income when
collected. Certain loan fees and direct costs are being deferred and amortized
as an adjustment of yield on the loans.
ALLOWANCES FOR LOAN LOSSES is maintained to absorb potential loan losses based
on management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loan loss experience,
changes in the composition of the loan portfolio, and the current condition and
amount of loans outstanding.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred,
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK are a required investment for
institutions that are members of the Federal Reserve Bank (FRB) and Federal Home
Loan Bank (FHLB) system. The required investment in the common stock is based
on a predetermined formula.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The
Corporation has adopted the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES, for the year
ended December 31, 1993. The Corporation files consolidated income tax returns
with its subsidiaries.
EARNINGS PER SHARE have been computed based upon the weighted average common
shares outstanding during each year and have been restated to give effect to a
three-for-two stock split distributed to stockholders on January 25, 1993.
Common stock equivalents, consisting of shares issuable under employee benefit
plans, were not included since their effect on dilution was insignificant.
RECLASSIFICATIONS of certain amounts in the 1993 and 1992 consolidated financial
statements have been made to conform to the 1994 presentation.
11
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 2
RESTRICTION ON CASH AND DUE FROM BANKS
The Banks are required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at December 31, 1994, was
$8,528,000.
NOTE 3
SECURITIES
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
Securities available for sale at
December 31, 1994: . . . . . . .
U.S. Treasury. . . . . . . . . $ 11,817 $ 550 $ 11,267
Federal agencies . . . . . . . 35,565 1,271 34,294
State and municipal. . . . . . 9,762 $ 31 385 9,408
Mortgage and other asset-
backed securities. . . . . . 22,171 29 836 21,364
Corporate obligations. . . . . 24,221 4 1,195 23,030
-------- ------- ------ --------
Total securities available
for sale. . . . . . . . . $103,536 $ 64 $4,237 $ 99,363
-------- ------- ------ --------
-------- ------- ------ --------
Securities held to maturity at
December 31, 1994:
U.S. Treasury. . . . . . . . . $ 12,630 $ 21 $ 222 $ 12,429
Federal agencies . . . . . . . 24,529 29 469 24,089
State and municipal. . . . . . 38,117 211 680 37,648
Mortgage and other asset-
backed securities. . . . . . 370 370
Corporate obligations. . . . . 2,031 45 1,986
-------- ------- ------ --------
Total securities held to
maturity . . . . . . . . . $ 77,677 $ 261 $1,416 $ 76,522
-------- ------- ------ --------
-------- ------- ------ --------
Securities held to maturity at
December 31, 1993:
U.S. Treasury. . . . . . . . . $ 45,397 $ 654 $ 1 $ 46,050
Federal agencies . . . . . . . 53,452 691 62 54,081
State and municipal. . . . . . 44,866 1,211 55 46,022
Mortgage and other asset-
backed securities. . . . . . 23,690 219 93 23,816
Corporate obligations. . . . . 36,958 582 87 37,453
-------- ------- ------ --------
Total securities held to
maturity. . . . . . . . . . $204,363 $ 3,357 $ 298 $207,422
-------- ------- ------ --------
-------- ------- ------ --------
The amortized cost and estimated market value of securities held to maturity and
available for sale at December 31, 1994, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call
or prepayment penalties.
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
Amortized Approximate Amortized Approximate
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
Maturity distribution at December 31, 1994:
Due in one year or less . . . . . . . . . . . . . . $ 12,879 $ 12,562 $ 33,042 $ 32,880
Due after one through five years. . . . . . . . . . 64,955 62,063 40,794 39,917
Due after five through ten years. . . . . . . . . . 3,531 3,374 3,471 3,355
-------- -------- -------- --------
81,365 77,999 77,307 76,152
Mortgage and other asset-backed securities. . . . . 22,171 21,364 370 370
-------- -------- -------- --------
Totals. . . . . . . . . . . . . . . . . . . . . . $103,536 $ 99,363 $ 77,677 $ 76,522
-------- -------- -------- --------
-------- -------- -------- --------
(Continued)
12
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 3
SECURITIES
(Continued)
Securities with a total amortized cost of approximately $83,411,000 and
$77,758,000 were pledged at December 31, 1994 and 1993, to secure certain
deposits and for other purposes as permitted or required by law.
Proceeds from sales of securities available for sale during 1994 were
$15,083,000. Gross gains of $156,000 and gross losses of $198,000 were realized
on those sales.
Proceeds from sales of securities held to maturity during 1993 and 1992 were
$5,431,000, and $4,506,000. Gross gains of $395,000, and $115,000 and gross
losses of $550, and $49,000 were realized on those sales.
NOTE 4
LOANS AND ALLOWANCE
1994 1993
---- ----
Loans at December 31:
Commercial and industrial loans. . . . . . . . . . $ 78,943 $ 76,760
Bankers' acceptances and loans to financial
institutions . . . . . . . . . . . . . . . . . . 3,000
Agricultural production financing and other
loans to farmers . . . . . . . . . . . . . . . . 5,310 5,591
Real estate loans:
Construction . . . . . . . . . . . . . . . . . . 8,126 8,127
Commercial and farmland. . . . . . . . . . . . . 64,110 58,235
Residential. . . . . . . . . . . . . . . . . . . 164,760 150,572
Individuals' loans for household and other
personal expenditures. . . . . . . . . . . . . . 78,041 70,347
Tax-exempt loans . . . . . . . . . . . . . . . . . 1,204 1,474
Other loans. . . . . . . . . . . . . . . . . . . . 1,111 2,766
--------- ---------
Total loans. . . . . . . . . . . . . . . . . . . $ 401,605 $ 376,872
--------- ---------
--------- ---------
1994 1993 1992
---- ---- ----
Allowance for loan losses:
Balances, January 1. . . . . . . . . $ 4,800 $ 4,351 $ 3,867
Provision for losses . . . . . . . . 782 1,014 1,357
Recoveries on loans. . . . . . . . . 329 343 367
Loans charged off. . . . . . . . . . ( 913) (908) (1,240)
--------- ---------- ----------
Balances, December 31. . . . . . . . $ 4,998 $ 4,800 $ 4,351
--------- ---------- ----------
--------- ---------- ----------
Nonperforming loans at December 31:
Nonaccruing loans. . . . . . . . . . $ 326 $ 527 $ 493
Loans contractually past due 90
days or more other than
nonaccruing. . . . . . . . . . . . 703 616 949
Restructured loans . . . . . . . . . 754 879 548
(Continued)
13
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 4
LOANS AND ALLOWANCES (Continued)
Additional interest income of $39,000 for 1994, $39,000 for 1993, and $80,000
for 1992, would have been recorded had income on nonaccruing and restructured
loans been considered collectible and accounted for on the accrual basis under
the original terms of the loans.
The Corporation's banking subsidiaries have entered into transactions with
certain directors, executive officers, significant stockholders, and their
affiliates or associates (related parties). Such transactions were made in the
ordinary course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other unfavorable
features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
Balances, December 31, 1993. . . . . . $ 13,057
New loans, including renewals. . . . . 10,064
Payments, etc., including renewals . . (10,241)
----------
Balances, December 31, 1994. . . . . . $ 12,880
----------
----------
In May, 1993, the Financial Accounting Standards Board issued SFAS NO. 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. The Corporation will adopt
this standard in 1995, and does not expect the adoption to have a material
impact on financial position or results of operations.
NOTE 5
PREMISES AND EQUIPMENT
1994 1993
---- ----
Cost at December 31:
Land . . . . . . . . . . . . . . . . $ 1,324 $ 955
Buildings and leasehold
improvements . . . . . . . . . . . 9,231 8,694
Equipment. . . . . . . . . . . . . . 9,310 9,457
--------- ---------
Total cost . . . . . . . . . . . . 19,865 19,106
Accumulated depreciation . . . . . . . (10,320) ( 9,665)
--------- ---------
Net. . . . . . . . . . . . . . . . $ 9,545 $ 9,441
--------- ---------
--------- ---------
The Corporation is committed under various noncancelable lease contracts for
certain subsidiary office facilities. Total lease expense for 1994, 1993, and
1992, was $113,000, $110,000, and $89,000, respectively. The future minimum
rental commitments required under the operating leases in effect at December 31,
1994, expiring at various dates through the year 2016, follow for the years
ending December 31:
1995. . . . . . . . . . . . . . . . . . . . . . $ 106
1996. . . . . . . . . . . . . . . . . . . . . . 94
1997. . . . . . . . . . . . . . . . . . . . . . 91
1998. . . . . . . . . . . . . . . . . . . . . . 82
1999. . . . . . . . . . . . . . . . . . . . . . 69
After 1999. . . . . . . . . . . . . . . . . . . 378
----------
Total future minimum obligations. . . . . . . $ 820
----------
----------
14
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands, Except For Share Amounts)
NOTE 6
DEPOSITS
1994 1993
---- ----
Deposits at December 31:
Noninterest-bearing. . . . . . . . . . . . $ 99,667 $ 74,546
NOW accounts . . . . . . . . . . . . . . . 91,806 88,539
Money market deposit accounts. . . . . . . 88,979 95,258
Savings deposits . . . . . . . . . . . . . 55,468 52,759
Certificates and other time deposits
of $100,000 or more. . . . . . . . . . . 33,622 38,423
Other certificates and time deposits . . . 160,288 156,777
--------- ---------
Total deposits . . . . . . . . . . . . . $ 529,830 $ 506,302
--------- ---------
--------- ---------
NOTE 7
SHORT-TERM BORROWINGS
1994 1993
---- ----
Short-term borrowings at December 31:
Federal funds purchased. . . . . . . . . . $ 12,198 $ 5,300
Securities sold under repurchase
agreements . . . . . . . . . . . . . . . 17,776 26,363
U.S. Treasury demand notes . . . . . . . . 9,215 15,227
--------- ---------
Total short-term borrowings. . . . . . . $ 39,189 $ 46,890
--------- ---------
--------- ---------
NOTE 8
INCOME TAX
1994 1993 1992
---- ---- ----
Income tax expense:
Currently payable: . . . . . .
Federal. . . . . . . . . . . $ 3,845 $ 3,576 $ 3,632
State. . . . . . . . . . . . 1,190 1,135 1,056
Deferred:. . . . . . . . . . .
Federal. . . . . . . . . . . ( 110) ( 304) ( 598)
State. . . . . . . . . . . . 18) ( 11) ( 49)
--------- ---------- ----------
Total income tax expense . $ 4,907 $ 4,396 $ 4,041
--------- ---------- ----------
--------- ---------- ----------
Deferred provision (benefit)
relating to:
Provision for loan losses. . . $ ( 469)
Deferred loan fees . . . . . . ( 115)
Other. . . . . . . . . . . . . ( 63)
----------
Deferred benefit . . . . . . $ ( 647)
----------
----------
Reconciliation of federal
statutory to actual tax
expense:
Federal statutory income
tax at 34% . . . . . . . . . $ 4,782 $ 4,375 $ 4,021
Tax exempt interest. . . . . . ( 759) ( 759) ( 696)
Effect of state income taxes . 774 742 665
Other. . . . . . . . . . . . . 110 38 51
--------- ---------- ----------
Actual tax expense . . . . . $ 4,907 $ 4,396 $ 4,041
--------- ---------- ----------
--------- ---------- ----------
Deferred tax benefit at
December 31. . . . . . . . . . $ 1,615
----------
----------
(Continued)
15
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table dollar Amounts in Thousands)
NOTE 8
INCOME TAX (Continued)
Tax expense (benefit) applicable to security gains and losses for the years
ended December 31, 1994, 1993, and 1992, was $(12,000), $156,000, and $27,000,
respectively.
The components of the deferred tax asset included in other assets are as shown
in the table below.
No valuation allowance at December 31, 1994, was considered necessary.
During 1993, the Corporation adopted Statement of Financial Accounting Standards
No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES. As a result, the beginning
deferred tax asset was increased by $227,329, which is reported as the
cumulative effect of a change in accounting method.
1994 1993
---- ----
DEFFERRED TAX ASSET AT DECEMBER 31:
Differences in accounting for other real estate. . . $ 6
Differences in depreciation methods. . . . . . . . . $(595) (446)
Differences in accounting for loans and securities . (44) (43)
Differences in accounting for loan fees. . . . . . . 532 431
Differences in accounting for loan losses. . . . . . 2,124 2,004
Deferred compensation. . . . . . . . . . . . . . . . 275 269
Differences in accounting for pensions and
other employee benefits. . . . . . . . . . . . . . 147 74
Net unrealized loss on securities available
for sale . . . . . . . . . . . . . . . . . . . . . 1,653
State income tax . . . . . . . . . . . . . . . . . . (159) (163)
Other. . . . . . . . . . . . . . . . . . . . . . . . 5 25
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 3,938 $ 2,157
-------- --------
-------- --------
Assets . . . . . . . . . . . . . . . . . . . . . . . . $ 4,736 $ 2,855
Liabilities. . . . . . . . . . . . . . . . . . . . . . ( 798) (698)
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . $ 3,938 $ 2,157
-------- --------
-------- --------
16
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 9
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Banks' exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Banks use the same credit policies in making such commitments
as they do for instruments that are included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31, were as follows:
1994 1993
---- ----
Commitments to extend credit . . . . . . . . . . . . . $87,244 $63,529
Standby letters of credit. . . . . . . . . . . . . . . 2,649 2,420
Commitments to extend credit are agreements to lend to a customer, as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Banks upon extension of credit, is based on managements'
credit evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party.
The Corporation and Banks are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Corporation.
NOTE 10
STOCKHOLDERS' EQUITY
National and state banking laws restrict the maximum amount of dividends that a
bank may pay in any calendar year. National banks are limited to the bank's
retained net income (as defined by the Comptroller of the Currency) for that
year and the two preceding years. State banks are limited to retained earnings,
as defined. The amount at December 31, 1994, available for 1995 dividends to
the Corporation is $15,116,000. As a practical matter, the subsidiaries
restrict dividends to a lesser amount because of the need to maintain an
adequate capital structure.
Total net assets (stockholders' equity) of all subsidiaries at December 31,
1994, was $70,155,000, of which $55,039,000 was restricted from dividend
distribution to the Corporation.
The Corporation has a Dividend Reinvestment and Stock Purchase Plan, enabling
stockholders to elect to have their cash dividends on all shares held
automatically reinvested in additional shares of the Corporation's common stock.
In addition, stockholders may elect to make optional cash payments up to an
aggregate of $2,500 per quarter for the purchase of additional shares of common
stock. The stock is credited to participant accounts at fair market value.
Dividends are reinvested on a quarterly basis on the applicable dividend payment
that began with the first quarter of 1992 dividend payment. At December 31,
1994, 271,292 shares of common stock were reserved for purchase under the plan.
On December 1, 1992, the Board of Directors of the Corporation declared a three-
for-two stock split on its common shares and approved an increase in the
authorized common stock shares to 20,000,000 shares. The new shares were
distributed on January 25, 1993, to holders of record on January 18, 1993.
17
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 11
EMPLOYEE BENEFIT PLANS
The Corporation's defined-benefit pension plan covers substantially all of the
Banks' employees. The benefits are based primarily on years of service and
employees' pay near retirement. Contributions are intended to provide not only
for benefits attributed to service to date, but also for those expected to be
earned in the future. Pension expense was $193,000 for 1994, $56,000 for
1993, and $64,000 for 1992.
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheet at December 31:
1994 1993
---- ----
Actuarial present value of:
Accumulated benefit obligation including vested
benefits of $7,595 and $8,100. . . . . . . . . . . $ 7,720 $ 8,279
------- ---------
------- ---------
Projected benefit obligation for service
rendered to date . . . . . . . . . . . . . . . . . $(9,189) $(10,116)
Plan assets at fair value, primarily interest-
bearing deposits and corporate bonds and
securities . . . . . . . . . . . . . . . . . . . . . 9,740 10,013
------- ---------
Plan assets in excess of (less than) projected
benefit obligation . . . . . . . . . . . . . . . . . 551 ( 103)
Unrecognized net loss from experience different than
that assumed . . . . . . . . . . . . . . . . . . . . 121 837
Unrecognized prior service cost. . . . . . . . . . . . ( 52) ( 59)
Unrecognized net asset at January 1, 1987, being
recognized over 15 years . . . . . . . . . . . . . . ( 755) ( 859)
------- ---------
Accrued pension cost included in the balance sheet . . $( 135) $( 184)
------- ---------
------- ---------
1994 1993 1992
---- ---- ----
Pension expense includes the following
components:
Service cost-benefits earned during
the year . . . . . . . . . . . . . . $ 483 $ 389 $ 336
Interest cost on projected benefit
obligation . . . . . . . . . . . . . 678 619 569
Actual return on plan assets . . . . . ( 124) ( 1,072) (1,000)
Net amortization and deferral. . . . . ( 844) 120 159
------- --------- -------
$ 193 $ 56 $ 64
------- --------- -------
------- --------- -------
1994 1993 1992
Assumptions used in the accounting as
of December 31 were:
Discount rate. . . . . . . . . . . . . . 8.25% 6.85% 7.75%
Rate of increase in compensation . . . . 4.50% 4.50% 5.00%
Expected long-term rate of return
on assets. . . . . . . . . . . . . . . 8.75% 8.75% 8.50%
(CONTINUED)
18
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 11
EMPLOYEE BENEFIT PLANS (Continued)
In 1989, stockholders approved the 1989 Stock Option Plan, reserving 112,500
shares of Corporation common stock for the granting of options to certain
employees. The exercise price of the shares may not be less than the fair
market value of the shares upon grant of the option. Options become 100 per
cent vested when granted and are fully exercisable generally six months after
the date of grant, for a period of ten years. Shares were not available for
grant at December 31, 1994.
On March 31, 1994,stockholders approved the 1994 Stock Option Plan, reserving
210,000 shares of Corporation common stock for the granting of options to
certain employees and non-employee directors. The excercise price of the shares
may not be less than the fair market value of the shares upon the grant of the
option. Options become 100 per cent vested when granted and are fully
exercisable generally six months after the date of the grant, for a period of
ten years. There were 170,150 shares available for grant at December 31, 1994.
1994 1993 1992
---- ---- ----
Shares under option after restatement
for stock split:
Outstanding at beginning of year . . . . 84,897 75,600 71,175
Adjustment for fractional shares . . . . ( 4)
Granted during the year. . . . . . . . . 39,850 20,100 19,200
Expired during the year. . . . . . . . . ( 1,500)
Exercised during the year. . . . . . . . ( 4,875) ( 9,299) (14,775)
Outstanding at end of year . . . . . . . 119,872 84,897 75,600
Exercisable at end of year . . . . . . . 80,022 65,097
Average option price at end of year. . . $ 23.72 $ 20.58 $ 18.48
Price of options excercised
Low . . . . . . . . . . . . . . . . . $ 16.17 $ 13.66 $ 13.66
High. . . . . . . . . . . . . . . . . $ 27.50 $ 25.83 $ 17.00
In 1989, the stockholders also approved the Employee Stock Purchase Plan,
enabling eligible employees to purchase the Corporation's common stock. The
price of the stock to be paid by the employees is determined by the
Corporation's compensation committee, but may not be less than 85 per cent of
the lesser of the fair market value of the Corporation's common stock at the
beginning or at the end of the offering period. Common stock purchases are made
annually and are paid through advance payroll deductions of up to 20 per cent of
eligible compensation.
Participants under the plan purchased 10,543 shares in 1994 at $23.69375 per
share. The fair market value per share on the purchase date was $29.125.
On March 31, 1994, the stockholders approved the 1994 Employee Stock Purchase
Plan. A total of 112,500 shares of the Corporation's common stock are reserved
for issuance pursuant to the plan. The terms of the plan are similar to the
1989 Employee Stock Purchase Plan.
At December 31, 1994, 101,957 shares of Corporation common stock were reserved
for purchase under the plan, and $146,613 has been deducted from compensation,
plus interest, toward the purchase of shares after June 30, 1995, the end of the
annual offering period.
The Banks have a retirement savings 401(k) plan in which substantially all
employees may participate. The Banks match employees' contributions at the rate
of 25 per cent for the first 5 per cent of base salary contributed by
participants. The Banks' expense for the plan was $60,890 for 1994, $52,395 for
1993, and $61,700 for 1992.
19
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 12
FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, (SFAS No. 107), DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires that the Corporation
disclose estimated fair values for its financial instruments. The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING TIME DEPOSITS--The fair value of interest-bearing time deposits
approximates carrying value.
SECURITIES--Fair values are based on quoted market prices.
LOANS--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans, are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE--The fair value of interest receivable/payable
approximates carrying values.
FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK--The fair value of FRB and FHLB
stock is based on the price at which it may be resold to the FRB and FHLB.
DEPOSITS--The fair values of noninterest-bearing, NOW, money market deposit and
savings accounts are equal to the amount payable on demand at the balance sheet
date. Fair values for fixed-rate certificates of deposit and other time
deposits are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on such time deposits. SFAS No. 107 does
not allow for inclusion of a core deposit intangible component in the fair value
estimate, and although it would be impractical from a cost-benefit standpoint to
estimate that value, the Company realizes that the dollar amount would be
significant.
FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND U.S.
TREASURY DEMAND NOTES--These financial instruments are short-term borrowing
arrangements. The rates at December 31, 1994, approximate market rates, thus
the fair value approximates carrying value.
OFF-BALANCE SHEET ITEMS - COMMITMENTS--Off-balance sheet commitments include
commitments to purchase and originate mortgage loans, commercial loans, charge
card loans, and standby letters of credit. The fair value of such commitments
are estimated to be equal to their carrying value.
The estimated fair values of the financial instruments are as follows:
1994 1993
----------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Assets at December 31:
Cash and cash equivalents. . . . . . . . . . . . $ 46,359 $ 46,359 $ 26,567 $ 26,567
Interest-bearing time deposits . . . . . . . . . 23 23 254 254
Securities available for sale. . . . . . . . . . 99,363 99,363
Securities held to maturity. . . . . . . . . . . 77,677 76,522 204,363 207,422
Loans, net of unearned interest. . . . . . . . . 401,605 400,174 376,872 380,915
Federal Reserve and
Federal Home Loan Bank stock . . . . . . . . . 1,879 1,879 1,879 1,879
Interest receivable. . . . . . . . . . . . . . . 5,627 5,627 5,665 5,665
Liabilities at December 31:
Deposits . . . . . . . . . . . . . . . . . . . . 529,830 529,191 506,302 507,332
Short-term borrowings:
Federal funds purchased. . . . . . . . . . . . 12,198 12,198 5,300 5,300
Securities sold under repurchase
agreements. . . . . . . . . . . . . . . . . . 17,776 17,776 26,363 26,363
U.S. Treasury demand notes . . . . . . . . . . 9,215 9,215 15,227 15,227
Interest payable . . . . . . . . . . . . . . . . 1,320 1,320 1,226 1,226
Off-balance sheet items - commitments. . . . . . 89,893 89,893 65,949 65,949
20
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 13
CONDENSED FINANCIAL INFORMATION (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations, and cash flows of the Corporation:
CONDENSED BALANCE SHEET
December 31
----------------------
1994 1993
---------- ----------
Assets
Cash on deposit. . . . . . . . . . . . . . . . . $ 137 $ 342
Investment in subsidiaries . . . . . . . . . . . 70,089 67,657
Goodwill . . . . . . . . . . . . . . . . . . . . 711 749
Other assets . . . . . . . . . . . . . . . . . . 233 179
---------- ----------
Total assets . . . . . . . . . . . . . . . . . $ 71,170 $ 68,927
---------- ----------
---------- ----------
Liabilities
Other liabilities. . . . . . . . . . . . . . . . $ 152 $ 123
---------- ----------
Total liabilities. . . . . . . . . . . . . . . 152 123
Stockholders' equity
Common stock . . . . . . . . . . . . . . . . . . 421 424
Additional paid-in capital . . . . . . . . . . . 16,231 17,068
Retained earnings. . . . . . . . . . . . . . . . 56,886 51,312
Net unrealized loss on securities available
for sale of subsidiaries . . . . . . . . . . . ( 2,520)
---------- ----------
Total stockholders' equity . . . . . . . . . . 71,018 68,804
---------- ----------
Total liabilities and stockholders' equity . . $ 71,170 $ 68,927
---------- ----------
---------- ----------
CONDENSED STATEMENT OF INCOME
Year Ended December 31
----------------------------------------
1994 1993 1992
---- ---- ----
Income
Dividends from subsidiaries. . . . . . . . . . . . . $ 4,335 $ 3,571 $ 2,890
Other income . . . . . . . . . . . . . . . . . . . . 1
---------- ----------- ----------
Total income . . . . . . . . . . . . . . . . . . 4,335 3,571 2,891
---------- ----------- ----------
Expenses
Amortization of core deposit intangibles,
goodwill and fair value adjustments. . . . . . . . 32 19 4
Other expenses . . . . . . . . . . . . . . . . . . . 170 100 212
---------- ----------- ----------
Total Expenses . . . . . . . . . . . . . . . . . 202 119 216
---------- ----------- ----------
Income before income tax, equity in undistributed
income of subsidiaries and cumulative effect of
change in accounting method. . . . . . . . . . . . . 4,133 3,452 2,675
Income tax benefit . . . . . . . . . . . . . . . ( 73) ( 40) ( 79)
---------- ----------- ----------
Income before equity in undistributed income of
subsidiaries and cumulative effect of change in
accounting method. . . . . . . . . . . . . . . . . . 4,206 3,492 2,754
Equity in undistributed income of subsidiaries . 4,952 5,225 5,031
---------- ----------- ----------
Income before cumulative effect of change in
accounting method. . . . . . . . . . . . . . . . . . 9,158 8,717 7,785
Cumulative effect of change in method of accounting
for income taxes . . . . . . . . . . . . . . . . . . ( 18)
---------- ----------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 9,158 $ 8,699 $ 7,785
---------- ----------- ----------
---------- ----------- ----------
(CONTINUED)
21
==
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 13 (Continued)
CONDENSED FINANCIAL INFORMATION (Parent Company Only, Continued)
CONDENSED STATEMENT OF CASH FLOWS
Year ended December 31
---------------------------------------
1994 1993 1992
---- ---- ----
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . $ 9,158 $ 8,699 $ 7,785
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization . . . . . . . . . . . . . . . . . . . 32 19 4
Equity in undistributed income of subsidiaries . . ( 4,952) ( 5,225) (5,031)
Net change in:
Other assets . . . . . . . . . . . . . . . . . . ( 48) ( 64) ( 19)
Other liabilities. . . . . . . . . . . . . . . . 29 123
-------- --------- ---------
Net cash provided by operating activities. . . 4,219 3,552 2,739
-------- --------- ---------
Financing activities:
Cash dividends . . . . . . . . . . . . . . . . . . . ( 3,583) (3,213) (2,890)
Stock issued under employee benefit plans. . . . . . 250 247 191
Stock issued under dividend reinvestment
and stock purchase plan. . . . . . . . . . . . . . 357 287 186
Stock options exercised. . . . . . . . . . . . . . . 108 154 222
Stock redeemed . . . . . . . . . . . . . . . . . . . ( 1,556) (1,301) ( 31)
Cash paid in lieu of issuing fractional shares ( 4)
-------- --------- ---------
Net cash used by financing activities. . . . . . ( 4,424) (3,830) (2,322)
-------- --------- ---------
Net increase (decrease) in cash on deposit . . . . . . ( 205) ( 278) 417
Cash on deposit, beginning of year . . . . . . . . . . 342 620 203
-------- --------- ---------
Cash on deposit, end of year . . . . . . . . . . . . . $ 137 $ 342 $ 620
-------- --------- ---------
-------- --------- ---------
NOTE 14
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain quarterly results for the years ended
December 31, 1994 and 1993:
Net Provision Average
Interest Interest for Loan Net Shares Earnings
Quarter Ended Income Income Losses Income Outstanding per share
------ ------ ------ ------ ----------- ---------
March, 1994. . . . . . . . . . $ 10,211 $ 6,443 $ 193 $ 2,246 3,388,666 $ .66
June, 1994 . . . . . . . . . . 10,679 6,750 199 2,360 3,381,468 .70
September, 1994. . . . . . . . 11,016 6,825 201 2,227 3,390,705 .66
December, 1994 . . . . . . . . 11,208 6,965 189 2,325 3,378,645 .69
--------- --------- -------- --------- --------
$ 43,114 $ 26,983 $ 782 $ 9,158 3,384,871 $ 2.71
--------- --------- -------- --------- --------
--------- --------- -------- --------- --------
March, 1993. . . . . . . . . . $ 10,593 $ 6,254 $ 269 $ 2,282 3,407,803 $ .67
June, 1993 . . . . . . . . . . 10,707 6,475 270 2,319 3,411,165 .68
September, 1993. . . . . . . . 10,327 6,276 243 2,014 3,426,651 .59
December, 1993 . . . . . . . . 10,379 6,503 232 2,084 3,420,050 .61
--------- --------- -------- --------- --------
$ 42,006 $ 25,508 $ 1,014 $ 8,699 3,416,417 $ 2.55
--------- --------- -------- --------- --------
--------- --------- -------- --------- --------
22
==
ANNUAL REPORT APPENDIX - GRAPHIC & IMAGE INFORMATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MAP: FIRST MERCHANTS CORPORATION MARKET AREA
This graphic is a map of Indiana showing the market area for First Merchants
Corporation ("Corporation"). The map illustrates the location of Delaware,
Madison and Henry counties, Indiana. The map identifies the communities with
Corporation offices. The following table summarizes the Corporation's office
locations:
LOCATION COUNTY
Muncie Delaware
Albany Delaware
Daleville Delaware
Eaton Delaware
Pendleton Madison
Edgewood Madison
Ingalls Madison
Lapel Madison
Markleville Madison
Middletown Henry
Sulphur Springs Henry
Mooreland Henry
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ANNUAL REPORT APPENDIX - GRAPHIC & IMAGE INFORMATION (Continued)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bar chart: RETURN ON AVERAGE ASSETS
A bar graph with the following plot points for the respective years.
RETURN ON AVERAGE ASSETS
(per cent)
1992 1993 1994
Return on Average Assets 1.29% 1.39% 1.44%
A narrative discussion of this data is provided in the Management's Discussion &
Analysis, under the caption "Results of Operation."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bar chart: RETURN ON AVERAGE EQUITY
A bar graph with the following plot points for the respective years.
RETURN ON AVERAGE EQUITY
(per cent)
1992 1993 1994
Return on Average Equity 12.71% 13.01% 13.06%
A narrative discussion of the data is provided in the Management's Discussion &
Analysis, under the caption "Results of Operation."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bar chart: NET LOAN LOSSES
A bar graph with the following plot points for the respective years.
NET LOAN LOSSES
(as a per cent of average loans)
1992 1993 1994
First Merchants Corporation .26% .16% .15%
Peer Group .63% .49% N/A
A narrative discussion of this data is provided in the Management's Discussion &
Analysis, under the caption "Asset Quality Provision for Loan Losses."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .