8-K 1 f8k072406er2ndqtr.txt + UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------------ DATE OF REPORT (Date of earliest event reported): July 24, 2006 ------------------------------ FIRST MERCHANTS CORPORATION (Exact name of registrant as specified in its charter) ------------------------------- INDIANA 0-17071 35-1544218 (State or other jurisdiction (Commission file number) (IRS Employer of incorporation) Identification No.) 200 East Jackson Street P.O. Box 792 Muncie, IN 47305-2814 (Address of principal executive offices, including zip code) (765) 747-1500 (Registrant's telephone number, including area code) Not Applicable (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Page 1 of 11 ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On July 24, 2006, First Merchants Corporation issued a press release to report its financial results for the second quarter ended June 30, 2006. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K. The information in this Current Report on Form 8-K, including Exhibit No. 99.1 hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section. The information in this Current Report shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (a) Not applicable. (b) Not applicable. (c) Exhibits. Exhibit 99.1 Press Release, dated July 24, 2006, issued by First Merchants Corporation Page 2 of 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. First Merchants Corporation (Registrant) By: /s/ Mark K. Hardwick -------------------------------------------- Mark K. Hardwick Executive Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer) Dated: July 24, 2006 Page 3 of 11 EXHIBIT INDEX ------------- Exhibit No. ----------- 99.1 Description ----------- Press Release, dated July 24, 2006, issued by First Merchants Corporation. Page 4 of 11 First Merchants Corporation Exhibit No. 99.1 Press Release, dated July 24, 2006 N / E / W / S R / E / L / E / A / S / E July 24, 2006 FOR IMMEDIATE RELEASE For more information, contact: Mark K. Hardwick, Executive Vice President/Chief Financial Officer, 765-751-1857 http://firstmerchants.com SOURCE: First Merchants Corporation, Muncie, Indiana FIRST MERCHANTS CORPORATION ANNOUNCES YEAR TO DATE EARNINGS PER SHARE INCREASE OF 2.6 PERCENT First Merchants Corporation (NASDAQ - FRME) has reported year-to-date diluted earnings per share totaling $.80, a 2.6 percent increase over $.78 recorded in 2005. Net income for the six months ended June 30, 2006 totaled $14.8 million compared to $14.5 million in 2005. Second quarter diluted earnings per share of $.39, a $.04 decline from second quarter earnings per share of $.43 in 2005. Net income for the quarter totaled $7.3 million compared to $7.9 million in 2005. Total assets reached a record $3.4 billion at quarter-end, an increase of $207 million, or 6.5 percent from June 30, 2005. Loans and investments, the Corporation's primary earning assets, totaled $3.1 billion, an increase of $197 million or 6.9 percent over the prior year. Net-interest income improved by $492,000, or 1.00 percent for the six month ended June 30, 2006, reflecting the challenges of a sustained inverted yield curve. Non-interest income declined by $833,000 resulting from reduced mortgage loans sales and rising earnings credit rates on commercial checking accounts. Operating expense increased by a modest half of a percentage point as management continues the process of streamlining its operating structure. Included in the second quarter results is a charge relating to the disposition of fixed assets from a branch closing of $290,000 or $.01 per share. The allowance for loan losses increased during the period by $793,000 as the Corporation's provision for loan losses declined by $1.2 million reflecting reductions in specific reserve allocations. As of June 30, 2006, non-performing loans totaled 94 basis points of average total loans and the allowance for loan losses as a percent of total loans equaled 1.00 percent. Michael L. Cox, President and Chief Executive Officer, stated that, "Year-to-date growth in loans of 6.0 percent, growth in deposits of 5.5 percent and expense containment are positive representations of the controllable items in this business." Cox also added, "Management believes that a continued focus on customer acquisition and cross selling is the best way to maximize shareholder value." CONFERENCE CALL First Merchants Corporation will conduct a conference call at 2:30 p.m. Eastern Daylight Time on Monday, July 24, 2006. To participate dial (Toll Free) 877-407-9210 and reference First Merchants Corporation's second quarter earnings release. A replay will be available until July 31, 2006. To access replay, US/Canada participants should dial (Toll Free) 877-660-6853 or for International participants, dial 201-612-7415. The replay will require the Account # 286 and Conference ID # 207562. During the call we may make Forward Looking statements about our relative business outlook. These Forward Looking statements and all other statements made during the call that do not concern historical facts are subject to risks and uncertainties that may materially affect actual results. Specific Forward Looking statements include but are not limited to any indications regarding the Financial Services industry, the economy and future growth of the balance sheet or income statement. Detailed financial results are reported on the attached pages. First Merchants Corporation is a financial holding company headquartered in Muncie, Indiana. Subsidiaries of the Corporation include First Merchants Bank, Madison Community Bank, United Communities National Bank, First National Bank, Decatur Bank & Trust Company, Frances Slocum Bank, Lafayette Bank & Trust Company, Commerce National Bank and First Merchants Trust Company. The Corporation also operates First Merchants Insurance Services, a full-service property casualty, personal lines, and healthcare insurance agency, headquartered in Muncie, Indiana, and is a majority member of Indiana Title Insurance Company, LLC, a title insurance agency. First Merchants Corporation's common stock is traded over-the-counter on the NASDAQ National Market System under the symbol FRME. Quotations are carried in daily newspapers and can be found on the company's Internet web page (http:/www.firstmerchants.com). * * * *
CONSOLIDATED BALANCE SHEETS (in thousands) June 30, 2006 2005 Assets Cash and due from banks $ 71,275 $ 71,498 Interest-bearing time deposits 8,529 9,255 Investment securities 466,882 420,685 Mortgage loans held for sale 5,338 1,356 Loans 2,591,440 2,440,906 Less: Allowance for loan losses (25,884) (25,091) ---------- ---------- Net loans 2,565,556 2,415,815 Premises and equipment 41,122 37,240 Federal Reserve and Federal Home Loan Bank stock 23,889 23,054 Interest receivable 19,539 16,950 Core deposit intangibles and goodwill 137,429 139,799 Cash surrender value of life insurance 44,358 42,827 Other assets 24,346 22,819 ----------- ----------- Total assets $ 3,408,263 $ 3,201,298 =========== =========== Liabilities Deposits Noninterest-bearing $ 340,046 $ 363,654 Interest-bearing 2,195,354 2,040,624 ----------- ----------- Total deposits 2,535,400 2,404,278 Borrowings 527,347 454,400 Interest payable 6,927 5,068 Other liabilities 25,585 24,194 ----------- ----------- Total liabilities 3,095,259 2,887,940 Stockholders' equity Preferred stock, no-par value Authorized and unissued -- 500,000 shares Common stock, $.125 stated value Authorized -- 50,000,000 shares Issued and outstanding -- 18,259,256 and 18,415,725 shares 2,282 2,302 Additional paid-in capital 142,037 146,057 Retained earnings 181,042 167,452 Accumulated other comprehensive loss (12,357) (2,453) ----------- ----------- Total stockholders' equity 313,004 313,358 ----------- ----------- Total liabilities and stockholders' equity $ 3,408,263 $ 3,201,298 =========== ===========
FINANCIAL HIGHLIGHTS Three Months Ended Six Months Ended (In thousands) June 30, June 30, 2006 2005 2006 2005 NET CHARGE OFF'S $ 1,468 $ 1,345 $ 2,759 $ 2,072 AVERAGE BALANCES Total Assets $3,321,852 $3,191,275 $3,279,130 $3,177,488 Total Loans 2,534,675 2,430,081 2,504,886 2,422,110 Total Deposits 2,491,665 2,422,688 2,449,888 2,420,810 Total Stockholders' Equity 316,871 312,611 316,751 313,961 FINANCIAL RATIOS Return on Average Assets .88% .99% .90% .91% Return on Avg. Stockholders' Equity 9.20 10.13 9.35 9.23 Avg. Earning Assets to Avg. Assets 91.21 90.81 91.24 90.71 Allowance for Loan Losses as % Of Total Loans 1.00 1.03 1.00 1.03 Net Charge Off's as % Of Avg. Loans (Annualized) .23 .22 .22 .17 Dividend Payout Ratio 58.97 53.49 57.50 58.98 Avg. Stockholders' Equity to Avg. Assets 9.54 9.80 9.66 9.88 Tax Equivalent Yield on Earning Assets 6.87 6.14 6.76 6.01 Cost of Supporting Liabilities 3.07 2.15 2.92 2.08 Net Int. Margin (FTE) on Earning Assets 3.80 3.99 3.83 3.93
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share data) Three Months Ended Six Months Ended June 30, June 30, 2006 2005 2006 2005 Interest income Loans receivable Taxable $ 45,658 $ 38,831 $ 88,737 $ 75,653 Tax exempt 231 189 399 323 Investment securities Taxable 3,082 2,376 5,808 4,705 Tax exempt 1,613 1,554 3,260 3,107 Federal funds sold 11 112 28 139 Deposits with financial institutions 132 166 246 308 Federal Reserve and Federal Home Loan Bank stock 320 285 631 593 -------- -------- -------- -------- Total interest income 51,047 43,513 99,109 84,828 -------- -------- -------- -------- Interest expense Deposits 16,914 10,729 31,333 20,535 Federal funds purchased 625 161 1,114 204 Securities sold under repurchase agreements 1,053 193 1,888 543 Federal Home Loan Bank advances 2,610 2,443 5,266 4,818 Subordinated debentures, revolving credit lines and term loans 2,020 1,839 4,011 3,628 Other borrowings 59 227 142 237 -------- -------- -------- -------- Total interest expense 23,281 15,592 43,754 29,965 -------- -------- -------- -------- Net interest income 27,766 27,921 55,355 54,863 Provision for loan losses 1,729 1,948 3,455 4,615 -------- -------- -------- -------- Net interest income after provision for loan losses 26,037 25,973 51,900 50,248 -------- -------- -------- -------- Other income Fiduciary activities 1,949 1,963 3,900 3,925 Service charges on deposit accounts 2,771 3,048 5,197 5,771 Other customer fees 1,389 1,188 2,744 2,273 Net realized gains on sales of available-for-sale securities (9) 6 0 6 Commission income 946 757 2,450 2,261 Earnings on cash surrender value of life insurance 432 439 855 840 Net gains and fees on sales of loans 511 779 1,065 1,456 Other income 422 582 797 1,309 -------- -------- -------- -------- Total other income 8,411 8,762 17,008 17,841 -------- -------- -------- -------- Other expenses Salaries and employee benefits 13,543 13,258 27,935 28,079 Net occupancy expenses 1,477 1,422 2,911 2,831 Equipment expenses 2,007 1,852 3,956 3,709 Marketing expense 438 526 838 941 Outside data processing fees 921 1,033 1,804 2,042 Printing and office supplies 424 304 728 641 Core deposit amortization 761 778 1,523 1,565 Other expenses 4,323 4,026 7,987 7,657 -------- -------- -------- -------- Total other expenses 23,894 23,199 47,682 47,463 -------- -------- -------- -------- Income before income tax 10,554 11,536 21,226 20,626 Income tax expense 3,263 3,615 6,426 6,138 -------- -------- -------- -------- Net income $ 7,291 $ 7,921 $ 14,800 $ 14,488 ======== ======== ======== ======== Per Share Data Basic Net Income .39 .43 .80 .78 Diluted Net Income .39 .43 .80 .78 Cash Dividends Paid .23 .23 .46 .46 Average Diluted Shares Outstanding (in thousands) 18,463 18,536 18,495 18,614
CONSOLIDATED BALANCE SHEETS (in thousands) June 30, March 31, December 31, September 30, June 30, 2006 2006 2005 2005 2005 Assets Cash and due from banks $ 71,275 $ 59,176 $ 70,417 $ 81,310 $ 71,498 Interest-bearing time deposits 8,529 9,104 8,748 10,708 9,255 Investment securities 466,882 441,651 434,266 436,794 420,685 Mortgage loans held for sale 5,338 5,170 4,910 5,026 1,356 Loans 2,591,440 2,491,488 2,457,427 2,443,931 2,440,906 Less: Allowance for loan losses (25,884) (25,623) (25,188) (25,149) (25,091) ----------- ----------- ----------- ----------- ----------- Net loans 2,565,556 2,465,865 2,432,239 2,418,782 2,415,815 Premises and equipment 41,122 39,029 39,417 38,473 37,240 Federal Reserve and Federal Home Loan Bank stock 23,889 23,421 23,200 23,165 23,054 Interest receivable 19,539 19,035 19,690 19,561 16,950 Core deposit intangibles and goodwill 137,429 138,174 138,833 139,597 139,799 Cash surrender value of life insurance 44,358 43,964 43,579 43,230 42,827 Other assets 24,346 25,346 21,780 21,792 22,819 ----------- ----------- ----------- ----------- ----------- Total assets $ 3,408,263 $ 3,269,935 $ 3,237,079 $ 3,238,438 $ 3,201,298 =========== =========== =========== =========== =========== Liabilities Deposits Noninterest-bearing $ 340,046 $ 325,548 $ 314,335 $ 346,318 $ 363,654 Interest-bearing 2,195,354 2,120,524 2,068,241 2,118,975 2,040,624 ----------- ----------- ----------- ----------- ----------- Total deposits 2,535,400 2,446,072 2,382,576 2,465,293 2,404,278 Borrowings 527,347 469,002 508,236 423,959 454,400 Interest payable 6,927 6,412 5,874 5,643 5,068 Other liabilities 25,585 31,711 26,997 25,153 24,194 ----------- ----------- ----------- ----------- ----------- Total liabilities 3,095,259 2,953,197 2,923,683 2,920,048 2,887,940 Stockholders' equity Preferred stock, no-par value Authorized and unissued -- 500,000 shares Common stock, $.125 stated value Authorized -- 50,000,000 shares Issued and outstanding 2,282 2,305 2,302 2,313 2,302 Additional paid-in capital 142,037 146,374 145,682 148,004 146,057 Retained earnings 181,042 177,975 174,717 171,419 167,452 Accumulated other comprehensive loss (12,357) (9,916) (9,305) (3,346) (2,453) ----------- ----------- ----------- ----------- ----------- Total stockholders' equity 313,004 316,738 313,396 318,390 313,358 ----------- ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity $ 3,408,263 $ 3,269,935 $ 3,237,079 $ 3,238,438 $ 3,201,298 =========== =========== =========== =========== ===========
NON-PERFORMING ASSETS (in thousands) June 30, March 31, December 31, September 30, June 30, 2006 2006 2005 2005 2005 90 days past due $ 8,818 $ 5,188 $ 3,965 $ 3,560 $ 3,696 Non-accrual loans 12,611 11,424 10,030 11,757 11,626 Other real estate 2,497 3,209 2,835 3,023 1,804 ---------- ---------- ---------- ---------- ---------- Total non-performing assets $ 23,926 $ 19,821 $ 16,830 $ 18,340 $ 17,126 ========== ========== ========== ========== ========== Average total loans for the quarter $2,534,675 $2,474,759 $2,447,794 $2,444,131 $2,430,081 Total non-performing assets as a percent of average total loans .94% .80% .69% .75% .70% Restructured loans $ 111 $ 114 $ 310 $ 454 $ 531
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended (in thousands, except share data) June 30, March 31, December 31, September 30, June 30, 2006 2006 2005 2005 2005 Interest Income Loans receivable Taxable $ 45,658 $ 43,079 $ 41,930 $ 40,853 $ 38,831 Tax exempt 231 168 160 160 189 Investment securities Taxable 3,082 2,726 2,480 2,427 2,376 Tax exempt 1,613 1,647 1,672 1,595 1,554 Federal funds sold 11 17 74 51 112 Deposits with financial institutions 132 114 202 185 166 Federal Reserve and Federal Home Loan Bank stock 320 311 296 296 285 -------- -------- -------- -------- -------- Total interest income 51,047 48,062 46,814 45,567 43,513 -------- -------- -------- -------- -------- Interest expense Deposits 16,914 14,419 13,414 12,172 10,729 Federal funds purchased 625 489 163 256 161 Securities sold under repurchase agreements 1,053 835 647 523 193 Federal Home Loan Bank advances 2,610 2,656 2,410 2,549 2,443 Subordinated debentures, revolving credit lines and term loans 2,020 1,991 1,910 1,894 1,839 Other borrowings 59 83 144 33 227 -------- -------- -------- -------- -------- Total interest expense 23,281 20,473 18,688 17,427 15,592 -------- -------- -------- -------- -------- Net interest income 27,766 27,589 28,126 28,140 27,921 Provision for loan losses 1,729 1,726 1,945 1,794 1,948 -------- -------- -------- -------- -------- Net interest income after provision for loan losses 26,037 25,863 26,181 26,346 25,973 -------- -------- -------- -------- -------- Other income Fiduciary activities 1,949 1,951 1,762 1,794 1,963 Service charges on deposit accounts 2,771 2,426 2,691 2,836 3,048 Other customer fees 1,389 1,355 1,432 1,389 1,188 Net realized gains (losses) on sales of available-for-sale securities (9) 9 (24) 16 6 Commission income 946 1,504 690 870 757 Earnings on cash surrender value of life insurance 432 423 386 441 439 Net gains and fees on sales of loans 511 554 676 770 779 Other income 422 375 516 664 582 -------- -------- -------- -------- -------- Total other income 8,411 8,597 8,129 8,780 8,762 -------- -------- -------- -------- -------- Other expenses Salaries and employee benefits 13,543 14,392 12,596 13,384 13,258 Net occupancy expenses 1,477 1,434 1,428 1,570 1,422 Equipment expenses 2,007 1,949 1,952 1,901 1,852 Marketing expense 438 400 625 446 526 Outside data processing fees 921 883 989 979 1,033 Printing and office supplies 424 304 400 328 304 Core deposit amortization 761 762 767 770 778 Other expenses 4,323 3,664 4,469 3,923 4,026 -------- -------- -------- -------- -------- Total other expenses 23,894 23,788 23,226 23,301 23,199 -------- -------- -------- -------- -------- Income before income tax 10,554 10,672 11,084 11,825 11,536 Income tax expense 3,263 3,163 3,553 3,605 3,615 -------- -------- -------- -------- -------- Net income $ 7,291 $ 7,509 $ 7,531 $ 8,220 $ 7,921 ======== ======== ======== ======== ======== Per Share Data Basic Net Income $ .39 $ .41 $ .41 $ .45 $ .43 Diluted Net Income .39 .41 .41 .44 .43 Cash Dividends Paid .23 .23 .23 .23 .23 Average Diluted Shares Outstanding (in thousands) 18,463 18,526 18,558 18,590 18,536 FINANCIAL RATIOS Return on Average Assets .88% .93% .95% 1.03% .99% Return on Avg. Stockholders' Equity 9.20 9.49 9.49 10.38 10.13 Avg. Earning Assets to Avg. Assets 91.21 91.27 91.47 90.83 90.81 Allowance for Loan Losses as % Of Total Loans 1.00 1.03 1.02 1.03 1.03 Net Charge Off's as % Of Avg. Loans (Annualized) .23 .21 .31 .28 .22 Dividend Payout Ratio 58.97 56.10 56.10 52.27 53.49 Avg. Stockholders' Equity to Avg. Assets 9.54 9.78 10.05 9.89 9.80 Tax Equivalent Yield on Earning Assets 6.87 6.64 6.62 6.40 6.14 Cost of Supporting Liabilities 3.07 2.77 2.59 2.40 2.15 Net Int. Margin (FTE) on Earning Assets 3.80 3.87 4.03 4.00 3.99
LOANS (in thousands) June 30, March 31, December 31, September 30, June 30, 2006 2006 2005 2005 2005 Commercial and industrial loans $ 501,238 $ 486,411 $ 461,102 $ 476,010 $ 463,002 Agricultural production financing and other loans to farmers 95,352 87,433 95,130 94,262 93,274 Real estate loans: Construction 178,254 175,784 174,783 171,667 166,367 Commercial and farmland 813,171 743,905 734,865 719,154 723,099 Residential 744,552 746,410 751,217 746,777 759,003 Individuals' loans for household and other personal expenditures 208,768 202,478 200,139 186,792 182,362 Tax exempt loans 13,656 13,656 8,263 12,439 14,135 Lease financing receivables, net of unearned income 8,589 8,193 8,713 9,538 10,533 Other loans 27,860 27,218 23,215 27,292 29,131 ----------- ----------- ----------- ---------- ----------- 2,591,440 2,491,488 2,457,427 2,443,931 2,440,906 Allowance for loan losses (25,884) (25,623) (25,188) (25,149) (25,091) ----------- ----------- ----------- ---------- ----------- Total loans $2,565,556 $2,465,865 $2,432,239 $2,418,782 $2,415,815 =========== =========== =========== ========== =========== DEPOSITS (in thousands) June 30, March 31, December 31, September 30, June 30, 2006 2006 2005 2005 2005 Demand deposits $ 758,132 $ 671,027 $ 690,923 $ 697,597 $ 720,263 Savings deposits 510,878 526,554 566,212 568,366 593,770 Certificates and other time deposits of $100,000 or more 313,751 320,213 264,665 320,640 234,988 Other certificates and time deposits 952,639 928,278 860,776 878,690 855,257 ----------- ----------- ----------- ----------- ----------- $2,535,400 $2,446,072 $2,382,576 $2,465,293 $2,404,278 =========== =========== =========== =========== ===========