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: April 1, 2002
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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, Indiana 47305-2814
(Address of principal executive offices, including zip code)
(317) 747-1500
(Registrant's telephone number, including area code)
Page 1 of 4 Pages
Exhibit Index on Page 5
Item 1. Not Applicable.
------
Item 2. Acquisition or Disposition of Assets.
------ ------------------------------------
On April 1, 2002, First Merchants Corporation acquired all of the assets of
Lafayette Bancorporation through the merger of Lafayette Bancorporation with and
into First Merchants Corporation (the "Merger"). Lafayette Bancorporation's
principal asset was the shares of common stock of its wholly-owned subsidiary,
Lafayette Bank and Trust Company (the "Bank"). The Bank is an Indiana state
chartered bank providing various commercial and consumer banking services to its
customers located primarily in the Indiana counties of Tippecanoe, Jasper, White
and Carroll, through 20 offices. At December 31, 2001, Lafayette Bancorporation
had total assets of approximately $762 million and deposits of approximately
$618 million. First Merchants Corporation will account for the Merger under the
purchase method of accounting.
As part of the Merger, shareholders of Lafayette Bancorporation shall
receive approximately 2,773,059 shares of First Merchants Corporation common
stock and approximately $50,866,560 in cash in exchange for their shares of
Lafayette Bancorporation common stock. The form and amount of such consideration
was arrived at through arms length negotiations between First Merchants
Corporation and Lafayette Bancorporation. First Merchants Corporation intends to
finance the cash consideration payable in the Merger through the sale of
cumulative trust preferred securities by its wholly-owned subsidiary, First
Merchants Capital Trust I. First Merchants Capital Trust I will invest all of
the proceeds from the sale of the cumulative trust preferred securities in
junior subordinated debentures to be issued by First Merchants Corporation.
In connection with the Merger, shareholders of Lafayette Bancorporation
were offered the opportunity to elect to receive either 1.11 shares of First
Merchants Corporation common stock or $30 in cash in exchange for each share of
Lafayette Bancorporation common stock owned by them. Pursuant to the terms of
the Merger, under certain circumstances, the 1.11 exchange ratio was subject to
adjustment and the cash elections made by Lafayette Bancorporation shareholders
were subject to being converted into elections to receive stock. However, all
elections by Lafayette Bancorporation shareholders to receive cash in exchange
for their shares will be honored and the 1.11 exchange ratio will not be
adjusted. Cash will be paid by First Merchants Corporation in lieu of issuing
fractional shares resulting from the 1.11 exchange ratio.
For further information regarding the terms of the Merger, see the
Agreement of Reorganization and Merger between First Merchants Corporation and
Lafayette Bancorporation dated October 14, 2001, which is incorporated into this
Form 8-K by reference and filed as an exhibit hereto.
A copy of the press release announcing consummation of the Merger is filed
as an exhibit to this Form 8-K.
2
Items 3-6. Not Applicable.
---------
Item 7. Financial Statements and Exhibits.
------ ---------------------------------
(a) Financial Statements of Business Acquired.
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of December 31,
2001 and 2000.
(iii) Consolidated Statements of Income for the Years
Ended December 31, 2001, 2000 and 1999.
(iv) Consolidated Statements of Changes in
Shareholders' Equity for the Years Ended
December 31, 2001, 2000 and 1999.
(v) Consolidated Statements of Cash Flows for the
Years Ended December 31, 2001, 2000 and 1999.
(vi) Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information.
(i) Unaudited Pro Forma Combined Consolidated
Financial Information Including Balance Sheet
as of December 31, 2001, Statement of Income
for the Year Ended December 31, 2001 and the
notes thereto.
(c) Exhibits.
(2.1) Agreement of Reorganization and Merger by and
between First Merchants Corporation and
Lafayette Bancorporation dated October 14, 2001
(the "Merger Agreement"). (Incorporated by
reference to Exhibit 2 to First Merchants
Corporation's Current Report on Form 8-K filed
October 15, 2001.)
(2.2) Undertaking by First Merchants Corporation to
furnish supplementally the Disclosure Letters
referenced in the Merger Agreement.
(23) Consent of Crowe, Chizek and Company LLP
(99) Press release dated April 1, 2002
Items 8 and 9. Not Applicable.
-------------
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.
DATE: April 1, 2002.
FIRST MERCHANTS CORPORATION
By: /s/ Larry R. Helms
-----------------------------
Larry R. Helms,
Senior Vice President and
General Counsel
INDEX OF FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
(i) Report of Independent Auditors.
(ii) Consolidated Balance Sheets as of December 31, 2001
and 2000.
(iii) Consolidated Statements of Income for the Years Ended
December 31, 2001, 2000 and 1999.
(iv) Consolidated Statements of Changes in Shareholders'
Equity for the Years Ended December 31, 2001, 2000
and 1999.
(v) Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000 and 1999.
(vi) Notes to Consolidated Financial Statements.
(b) Pro Forma Financial Information.
(i) Unaudited Pro Forma Combined Consolidated Financial
Information Including Balance Sheet as of December
31, 2001, Statement of Income for the Year Ended
December 31, 2001 and the notes thereto.
(c) Exhibits.
(2.1) Agreement of Reorganization and Merger by and between
First Merchants Corporation and Lafayette
Bancorporation dated October 14, 2001 (the "Merger
Agreement"). (Incorporated by reference to Exhibit 2
to First Merchants Corporation's Current Report on
Form 8-K filed October 15, 2001.)
(2.2) Undertaking by First Merchants Corporation to furnish
supplementally the Disclosure Letters referenced in
the Merger Agreement.
(23) Consent of Crowe, Chizek and Company LLP
(99) Press release dated April 1, 2002
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Lafayette Bancorporation
Lafayette, Indiana
We have audited the accompanying consolidated balance sheets of Lafayette
Bancorporation as of December 31, 2001 and 2000 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 referred to above present
fairly, in all material respects, the financial position of Lafayette
Bancorporation as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.
Crowe, Chizek and Company LLP
Indianapolis, Indiana
January 24, 2002
LAFAYETTE BANCORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(Dollar amounts in thousands)
-------------------------------------------------------------------------------------------------
2001 2000
---- ----
ASSETS
Cash and due from banks $ 32,028 $ 26,452
Interest-bearing deposits in other financial institutions 10,237 21,820
Federal funds sold 9,200 25,200
--------- ---------
Total cash and cash equivalents 51,465 73,472
Securities available-for-sale 94,164 78,857
Securities held-to-maturity (fair value
$4,047 and $4,580) 3,918 4,484
Loans held for sale 17,262 5,949
Loans 555,864 537,725
Less: Allowance for loan losses (5,413) (5,071)
--------- ---------
Net loans 550,451 532,654
FHLB stock, at cost 2,344 2,200
Premises, furniture and equipment, net 11,007 11,353
Intangible assets 12,291 13,007
Accrued interest receivable and other assets 19,416 19,171
--------- ---------
Total assets $ 762,318 $ 741,147
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Noninterest-bearing deposits $ 80,012 $ 70,866
Interest-bearing demand and savings deposits 268,698 230,984
Interest-bearing time deposits 269,862 276,447
--------- ---------
Total deposits 618,572 578,297
Short-term borrowings 32,073 55,572
FHLB advances 34,982 35,737
Note payable 10,150 11,550
Accrued interest payable and other liabilities 7,421 7,190
--------- ---------
Total liabilities 703,198 688,346
Shareholders' equity
Common stock, no par value: 20,000,000 shares
authorized; 3,961,589 and 3,953,616 shares issued and outstanding 3,962 3,954
Additional paid-in capital 38,119 38,024
Retained earnings 16,639 11,086
Accumulated other comprehensive income (loss) 400 (263)
--------- ---------
Total shareholders' equity 59,120 52,801
--------- ---------
Total liabilities and shareholders' equity $ 762,318 $ 741,147
========= =========
-------------------------------------------------------------------------------------------------
See accompanying notes.
2.
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
--------------------------------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
Interest income
Loans, including related fees $ 46,853 $ 46,620 $ 38,520
Taxable securities 3,299 3,318 3,831
Tax exempt securities 1,731 1,664 1,529
Other 1,781 784 510
------------ ------------ ------------
Total interest income 53,664 52,386 44,390
Interest expense
Deposits 22,650 23,016 18,024
Short-term borrowings 1,506 1,773 1,358
Other borrowings 2,747 2,616 2,161
------------ ------------ ------------
Total interest expense 26,903 27,405 21,543
------------ ------------ ------------
Net interest income 26,761 24,981 22,847
Provision for loan losses 1,225 1,200 1,060
------------ ------------ ------------
Net interest income after provision for loan losses 25,536 23,781 21,787
Noninterest income
Fiduciary activities 1,264 1,187 1,134
Service charges on deposit accounts 2,352 1,880 1,581
Net realized gain/(loss) on securities - (12) (144)
Net gain on loan sales 1,858 659 942
Other service charges and fees 1,080 1,042 923
Investment product commissions 398 758 318
Other 502 311 371
------------ ------------ ------------
Total noninterest income 7,454 5,825 5,125
Noninterest expense
Salaries and employee benefits 12,908 10,681 9,836
Occupancy, net 1,293 1,247 1,073
Equipment 1,914 1,731 1,314
Intangible amortization 716 740 597
Other 5,343 4,777 4,714
------------ ------------ ------------
Total noninterest expenses 22,174 19,176 17,534
------------ ------------ ------------
Income before income taxes 10,816 10,430 9,378
Income taxes 3,401 3,514 3,027
------------ ------------ ------------
Net income $ 7,415 $ 6,916 $ 6,351
============ ============= ============
Basic earnings per share $ 1.87 $ 1.75 $ 1.61
============ ============= ============
Diluted earnings per share $ 1.84 $ 1.74 $ 1.57
============ ============= ============
--------------------------------------------------------------------------------------------------------
See accompanying notes.
3.
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2001, 2000, and 1999
(Dollar amounts in thousands, except per share data)
------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Treasury Shareholders'
Stock Capital Earnings Income (Loss) Stock Equity
----- ------- -------- ------------- ----- ------
Balance, January 1, 1999 $ 2,394 $ 32,620 $ 7,747 $ (42) $ (105) $ 42,614
Comprehensive income
Net income 6,351 6,351
Change in net unrealized
gain/ (loss) on securities
available-for-sale (1,914) (1,914)
--------
Total comprehensive
income 4,437
Issue 11,884 shares under
stock option plan 12 266 278
3-2 stock split,
1,200,738 shares 1,201 (1,201) --
Cash dividends
($.39 per share) (1,540) (1,540)
Purchase 105 treasury shares (4) (4)
Retire 20,517 treasury shares (21) (88) 109 --
-------- -------- -------- -------- -------- --------
Balance, December 31, 1999 3,586 32,886 11,269 (1,956) -- 45,785
Comprehensive income
Net income 6,916 6,916
Change in net unrealized
gain/ (loss) on securities
available-for-sale 1,693 1,693
--------
Total comprehensive
income 8,609
Issue 8,448 shares under
stock option plan 9 108 117
10% Stock dividend
359,043 shares 359 5,030 (5,393) (4)
Cash dividends
($.43 per share) (1,706) (1,706)
-------- -------- -------- -------- -------- --------
Balance, December 31, 2000 3,954 38,024 11,086 (263) -- 52,801
Comprehensive income
Net income 7,415 7,415
Change in net unrealized
gain/ (loss) on securities
available-for-sale 663 663
--------
Total comprehensive
income 8,078
Issue 7,973 shares under
stock option plan 8 95 103
Cash dividends
($.47 per share) (1,862) (1,862)
-------- -------- -------- -------- -------- --------
Balance, December 31, 2001 $ 3,962 $ 38,119 $ 16,639 $ 400 $ -- $ 59,120
======== ======== ======== ======== ======== ========
------------------------------------------------------------------------------------------------------------------
See accompanying notes.
4.
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000, and 1999
(Dollar amounts in thousands)
-----------------------------------------------------------------------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities
Net income $ 7,415 $ 6,916 $ 6,351
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 1,475 1,339 948
Net amortization 773 722 726
Provision for loan losses 1,225 1,200 1,060
Net realized (gain)/loss on securities -- 12 144
Net realized (gain) loss on sale of
other real estate 9 (5) --
Change in assets and liabilities
Loans originated for sale (138,582) (56,201) (67,547)
Loans sold 127,269 53,426 74,459
Accrued interest receivable
and other assets (750) (4,410) (1,947)
Accrued interest payable
and other liabilities 231 323 1,314
--------- -------- ---------
Net cash from operating activities (935) 3,322 15,508
Cash flows from investing activities
Change in interest-bearing balances with
other financial institutions -- -- 671
Purchase of securities available-for-sale (84,767) (86,815) (172,049)
Proceeds from sales of securities available-for-sale 56,077 82,375 56,027
Proceeds from maturities of securities
available-for-sale 14,432 8,119 109,826
Purchase of securities held-to-maturity -- -- (2,000)
Proceeds from maturities of securities
held-to-maturity 564 229 2,160
Loans made to customers, net of payments collected (19,297) (49,452) (78,085)
Purchase of Federal Home Loan Bank stock (144) (303) (358)
Property and equipment expenditures (1,129) (2,109) (3,578)
Proceeds from sales of other real estate 330 470 --
--------- -------- ---------
Net cash from investing activities (33,934) (47,486) (87,386)
----------------------------------------------------------------------------------------------
(continued)
5.
LAFAYETTE BANCORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2001, 2000, and 1999
(Dollar amounts in thousands)
2001 2000 1999
---- ---- ----
Cash flows from financing activities
Net change in deposit accounts $ 40,275 $ 56,050 $ 9,686
Cash received in branch acquisition for
liabilities assumed, net of assets acquired -- -- 45,266
Net change in short-term borrowings (23,499) 28,299 10,871
Proceeds from other borrowings -- 22,000 30,000
Payments on other borrowings (2,155) (17,690) (10,877)
Common stock issued 103 117 278
Dividends paid (1,862) (1,706) (1,540)
Purchase of fractional shares from stock dividend -- (4) --
Purchase of treasury stock -- -- (4)
-------- -------- --------
Net cash from financing activities 12,862 87,066 83,680
-------- -------- --------
Net change in cash and cash equivalents (22,007) 42,902 11,802
Cash and cash equivalents at beginning of year 73,472 30,570 18,768
-------- -------- --------
Cash and cash equivalents at end of year $ 51,465 $ 73,472 $ 30,570
======== ======== ========
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 27,495 $ 26,882 $ 20,765
Income taxes 4,054 3,405 3,168
Non-cash investing and financing activities
Loans transferred to other real estate $ 298 $ 50 $ 465
See also Note 18 regarding 1999 branch acquisition
-------------------------------------------------------------------------------------------
See accompanying notes.
6.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation: The consolidated financial
statements include the accounts of Lafayette Bancorporation (Corporation) and
its wholly owned subsidiary, Lafayette Bank and Trust Company (Bank), after
elimination of significant intercompany transactions and accounts.
The Corporation provides financial services to its customers, primarily
commercial and retail banking and trust services, with operations conducted
through its main office and 17 branches located in Tippecanoe, White, Jasper,
and Carroll Counties in Indiana. The majority of the Corporation's revenue is
derived from commercial and retail business lending activities and investments.
Although the overall loan portfolio is diversified, the economy of Tippecanoe
County is heavily dependent on Purdue University, one of the area's largest
employers, and the economy of White and Jasper County is heavily dependent on
the agricultural industry. The majority of the Bank's loans are secured by
specific items of collateral including business assets, real property and
consumer assets.
Use of Estimates: Management must make estimates and assumptions in preparing
financial statements that affect the amounts reported and disclosed. These
estimates and assumptions may change in the future and future results could
differ from these estimates. Estimates that are more susceptible to change in
the near term include the allowance for loan losses, the fair value of
securities and other financial instruments, and the determination and carrying
value of impaired loans.
Securities: Securities are classified as held-to-maturity and carried at
amortized cost when management has the positive intent and ability to hold them
to maturity. Securities are classified as available-for-sale when they might be
sold before maturity. Securities available-for-sale are reported at fair value,
with unrealized gains or losses included in other comprehensive income.
Realized gains or losses are determined based on the amortized cost of the
specific security sold. Interest and dividend income, adjusted by amortization
of purchase premium or discount, is included in earnings.
Loans Held for Sale: The Bank sells certain fixed-rate first mortgage loans in
the secondary market on a servicing-released basis. Mortgage loans held for sale
are carried at the lower of cost or estimated market value determined on an
aggregate basis.
--------------------------------------------------------------------------------
(continued)
7.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans: Interest on real estate, commercial and most installment loans is accrued
over the term of the loans based on the principal outstanding. The recognition
of interest income is discontinued when, in management's judgment, the interest
will not be collectible in the normal course of business. Loans are evaluated
for non-accrual when the loan is impaired or payments are past due over 90 days.
Interest received is recognized on the cash basis or cost recovery method until
qualifying for return to accrual status. Accrual is resumed when all
contractually due payments are brought current and future payments are
reasonably assured. The Bank defers loan fees, net of certain direct loan
origination costs. The net amount deferred is reported in the balance sheet as
part of loans and is recognized into interest income over the term of the loan
using a method which approximates a level-yield.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and loan recoveries and decreased by loan charge-offs. Management
estimates the allowance balance required using past loan loss experience, the
nature and volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions, and other
factors. Allocations of the allowance may be made for specific loans, but the
entire allowance is available for any loan that, in management's judgment,
should be charged-off. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Loan impairment is recognized if a loan's full principal or interest payments
are not expected to be received. Loans considered to be impaired are reduced to
the present value of expected future cash flows using the loans' existing rate
or to the fair value of collateral if repayment is expected solely from the
collateral, by allocating a portion of the allowance for loan losses to such
loans. Smaller-balance homogeneous loans are evaluated for impairment in total.
Such loans include residential real estate loans secured by one to four family
residences and installment loans to individuals for household, family and other
personal expenditures. Commercial and agricultural loans are evaluated
individually for impairment.
Premises, Furniture and Equipment: Premises, furniture and equipment are stated
at cost less accumulated depreciation. Depreciation expense is recognized over
the estimated useful lives of the assets, principally on the straight-line
method.
Foreclosed Assets: Assets acquired through or instead of loan foreclosure are
initially recorded at fair value when acquired, establishing a new cost basis.
If fair value declines, a valuation allowance is recorded through expense.
Holding costs after acquisition are expensed.
Long-term Assets: These assets are reviewed for impairment when events indicate
their carrying amounts may not be recoverable from future undiscounted cash
flows. If impaired, the assets are recorded at discounted amounts.
--------------------------------------------------------------------------------
(continued)
8.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Repurchase Agreements: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance. The Bank
retains possession of and control over pledged securities.
Intangibles: Intangibles include goodwill and core deposit intangibles. Goodwill
is amortized on the straight-line method over 15 to 25 years, and core deposit
is amortized on an accelerated method over 10 years. Intangibles are assessed
for impairment based on estimated undiscounted cash flows, and written down if
necessary.
Stock Compensation: Expense for employee compensation under stock option plans
is based on Opinion 25, with expense reported only if options are granted below
market price at grant date. Pro forma disclosures of net income and earnings per
share are provided as if the fair value method of Financial Accounting Standard
No. 123 were used for stock-based compensation.
Income Taxes: Deferred tax liabilities and assets are determined at each balance
sheet date. They are measured by applying enacted tax laws to future taxable
income or expense resulting from differences in the financial statement and tax
basis of assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or minus
the change during the period in deferred tax assets and liabilities.
Earnings Per Share: Basic earnings per share is net income divided by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share includes the dilutive effect of additional potential common
shares issuable under stock options. Earnings and dividends per share are
restated for all stock splits and dividends through the date of issue of the
financial statements.
Statement of Cash Flows: Cash and cash equivalents are defined to include cash
on hand, amounts due from banks, and federal funds sold. The Corporation reports
net cash flows for customer loan transactions, deposit transactions, and
short-term borrowings.
Financial Instruments: Financial instruments include credit instruments, such as
commitments to make loans and standby letters of credit, issued to meet customer
financing needs. The face amount for these items represents the exposure to
loss, before considering customer collateral or ability to repay.
--------------------------------------------------------------------------------
(continued)
9.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Values of Financial Instruments: Fair values of financial instruments are
estimated using relevant market information and other assumptions, as more fully
disclosed separately. Fair value estimates involve uncertainties and matters of
significant judgment regarding interest rates, credit risk, prepayments, and
other factors, especially in the absence of broad markets for particular items.
Changes in assumptions or in market conditions could significantly affect the
estimates.
Loss Contingencies: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded as liabilities when the
likelihood of loss is probable and an amount or range of loss can be reasonably
estimated. Management does not believe there are now such matters that will have
a material effect on the financial statements.
Comprehensive Income: Comprehensive income consists of net income and other
comprehensive income. Other comprehensive income includes unrealized gains and
losses on securities available for sale, which are also recognized as a separate
component of equity.
Dividend Restriction: Banking regulations require maintaining certain capital
levels and may limit the dividends paid by the bank to the holding company or by
the holding company to shareholders.
Industry Segments: Internal financial information is primarily reported and
aggregated in three lines of business, banking, mortgage banking and trust
services.
New Accounting Pronouncements: Beginning January 1, 2001, a new accounting
standard requires all derivatives to be recorded at fair value. Unless
designated as hedges, changes in these fair values will be recorded in the
income statement. Fair value changes involving hedges will generally be recorded
by offsetting gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. Adoption of this
standard on January 1, 2001 did not have a material effect on the financial
statements.
--------------------------------------------------------------------------------
(continued)
10.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A new accounting standard requires all business combinations to be recorded
using the purchase method of accounting for any transaction initiated after June
30, 2001. Under the purchase method, all identifiable tangible and intangible
assets and liabilities of the acquired company must be recorded at fair value at
date of acquisition, and the excess cost over fair value of net assets acquired
is recorded as goodwill. Identifiable intangible assets must be separated from
goodwill. Identifiable intangible assets with finite useful lives will continue
to amortize under the new standard, whereas goodwill will cease being amortized
starting in 2002. Annual impairment testing will be required for goodwill with
impairment being recorded if the carrying amount of goodwill exceeds its implied
fair value. Amounts previously recorded as goodwill from depository institution
branch acquisitions are not presently considered to be goodwill under the new
standard and these amounts will continue to be amortized. Management is
currently evaluating the impact of this new standard, but management expects to
continue amortizing all of the Corporation's intangible assets.
Reclassifications: Some items in the prior financial statements were
reclassified to conform to the current presentation.
NOTE 2 - SECURITIES
The fair value of securities available for sale and the related gains and losses
recognized in accumulated other comprehensive income (loss) were as follows:
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
----- ----- ------
Securities Available-for-Sale
2001
U.S. Government and its agencies $ 2,023 $ 23 $ --
Obligations of states and political subdivisions 36,315 433 (350)
Corporate obligations 10,426 331 (5)
Mortgage-backed and other asset-backed
securities 42,856 391 (152)
Other securities 2,544 -- (9)
------------ ------------ -------------
$ 94,164 $ 1,178 $ (516)
============ ============ ============
--------------------------------------------------------------------------------
(continued)
11.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 2 - SECURITIES (Continued)
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
----- ----- ------
2000
U.S. Government and its agencies $ 4,193 $ 10 $ (18)
Obligations of states and political subdivisions 31,012 418 (286)
Corporate obligations 4,001 48 --
Mortgage-backed and other asset-backed
securities 37,105 58 (652)
Other securities 2,546 515 (529)
------------ ------------ ------------
$ 78,857 $ 1,049 $ (1,485)
============ ============ ============
The carrying amount, unrecognized gains and losses and fair value of securities
held to maturity were as follows:
Gross Gross
Carrying Unrecognized Unrecognized Fair
Amount Gains Losses Value
------ ----- ------ -----
Securities Held to Maturity
---------------------------
2001
Obligations of states and political
subdivisions $ 3,918 $ 129 $ -- $ 4,047
============ ============ ============ ============
2000
Obligations of states and political
subdivisions $ 4,484 $ 98 $ (2) $ 4,580
============ ============ ============ ============
Gross gains of $0, $2, and $35 and gross losses of $0, $14, and $179 were
realized on sales of securities available-for-sale in 2001, 2000, and 1999.
--------------------------------------------------------------------------------
(continued)
12.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 2 - SECURITIES (Continued)
The fair value of securities and carrying amount, if different, at December 31,
2001 by contractual maturity are shown below. Securities not due at a single
maturity date are shown separately.
Available
Held-to-Maturity For Sale
Carrying Fair Fair
Amount Value Value
------ ----- -----
Due in 1 year or less $ -- $ -- $ 1,074
Due after 1 year through 5 years 1,924 2,015 17,670
Due after five years through 10 years 927 964 7,431
Due after 10 years 1,067 1,068 25,133
------------ ------------ ------------
Subtotal 3,918 4,047 51,308
Mortgage-backed and other asset-
backed securities -- -- 42,856
------------ ------------ ------------
Total $ 3,918 $ 4,047 $ 94,164
============ ============ ============
Securities with a carrying value of $34,702 and $57,405 at December 31, 2001 and
2000 were pledged to secure public deposits and repurchase agreements. See Note
8 regarding additional securities pledges.
At December 31, 2001 and 2000, mortgage-backed securities include collateralized
mortgage obligations (CMO's) and real estate mortgage investment conduits
(REMIC's) with an amortized cost of $27,997 and $17,295 and fair value of
$28,123 and $16,753, all of which are issued by U.S. Government agencies. At
December 31, 2001 and 2000, approximately $7,538 and $8,481 are variable rate,
with the remainder fixed rate.
--------------------------------------------------------------------------------
(continued)
13.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 3 - LOANS
Loans are comprised of the following as of December 31:
2001 2000
---- ----
Commercial and agricultural loans $232,997 $215,087
Real estate construction 62,305 54,768
Residential real estate loans 211,014 212,190
Installment loans to individuals 44,559 50,696
Commercial paper 4,989 4,984
-------- --------
Total $555,864 $537,725
======== ========
Non-performing loans consist of the following at
December 31:
2001 2000
---- ----
Loans past due 90 days or more $ 768 $1,052
Non-accrual loans 3,440 2,718
Restructured loans 25 55
------ ------
Total $4,233 $3,825
====== ======
Information regarding impaired loans is as follows:
2001 2000
---- ----
Year-end impaired loans
With no allowance for loan losses allocated $ 693 $ 25
With allowance for loan losses allocated 7,535 5,151
Amount of the allowance allocated 2,077 1,658
2001 2000 1999
---- ---- ----
Average balance of impaired loans $5,608 $2,885 $697
Interest income recognized during impairment 312 55 3
Cash-basis interest income recognized 220 41 3
The Bank had $237 and $34 of loans on non-accrual at December 31, 2001 or 2000
that management did not deem to be impaired.
--------------------------------------------------------------------------------
(continued)
14.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 3 - LOANS (Continued)
Certain directors and officers of the Corporation and Bank were customers of the
Bank in the ordinary course of business. Loan activity with these related
parties is as follows:
Balance as of January 1, 2001 $ 910
Change in persons included --
New loans 791
Loan payments (474)
-------
Balance as of December 31, 2001 $ 1,227
=======
NOTE 4 - ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
2001 2000 1999
---- ---- ----
Balance, January 1 $ 5,071 $ 4,618 $ 4,241
Provision charged to operations 1,225 1,200 1,060
Loans charged-off (982) (877) (829)
Recoveries on loans previously charged-off 99 130 146
------- ------- -------
Balance, December 31 $ 5,413 $ 5,071 $ 4,618
======= ======= =======
NOTE 5 - PREMISES, FURNITURE AND EQUIPMENT
A summary of premises, furniture and equipment by major category follows:
2001 2000
---- ----
Land $ 905 $ 870
Buildings and improvements 9,037 8,782
Leasehold improvements 1,749 1,786
Furniture and equipment 8,438 9,781
-------- --------
Total 20,129 21,219
Accumulated depreciation (9,122) (9,866)
-------- --------
Premises, furniture and equipment, net $ 11,007 $ 11,353
======== ========
--------------------------------------------------------------------------------
(continued)
15.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 6 - INTEREST-BEARING TIME DEPOSITS
Time deposits of $100 or greater totaled $53,727 and $53,514 at December 31,
2001 and 2000.
At December 31, 2001, the scheduled maturities of time deposits are as follows:
2002 $ 193,826
2003 57,608
2004 11,294
2005 2,813
2006 4,052
Thereafter 269
------------
Total $ 269,862
============
NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings are comprised of the following at year-end:
2001 2000
---- ----
Balance of repurchase agreements outstanding $31,505 $54,275
Balance of treasury tax and loan open-end note 568 1,297
------- -------
Total short-term borrowings $32,073 $55,572
======= =======
At December 31, 2001 and 2000, the Corporation had $667 and $1,054 in related
party repurchase agreements.
--------------------------------------------------------------------------------
(continued)
16.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 8 - FHLB ADVANCES AND NOTE PAYABLE
FHLB advances and note payable outstanding at December 31 consist of the
following:
2001 2000
---- ----
Federal Home Loan Bank advances; annual principal payments; various
maturities with final maturity May 15, 2008; interest payable monthly at
various fixed interest rates from 5.45% - 6.82%; secured by a blanket
pledge of the Bank's obligations of the U.S. Government and U.S. Government
agencies and one-to-four family residential mortgage loans. $ 7,982 $ 8,737
Federal Home Loan Bank advances; principal callable one year from date of
advance and quarterly thereafter, otherwise, principal payments due at
maturity, with final maturities in 2002 and 2010; interest payable monthly
at various fixed interest rates from 4.98%-6.20%; secured by a blanket
pledge of the Bank's obligations of the U.S. Government and U.S. Government
agencies and one-to-four family residential mortgage loans. 27,000 27,000
--------- ---------
Total FHLB advances 34,982 35,737
Note payable to Northern Trust Company; quarterly principal payments of
$350 required; matures March 31, 2006; interest payable monthly at a
variable rate, which is currently 3.60% based on the Federal Funds rate
plus an applicable margin based on the Corporation's existing capital
ratios; obligation is unsecured but subject to various covenants, including
defined minimum return on average assets, tangible net worth, capital
ratios, loan loss allowance to non-performing loans ratio, and maximum
non-performing assets. At year-end, the Corporation was in compliance with
all covenants. 10,150 11,550
--------- ---------
Total $ 45,132 $ 47,287
========= =========
Annual principal payments required are as follows:
2002 $ 7,399
2003 4,426
2004 1,479
2005 1,485
2006 2,800
Thereafter 27,543
------------
Total FHLB advances and note payable $ 45,132
============
--------------------------------------------------------------------------------
(continued)
17.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 9 - EMPLOYEE BENEFIT PLANS
The following sets forth the defined benefit pension plan's funded status and
amount recognized in the balance sheet at December 31 (amounts computed as of
September 30, 2001 and 2000):
2001 2000
---- ----
Change in benefit obligation:
Beginning benefit obligation $ 13,314 $ 12,626
Service cost 813 783
Interest cost 979 928
Actuarial (gain) loss 1,128 (503)
Benefits paid (588) (520)
-------- --------
Ending benefit obligation 15,646 13,314
Change in plan assets, at fair value:
Beginning plan assets 16,341 16,603
Actual return (246) 258
Employer contribution -- --
Benefits paid (588) (520)
-------- --------
Ending plan assets 15,507 16,341
-------- --------
Funded status (139) 3,027
Unrecognized net actuarial (gain) loss 2,480 (382)
Unrecognized prior service cost 17 19
Unrecognized transition asset (480) (631)
-------- --------
Prepaid benefit cost $ 1,878 $ 2,033
======== ========
The components of pension expense and related actuarial assumptions were as
follows.
2001 2000 1999
---- ---- ----
Service cost $ 813 $ 783 $ 647
Interest cost 979 928 812
Expected return on plan assets (1,488) (1,513) (1,386)
Amortization of prior service cost 2 2 2
Amortization of transition asset (151) (151) (151)
------- ------- -------
$ 155 $ 49 $ (76)
======= ======= =======
Discount rate on benefit obligation 7.00% 7.50% 7.50%
Long-term expected rate of return
on plan assets 9.25 9.25 9.25
Rate of compensation increase 4.00 4.00 4.00
At December 31, 2001 and 2000, the plan's assets include Lafayette
Bancorporation common stock of $1,216 and $582. At December 31, 2001 and 2000
the plan's assets also included Lafayette Bank and Trust Company certificates of
deposit of $538 and $436.
--------------------------------------------------------------------------------
(continued)
18.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 9 - EMPLOYEE BENEFIT PLANS (Continued)
The Bank maintains a retirement savings plan covering substantially all
employees. The plan requires employees to complete one year of service and be 21
years of age before entering the plan. The plan allows for Bank contributions at
an annually determined matching percentage of the first 4% of employee salary
contributions, as well as an annual discretionary contribution. Total 401(k)
contributions charged to expense were $176, $161, and $140 for 2001, 2000 and
1999.
The Bank maintains a deferred compensation plan for the benefit of certain
directors. Under the plan, the Bank agrees, in return for the directors
deferring the receipt of a portion of their current compensation, to pay a
retirement benefit computed as the amount of the compensation deferred plus
accrued interest at a variable rate. Accrued benefits payable totaled $1,596 and
$1,289 at December 31, 2001 and 2000. Deferred compensation expense was $131 for
2001, and $106 for 2000. In conjunction with the plan, the Bank has purchased
life insurance on the directors. The cash surrender value of that insurance is
carried as an other asset on the consolidated balance sheet, and was
approximately $7,171 and $6,834 at December 31, 2001 and 2000.
NOTE 10 - POSTRETIREMENT BENEFITS
The Bank sponsors a postretirement benefit plan which provides defined medical
benefits. Retirees contribute an amount equal to their individual applicable
premium to provide the coverage, less 30%, which is paid monthly by the Bank.
Retirees must pay 100% of medical premiums for all dependent coverage. The plan
is not funded and has no assets.
--------------------------------------------------------------------------------
(continued)
19.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 10 - POSTRETIREMENT BENEFITS (Continued)
The following sets forth the plan's benefit obligation and amounts recognized in
the balance sheet at December 31:
2001 2000
---- ----
Change in postretirement benefit obligation:
Beginning benefit obligation $ 454 $ 550
Unrecognized net actuarial (gain) loss -- (159)
Service cost 31 35
Interest cost 36 38
Benefits paid, net (23) (10)
----- -----
Ending benefit obligation 498 454
Unrecognized net gain 277 302
----- -----
Accrued benefit obligation $ 775 $ 756
===== =====
Components of net periodic postretirement benefit cost as of December 31:
2001 2000 1999
---- ---- ----
Service cost $ 31 $ 35 $ 31
Interest cost 36 38 34
Amortization of unrecognized gain (25) (10) (11)
---- ---- ----
Benefit cost $ 42 $ 63 $ 54
==== ==== ====
For measurement purposes, the annual rate of increase in the per capita cost of
covered health care benefits assumed was 7 % for 2001, 8% for 2000, and 11.5%
for 1999, with the rate assumed to decrease to 6% over the next two years in the
2001 and 2000 calculation, and to 5.5% over the next year in the 1999
calculation. The health care cost trend is a significant assumption. However,
either an increase or decrease in the assumed health care cost trend rates by 1%
in each year would affect the accumulated postretirement benefit obligation as
of December 31, 2001 and the aggregate service and interest cost components of
net periodic postretirement benefit cost for the year then ended by amounts not
considered to be material.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8% for 2001 and 2000, and 7% for 1999.
--------------------------------------------------------------------------------
(continued)
20.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 11 - STOCK APPRECIATION RIGHTS AND STOCK OPTION PLAN
The Corporation maintains an Officers' Stock Appreciation Rights Plan for
granting rights to certain officers, under which all available rights have been
granted. Upon exercise of a stock appreciation right, the holder may receive
cash equal to the excess of the fair market value of common stock at the date of
exercise over the option price. Stock appreciation rights are vested at 20% per
year and must be exercised within 10 years of grant. The plan expires May 2002.
Granted rights outstanding were fully vested and consisted of 38,105 at an
option price of $3.66 for 2001 and 2000. In 2001, no rights were exercised. In
2000, 16,500 rights were exercised when the fair market value was $23.18 per
share. The aforementioned amounts of rights and prices are adjusted for stock
dividends and splits. Compensation expense (benefit) charged to operations in
2001, 2000 and 1999 was $539, ($376), and $14 and is based on an increase
(decrease) in market value. The liability at December 31, 2001, 2000 and 1999
was $895, $356 and $1,053.
The Corporation has established two nonqualified stock option plans to provide
stock options to directors and key members of management. One plan was adopted
in 1995 ("1995 Plan") and the other in 1998 ("1998 Plan"). There are no shares
of common stock remaining available for grant under the 1995 Plan. The total
number of shares of common stock remaining available for grant to directors is
17 and management is 19,928 under the 1998 Plan. All shares for both plans were
available for grant at a price equal to the market price of the stock at the
date of grant.
Under the 1995 Plan, options granted to directors at the effective date are
exercisable any time after the date of grant, and options granted to directors
elected after the effective date are exercisable after two years. Under the 1998
Plan, options granted to directors are exercisable after two years. Options
granted to management under both plans become 20% exercisable after one year and
20% each subsequent year. Both plans are effective for five years and options
must be exercised within ten years from the date of grant.
--------------------------------------------------------------------------------
(continued)
21.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 11 - STOCK APPRECIATION RIGHTS AND STOCK OPTION PLAN (Continued)
A summary of the Corporation's stock option activity, and related information
for the years ended December 31, follows (adjusted for stock dividends and
splits):
Weighted Weighted
Average Average
Exercise Fair
Options Price Value
------- -------- -------
Outstanding, beginning of 1999 227,427 $ 12.89
Granted 14,834 24.70 $ 4.76
Exercised (17,166) 11.26
Forfeited (9,758) 14.72
----------- ---------
Outstanding, end of 1999 215,337 13.75
Granted 20,075 15.23 2.19
Exercised (9,144) 11.37
Forfeited (8,441) 15.69
----------- ---------
Outstanding, end of 2000 217,827 13.91
Granted 24,650 15.00 3.98
Exercised (7,973) 11.53
Forfeited (2,352) 15.52
----------- ---------
Outstanding, end of 2001 232,152 14.09
=========== =========
Options outstanding at December 31, 2001 include 184,529 with exercise prices
ranging from $10.39 to $15.23 (weighted average exercise price of $12.20) and a
weighted average remaining life of 5.87 years; and 47,623 with exercise prices
ranging from $17.63 to $24.70 (weighted average exercise price of $21.41) and a
weighted average remaining life of 7.27 years. Options exercisable at December
31, 2001 include 136,677 with exercise prices ranging from $10.39 to $15.23
(weighted average exercise price of $11.28); and 37,406 with exercise prices
ranging from $17.63 to $24.70 (weighted average exercise price of $20.86).
Pro forma information regarding net income and earnings per share has been
determined as if the Corporation had accounted for its stock options under the
fair value method. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for the years 2001, 2000, and 1999: risk-free interest rates
of 4.9%, 6.7%, and 5.4% dividend yields of 2% for 2001, 3% for 2000 and 2% for
1999; volatility factors of the expected market price of the Corporation's
common stock of .37, .24, and .13; and a weighted average expected life of the
options of five years for management options and two years for directors'
options.
--------------------------------------------------------------------------------
(continued)
22.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 11 - STOCK APPRECIATION RIGHTS AND STOCK OPTION PLAN (Continued)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Corporation's pro
forma information follows (in thousands except for earnings per share
information):
2001 2000 1999
---- ---- ----
Pro forma net income $ 7,329 $ 6,859 $ 6,270
Pro forma earnings per share
Basic $ 1.85 $ 1.74 $ 1.59
Diluted $ 1.82 $ 1.72 $ 1.55
In future years, the pro forma effect of not applying this standard may increase
if additional options are granted.
NOTE 12 - INCOME TAXES
Income taxes consist of the following:
2001 2000 1999
---- ---- ----
Currently payable $ 4,172 $3,498 $ 3,004
Deferred income taxes (benefit) (782) 3 (50)
Non-qualified stock option benefit
allocated to additional paid-in capital 11 13 73
------- ------ -------
Total $ 3,401 $3,514 $ 3,027
======= ====== =======
The following is a reconciliation of statutory federal income taxes and the
amount computed by applying the statutory rate of 34% to income before income
taxes:
2001 2000 1999
---- ---- ----
Statutory rate applied to income before
income taxes $ 3,677 $ 3,546 $ 3,188
Add/(deduct)
Tax exempt interest income (533) (486) (430)
State tax expense (net of federal benefit) 395 474 417
Other (138) (20) (148)
------- ------- -------
Total $ 3,401 $ 3,514 $ 3,027
======= ======= =======
--------------------------------------------------------------------------------
(continued)
23.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 12 - INCOME TAXES (Continued)
The net deferred tax asset reflected in the consolidated balance sheet is
comprised of the following components as of December 31:
2001 2000
---- ----
Deferred tax assets
Allowance for loan losses $ 1,718 $ 1,380
Accrued stock appreciation rights 350 139
Accrued post-retirement benefit obligation 462 426
Deferred compensation 589 470
Deferred loan fees 99 57
Net unrealized loss on securities available-for-sale -- 173
------- -------
Total tax assets 3,218 2,645
Deferred tax liabilities
Depreciation (339) (341)
Net pension benefit (734) (795)
Intangible asset amortization (282) (186)
Net unrealized gain on securities available-for-sale (262) --
Other (179) (248)
------- -------
Total deferred tax liabilities (1,796) (1,570)
Valuation allowance -- --
------- -------
Net deferred tax asset $ 1,422 $ 1,075
======= =======
NOTE 13 - PER SHARE DATA
The following table illustrates the computation of basic and diluted earnings
per share. Weighted average shares outstanding have been restated for all
periods for stock splits and dividends.
2001 2000 1999
---- ---- ----
Basic earnings per share
Net income $ 7,415 $ 6,916 $ 6,351
Weighted average shares outstanding 3,959,582 3,950,297 3,940,024
-------------- --------------- --------------
Basic earnings per share $ 1.87 $ 1.75 $ 1.61
============== ============== ==============
Diluted earnings per share
Net income $ 7,415 $ 6,916 $ 6,351
Weighted average shares outstanding 3,959,582 3,950,297 3,940,024
Dilutive effect of stock options 61,213 35,224 94,364
-------------- --------------- --------------
Diluted average shares outstanding 4,020,795 3,985,521 4,034,388
-------------- --------------- --------------
Diluted earnings per share $ 1.84 $ 1.74 $ 1.57
============== ============== ==============
--------------------------------------------------------------------------------
(continued)
24.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 14 - CAPITAL REQUIREMENTS
The Corporation and Bank are subject to various regulatory capital requirements
administered by federal and state banking agencies. Capital adequacy guidelines
and prompt corrective action regulations involve quantitative measures of
assets, liabilities, and certain off-balance-sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by regulators. Failure to meet capital
requirements can initiate regulatory action.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital to
average assets (as defined).
Prompt corrective action regulations provide five classifications: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, the institution may be required to limit capital
distributions, limit asset growth and expansion, and prepare capital restoration
plans.
On March 12, 1999 the Corporation's wholly-owned subsidiary bank acquired three
branches in Jasper County, Indiana. As a result of this transaction consolidated
and bank-only capital levels were reduced. The Corporation borrowed $14,000 and
contributed $13,000 to the Bank in order for the bank to maintain its
well-capitalized status. As of December 31, 2001, the Bank was categorized as
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized, the Bank must maintain minimum total
risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the
table. The Corporation was categorized as undercapitalized as of December 31,
1999, as the total capital ratio was slightly below the minimum required level
for capital adequacy purposes. The Corporation returned to adequately
capitalized status as of March 31, 2000 and has maintained that status through
December 31, 2001. Although the Corporation's capital was slightly below the
minimum at December 31, 1999, no corrective regulatory action was initiated by
the banking regulatory authorities and management anticipates maintaining its
adequately capitalized status in the foreseeable future.
--------------------------------------------------------------------------------
(continued)
25.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 14 - CAPITAL REQUIREMENTS (Continued)
The actual capital amounts and ratios are presented in the following table (in
millions) for the Corporation and the Bank.
Minimum Required To
Minimum Required Be Well-Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ -------- -------- ------ -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
2001
Total capital to risk weighted assets
Consolidated $ 51.8 9.28% $ 44.7 8.00% $ 55.9 10.00%
Lafayette Bank and Trust 61.3 10.98 44.7 8.00 55.8 10.00
Tier 1 capital to risk weighted assets
Consolidated 46.4 8.31 22.3 4.00 33.5 6.00
Lafayette Bank and Trust 55.9 10.01 22.3 4.00 33.5 6.00
Tier 1 capital to average assets
Consolidated 46.4 6.24 29.7 4.00 37.2 5.00
Lafayette Bank and Trust 55.9 7.51 29.8 4.00 37.2 5.00
2000
Total capital to risk weighted assets
Consolidated $ 45.1 8.33% $ 43.3 8.00% $ 54.1 10.00%
Lafayette Bank and Trust 55.5 10.19 43.6 8.00 54.5 10.00
Tier 1 capital to risk weighted assets
Consolidated 40.0 7.40 21.7 4.00 32.5 6.00
Lafayette Bank and Trust 50.5 9.26 21.8 4.00 32.7 6.00
Tier 1 capital to average assets
Consolidated 40.0 5.79 27.7 4.00 34.6 5.00
Lafayette Bank and Trust 50.5 7.29 27.7 4.00 34.6 5.00
The Bank is also subject to state regulations restricting the amount of
dividends payable to the Corporation. At December 31, 2001, the Bank had $8,882
of retained earnings available for dividends under these regulations.
--------------------------------------------------------------------------------
(continued)
26.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 15 - COMMITMENTS AND CONTINGENT LIABILITIES
The Bank leases branch facilities under operating leases expiring in various
years through 2007. Expense for leased premises was $306, $281, and $244 for
2001, 2000 and 1999.
Future minimum lease payments are as follows:
2002 $ 290
2003 267
2004 222
2005 162
2006 75
Thereafter 19
------------
Total $ 1,035
============
In the ordinary course of business, the Bank has loans, commitments and
contingent liabilities, such as guarantees and commitments to extend credit,
which are not reflected in the consolidated balance sheet. The Bank's exposure
to credit loss in the event of nonperformance by the other party to the
financial instrument for commitments to make loans and standby letters of credit
is represented by the contractual amount of those instruments. The Bank uses the
same credit policy to make such commitments as it uses for on-balance sheet
items.
At December 31, off-balance sheet financial instruments whose contract amount
represents credit risk are summarized as follows:
2001 2000
---- ----
Unused lines of credit $84,611 $64,987
Commitments to make loans 6,180 7,229
Standby letters of credit 3,536 1,585
Commercial letters of credit -- --
Since many commitments to make loans expire without being used, the amount does
not necessarily represent future cash commitments. Collateral obtained upon
exercise of the commitment is determined using management's credit evaluation of
the borrower, and may include accounts receivable, inventory, property, land and
other items. These commitments are generally variable rate or carry a term of
one year or less.
The cash balance required to be maintained on hand or on deposit with the
Federal Reserve was $10,738 and $9,639 at December 31, 2001 and 2000. These
reserves do not earn interest.
--------------------------------------------------------------------------------
(continued)
27.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 16 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and estimated fair values of the Corporation's financial
instruments as of December 31 are as follows:
-----------2 0 0 1--------- -----------2 0 0 0---------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets
Cash and cash equivalents $ 51,465 $ 51,465 $ 73,472 $ 73,472
Securities available-for-sale 94,164 94,164 78,857 78,857
Securities held-to-maturity 3,918 4,047 4,484 4,580
Loans held for sale 17,262 17,435 5,949 6,058
Loans, net 550,451 551,053 532,654 524,222
FHLB stock 2,344 2,344 2,200 2,200
Accrued interest receivable 6,803 6,803 7,830 7,830
Financial liabilities
Deposits $ (618,572) $ (623,883) $ (578,297) $ (580,115)
Short-term borrowings (32,073) (32,073) (55,572) (55,572)
FHLB advances (34,982) (35,358) (35,737) (35,903)
Note payable (10,150) (10,150) (11,550) (11,550)
Accrued interest payable (2,180) (2,180) (2,772) (2,772)
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value. The carrying amount is considered to estimate fair value for cash and
short-term instruments, demand deposits, short-term borrowings, accrued
interest, and variable rate loans, deposits and note payable that re-price
frequently and fully. Securities fair values are based on quoted market prices
or, if no quotes are available, on the rate and term of the security and on
information about the issuer. For loans held for sale, the fair value of loans
held for sale is based on quoted market prices. For commercial, real estate,
consumer, and other loans, fair value is estimated by discounting future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. FHLB stock is
restricted in nature and is not actively traded on a secondary market and the
carrying amount is a reasonable estimate of fair value. The fair value of
fixed-maturity certificates of deposit is estimated using the rates currently
offered for deposits of similar remaining maturities. For FHLB advances, fair
value is estimated using rates currently available to the Corporation for debt
with similar terms and remaining maturities. The estimated fair value for
off-balance sheet loan commitments approximates carrying value and are not
considered significant to this presentation.
--------------------------------------------------------------------------------
(continued)
28.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 17 - PARENT COMPANY STATEMENTS
Presented below are condensed balance sheets, statements of income and cash
flows for the parent company:
CONDENSED BALANCE SHEETS
December 31
2001 2000
---- ----
ASSETS
Cash on deposit with subsidiary $ 1,855 $ 1,901
Investment in bank 68,589 63,221
Other assets 387 265
------- -------
$70,831 $65,387
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable $10,150 $11,550
Other liabilities 1,561 1,036
Shareholders' equity 59,120 52,801
------- -------
$70,831 $65,387
======= =======
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years ended December 31
2001 2000 1999
---- ---- ----
Operating income
Dividends received from subsidiary bank $ 3,525 $ 3,200 $ 2,960
Interest income 40 74 75
------------ ------------ ------------
3,565 3,274 3,035
Operating expenses
Interest expense 634 1,007 749
Compensation expense (benefit) 539 (376) 14
Other operating expenses 232 119 111
------------ ------------ ------------
1,405 750 874
Income before income taxes and equity in
undistributed earnings of bank 2,160 2,524 2,161
Income tax benefit 550 215 389
------------ ------------ ------------
Income before equity in undistributed earnings of bank 2,710 2,739 2,550
Equity in undistributed earnings of bank 4,705 4,177 3,801
------------ ------------ ------------
Net income 7,415 6,916 6,351
Other comprehensive income, net of tax 663 1,693 (1,914)
------------ ------------ ------------
Comprehensive income $ 8,078 $ 8,609 $ 4,437
============ ============ ============
--------------------------------------------------------------------------------
(continued)
29.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
(Dollar amounts in thousands, except per share data)
--------------------------------------------------------------------------------
NOTE 17 - PARENT COMPANY STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31
2001 2000 1999
---- ---- ----
Cash flows from operating activities
Net income $ 7,415 $ 6,916 $ 6,351
Adjustments to reconcile net income to net cash
from operating activities
Amortization of deferred costs 6 6 6
Equity in undistributed earnings of bank (4,705) (4,177) (3,801)
Other assets and other liabilities 397 (419) (160)
------------ ------------ ------------
Net cash from operating activities 3,113 2,326 2,396
Cash flows from financing activities
Proceeds from note payable -- -- 14,000
Principal payments on note payable (1,400) (1,400) (1,050)
Capital contribution to subsidiary bank - -- (13,000)
Common stock issued 103 117 278
Dividends paid (1,862) (1,706) (1,540)
Purchase of fractional shares -- (4) --
Purchase of treasury shares -- -- (4)
------------ ------------ ------------
Net cash from financing activities (3,159) (2,993) (1,316)
------------ ------------ ------------
Net change in cash and cash equivalents (46) (667) 1,080
Cash and cash equivalents at beginning of year 1,901 2,568 1,488
------------ ------------ ------------
Cash and cash equivalents at end of year $ 1,855 $ 1,901 $ 2,568
============ ============ ============
NOTE 18 - BRANCH ACQUISITION
In March 1999, the Bank purchased three branches located in DeMotte, Remington,
and Rensselaer, Indiana.
The fair value of assets acquired was $71,749 (consisting primarily of goodwill
and core deposit intangibles of $13,510, and commercial loans, net of a $563
purchase adjustment for credit quality), the fair value of liabilities assumed
was $117,015 (consisting primarily of customer deposits), and the Bank received
$45,266 of cash at settlement.
--------------------------------------------------------------------------------
(continued)
30.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
(Dollar amounts in thousands, except per share data)
NOTE 19 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
2001 2000 1999
---- ---- ----
Unrealized holding gains (losses) on
securities available-for-sale $ 1,098 $ 2,791 $ (3,314)
Less: reclassification adjustments for gains
and losses later recognized in income -- 12 144
-------------- --------------- --------------
Net unrealized gains (losses) 1,098 2,803 (3,170)
Tax effect (435) (1,110) 1,256
-------------- --------------- --------------
Other comprehensive income $ 663 $ 1,693 $ (1,914)
============== =============== ==============
NOTE 20 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest Net Interest Net Earnings per Share
Income Income Income Basic Fully Diluted
------ ------ ------ ----- -------------
2001
First quarter $ 13,786 $ 6,187 $ 1,678 $ .42 $ .42
Second quarter 13,745 6,601 1,906 .48 .48
Third quarter 13,373 6,835 2,019 .51 .50
Fourth quarter 12,760 7,138 1,812 .46 .44
2000
First quarter $ 12,123 $ 6,084 $ 1,798 $ .46 $ .45
Second quarter 12,878 6,297 1,807 .46 .46
Third quarter 13,427 6,226 1,634 .41 .41
Fourth quarter 13,958 6,374 1,677 .42 .42
Earnings per share amounts have been restated for subsequent stock dividends and
splits.
--------------------------------------------------------------------------------
(continued)
31.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
(Dollar amounts in thousands, except per share data)
NOTE 21 - SEGMENT INFORMATION
The Corporation's operations include three primary segments: banking, mortgage
banking, and trust services. Through its banking subsidiary's locations in
Tippecanoe, Jasper, White and Carroll Counties, the Corporation provides
traditional community banking services, such as accepting deposits and making
commercial, residential and consumer loans. Mortgage banking activities include
the origination of residential mortgage loans for sale on a servicing released
basis to various investors. The Corporation's trust department provides both
personal and corporate trust services.
The Corporation's three reportable segments are determined by the products and
services offered. Loans, investments and deposits comprise the primary revenues
and expenses of the banking operation, net gains on loans sold account for the
revenues in the mortgage banking segment, and trust administration fees provide
the primary revenues in the trust department.
The following segment financial information has been derived from the internal
profitability reporting system utilized by management to monitor and manage the
financial performance of the Corporation. The accounting policies of the three
segments are the same as those described in the summary of significant
accounting policies. The Corporation evaluates segment performance based on
profit or loss before income taxes. The evaluation process for the mortgage
banking and trust segments include only direct expenses, while certain indirect
expenses, including goodwill, are absorbed by the banking operation. The
difference between segment totals and consolidated totals are holding company
amounts and income tax expense.
--------------------------------------------------------------------------------
(continued)
32.
LAFAYETTE BANCORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, and 1999
(Dollar amounts in thousands, except per share data)
--------------------------------------------------------------------------------
NOTE 21 - SEGMENT INFORMATION (Continued)
Mortgage Total
2001 Banking Banking Trust Segments
---- ------- ------- ----- --------
Net interest income $ 27,058 $ 297 $ -- $ 27,355
Net gain on loan sales -- 1,858 -- 1,858
Other revenue 4,330 2 1,264 5,596
Noncash items:
Depreciation 1,369 58 48 1,475
Provision for loan loss 1,225 -- -- 1,225
Segment profit, before taxes 10,858 998 326 12,185
Segment assets 744,396 17,402 133 761,931
2000
----
Net interest income $ 25,769 $ 146 $ -- $ 25,915
Net gain on loan sales -- 659 -- 659
Other revenue 3,973 6 1,187 5,166
Non-cash items:
Depreciation 1,243 48 48 1,339
Provision for loan loss 1,200 -- - 1,200
Segment profit, before taxes 10,655 67 385 11,107
Segment assets 734,581 6,122 179 740,822
1999
----
Net interest income $ 23,310 $ 211 $ -- $ 23,521
Net gain on loan sales -- 942 -- 942
Other revenue 2,959 90 1,134 4,183
Noncash items:
Depreciation 868 42 38 948
Provision for loan loss 1,060 -- -- 1,060
Segment profit, before taxes 9,328 459 390 10,177
Segment assets 641,132 3,325 202 644,659
NOTE 22 - PENDING MERGER
On October 15, 2001, Lafayette Bancorporation signed a definitive agreement with
First Merchants Corporation, located in Muncie, Indiana, to merge with and into
First Merchants Corporation. Under the terms of the agreement, upon the closing
of this transaction, Lafayette Bank and Trust Company will be a wholly-owned
subsidiary of First Merchants Corporation. The transaction is subject to
shareholder and regulatory approval and is expected to be effective in the
second quarter of 2002.
--------------------------------------------------------------------------------
(continued)
33.
UNAUDITED PRO FORMA COMBINED
CONSOLIDATED FINANCIAL INFORMATION
The following is the unaudited pro forma combined consolidated financial
information for First Merchants Corporation and for Lafayette Bancorporation
giving effect to the merger of Lafayette Bancorporation with and into First
Merchants Corporation and the issuance of preferred securities and other bank
debt to fund the cash consideration payable in the merger. The balance sheet
information presented gives effect to the merger and the related issuance of the
preferred securities and bank debt as if each occurred on December 31, 2001. The
income statement information presented gives effect to the merger and the
related issuance of the preferred securities and bank debt as if each occurred
on January 1, 2001. The following pro forma historical information does not
reflect any cost savings which First Merchants Corporation may achieve
subsequent to the merger.
You should read the unaudited pro forma combined consolidated financial
information in conjunction with the accompanying Notes to Unaudited Pro Forma
Combined Consolidated Financial Information. This unaudited pro forma combined
consolidated financial information may not be indicative of the results of
operations that actually would have occurred if the merger and the related
issuance of the preferred securities and bank debt had occurred on the dates
assumed above or of the results of operations that may be achieved in the
future.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED BALANCE SHEET
AS OF DECEMBER 31, 2001
First Pro forma Pro forma
Merchants Lafayette Adjustments Combined
--------- --------- ----------- --------
(Dollars in thousands)
Assets:
Cash and due from banks....................... $ 68,743 $ 32,028 $ (1,400) (1) $ 101,242
(400) (2)
3,275 (3)
(1,004) (4)
Interest-bearing deposits..................... 10,237 10,237
Federal funds sold............................ 34,285 9,200 ---- 43,485
---------- --------- --------- -----------
Cash and cash equivalents................... 103,028 51,465 471 154,964
Interest-bearing time deposits................ 3,871 ---- ---- 3,871
Investment securities
Available for sale.......................... 231,668 94,164 ---- 325,832
Held to maturity............................ 8,654 3,918 129 (5) 12,701
---------- --------- --------- -----------
Total investment securities...............
240,322 98,082 129 338,533
Mortgage loans held for sale.................. 307 17,262 173 (5) 17,742
Loans, net of allowance....................... 1,344,445 550,451 602 (5) 1,895,498
Premises and equipment........................ 27,684 11,007 9,441 (6) 48,132
Federal Reserve and FHLB stock................ 8,350 2,344 ---- 10,694
Interest Receivable........................... 12,024 6,803 ---- 18,827
Core deposit intangible and goodwill.......... 32,177 12,291 42,537 (7) 90,714
(12,291) (8)
16,000 (9)
Other assets.................................. 14,827 12,613 2,133 (15) 35,194
7,538 (10)
(1,917 (14)
---------- --------- --------- -----------
Total assets............................. $1,787,035 $ 762,318 $ 64,816 $ 2,614,169
========== ========= ========= ===========
Liabilities:
Deposits
Noninterest bearing......................... $ 186,987 $ 80,012 $ ---- $ 266,999
Interest bearing............................ 1,234,264 538,560 5,311 (5) 1,778,135
---------- --------- --------- -----------
Total deposits........................... 1,421,251 618,572 5,311 2,045,134
Borrowings.................................... 174,404 77,205 376 (5)
6,750 (16) 258,735
Trust preferred............................... 46,250 (11) 46,250
Other liabilities............................. 12,252 7,421 139 (17) 19,812
---------- --------- --------- -----------
Total liabilities....................... 1,607,907 703,198 58,826 2,369,931
---------- --------- --------- -----------
Shareholders' equity:
Common stock................................ 1,584 3,962 (3,962)(12) 1,931
347 (13)
Additional paid in capital.................. 50,642 38,119 (38,119)(12) 115,405
64,763 (13)
Retained earnings........................... 124,304 16,639 (16,639)(12) 124,304
Accumulated comprehensive income............ 2,598 400 (400)(12) 2,598
---------- --------- --------- -----------
Total shareholders' equity.............. 179,128 59,120 5,990 244,238
---------- --------- --------- -----------
Total liabilities and shareholders' equity $ 1,787,035 $ 762,318 $ 64,816 $ 2,614,169
=========== ========= ========= ===========
The accompanying notes are an integral part of the unaudited pro forma combined
consolidated financial information.
UNAUDITED PRO FORMA COMBINED CONSOLIDATED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
First Pro forma Pro forma
Merchants Lafayette Adjustments Combined
---------- --------- --------- -----------
(Dollars in thousands, except per share data)
Interest Income:
Loans receivable........................... $ 103,561 $ 46,853 $ (266)(18) $ 150,148
Investment securities...................... 15,310 5,030 (29)(18) 20,311
Other...................................... 1,564 1,781 ---- 3,345
---------- --------- --------- -----------
Total interest income................... 120,435 53,664 (295) 173,804
---------- --------- --------- -----------
Interest Expense:
Deposits................................... 45,856 22,650 (5,311)(18) 63,195
Securities sold under repurchase agreements 3,208 1,506 ---- 4,714
Federal Home Loan Bank advances & other.... 7,010 2,747 (251)(18)
135 (23) 9,641
Trust Preferred............................ ---- ---- 4,002 (22) 4,002
---------- --------- --------- -----------
Total interest expense.................. 56,074 26,903 (1.425) 81,552
---------- --------- --------- -----------
Net Interest Income: ........................... 64,361 26,761 1,130 92,252
Provision for loan losses.................. 3,576 1,225 ---- 4,801
---------- --------- --------- -----------
Net interest income after provision for loan
losses:......................................... 60,785 25,536 1,130 87,451
---------- --------- --------- -----------
Non-interest Income:
Fiduciary activities....................... 5,429 1,264 ---- 6,693
Service charges on deposit accounts........ 5,729 2,352 ---- 8,081
Other customer fees........................ 3,166 1,080 ---- 4,246
Net realized losses on sales of
available-for-sale securities........... (200) ---- ---- (200)
Commission income.......................... 1,945 398 ---- 2,343
Other income............................... 2,474 2,360 ---- 4,834
---------- --------- --------- -----------
Total other income...................... 18,543 7,454 ---- 25,997
---------- --------- --------- -----------
Non-interest expenses:
Salaries and employee benefits............. 24,711 12,908 ---- 37,619
Net occupancy expenses..................... 2,729 1,293 236 (19) 4,258
Equipment expenses......................... 4,521 1,914 ---- 6,435
Goodwill and core deposit amortization..... 1,682 716 3,556 (21) 5,238
(716)(24)
Other expenses............................. 11,552 5,343 ---- 16,895
---------- --------- --------- -----------
Total other expenses.................... 45,195 22,174 3,076 70,445
---------- --------- --------- -----------
Income before income tax:....................... 34,133 10,816 (1,946) 43,003
Income tax expense......................... 11,924 3,401 (788)(20) 14,537
---------- ---------- ---------- -----------
Net income: .................................... $ 22,209 $ 7,415 $ (1,158) $ 28,466
========== ========== ========== ===========
Per Share Data:
Basic earnings............................ $ 1.79 $ 1.87 ---- $ 1.88
Diluted earnings.......................... 1.78 1.84 ---- 1.87
Average common shares-basic............... 12,399,985 3,959,582 ---- 15,173,044
Average common shares-diluted............. 12,489,329 4,020,795 ---- 15,262,388
The accompanying notes are an integral part of the unaudited pro forma combined
consolidated financial information.
Notes to Unaudited Pro Forma Combined Consolidated Financial Information
(Dollars in thousands)
Note 1 - Basis of Presentation
On April 1, 2002, First Merchants Corporation acquired all of the
assets of Lafayette Bancorporation through the merger of Lafayette
Bancorporation with and into First Merchants Corporation. As part of
the merger, shareholders of Lafayette Bancorporation will receive
approximately 2,773,059 shares of First Merchants Corporation common
stock and approximately $50,866,560 in cash. The acquisition will be
accounted for under the purchase method of accounting and,
accordingly, the assets and liabilities of Lafayette Bancorporation
have been marked to estimated fair value based upon conditions as of
December 31, 2001. Since these are pro forma statements, we cannot
assure that the amounts reflected in these financial statements would
have been representative of the actual amounts earned had the
companies been combined at the time. The actual fair value
adjustments will be made based upon appraisals and evaluations that
will be made as of the date the merger is completed. Thus, the actual
fair value adjustment may differ significantly from those reflected
in the pro forma financial statements.
Note 2 - Pro Forma Adjustments
(1) To record payment by Lafayette Bancorporation for estimated
transaction costs.
(2) To record payment by First Merchants Corporation for estimated
transaction costs.
(3) To record receipt of cash for stock options exercised.
(4) To record payment for stock appreciation rights.
(5) To adjust interest-earning assets and interest-bearing liabilities of
Lafayette Bancorporation to estimated fair value.
(6) To record premises at estimated fair value.
(7) To record goodwill for the cost of acquisition over the estimated
fair value of net assets acquired as follows:
Purchase Price:
Common stock $ 347
Additional paid in capital 64,763
Acquisition costs 400
Cash paid to Lafayette Bancorporation stockholders 50,867
---------
Total purchase price paid $ 116,377
=========
Allocated to:
Historical book value of Lafayette Bancorporation's
assets and liabilities $ 59,120
Record estimated transaction costs of Lafayette Bancorporation (1,400)
Record payment of stock appreciation rights (1,004)
Cash received for stock options exercised 3,275
Write off of Lafayette Bancorporation's historical
goodwill and core deposit intangible (12,291)
---------
Adjusted book value of Lafayette Bancorporation $ 47,700
=========
Core deposit intangible 16,000
Adjustments to record assets and liabilities at fair value:
Securities 129
Mortgage loans held for sale 173
Loans 602
Premises and equipment 9,441
Deposits (5,311)
Borrowings (376)
Deferred taxes 7,538
Pension assets/liability (2,056)
---------
Total allocation $ 26,140
=========
Goodwill $ 42,537
=========
(8) To eliminate Lafayette Bancorporation's historical goodwill and core
deposit intangible.
(9) To record core deposit intangible.
(10) To record deferred taxes on the purchase accounting adjustments.
(11) To record issuance of the preferred securities by First Merchants
Corporation of $46,250,000.
(12) To eliminate Lafayette Bancorporation's equity accounts.
(13) To record issuance of 2,773,059 shares of First Merchants Corporation's
common stock.
(14) To eliminate Lafayette Bancorporation's pension asset.
(15) To record estimated net debt issuance costs.
(16) To record additional borrowings necessary for cash consideration to
Lafayette Bancorporation's shareholders in the event the underwriters
do not exercise their over-allotment option.
(17) To recognize Lafayette Bancorporation's pension liability.
(18) To record effect of amortization of purchase accounting adjustments in
a manner that approximates the level yield method.
(19) To record amortization of purchase accounting adjustment related to
premises and equipment.
(20) To record tax effect of purchase accounting adjustments at an effective
rate of 40.525%.
(21) To record amortization of core deposit intangible.
(22) To record interest expense and amortization of debt issuance costs
related to the preferred securities issued to fund the cash
consideration payable in the merger at an assumed rate of 8.5%.
(23) To record interest expense on additional borrowings necessary to
finance the remaining cash consideration payable to Lafayette
Bancorporation's shareholders in the event the underwriters do not
exercise their over-allotment option at an assumed rate of 2.0%. In the
event the underwriters exercise their over-allotment option, this
interest expense on the additional borrowing would not be incurred and
the interest expense recorded in footnote 22 would be increased by
$574,000, at an assumed rate of 8.5%.
(24) To eliminate Lafayette Bancorporation's goodwill and core deposit
intangible amortization expense.