SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Fiscal year ended December 31, 1999 Commission file number 0-17071
FIRST MERCHANTS CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1544218
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 East Jackson 47305-2814
Muncie, Indiana (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (765) 747-1500
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section
12 (g) of the Act:
Common Stock, $.125 stated value per share
(Title of Class)
Indicate by check mark whether the registrant(1) has filed all reportsrequired
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein,and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value (not necessarily a reliable indication of the price
at which more than a limited number of shares would trade) of the voting stock
held by non-affiliates of the registrant was $ as of March 6, 2000.
As of March 6,2000 there were 10,870,921 outstanding common shares, without par
value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Documents Into Which Incorporated
1999 Annual Report to Stockholders Part II (Items 5, 6, 7, 7A, and 8)
Definitive Proxy Statement for
Annual Meeting of Shareholders
to be held April 12, 2000 Part III (Items 10 through 13)
Exhibit Index: Page
FORM 10-K TABLE OF CONTENTS
Form 10-K
Page
Number
Part I
Item 1 - Business............................................................3
Item 2 - Properties.........................................................22
Item 3 - Legal Proceedings..................................................22
Item 4 - Submission of Matters to a Vote of Security Holders................22
..
Supplemental Information - Executive Officers of the Registrant.............23
Part II
Item 5 - Market For the Registrant's Common Equity and
Related Stockholder Matters.......................................23
Item 6 - Selected Financial Data...........................................23
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................23
Item 7A- Quantitative and Qualitative Disclosures about Market Risk.........23
Item 8 - Financial Statements and Supplementary Data.......................23
Item 9 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures..............................23
Part III
Item 10- Directors and Executive Officers of the Registrant.................23
Item 11- Executive Compensation.............................................23
Item 12- Security Ownership of Certain Beneficia
Owners and Management..............................................23
Item 13- Certain Relationships and Related Transactions.....................24
Part IV
Item 14- Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................................24
Signatures....................................................................26
Page 2
PART I
ITEM 1. BUSINESS
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GENERAL
First Merchants Corporation (the "Corporation") was incorporated under Indiana
law on September 20, 1982, as the bank holding company for First Merchants Bank,
National Association ("First Merchants"), a national banking association
incorporated in 1893. Prior to December 16, 1991, First Merchants' name was The
Merchants National Bank of Muncie. On November 30, 1988, the Corporation
acquired Pendleton Banking Company ("Pendleton"), a state chartered commercial
bank organized in 1872. On July 31, 1991, the Corporation acquired First United
Bank ("First United"), a state chartered commercial bank organized in 1882. On
August 1, 1996, the Corporation acquired The Union County National Bank of
Liberty ("Union County"), a national banking association incorporated in 1872.
On October 2, 1996, the Corporation acquired The Randolph County Bank ("Randolph
County"), a state chartered commercial bank founded in 1865. On April 1, 1998,
Pendleton acquired the Muncie office of Insurance and Risk Management, Inc.,
which was renamed, on April 1, 1998, First Merchants Insurance Services, Inc. On
April 1, 1999, the Corporation acquired The First National Bank of Portland
("First National"), a national banking association incorporated in 1904. On
April 21, 1999, the Corporation acquired Anderson Community Bank ("Anderson"), a
state charted commercial bank founded in 1995. Pendleton and Anderson were
combined on April 21, 1999, to form Madison Community Bank ("Madison").
As of December 31, 1999, the Corporation had consolidated assets of $1.474
billion, consolidated deposits of $1.147 billion and stockholders' equity of
$126.3 million.
The Corporation is headquartered in Muncie, Indiana, and is presently engaged in
conducting commercial banking business through the 27 offices of its five
banking subsidiaries. As of December 31, 1998, the Corporation and its
subsidiaries had 492 full-time equivalent employees.
Through its subsidiaries, the Corporation offers a broad range of financial
services, including: accepting time and transaction deposits; making consumer,
commercial, agri-business and real estate mortgage loans; issuing credit cards;
renting safe deposit facilities; providing personal and corporate trust
services; and providing other corporate services, letters of credit and
repurchase agreements.
Acquisition Policy and Pending Transactions
The Corporation anticipates that it will continue its policy of geographic
expansion through consideration of acquisitions of additional financial
institutions. Management of the Corporation periodically engages in reviewing
and analyzing potential acquisitions.
At the present time, management of the Corporation has signed definitive
agreements with Decatur Financial, Inc. regarding its affiliation with the
Corporation. See note 2 on page 29 of exhibit 13.
Page 3
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COMPETITION
The Corporation's banking subsidiaries are located in Delaware, Fayette,
Hamilton, Henry, Jay, Madison, Wayne, Randolph, and Union counties in Indiana
and Butler county in Ohio. In addition to the competition provided by the
lending and deposit gathering subsidiaries of national manufacturers, retailers,
insurance companies and investment brokers, the banking subsidiaries compete
vigorously with other banks thrift institutions, credit unions and finance
companies located within their service areas.
REGULATION AND SUPERVISION
OF FIRST MERCHANTS, DECATUR FINANCIAL AND SUBSIDIARIES
BANK HOLDING COMPANY REGULATION
First Merchants is registered as a bank holding company and is subject to the
regulations of the Federal Reserve Board ("Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). Bank holding companies
are required to file periodic reports with and are subject to periodic
examination by the Federal Reserve. The Federal Reserve has issued
regulations under the BHC Act requiring a bank holding company to serve
as a source of financial and managerial strength to its subsidiary banks.
Thus, it is the policy of the Federal Reserve that, a bank holding company
should stand ready to use its resources to provide adequate capital funds
to its subsidiary banks during periods of financial stress or adversity.
Additionally, under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), a bank holding company is required to
guarantee the compliance of any subsidiary bank that may become
"undercapitalized" (as defined in the FDICIA) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency up to the lesser of (i) an amount equal to 5% of the institution's total
assets at the time the institution became undercapitalized, or (ii) the amount
that is necessary (or would have been necessary) to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with such capital restoration plan. Under the BHC Act, the
Federal Reserve has the authority to require a bank holding company to terminate
any activity or relinquish control of a nonbank subsidiary (other than a nonbank
subsidiary of a bank) upon the determination that such activity constitutes a
serious risk to the financial stability of any bank subsidiary.
The BHC Act prohibits First Merchants from doing any of the following without
the prior approval of the Federal Reserve:
1. Acquiring direct or indirect control of more than 5% of the outstanding
shares of any class of voting stock or substantially all of the
assets of any bank or savings association.
2. Merging or consolidating with another bank holding company.
3. Engaging in or acquiring ownership or control of more than 5% of the
outstanding shares of any class of voting stock of any company engaged in a
nonbanking business unless such business is determined by the Federal
Reserve to be closely related to banking.
The BHC Act does not place territorial restrictions on such nonbanking-related
activities.
Page 4
CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES
Bank holding companies are required to comply with the Federal Reserve's
risk-based capital guidelines. These guidelines require a minimum ratio of
capital to risk-weighted assets of 8% (including certain off-balance sheet
activities such as standby letters of credit). At least half of the total
required capital must be "Tier 1 capital," consisting principally of common
shareholders' equity, noncumulative perpetual preferred stock, a limited amount
of cumulative perpetual preferred stock and minority interest in the equity
accounts of consolidated subsidiaries, less certain goodwill items. The
remainder may consist of a limited amount of subordinate debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance.
In addition to the risk-based capital guidelines, the Federal Reserve has
adopted a Tier 1 (leverage) capital ratio under which the bank holding
company must maintain a minimum level of Tier 1 capital to average total
consolidated assets. The ratio is 3% in the case of bank holding companies which
have the highest regulatory examination ratings and are not contemplating
significant growth or expansion. All other bank holding companies are expected
to maintain a ratio of at least 1% to 2% above the stated minimum.
The following are the Corporation's regulatory capital ratios as of
December 31, 1999:
Corporation Regulatory Minimum
Requirement
Tier 1 Capital: 12.7% 4.0%
Total Capital: 13.7% 8.0%
BANK REGULATION
First Merchants Bank, National Association, The Union County National
Bank, and The First National Bank of Portland are national banks and are
supervised, regulated and examined by the Office of the Comptroller of the
Currency (the "OCC"). First United Bank, The Madison Community Bank, and
The Randolph County Bank are state banks chartered in Indiana and are
supervised, regulated and examined by the Indiana Department. In addition, three
of First Merchants' subsidiaries, The Madison Community Bank, First United Bank
and The Randolph County Bank, are supervised and regulated by the FDIC. Each
regulator has the authority to issue cease-and-desist orders if it determines
that activities of the bank regularly represent an unsafe and unsound banking
practice or a violation of law.
Both federal and state law extensively regulate various aspects of the
banking business such as reserve requirements, truth-in-lending and
truth-in-savings disclosure, equal credit opportunity, fair credit reporting,
trading in securities and other aspects of banking operations. Current federal
law also requires banks, among other things, to make deposited funds available
within specified time periods.
Page 5
BANK REGULATION continued
Insured state-chartered banks are prohibited under FDICIA from engaging
as the principal in activities that are not permitted for national banks, unless
(i) the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards.
BANK CAPITAL REQUIREMENTS
The FDIC and the OCC have adopted risk-based capital ratio guidelines
to which state-chartered banks and national banks are subject. The guidelines
establish a framework that makes regulatory capital requirements more sensitive
to differences in risk profiles. Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet commitments to four
risk-weighted categories, with higher levels of capital being required for the
categories perceived as representing greater risk.
Like the capital guidelines established by the Federal Reserve, these
guidelines divide a bank's capital into tiers. Banks are required to maintain a
total risk-based capital ratio of 8%. The FDIC or OCC may, however, set higher
capital requirements when a bank's particular circumstances warrant. Banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.
In addition, the FDIC and the OCC established guidelines prescribing a
minimum Tier 1 leverage ratio (Tier 1 capital to adjusted total assets as
specified in the guidelines). These guidelines provide for a minimum Tier 1
leverage ratio of 3% for banks that meet specified criteria, including that they
have the highest regulatory rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier 1 leverage
ratio of 3% plus an additional 100 to 200 basis points.
All of First Merchants' affiliate banks exceed the risk-based capital
guidelines of the FDIC and/or the OCC as of December 31, 1999.
The Federal Reserve, the FDIC and the OCC have adopted rules to
incorporate market and interest rate risk components into their risk-based
capital standards. Amendments to the risk-based capital requirements,
incorporating market risk, became effective January 1, 1998. Under the new
market risk requirements, capital will be allocated to support the amount of
market risk related to a financial institution's ongoing trading activities.
FDICIA
FDICIA requires, among other things, federal bank regulatory
authorities to take "prompt corrective action" with respect to banks which do
not meet minimum capital requirements. For these purposes, FDICIA establishes
five capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized. The FDIC has
adopted regulations to implement the prompt corrective action provisions of
FDICIA.
"Undercapitalized" banks are subject to growth limitations and are
required to submit a capital restoration plan. A bank's compliance with such
plan is required to be guaranteed by the bank's parent holding company. If an
"undercapitalized" bank fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. "Significantly undercapitalized" banks are
subject to one or more restrictions, including an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks, and
restrictions on compensation of executive officers. "Critically
undercapitalized" institutions may not, beginning 60 days after become
"critically undercapitalized," make any payment of principal or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any transaction outside the ordinary course of business. In addition,
"critically undercapitalized" institutions are subject to appointment of a
receiver or conservator.
Page 6
FDICIA continued
As of December 31, 1999, each bank subsidiary of First Merchants is
"well capitalized" based on the "prompt corrective action" ratios and deadlines
described above. It should be noted, however, that a bank's capital category is
determined solely for the purpose of applying the OCC's (or the FDIC's) "prompt
corrective action" regulations and that the capital category may not constitute
an accurate representation of the bank's overall financial condition or
prospects.
DEPOSIT INSURANCE
First Merchants' affiliated banks are insured up to regulatory limits by
the FDIC and, accordingly, are subject to deposit insurance assessments to
maintain the Bank Insurance Fund (the "BIF") and the Savings Association
Insurance Fund ("SAIF") administered by the FDIC. The FDIC has adopted
regulations establishing a permanent risk-related deposit insurance assessment
system. Under this system, the FDIC places each insured bank in one of nine
risk categories based on (i) the bank's capitalization, and (ii)
supervisory evaluations provided to the FDIC by the institution's primary
federal regulator. Each insured bank's insurance assessment rate is then
determined by the risk category in which it is classified by the FDIC.
Effective January 1, 1997, the annual insurance premiums on bank
deposits insured by the BIF and the SAIF vary between $0.00 per $100 of deposits
for banks classified in the highest capital and supervisory evaluation
categories to $0.27 per $100 of deposits for banks classified in the lowest
capital and supervisory evaluation categories.
The Deposit Insurance Funds Act of 1996 provides for assessments to be
imposed on insured depository institutions with respect to deposits insured by
the BIF and the SAIF (in addition to assessments currently imposed on depository
institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost
of Financing Corporation ("FICO") funding. The FDIC established the FICO
assessment rates effective January 1, 1997 at $0.013 per $100 annually for
BIF-assessable deposits and $0.0648 per $100 annually for SAIF-assessable
deposits. The FICO assessments do not vary depending upon a depository
institution's capitalization or supervisory evaluations.
BROKERED DEPOSITS
Under FDIC regulations, no FDIC-insured depository institution can
accept brokered deposits unless it (i) is well capitalized, or (ii) is
adequately capitalized and received a waiver from the FDIC. In addition, these
regulations prohibit any depository institution that is not well capitalized
from (a) paying an interest rate on deposits in excess of 76 basis points over
certain prevailing market rates or (b) offering "pass through" deposit insurance
on certain employee benefit plan accounts unless it provides certain notice to
affected depositors.
INTERSTATE BANKING AND BRANCHING
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("Riegle-Neal") subject to certain concentration limits, required
regulatory approvals and other requirements, (i) bank holding companies such as
First Merchants is permitted to acquire banks and bank holding companies
located in any state; (ii) any bank that is a subsidiary of a bank holding
company is permitted to receive deposits, renew time deposits, close loans,
service loans and receive loan payments as an agent for any other bank
subsidiary of that holding company; and (iii) banks are permitted to
acquire branch offices outside their home states by merging with out-of-state
banks, purchasing branches in other states, and establishing de novo branch
offices in other states.
Page 7
FINANCIAL SERVICES MODERNIZATION ACT
On November 12, 1999, President Clinton signed into law the
Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The
general effect of the Financial Services Modernization Act is to establish a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms, and other financial service providers by revising
and expanding the existing BHC Act. Under this legislation, bank holding
companies would be permitted to conduct essentially unlimited securities and
insurance activities as well as other activities determined by the Federal
Reserve Board to be financial in nature or related to financial services. As a
result, First Merchants would be able to provide securities and insurance
services. Furthermore, under this legislation, First Merchants would be able to
acquire, or be acquired by, brokerage and securities firms and insurance
underwriters. In addition, the Financial Services Modernization Act broadens the
activities that may be conducted by national banks through the formation of
financial subsidiaries. Finally, the Financial Services Modernization Act
modifies the laws governing the implementation of the Community Reinvestment Act
and addresses a variety of other legal and regulatory issues affecting both
day-to-day operations and long-term activities of financial institutions.
First Merchants has not had an opportunity to assess the impact of the
legislation on its operations, but at the present time does not believe that the
legislation will have a material adverse effect on its operations in the near
future. In addition, First Merchants does not anticipate significant changes in
its products or services as a result of this legislation. However, to the extent
that this legislation permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further consolidation
and may increase the amount of competition that First Merchants faces from
larger institutions and other types of companies offering financial products.
ADDITIONAL MATTERS
In addition to the matters discussed above, First Merchants' affiliate
banks are subject to additional regulation of their activities, including a
variety of consumer protection regulations affecting their lending,
deposit and collection activities and regulations affecting secondary
mortgage market activities.
The earnings of financial institutions are also affected by general
economic conditions and prevailing interest rates, both domestic and foreign,
and by the monetary and fiscal policies of the United States Government and its
various agencies, particularly the Federal Reserve.
Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, state legislatures and
various regulatory agencies, including those referred to above. It cannot be
predicted with certainty whether such legislation or administrative action will
be enacted or the extent to which the banking industry in general or First
Merchants and its affiliate banks in particular would be affected thereby.
Page 8
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STATISTICAL DATA
The following tables set forth statistical data relating the Corporation and its
subsidiaries.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS" EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The daily average balance sheet amounts, the related interest income or expense,
and average rates earned or paid are presented in the following table.
1999 1998 1997
------------------------------- ------------------------------ ------------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Income/ Average
Balance Expense Rate Balance Balance Rate Balance Expense Rate
--------- --------- --------- --------- --------- --------- ---------- --------- ---------
Assets:
Federal funds sold ........ $ 14,369 $ 657 4.6% $ 23,236 $ 1,026 4.4% $ 4,602 $ 261 5.7%
Interest-bearing deposits...... 1,105 59 5.3 654 30 4.6 693 35 5.1
Federal Reserve and
Federal Home Loan Bank stock. 5,121 446 8.7 4,322 398 9.2 3,617 346 9.6
Securities: (1)
Taxable ....................... 256,424 15,459 6.0 189,285 11,596 6.1 185,896 11,587 6.2
Tax-exempt .................... 111,437 8,066 7.2 100,304 7,547 7.5 94,548 7,013 7.4
---------- -------- ---------- -------- ---------- -------
Total Securities............. 367,861 23,525 6.4 289,589 19,143 6.6 280,444 18,600 6.6
Mortgage loans held for sale..... 125 15 12.0 773 98 12.7 406 47 11.6
Loans: (2)
Commercial .................... 415,840 35,616 8.6 379,897 33,902 8.9 340,767 31,608 9.3
Bankers' acceptance and
Commercial paper purchased... 371 18 4.9 1,366 67 4.9 1,193 68 5.7
Real estate mortgage........... 332,670 26,604 8.0 320,194 26,484 8.3 300,596 25,262 8.4
Installment ................... 183,095 16,113 8.8 165,349 15,420 9.3 154,853 14,342 9.3
Tax-exempt .................... 3,615 358 9.9 3,511 360 10.3 2,021 226 11.2
---------- -------- ---------- -------- ---------- -------
Total loans ................. 935,591 78,709 8.4 870,317 76,233 8.8 799,430 71,506 8.9
---------- -------- ---------- -------- ---------- -------
Total earning assets......... $1,324,172 $103,411 7.8 $1,188,981 $ 96,928 8.2 $1,089,192 $90,795 8.3
---------- -------- ---------- -------- ---------- -------
Net unrealized gain on securities
Available for sale............... (47) 3,041 1,284
Allowance for loan losses........ (10,821) (8,769) (8,280)
Cash and due from banks.......... 36,873 31,015 37,167
Premises and equipment .......... 19,794 18,706 16,621
Other assets .................... 27,259 21,249 15,097
--------- --------- ---------
Total assets ................ $1,397,230 $1,254,223 $1,151,081
========== ========== ==========
Liabilities:
Interest-bearing deposits:
NOW accounts ................ $ 152,268 $ 2,642 1.7% $ 145,224 $ 2,977 2.1% $ 122,125 $ 2,800 2.3%
Money market deposit accounts 177,091 6,804 3.8 146,745 5,921 4.0 123,302 4,895 4.0
Savings deposits ............ 95,344 2,399 2.5 91,842 2,388 2.6 81,284 2,031 2.5
Certificates and other
time deposits ............. 518,624 26,694 5.1 519,625 28,587 5.5 499,097 27,644 5.5
---------- -------- ---------- -------- ---------- -------
Total interest-bearing
deposits................. 943,327 38,539 4.1 903,436 39,873 4.4 825,808 37,370 4.5
Borrowings ...................... 154,839 8,359 5.4 78,737 4,592 5.8 72,950 4,023 5.5
---------- -------- ---------- -------- ---------- -------
Total interest-bearing
liabilities.................. 1,098,166 46,898 4.3 982,173 44,465 4.5 898,758 41,393 4.6
Noninterest-bearing deposits..... 129,747 113,193 107,642
Other liabilities ............... 19,590 10,805 8,723
---------- ---------- ----------
Total liabilities............ 1,247,503 1,106,171 1,015,123
Stockholders' equity ............ 149,727 148,052 135,958
---------- ---------- ----------
Total liabilities and
stockholders' Equity........ $1,397,230 46,898 3.5(3)$1,254,223 44,465 3.7(3) $1,151,081 41,393 3.83
========== -------- ========== -------- ========== -------
Net interest income ......... $ 56,513 4.3 $ 52,463 4.4 $49,402 4.5
======== ======== =======
(1) Average balance of securities is computed based on the average of the
historical amortized cost balances without the effects of the fair value
adjustment.
(2) Nonaccruing loans have been included in the average balances.
(3) Total interest expense divided by total earning assets adjustment
to convert tax exempt investment securities to fully taxable equivalent
basis, using marginal rate of 35% for 1997, 1998, and
1999.............................
$2,948 $2,676 $2,611
====== ====== ======
Page 9
STATISTICAL DATA (continued)
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ANALYSIS OF CHANGES IN NET INTEREST INCOME
The following table presents net interest income components on a tax-equivalent
basis and reflects changes between periods attributable to movement in either
the average balance or average interest rate for both earning assets and
interest-bearing liabilities. The volume differences were computed as the
difference in volume between the current and prior year times the interest rate
of the prior year, while the interest rate changes were computed as the
difference in rate between the current and prior year times the volume of the
prior year. Volume/rate variances have been allocated on the basis of the
absolute relationship between volume variances and rate variances.
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due To Increase (Decrease) Due To
----------------------------------------- ---------------------------------------
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(Dollars in Thousands on Fully Taxable Equivalent Basis)
Interest income:
Federal funds sold ............... $ (404) $ 35 $ (369) $ 835 $ (70) $ 765
Interest-bearing deposits ........ 23 6 29 (2) (3) (5)
Federal Reserve and Federal
Home Loan Bank stock ........... 70 (22) 48 179 (127) 52
Securities ....................... 5,024 (642) 4,382 605 (62) 543
Mortgage loans held for sale ..... (78) (5) (83) 46 5 51
Loans ............................ 5,569 (3,093) 2,476 6,234 (1,507) 4,727
-------- --------- --------- ------- --------- --------
Totals ........................... 10,204 (3,721) 6,483 7,897 (1,764) 6,133
-------- --------- --------- ------- --------- --------
Interest expense:
NOW accounts ..................... 139 (474) (335) 494 (317) 177
Money market deposit
accounts........................ 1,177 (294) 883 945 81 1,026
Savings deposits.................. 89 (78) 11 272 85 357
Certificates and other
time deposits................... (55) (1,838) (1,893) 1,130 (187) 943
Borrowings........................ 4,132 (365) 3,767 330 239 569
-------- --------- --------- -------- --------- --------
Totals.......................... 5,482 (3,049) 2,433 3,171 (99) 3,072
-------- --------- --------- -------- --------- --------
Change in net interest
income (fully taxable
equivalent basis)................ $ 4,722 $ (672) $ 4,050 $ 4,726 $ (1,665) $ 3,061
======== ========= ======== =========
Tax equivalent adjustment
using marginal rate
of 35% for 1997, 1998,
and 1999.......................... (181) (157)
---------- ----------
Change in net interest
income........................... $ 3,869 $ 2,904
========== ==========
Page 10
STATISTICAL DATA (continued)
INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
approximate market value of the investment securities at the dates indicated
were:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- --------------- -------------- --------------
(Dollars in Thousands)
Available for sale at December 31, 1999:
U.S. Treasury.............................. $ 7,337 $ 3 $ 72 $ 7,268
Federal agencies........................... 61,215 50 1,199 60,066
State and municipal........................ 94,598 568 945 94,221
Mortgage-backed securities................. 141,673 58 4,332 137,399
Other asset-backed securities ............ 21,773 758 21,015
Corporate obligations .................... 9,082 4 140 8,946
Marketable equity securities............... 915 162 753
--------- -------- ------- --------
Total available for sale................ 336,593 683 7,608 329,668
--------- -------- ------- --------
Held to maturity at December 31, 1999:
U.S. Treasury............................... 250 2 248
State and municipal......................... 13,243 77 13 13,307
Mortgage-backed securities.................. 311 1 1 311
Other asset-backed securities............... 499 81 418
--------- -------- ------- --------
Total held to maturity................... 14,303 78 97 14,284
--------- -------- ------- --------
Total investment securities.............. $ 350,896 $ 761 $ 7,705 $343,952
========= ======== ======= ========
Available for sale at December 31, 1998:
U.S. Treasury............................... $ 22,275 $ 120 $ 22,395
Federal agencies............................ 61,605 627 $ 32 62,200
State and municipal......................... 93,198 2,778 21 95,955
Mortgage-backed securities.................. 128,610 440 198 128,852
Other asset-backed securities............... 265 1 11 255
Corporate obligations....................... 18,624 143 8 18,759
Marketable equity securities................ 1,200 108 1,092
--------- -------- ------- --------
Total available for sale................. 325,777 4,109 378 329,508
--------- -------- ------- --------
Held to maturity at December 31, 1998:
U.S. Treasury............................... 249 4 253
Federal agencies............................ 500 1 501
State and municipal......................... 18,335 370 1 18,704
Mortgage-backed securities.................. 864 3 867
Other asset-backed securities............... 1,761 2 27 1,736
--------- -------- ------- --------
Total held to maturity................... 21,709 380 28 22,061
--------- -------- ------- --------
Total investment securities.............. $ 347,486 $ 4,489 $ 406 $351,569
========= ======== ======= ========
Page 11
- --------------------------------------------------------------------------------
STATISTICAL DATA (continued)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------- -------------- -------------- ---------------
Available for sale at December 31, 1997:
U.S. Treasury .............................. $ 19,706 $ 108 $ 11 $ 19,803
Federal agencies............................ 74,172 451 50 74,573
State and municipal......................... 74,073 1,946 29 75,990
Mortgage-backed securitie................... 39,832 386 106 40,112
Other asset-backed securities............... 487 2 54 435
Corporate obligations....................... 18,219 139 30 18,328
Marketable equity securities................ 1,445 103 1,342
-------- ------- ------- --------
Total available for sale ................ 227,934 3,032 383 230,583
-------- ------- ------- --------
Held to maturity at December 31, 1997:
U.S. Treasury .............................. 249 2 247
Federal agencies ........................... 3,412 6 1 3,417
State and municipal ........................ 27,137 275 2 27,410
Mortgage-backed securities ................. 1,255 4 1 1,258
Other asset-backed securities .............. 4,210 7 166 4,051
-------- ------- ------- --------
Total held to maturity ................. 36,263 292 172 36,383
-------- ------- ------- --------
Total investment securities ............. $264,197 $ 3,324 $ 555 $266,966
======== ======== ======= ========
Cost
----------------------------------------------------------
1999 1998 1997
---- ---- ----
Federal Reserve and Federal Home Loan
Bank stock at December 31:
Federal Reserve Bank stock .................... $ 493 $ 493 $ 493
Federal Home Loan Bank stock .................. 5,365 3,962 3,560
----- ------ -----
Total ..................................... $5,858 $4,455 $4,053
====== ====== =====
The Fair value of Federal Reserve and Federal Home Loan Bank stock approximates
cost.
The maturity distribution (dollars in thousands) and average yields for the
securities portfolio at December 31, 1999 were:
Securities available for sale December 31, 1999:
Within 1 Year 1-5 Years 5-10 Years
------------- --------- ----------
Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------
U.S. Treasury...................... $ 2,277 5.8% $ 4,991 5.5%
Federal Agencies................... 38,178 5.9 14,938 5.9 $ 2,000 6.3%
State and Municipal................ 10,481 7.2 56,841 7.0 15,228 8.1
Corporate Obligations.............. 1,622 7.0 7,324 6.5
------- ------- -------
Total.......................... $52,558 6.2% $84,094 6.7% $17,228 7.9%
======= ======= =======
Page 12
- --------------------------------------------------------------------------------
STATISTICAL DATA (continued)
Marketable Equity,
Mortgage and Other
Due After Ten Years Asset-Backed Securities Total
------------------- ----------------------- -----
Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------
U.S. Treasury........................ $ 7,268 5.6%
Federal Agencies..................... $ 4,950 6.1% 60,066 5.9
State and Municipal.................. 11,671 8.1 94,221 7.4
Corporate Obligations................ 8,946 6.6
Marketable Equity Security........... $ 753 5.5% 753 5.5
Mortgage-backed securities........... 137,399 6.1 137,399 6.1
Other asset-backed securities........ 21,015 5.1 21,015 5.1
-------- --------- --------
Total............................ $ 16,621 7.5% $ 159,167 6.0% $329,668 6.4%
======== ========= ========
Securities held to maturity at December 31, 1999:
Within 1 Year 1-5 Years 5-10 Years
------------- --------- ----------
Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------
U.S. Treasury........................ $ 250 5.3%
State and Municipal.................. $ 5,330 7.4% 7,293 7.5 $ 620 8.9%
-------- ------- ------
Total............................ $ 5,330 7.4% $ 7,543 7.4% $ 620 8.9%
======== ======= ======
Mortgage and other
Due After Ten Years Asset-backed Total
------------------- ------------ -----
Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------
U.S. Treasury........................ $ 250 5.3%
State and Municipal.................. 13,243 7.5
Mortgage-backed securities........... $ 311 5.6% 311 5.6
Other asset-backed securities........ 499 6.2 499 6.2
------- ------- -------
Total............................ $ 810 6.0% $14,303 7.4%
======= ======= =======
*Interest yields on state and municipal securities are presented on a fully
taxable equivalent basis using a 35% rate.
Federal Reserve and Federal Home Loan Bank stock at December 31, 1999:
Amount Yield
Federal Reserve Bank Stock........... $ 493 6.0%
Federal Home Loan Bank stock......... 5,365 7.9
-------
Total............................ $5,858 7.7%
=======
Page 13
STATISTICAL DATA (continued)
LOAN PORTFOLIO
TYPES OF LOANS
The loan portfolio at the dates indicated is presented below:
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans at December 31:
Commercial and
industrial loans........................... $224,712 $188,841 $178,696 $157,317 $112,915
Bankers acceptances and loans
to financial institutions.................. 900 705 625 2,925
Agricultural production
financing and other loans
to farmers................................. 21,547 21,951 16,764 18,906 17,203
Real estate loans:
Construction............................... 31,996 31,719 22,710 14,533 11,053
Commercial and farmland.................... 150,544 137,671 142,394 133,435 126,341
Residential................................ 380,596 361,611 331,405 290,705 238,298
Individuals' loans for
Household and other
Personal expenditures...................... 181,906 143,075 139,620 126,718 111,433
Tax-exempt loans............................. 4,070 2,652 2,598 1,643 1,204
Other loans.................................. 3,552 2,073 3,782 1,672 949
--------- --------- --------- --------- ---------
998,923 890,493 838,674 745,554 622,321
Unearned interest on loans................... (28) (137) (487) (1,364) (1,518)
--------- --------- --------- --------- ---------
Total loans........................ $998,895 $890,356 $838,187 $744,190 $620,803
========= ========= ========= ========= =========
Residential Real Estate Loans Held for Sale at December 31, 1999, 1998, 1997,
1996, and 1995 were $61,000, $775,800, $471,400, $284,020 and $735,522.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
Presented in the table below are the maturities of loans (excluding commercial
real estate, banker acceptances, farmland, residential real estate and
individuals' loans) outstanding as of December 31, 1999. Also presented are the
amounts due after one year classified according to the sensitivity to changes in
interest rates.
Maturing
Within 1-5 Over
1 Year Years 5 Years Total
-------------- --------------- -------------- ------------
(Dollars in Thousands)
Commercial and industrial loans................ $ 178,945 $ 24,613 $ 21,154 $ 224,712
Agricultural production financing
And other loans to farmers................... 18,024 2,891 632 21,547
Real estate - Construction..................... 23,309 7,347 1,340 31,996
Tax-exempt loans............................... 2,107 690 1,273 4,070
Other loans.................................... 304 3,248 3,552
---------- --------- --------- ----------
Total.................................... $ 222,689 $ 38,789 $ 24,399 $ 285,877
========== ========= ========= ==========
Page 14
STATISTICAL DATA (continued)
Maturing
---------------------------------------------------
1 - 5 Over
Years 5 Years
----- -------
(Dollars in Thousands)
Loans maturing after one Year with:
Fixed rates............................. $ 23,880 $ 24,257
Variable rate........................... 14,909 142
------------- ------------
Total................................. $ 38,789 $ 24,399
============= ============
RISK ELEMENTS
December 31
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Nonaccruing loans......................... $1,280 $1,073 $2,146 $3,547 $ 914
Loans contractually past due 90
days or more other than
nonaccruing............................. 2,327 2,334 2,034 1,790 1,135
Restructured loans........................ 908 1,110 469 1,766 1,254
Nonaccruing loans are loans which are reclassified to a nonaccruing status when
in management's judgment the collateral value and financial condition of the
borrower do not justify accruing interest. Interest previously recorded but not
deemed collectible is reversed and charged against current income. Interest
income on these loans is then recognized when collected.
Restructured loans are loans for which the contractual interest rate has been
reduced or other concessions are granted to the borrower because of a
deterioration in the financial condition of the borrower resulting in the
inability of the borrower to meet the original contractual terms of the loans.
Interest income of $94,000 for the year ended December 31, 1999, was recognized
on the nonaccruing and restructured loans listed in the table above, whereas
interest income of $223,000 would have been recognized under their original loan
terms.
Potential problem loans:
Management has identified certain other loans totaling $10,590,000 as of
December 31, 1999, not included in the risk elements table, or impaired loan
table, about which there are doubts as to the borrowers' ability to comply with
present repayment terms.
The Banks generate commercial, mortgage and consumer loans from customers
located primarily in central and east central Indiana and Butler County, Ohio.
The Banks' loans are generally secured by specific items of collateral,
including real property, consumer assets, and business assets. Although the
Banks have diversified loan portfolio, a substantial portion of their debtors'
ability to honor their contracts is dependent upon economic conditions in the
automotive and agricultural industries.
Page 15
STATISTICAL DATA (continued)
- ----------------
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the loan loss experience for the years indicated.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in Thousands)
Allowance for loan losses:
Balance at January 1.................... $ 9,209 $ 8,429 $ 8,010 $ 7,702 $ 7,510
Chargeoffs:
Commercial............................. 361 794 543 873 794
Real estate mortgage................... 40 44 31 14 1
Installment............................ 1,368 1,393 1,375 945 919
-------- ------- ------- ------- -------
Total chargeoffs..................... 1,769 2,231 1,949 1,832 1,714
-------- ------- ------- ------- -------
Recoveries:
Commercial............................. 114 325 364 106 127
Real estate mortgage................... 32 20 1 7 4
Installment............................ 301 294 268 237 232
-------- ------- ------- ------- -------
Total recoveries..................... 447 639 633 350 363
-------- ------- ------- ------- -------
Net chargeoffs........................... 1,322 1,592 1,316 1,482 1,351
-------- ------- ------- ------- -------
Provisions for loan losses............... 2,241 2,372 1,735 1,790 1,543
-------- ------- ------- ------- -------
Balance at December 31................... $10,128 $ 9,209 $ 8,429 $ 8,010 $ 7,702
======== ======= ======= ======= =======
Ratio of net chargeoffs during the
period to average loans
outstanding during the period.......... .14% .18% .16% .21% .22%
Peer Group................................ N/A .26% .29% .26% .26%
Page 16
STATISTICAL DATA (continued)
- ----------------
Allocation of the Allowance for Loan Losses at December 31:
Presented below is an analysis of the composition of the allowance for loan
losses and per cent of loans in each category to total loans:
1999 1998
------------------------------ ------------------------------
Amount Per Cent Amount Per Cent
-------- -------- -------- --------
(Dollars in Thousands)
Balance at December 31:
commercial, financial and
agricultural.............................. $ 3,344 24.6% $ 2,950 23.7%
Real estate - construction.................. 3 3.2 4 3.6
Real estate - mortgage...................... 1,297 53.2 1,313 56.1
Installment................................. 3,909 18.6 3,509 16.3
Tax-exempt loans............................ 5 .4 5 .3
Unallocated................................. 1,570 N/A 1,428 N/A
-------- ------ -------- ------
Totals...................................... $ 10,128 100.0% $ 9,209 100.0%
======== ====== ======== ======
1997 1996
------------------------------ ------------------------------
Amount Per Cent Amount Per Cent
-------- -------- -------- ---------
(Dollars in Thousands)
Balance at December 31:
commercial, financial and
agricultural.............................. $ 3,226 23.4% $ 3,537 23.5%
Real estate - construction.................. 4 2.7 4 2.0
Real estate - mortgage...................... 1,319 56.5 1,259 57.0
Installment................................. 2,117 17.1 1,906 17.3
Tax-exempt loans............................ 5 .3 19 .2
Unallocated................................. 1,758 N/A 1,285 N/A
-------- ------ -------- ------
Totals...................................... $ 8,429 100.0% $ 8,010 100.0%
======== ====== ======== ======
1995
------------------------------
Amount Per Cent
-------- --------
(Dollars in Thousands)
Balance at December 31:
commercial, financial and
agricultural.............................. $ 3,572 21.2%
Real estate - construction.................. 1 1.8
Real estate - mortgage.. .................. 1,289 58.7
Installment................................. 1,732 18.1
Tax-exempt loans............................ 5 .2
Unallocated. .... .......................... 1,103 N/A
--------- ------
Totals...................................... $ 7,702 100.0%
========= ======
Page 17
STATISTICAL DATA (continued)
- ----------------
Loan Loss Charegoff Procedures
The Banks have weekly meetings at which loan delinquencies, maturities and
problems are reviewed. The Board of Directors receive and review reports on
loans monthly.
The Executive Committee of First Merchants' Board meets bimonthly to approve or
disapprove all new loans in excess of $1,000,000 and the Board reviews all
commercial loans in excess of $50,000 which were made or renewed during the
preceding month. Madison's and First United's loan committees, consisting of
all loan officers and the president, meet as required to approve or disapprove
any loan which is in excess of an individual loan officer's lending limit.
The Loan/Discount Committee of Union County's Board meets monthly to approve or
disapprove all loans to borrowers with aggregate loans in excess of $300,000.
The Loan Committee of Randolph County's Board meets weekly to approve or
disapprove any loan which is in excess of an individual loan officer's lending
limit.
All chargeoffs are approved by the senior loan officer and are reported to the
Banks' Boards. The Banks charge off loans when a determination is made that all
or a portion of a loan is uncollectible or as a result of examinations by
regulators and the independent auditors.
Provision for Loan Losses
In banking, loan losses are one of the costs of doing business. Although the
Banks' management emphasize the early detection and chargeoff of loan losses, it
is inevitable that at any time certain losses exist in the portfolio which have
not been specifically identified. Accordingly, the provision for loan losses is
charged to earnings on an anticipatory basis, and recognized loan losses are
deducted from the allowance so established. Over time, all net loan losses must
be charged to earnings. During the year, an estimate of the loss experience for
the year serves as a starting point in determining the appropriate level for the
provision. However, the amount actually provided in any period may be greater or
less than net loan losses, based on management's judgment as to the appropriate
level of the allowance for loan losses. The determination of the provision in
any period is based on management's continuing review and evaluation of the loan
portfolio, and its judgment as to the impact of current economic conditions on
the portfolio. The evaluation by management includes consideration of past loan
loss experience, changes in the composition of the loan portfolio, and the
current condition and amount of loans outstanding.
Impaired loans are measured by the present value of expected future cash flows,
or the fair value of the collateral of the loans, if collateral dependent.
Information on impaired loans is summarized below:
1999 1998 1997
--------------- ---------------- ---------------
(Dollars in Thousands)
For the year ending December 31:
Impaired loans with an allowance................... $ 2,742 $ 2,105 $ 1,956
Impaired loans for which the discounted
cash flows or collateral value exceeds the
carrying value of the loan....................... 4,398 6,982 1,158
------------ ----------- ------------
Total impaired loans......................... $ 7,140 $ 9,087 $ 3,114
============ =========== ============
Allowance for impaired loans (included in the
Corporation's allowance for loan losses)......... $ 1,061 $ 795 $ 448
Average balance of impaired loans.................. 8,770 8,881 4,155
Interest income recognized on impaired loans....... 705 873 191
Cash basis interest included above................. 637 745 173
Page 18
- --------------------------------------------------------------------------------
STATISTICAL DATA (continued)
DEPOSITS
The following table shows the average amount of deposits and average rate of
interest paid thereon for the years indicated.
1999 1998 1997
------------------------- ------------------------ -------------------------
Amount Rate Amount Rate Amount Rate
------------ --------- ------------ --------- ------------ --------
(Dollars in Thousands)
Balance at December 31:
Noninterest bearing deposits....... $ 129,747 $ 113,193 $ 107,642
NOW accounts....................... 152,268 1.7% 145,224 2.1% 122,125 2.3%
Money market deposit accounts.... 177,091 3.8 146,745 4.0 123,302 4.0
Savings deposits................... 95,344 2.5 91,842 2.6 81,284 2.5
Certificates of deposit and
other time deposits.............. 518,624 5.1 519,625 5.5 499,097 5.5
---------- ----------- ----------
Total deposits................. $1,073,074 3.6% $ 1,016,629 3.9% $ 933,450 4.0%
========== =========== ==========
As of December 31, 1999, certificates of deposit and other time deposits of
$100,000 or more mature as follows:
Maturing
-------------------------------------------------
3 Months 3-6 6-12 Over 12
or less Months Months Months Total
------------- -------------- -------------- -------------- --------------
(Dollars in Thousands)
Certificates of deposit and
other time deposits.......... $121,604 $ 22,092 $ 23,519 $ 30,443 $197,658
Per cent....................... 62% 11% 12% 15% 100%
RETURN ON EQUITY AND ASSETS
1999 1998 1997
---------------- ----------------- -----------------
Return on assets (net income divided by
average total assets).......................... 1.37% 1.43% 1.43%
Return on equity (net income divided by
average equity)................................. 12.75 12.09 12.12
Dividend payout ratio (dividends per
share divided by net income per share).......... 53.16 52.03 50.00
Equity to assets ratio (average equity
divided by average total assets)............... 10.72 11.80 11.81
Page 19
STATISTICAL DATA (continued)
- ----------------
SHORT-TERM BORROWINGS
1999 1998 1997
----------------- ----------------- ----------------
(Dollars in Thousands)
Balance at December 31:
Securities sold under repurchase
agreements (short-term portion)........ $ 15,271 $ 11,598 $ 15,398
Federal funds purchased.................. 28,885 15,170 5,370
U.S. Treasury demand notes............... 9,506 2,629 8.211
--------- --------- ---------
Total short-term borrowings......... $ 53,662 $ 29,397 $ 28,979
========= ========= =========
Securities sold under repurchase agreements are borrowings maturing within one
year and are secured by U.S. Treasury and Federal agency obligations.
Pertinent information with respect to short-term borrowings is summarized below:
1999 1998 1997
----------------- ----------------- -----------------
(Dollars in Thousands)
Weighted average interest rate on outstanding
balance at December 31:
Securities sold under repurchase
agreements(short-term portion).............. 4.7% 5.1% 5.1%
Total short-term borrowings..................... 5.3 5.3 5.4
Weighted average interest rate during the year:
Securities sold under repurchase
Agreements (short-term portion)............. 4.5% 5.1% 5.0%
Total short-term borrowings..................... 4.5 5.0 5.4
Highest amount outstanding at any month end
During the year:
Securities sold under repurchase
Agreements (short-term portion)............. $ 19,700 $ 27,002 $ 49,750
Total short-term borrowings..................... 55,893 67,968 85,612
Average amount outstanding during the year:
Securities sold under repurchase
Agreements (short-term portion)............. $ 17,696 $ 24,526 $ 31,327
Total short-term borrowings..................... 36,157 44,467 53,937
Page 20
ITEM 2. PROPERTIES.
- --------------------------------------------------------------------------------
The headquarters of the Corporation and First Merchants are located in a
five-story building at 200 East Jackson Street, Muncie, Indiana. This building
and eight branch buildings are owned by First Merchants; four remaining branches
of First Merchants are located in leased premises. Twelve automated cash
dispensers are located in leased premises. All of the Corporation's and First
Merchants'facilities are located in Delaware and Madison Counties of Indiana.
The principal offices of Pendleton are located at 100 West State Street,
Pendleton, Indiana. Pendleton also operates three branches. All of Pendleton's
properties are owned by Pendleton and are located in Madison County, Indiana.
Two automated dispensers are located in Madison County, Indiana. Two automated
dispensers are located in leased premises.
The principal offices of First United are located at 790 West Mill Street,
Middletown, Indiana. First United also operates two branches. All of First
United's properties are owned by First United and are located in Henry County,
Indiana.
The principal office of Randolph County is located at 122 West Washington
Street, Winchester, Indiana. This building is owned by Randolph County and is
located in Randolph County, Indiana.
None of the properties owned by the banks are subject to any major encumbrances.
The net investment of the Corporation and subsidiaries in real estate and
equipment at December 31, 1999 was $20,073,000.
- --------------------------------------------------------------------------------
ITEM 3. LEGAL PROCEEDINGS.
There is no pending legal proceeding, other than ordinary routine litigation
incidental to the business of the Corporation or its subsidiaries, of a material
nature to which the Corporation or its subsidiaries is a party or of which any
of their properties are subject. Further, there is no material legal proceeding
in which any director, officer, principal shareholder, or affiliate of the
Corporation, or any associate of any such director, officer or principal
shareholder, is a party, or has a material interest, adverse to the Corporation.
None of the routine legal proceedings, individually or in the aggregate, in
which the Corporation or its affiliates are involved are expected to have a
material adverse impact on the financial position or the results of operations
of the Corporation.
- --------------------------------------------------------------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of 1999 to a vote of
security holders, through the solicitation of proxies or otherwise.
Page 21
SUPPLEMENTAL INFORMATION - EXECUTIVE OFFICERS OF THE REGISTRANT.
- --------------------------------------------------------------------------------
The names, ages, and positions with the Corporation and subsidiary banks of all
executive officers of the Corporation are listed below.
Offices with the Corporation Principal Occupation
Name and Age And Subsidiary Banks During Past Five Years
- ------------------------------------------- ---------------------------------------- ----------------------------------------
Stefan S. Anderson Chairman of the Board, Chairman the Board of the Corporation
65 Chief Executive Officer, and First Merchants since 1987; Chief
(CEO until April 16, 1999), Executive officer of the Corporation
Corporation and First Merchants from 1982 to April 1999; President of
the Corporation from 1982 to August
1998, and Chief Executive Officer of
First Merchants Bank from 1979 to April
1999
Michael L. Cox President, Chief Executive Officer Chief Executive Officer of the
55 (CEO since April 16, 1999), Corporation and First Merchants since
Corporation and First Merchants April 1999. President and Chief
Operating Officer, Corporation since
August 1998 and May, 1994 to April
1999 respectively; President and Chief
Operating Officer, First Merchants
from April, 1996 to April 1999;
Director, Corporation and First
Merchants since December, 1984;
President, Information Services Group,
Ontario Corporation prior to May 1994
Roger M. Arwood Executive Vice President, Corporation Executive Vice President of the
48 and First Merchants Corporation and First Merchants since
February of 2000; Executive Vice President,
Bank of America from 1983 to February 2000.
Charles R. Phillips Senior Vice President, Corporation and Senior Vice President of the
54 First Merchants Corporation and First Merchants since
September 1998; Chief Information Officer,
Amerisure Insurance Company from December
1997 to September 1998; Senior Vice President
and Chief Information Officer, NBD Bank from
June 1994 to December 1997.
Larry R. Helms Senior Vice President, Corporation and Senior Vice President, Corporation
59 First Merchants; General Counsel and since 1982; General Counsel,
Secretary, Corporation Corporation since 1990 and Secretary
since January 1, 1997; Senior Vice
President, First Merchants since
January 1979; Director of First United
Bank since 1991 and Pendleton Banking
Company since 1992
Ted J. Montgomery Senior Vice President , Corporation; Senior Vice President and Director,
60 (also, President, Union County, Until Corporation since August 1996;
September 3, 1999) President, Union County National Bank
since 1983 and Director since 1981
James L. Thrash Senior Vice President , Corporation Senior Vice President and Chief
50 and First Merchants; Chief Financial Financial Officer of the Corporation
Officer, Corporation since 1990; Senior Vice President,
First Merchants since 1990
Page 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
- --------------------------------------------------------------------------------
The information required under this item is incorporated by reference to page 46
of the Corporation's 1999 Annual Report to Stockholders under the caption
"Stockholder Information," Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------------------------------------------------------
The information required under this item is incorporated by reference to page 15
of the Corporation's 1999 Annual Report to Stockholders - Financial Review under
the caption "Five-Year Summary of Selected Financial Data," Exhibit 13.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
- --------------------------------------------------------------------------------
The information required under this item is incorporated by reference to page 16
through 23 of the Corporation's 1999 Annual Report to Stockholders - Financial
Review under the caption "Management's Discussion and Analysis," Exhibit 13.
ITEM 7A. QUNTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- --------------------------------------------------------------------------------
The information required under this item is incorporated by reference to page 18
and 19 of the Corporation's 1999 Annual Report to Stockholders - Financial
Review under the caption "Management's Discussion and Analysis," Exhibit 13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- --------------------------------------------------------------------------------
The financial statements and supplementary data required under this item are
incorporated herein by reference to page 14 and pages 24 through 43 of the
Corporation's 1999 Annual Report to Stockholders - Financial Review, Exhibit 13.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- --------------------------------------------------------------------------------
In connection with its audits for the two most recent fiscal years ended
December 31, 1999, there have been no disagreements with the Corporation's
independent certified public accountants on any matter of accounting principles
or practices, financial statement disclosure or audit scope or procedure, nor
have there been any changes in accountants.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- --------------------------------------------------------------------------------
The information required under this item relating to directors is incorporated
by reference to the Corporation's 1999 Proxy Statement furnished to its
stockholders in connection with an annual meeting to be held April 12, 2000 (The
"1999 Proxy Statement"), under the caption "Election of Directors," which Proxy
Statement has been filed with the Commission. The information required under
this item relating to executive officers is set forth in part I, "Supplemental
Information - Executive Officers of the Registrant" of this annual report on
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
- --------------------------------------------------------------------------------
The information required under this item is incorporated by reference to the
Corporation's 1999 Proxy Statement, under the captions, "Compensation of
Directors" and "Compensation of Executive Officers," which Proxy Statement has
been filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- --------------------------------------------------------------------------------
The information required under this item is incorporated by reference to the
Corporation's 1999 Proxy Statement, under the caption, "Security Ownership of
Certain Beneficial Owners and Management," which Proxy Statement has been filed
with the Commission.
Page 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------------------------------
The information required under this item is incorporated by reference to the
Corporation's 1999 Proxy Statement, under the caption "Interest of Management in
Certain Transactions," which Proxy Statement has been filed with the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------------
Exhibit 13
Page
Number
--------------------
(a) 1. Financial Statements:
Independent auditor's report.................................14
Consolidated balance sheet at
December 31, 1999 and 1998..............................24
Consolidated statement of income,
years ended December 31, 1999,
1998 and 1997...........................................25
Consolidated statement of comprehensive income,
Years ended December 31, 1999, 1998, and 1997...........26
Consolidated statement of cash flows,
years ended December 31, 1999,
1998 and 1997...........................................27
Notes to consolidated financial
statements.............................................28-43
(a) 2. Financial statement schedules:
All schedules are omitted because
they are not applicable or not required,
or because the required information is included in the
consolidated financial statements or related notes.
(a) 3. Exhibits:
Exhibit No: Description of Exhibit:
- ----------- -----------------------
3a First Merchants Corporation Articles of Incorporation and the
Articles and amendment thereto is incorporated by reference
to registrant's Form 10-Q for quarter ended June 30, 1999.
3b First Merchants Corporation Bylaws and amendments thereto is
incorporated by reference to registrant's Form 10-Q for quarter
ended June 30, 1997.
10a First Merchants Corporation and First Merchants Bank,
National Association Management Incentive Plan is
incorporated by reference to registrant's Form 10-K for year
ended December 31, 1996.
10b First Merchants Bank, National Association Unfunded Deferred
Compensation Plan, as amended is incorporated by reference to
registrant's Form 10-K for year ended December 31, 1996.
10c First merchants Corporation 1989 Stock Option Plan is
incorporated by reference to Registrant's Registration
Statement on Form S08 (SEC File No. 33-28901) effective on
May 24, 1989.
10d First Merchants Corporation 1994 Stock Option Plan is
incorporated by reference to Registrant's Form 10-K for year
ended December 31, 1993.
Page 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (continued)
- --------------------------------------------------------------------------------
10e First Merchants Corporation Change of Control Agreements are
incorporated by reference to registrant's Form 10-Q for
quarter ended June 30, 1999.
10f First Merchants Corporation Unfunded Deferred Compensation
Plan is incorporated by reference to registrant's Form 10-K
for year ended December 31, 1996
10g First Merchants Corporation Supplemental Executive Retirement
Plan and amendments thereto is incorporated by reference to
registrant's Form 10-K for year ended December 31, 1997.
10h First Merchants Corporation 1999 Long-term Equity Incentive
Plan is incorporated by reference to registrant's
registration statement on Form S-8 (see File No. 333-80117)
effective on June 7, 1999.
13 1999 Annual Report to Stockholders (except for the Pages and
information thereof expressly incorporated by reference in
this Form 10-K, the Annual Report to Stockholders is provided
solely for the information of the Securities and Exchang
Commission and is not deemed "filed" as part of this Form
10-K)
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
24 Limited Power of Attorney
27 Financial Data Schedule, year ended December 31, 1999
99.1 Financial statements and independent auditor's report for
First Merchants Corporation Employee Stock Purchase Plan
(b) Reports on Form 8-K:
None
Page 25
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 30th day of March,
2000.
FIRST MERCHANTS CORPORATION
By /s/ Michael L.Cox
-----------------------------
Michael L. Cox, President
& Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- --------------------------- ------------------------------- -----
/s/ Michael L. Cox President, March 30, 2000
- ---------------------------
Michael L. Cox Chief Executive Officer
/s/ James L. Thrash Principal Financial and March 30, 2000
- ---------------------------
James L. Thrash Principal Accounting Officer
/s/ Stefan S. Anderson Director March 30, 2000
- ---------------------------
Stefan S. Anderson
/s/ Frank A. Bracken *Director March 30, 2000
- ---------------------------
Frank A. Bracken
/s/ Thomas B. Clark *Director March 30, 2000
- ---------------------------
Thomas B. Clark
/s/ David A. Galliher *Director March 30, 2000
- ---------------------------
David A. Galliher
/s/ Norman M. Johnson *Director March 30, 2000
- ---------------------------
Norman M. Johnson
/s/ Ted J. Montgomery *Director March 30, 2000
- ---------------------------
Ted J. Montgomery
/s/ George A. Sissel *Director March 30, 2000
- ---------------------------
George A. Sissel
Page 26
Signature Capacity Date
- --------------------------- ------------------------------- -----
/s/ Robert M. Smitson *Director March 30, 2000
- ---------------------------
Robert M. Smitson
/s/ Michael D. Wickersham *Director March 30, 2000
- ---------------------------
Michael D. Wickersham
/s/ John E. Worthen *Director March 30, 2000
- ---------------------------
John E. Worthen
* By James L. Thrash as Attorney-in Fact pursuant to a limited Power of Attorney
executed by the directors listed above, which Power of Attorney has been filed
with the Securities and Exchange Commission.
By /s/ James L. Thrash
------------------------------
James L. Thrash
As Attorney-in-Fact
March 30, 2000
Page 27
INDEX TO EXHIBITS
- --------------------------------------------------------------------------------
(a) 3. Exhibits:
Exhibit No: Description of Exhibit:
13 1999 Annual Report to Stockholders (Except for the
Pages and information thereof expressly incorporated
by reference in this Form 10-K, the Annual Report to
Stockholders is provided solely for the information
of the Securities and Exchange Commission and is not
deemed "filed" as part of this Form 10-K.)
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
24 Limited Power of Attorney
27 Financial Data Schedule, year ended December 31, 1999
99.1 Financial statements and independent auditor's
report for First Merchants Corporation Employee
Stock Purchase Plan
Page 28