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, 2000 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 reports required 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 15,2001 there were 11,588,443 outstanding common shares, without par value, of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Documents Into Which Incorporated 2000 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 11, 2001 Part III (Items 10 through 13) Exhibit Index: Page 24
FORM 10-K TABLE OF CONTENTS Form 10-K Page Number Part I Item 1 - Business............................................................3 Item 2 - Properties.........................................................21 Item 3 - Legal Proceedings..................................................21 Item 4 - Submission of Matters to a Vote of Security Holders................21 Supplemental Information - Executive Officers of the Registrant.............22 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 - -------------------------------------------------------------------------------- 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"). Decatur Bank and Trust Company ("Decatur")a state chartered commrcial bank organized in was acquired on June 1, 2000. On January 19, 2000, First Merchants Reinsurance Company was formed to underwrite accident, health and credit life insurance. As of December 31, 2001, the Corporation had consolidated assets of $1.621 billion, consolidated deposits of $1.288 billion and stockholders' equity of $156.1 million. The Corporation is headquartered in Muncie, Indiana, and is presently engaged in conducting commercial banking business through the offices of its seven banking subsidiaries. As of December 31, 2000, the Corporation and its subsidiaries had 619 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, repurchase agreements and personal and commercial lines insurance. 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 Francor Financial, Inc. regarding its affiliation with the Corporation. See note 2 on page 29 of exhibit 13. Page 3
- -------------------------------------------------------------------------------- COMPETITION The Corporation's banking subsidiaries are located in Adams, 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 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, 2000: Corporation Regulatory Minimum Requirement Tier 1 Capital: 11.7% 4.0% Total Capital: 12.7% 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, The Randolph County Bank and Decatur Bank and Trust Company are state banks chartered in Indiana and are supervised, regulated and examined by the Indiana Department. In addition, four of First Merchants' subsidiaries, The Madison Community Bank, First United Bank, The Randolph County Bank and Decatur Bank and Trust Company, 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, 2000. 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, 2000, 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. A bank holding company may become a financial holding company if each of its subsidiary banks is well capitalized, is well managed and has at least a satisfactory rating under the Community Reinvestment Act, by filing a declaration that the bank holding company wishes to become a financial holding company. Also effective March 11, 2000, no regulatory approval is required for a financial holding company to acquire a company, other than a bank or savings association, engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the Federal Reserve Board. The Federal Reserve Bank of Chicago approved First Merchants Corporation's application to become a Financial Holding Company effective September 13, 2000. 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
- -------------------------------------------------------------------------------- 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. <TABLE> <CAPTION> 2000 1999 1998 ------------------------------- ------------------------------ ------------------------------ Interest Interest Interest Average Income/ Average Average Income/ Average Average Income/ Average Balance Expense Rate Balance Balance Rate Balance Expense Rate --------- --------- --------- --------- --------- --------- ---------- --------- --------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Assets: Federal funds sold ........ $ 9,938 $ 666 6.7% $ 14,369 $ 657 4.6% $ 23,236 $ 1,026 4.4% Interest-bearing deposits...... 1,807 103 5.7 1,105 59 5.3 654 30 4.6 Federal Reserve and Federal Home Loan Bank stock. 6,456 585 9.1 5,121 446 8.7 4,322 398 9.2 Securities: (1) Taxable ....................... 235,745 14,478 6.1 256,424 15,459 6.0 189,285 11,596 6.1 Tax-exempt .................... 95,836 7,057 7.4 111,437 8,066 7.2 100,304 7,547 7.5 ---------- -------- ---------- -------- ---------- -------- Total Securities............. 331,581 22,889 6.9 367,861 23,525 6.4 289,589 19,143 6.6 Mortgage loans held for sale..... 75 8 10.7 125 15 12.0 773 98 12.7 Loans: (2) Commercial .................... 492,793 45,373 9.2 415,840 35,616 8.6 379,897 33,902 8.9 Bankers' acceptance and Commercial paper purchased... 371 18 4.9 1,366 67 4.9 Real estate mortgage........... 372,104 29,795 8.0 332,670 26,604 8.0 320,194 26,484 8.3 Installment ................... 233,189 20,622 8.8 183,095 16,113 8.8 165,349 15,420 9.3 Tax-exempt .................... 5,852 478 8.2 3,615 358 9.9 3,511 360 10.3 ---------- -------- ---------- -------- ---------- -------- Total loans ................. 1,103,938 96,276 8.7 935,591 78,709 8.4 870,317 76,233 8.8 ---------- -------- ---------- -------- ---------- -------- Total earning assets......... $1,453,795 $119,165 8.2 $1,324,172 $103,411 7.8 $1,188,981 $ 96,928 8.2 ---------- -------- ---------- -------- ---------- -------- Net unrealized gain (loss) on securities Available for sale............... (13,421) (47) 3,041 Allowance for loan losses........ (11,570) (10,821) (8,769) Cash and due from banks.......... 39,250 36,873 31,015 Premises and equipment .......... 22,349 19,794 18,706 Other assets .................... 42,308 27,259 21,249 --------- --------- --------- Total assets ................ $1,532,711 $1,397,230 $1,254,223 ========== ========== ========== Liabilities: Interest-bearing deposits: NOW accounts ................ $ 168,773 $ 2,920 1.7% $ 152,268 $ 2,642 1.7% $ 145,224 $ 2,977 2.1% Money market deposit accounts 193,932 9,000 4.6 177,091 6,804 3.8 146,745 5,921 4.0 Savings deposits ............ 98,988 2,477 2.5 95,344 2,399 2.5 91,842 2,388 2.6 Certificates and other time deposits ............. 612,605 35,210 5.7 518,624 26,694 5.1 519,625 28,587 5.5 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing deposits................. 1,074,298 49,607 4.6 943,327 38,539 4.1 903,436 39,873 4.4 Borrowings ...................... 169,869 10,939 6.4 154,839 8,359 5.4 78,737 4,592 5.8 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing liabilities.................. 1,244,167 60,546 4.9 1,098,166 46,898 4.3 982,173 44,465 4.5 Noninterest-bearing deposits..... 134,717 129,747 113,193 Other liabilities ............... 12,381 19,590 10,805 ---------- ---------- ---------- Total liabilities............ 1,391,265 1,247,503 1,106,171 Stockholders' equity ............ 141,446 149,727 148,052 ---------- ---------- ---------- Total liabilities and stockholders' Equity........ $1,532,711 60,546 4.2(3)$1,397,230 46,898 3.5(3)$1,254,223 44,465 3.7(3) ========== -------- ========== -------- ========== -------- Net interest income ......... $ 58,619 4.0 $ 56,513 4.3 $ 52,463 4.4 ======== ======== ======== (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 1998, 1999, and 2000............................. $2,637 $2,948 $2,767 ====== ====== ====== </TABLE> Page 9
STATISTICAL DATA (continued) - ---------------- 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. <TABLE> <CAPTION> 2000 Compared to 1999 1999 Compared to 1998 Increase (Decrease) Due To Increase (Decrease) Due To ----------------------------------------- --------------------------------------- Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- (Dollars in Thousands on Fully Taxable Equivalent Basis) <S> <C> <C> <C> <C> <C> <C> Interest income: Federal funds sold ............... $ (240) $ 249 $ 9 $ (404) $ 35 $ (369) Interest-bearing deposits ........ (32) 76 44 23 6 29 Federal Reserve and Federal Home Loan Bank stock ........... 120 19 139 70 (22) 48 Securities ....................... (2,271) 281 (1,990) 5,024 (642) 4,382 Mortgage loans held for sale ..... (5) (2) (7) (78) (5) (83) Loans ............................ 14,593 2,966 17,559 5,569 (3,093) 2,476 -------- --------- --------- -------- --------- --------- Totals ........................... 12,165 3,589 15,754 10,204 (3,721) 6,483 -------- --------- --------- -------- --------- --------- Interest expense: NOW accounts ..................... 286 (8) 278 139 (474) (335) Money market deposit accounts........................ 689 1,507 2,196 1,177 (294) 883 Savings deposits.................. 91 (13) 78 89 (78) 11 Certificates and other time deposits................... 5,181 3,335 8,516 (55) (1,838) (1,893) Borrowings........................ 864 1,716 2,580 4,132 (365) 3,767 -------- --------- --------- -------- --------- --------- Totals.......................... 7,111 (6,537) 13,648 5,482 (3,049) 2,433 -------- --------- --------- -------- --------- --------- Change in net interest income (fully taxable equivalent basis)................ $ 5,054 $ (2,948) $ 2,106 $ 4,722 $ (672) $ 4,050 ======== ========= ======== ========= Tax equivalent adjustment using marginal rate of 35% for 1998, 1999, and 2000.......................... 311 (181) ---------- ---------- Change in net interest income........................... $ 2,417 $ 3,869 ========== ========== </TABLE> 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: <TABLE> <CAPTION> Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------------- --------------- -------------- -------------- (Dollars in Thousands) <S> <C> <C> <C> <C> Available for sale at December 31, 2000: U.S. Treasury.............................. $ 2,997 $ 2,997 Federal agencies........................... 55,403 $ 268 $ 155 55,516 State and municipal........................ 81,370 1,045 103 82,312 Mortgage-backed securities................. 127,907 139 922 127,124 Other asset-backed securities ............ 19,924 10 148 19,786 Corporate obligations .................... 7,238 9 395 6,852 Marketable equity securities............... 1,277 134 1,143 -------- -------- -------- -------- Total available for sale................ 296,116 1,471 1,857 295,730 -------- -------- -------- -------- Held to maturity at December 31, 2000: U.S. Treasury............................... 250 250 State and municipal......................... 11,645 131 36 11,740 Mortgage-backed securities.................. 338 338 -------- -------- -------- -------- Total held to maturity................... 12,233 131 36 12,328 -------- -------- -------- -------- Total investment securities.............. $308,349 $ 1,602 $ 1,893 $308,058 ======== ======== ======== ======== 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 ========= ======== ======= ======== </TABLE> Page 11
- -------------------------------------------------------------------------------- STATISTICAL DATA (continued) <TABLE> <CAPTION> Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------- -------------- -------------- ------------ <S> <C> <C> <C> <C> 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 ========= ======== ======= ======== <CAPTION> Cost ---------------------------------------------------------- 2000 1999 1998 ---- ---- ---- <S> <C> <C> <C> Federal Reserve and Federal Home Loan Bank stock at December 31: Federal Reserve Bank stock .................... $ 493 $ 493 $ 493 Federal Home Loan Bank stock .................. 6,691 5,365 3,962 ----- ----- ------ Total ..................................... $7,185 $5,858 $4,455 ====== ====== ====== </TABLE> 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, 2000 were: Securities available for sale December 31, 2000: <TABLE> <CAPTION> Within 1 Year 1-5 Years 5-10 Years ------------- --------- ---------- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> U.S. Treasury...................... $ 2,997 5.7% Federal Agencies................... 18,713 5.7 $22,589 6.3% $12,252 6.6% State and Municipal................ 15,873 6.4 37,243 7.0 17,886 7.9 Corporate Obligations.............. 2,753 6.4 4,099 6.7 ------- ------- ------- Total.......................... $40,336 6.0% $63,931 6.8% $30,138 7.2% ======= ======= ======= </TABLE> Page 12
- -------------------------------------------------------------------------------- STATISTICAL DATA (continued) <TABLE> <CAPTION> Marketable Equity, Mortgage and Other Due After Ten Years Asset-Backed Securities Total ------------------- ----------------------- ----- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> U.S. Treasury........................ $ 2,997 5.7% Federal Agencies..................... $ 1,962 7.1% 55,516 6.2 State and Municipal.................. 11,310 7.8 82,312 7.1 Corporate Obligations................ 6,852 6.5 Marketable Equity Security........... $ 1,143 5.0% 1,143 5.0 Mortgage-backed securities........... 127,124 6.5 127,124 6.5 Other asset-backed securities........ 19,786 6.5 19,786 6.5 -------- --------- -------- Total............................ $ 13,272 7.7% $ 148,053 6.5% $295,730 6.6% ======== ========= ======== </TABLE> Securities held to maturity at December 31, 1999: <TABLE> <CAPTION> Within 1 Year 1-5 Years 5-10 Years ------------- --------- ---------- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> U.S. Treasury........................ 250 5.4% State and Municipal.................. $ 3,013 6.3 $ 5,473 8.1% $2,401 8.0% -------- ------- ------ Total............................ $ 3,263 6.2% $ 5,473 8.1% $2,401 8.0% ======== ======= ====== </TABLE> <TABLE> <CAPTION> Mortgage and other Due After Ten Years Asset-backed Total ------------------- ------------ ----- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ <S> <C> <C> <C> <C> <C> <C> U.S. Treasury........................ $ 250 5.4% State and Municipal.................. $ 758 8.9% 11,645 7.6 Mortgage-backed securities........... $ 338 8.0% 338 8.0 ------- ------- ------- Total............................ $ 758 8.9% $ 338 8.0% $12,233 7.6% ======= ======= ======= </TABLE> *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, 2000: <TABLE> <CAPTION> Amount Yield <S> <C> <C> Federal Reserve Bank Stock........... $ 493 6.0% Federal Home Loan Bank stock......... 6,691 8.3 ------- Total............................ $7,185 8.1% ======= </TABLE> Page 13
STATISTICAL DATA (continued) LOAN PORTFOLIO TYPES OF LOANS The loan portfolio at the dates indicated is presented below: <TABLE> <CAPTION> 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Loans at December 31: Commercial and industrial loans........................... $ 258,405 $224,712 $188,841 $178,696 $157,317 Bankers acceptances and loans to financial institutions.................. 900 705 625 Agricultural production financing and other loans to farmers................................. 24,547 21,547 21,951 16,764 18,906 Real estate loans: Construction............................... 45,412 31,996 31,719 22,710 14,533 Commercial and farmland.................... 167,317 150,544 137,671 142,394 133,435 Residential................................ 466,660 380,596 361,611 331,405 290,705 Individuals' loans for Household and other Personal expenditures...................... 201,629 181,906 143,075 139,620 126,718 Tax-exempt loans............................. 6,093 4,070 2,652 2,598 1,643 Other loans.................................. 5,523 3,552 2,073 3,782 1,672 ---------- --------- --------- --------- --------- 1,175,586 998,923 890,493 838,674 745,554 Unearned interest on loans................... (28) (137) (487) (1,364) ---------- --------- --------- --------- --------- Total loans........................ $1,175,586 $998,895 $890,356 $838,187 $744,190 ========== ========= ========= ========= ========= </TABLE> Residential Real Estate Loans Held for Sale at December 31, 2000, 1999, 1998, 1997, and 1996 were $0, $61,000, $775,800, $471,400 and $284,020. 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, 2000. Also presented are the amounts due after one year classified according to the sensitivity to changes in interest rates. <TABLE> <CAPTION> Maturing Within 1-5 Over 1 Year Years 5 Years Total -------------- --------------- -------------- ------------ (Dollars in Thousands) <S> <C> <C> <C> <C> Commercial and industrial loans................ $ 185,980 $ 48,087 $ 24,338 $ 258,405 Agricultural production financing And other loans to farmers................... 21,148 2,750 649 24,547 Real estate - Construction..................... 33,824 10,979 609 45,412 Tax-exempt loans............................... 443 3,485 2,165 6,093 Other loans.................................... 1,492 4,017 14 5,523 ---------- --------- --------- ---------- Total.................................... $ 242,887 $ 69,318 $ 27,775 $ 339,980 ========== ========= ========= ========== </TABLE> Page 14
STATISTICAL DATA (continued) <TABLE> <CAPTION> Maturing --------------------------------------------------- 1 - 5 Over Years 5 Years ----- ------- (Dollars in Thousands) <S> <C> <C> Loans maturing after one Year with: Fixed rates............................. $ 43,242 $ 27,346 Variable rate........................... 26,076 429 ------------- ------------ Total................................. $ 69,318 $ 27,775 ============= ============ </TABLE> RISK ELEMENTS <TABLE> <CAPTION> December 31 -------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Nonaccruing loans......................... $2,370 $1,280 $1,073 $2,146 $3,547 Loans contractually past due 90 days or more other than nonaccruing............................. 2,465 2,327 2,334 2,034 1,790 Restructured loans........................ 3,085 908 1,110 469 1,766 </TABLE> 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 $302,000 for the year ended December 31, 2000, was recognized on the nonaccruing and restructured loans listed in the table above, whereas interest income of $308,000 would have been recognized under their original loan terms. Potential problem loans: Management has identified certain other loans totaling $10,635,000 as of December 31, 2000, 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. <TABLE> <CAPTION> 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Allowance for loan losses: Balance at January 1.................... $ 10,128 $ 9,209 $ 8,429 $ 8,010 $ 7,702 Chargeoffs: Commercial............................. 974 361 794 543 873 Real estate mortgage................... 43 40 44 31 14 Installment............................ 1,274 1,368 1,393 1,375 945 -------- -------- ------- ------- ------- Total chargeoffs..................... 2,291 1,769 2,231 1,949 1,832 -------- -------- ------- ------- ------- Recoveries: Commercial............................. 171 114 325 364 106 Real estate mortgage................... 1 32 20 1 7 Installment............................ 407 301 294 268 237 -------- -------- ------- ------- ------- Total recoveries..................... 579 447 639 633 350 -------- -------- ------- ------- ------- Net chargeoffs........................... 1,712 1,322 1,592 1,316 1,482 -------- -------- ------- ------- ------- Provisions for loan losses............... 2,625 2,241 2,372 1,735 1,790 Allowance acquired in purchase........... 1,413 -------- -------- ------- ------- ------- Balance at December 31................... $12,454 $10,128 $ 9,209 $ 8,429 $ 8,010 ======== ======== ======= ======= ======= Ratio of net chargeoffs during the period to average loans outstanding during the period.......... .16% .14% .18% .16% .21% Peer Group................................ .18% .21% .26% .29% .26% </TABLE> 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: <TABLE> <CAPTION> 2000 1999 ------------------------------ ------------------------------ Amount Per Cent Amount Per Cent -------- -------- -------- -------- (Dollars in Thousands) <S> <C> <C> <C> <C> Balance at December 31: commercial, financial and agricultural.............................. $ 4,400 24.7% $ 3,344 24.6% Real estate - construction.................. 78 3.9 3 3.2 Real estate - mortgage...................... 1,554 53.9 1,297 53.2 Installment................................. 4,612 17.6 3,909 18.6 Tax-exempt loans............................ 10 .5 5 .4 Unallocated................................. 1,800 N/A 1,570 N/A -------- ------ -------- ------ Totals...................................... $ 12,454 100.0% $ 10,128 100.0% ======== ====== ======== ====== 1998 1997 ------------------------------ ------------------------------ Amount Per Cent Amount Per Cent -------- -------- -------- --------- (Dollars in Thousands) Balance at December 31: commercial, financial and agricultural.............................. $ 2,950 23.7% $ 3,226 23.4% Real estate - construction.................. 4 3.6 4 2.7 Real estate - mortgage...................... 1,313 56.1 1,319 56.5 Installment................................. 3,509 16.3 2,117 17.1 Tax-exempt loans............................ 5 .3 5 .3 Unallocated................................. 1,428 N/A 1,758 N/A -------- ------ -------- ------ Totals...................................... $ 9,209 100.0% $ 8,429 100.0% ======== ====== ======== ====== 1996 ------------------------------ Amount Per Cent -------- -------- (Dollars in Thousands) Balance at December 31: commercial, financial and agricultural.............................. $ 3,537 23.5% Real estate - construction.................. 4 2.0 Real estate - mortgage.. .................. 1,259 57.0 Installment................................. 1,906 17.3 Tax-exempt loans............................ 19 .2 Unallocated. .... .......................... 1,285 N/A -------- ------ Totals...................................... $ 8,010 100.0% ======== ====== </TABLE> Page 17
STATISTICAL DATA (continued) - ---------------- Loan Loss Chargeoff 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: <TABLE> <CAPTION> 2000 1999 1998 --------------- ---------------- --------------- (Dollars in Thousands) <S> <C> <C> <C> For the year ending December 31: Impaired loans with an allowance................... $ 7,862 $ 2,742 $ 2,105 Impaired loans for which the discounted cash flows or collateral value exceeds the carrying value of the loan....................... 6,977 4,398 6,982 ------------ ------------ ----------- Total impaired loans......................... $ 14,839 $ 7,140 $ 9,087 ============ ============ =========== Allowance for impaired loans (included in the Corporation's allowance for loan losses)......... $ 2,253 $ 1,061 $ 795 Average balance of impaired loans.................. 15,053 8,770 8,881 Interest income recognized on impaired loans....... 1,361 705 873 Cash basis interest included above................. 1,080 637 745 </TABLE> 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. <TABLE> <CAPTION> 2000 1999 1998 ------------------------- ------------------------ ------------------------- Amount Rate Amount Rate Amount Rate ------------ --------- ------------ --------- ------------ -------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> <C> Balance at December 31: Noninterest bearing deposits....... $ 134,717 $ 129,747 $ 113,193 NOW accounts....................... 168,773 1.7% 152,268 1.7% 145,224 2.1% Money market deposit accounts.... 193,932 4.6 177,091 3.8 146,745 4.0 Savings deposits................... 98,988 2.5 95,344 2.5 91,842 2.6 Certificates of deposit and other time deposits.............. 612,605 5.7 518,624 5.1 519,625 5.5 ---------- ---------- ----------- Total deposits................. $1,209,015 4.1% $1,073,074 3.6% $ 1,016,629 3.9% ========== ========== =========== </TABLE> As of December 31, 2000, certificates of deposit and other time deposits of $100,000 or more mature as follows: <TABLE> <CAPTION> Maturing ------------------------------------------------- 3 Months 3-6 6-12 Over 12 or less Months Months Months Total ------------- -------------- -------------- -------------- -------------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Certificates of deposit and other time deposits.......... $ 74,194 $ 38,434 $ 48,469 $ 35,313 $199,410 Per cent....................... 40% 19% 24% 17% 100% </TABLE> RETURN ON EQUITY AND ASSETS <TABLE> <CAPTION> 2000 1999 1998 ---------------- ----------------- ----------------- <S> <C> <C> <C> Return on assets (net income divided by average total assets).......................... 1.30% 1.37% 1.43% Return on equity (net income divided by average equity)................................. 14.10 12.75 12.09 Dividend payout ratio (dividends per share divided by net income per share).......... 51.43 53.16 52.03 Equity to assets ratio (average equity divided by average total assets)............... 9.23 10.72 11.80 </TABLE> Page 19
STATISTICAL DATA (continued) - ---------------- SHORT-TERM BORROWINGS <TABLE> <CAPTION> 2000 1999 1998 ----------------- ----------------- ---------------- (Dollars in Thousands) <S> <C> <C> <C> Balance at December 31: Securities sold under repurchase agreements (short-term portion)........ $ 31,956 $ 15,271 $ 11,598 Federal funds purchased.................. 975 28,885 15,170 U.S. Treasury demand notes............... 4,968 9,506 2,629 --------- --------- --------- Total short-term borrowings......... $ 37,899 $ 53,662 $ 29,397 ========= ========= ========= </TABLE> 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: <TABLE> <CAPTION> 2000 1999 1998 ----------------- ----------------- ----------------- (Dollars in Thousands) <S> <C> <C> <C> Weighted average interest rate on outstanding balance at December 31: Securities sold under repurchase agreements(short-term portion).............. 6.2% 4.7% 5.1% Total short-term borrowings..................... 5.6 5.3 5.3 Weighted average interest rate during the year: Securities sold under repurchase Agreements (short-term portion)............. 5.6% 4.5% 5.1% Total short-term borrowings..................... 5.0 4.5 5.0 Highest amount outstanding at any month end During the year: Securities sold under repurchase Agreements (short-term portion)............. $ 14,505 $ 19,700 $ 27,002 Total short-term borrowings..................... 56,099 55,893 67,968 Average amount outstanding during the year: Securities sold under repurchase Agreements (short-term portion)............. $ 12,116 $ 17,696 $ 24,526 Total short-term borrowings..................... 33,165 36,157 44,467 </TABLE> 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. The principal offices of Madison are located at 19 West 10th Street, Anderson, Indiana. Madison also operates branches. All of Madison's properties are owned by Madison and are located in Madison County, Indiana. Two automated dispensers are located in Madison County, Indiana. 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. The principal office of Union County is located at 107 West Union, Liberty, Indiana. Union County also operates five branches. One of Union County's branches is located in Union County, one branch is located in Wayne County, two branches are located in Fayette County and one branch is located in Butler County, Ohio. The principal office of Decatur is located at 520 North 13th Street, Decatur, Indiana. Decatur also operates three branches. All of Decatur's properties are located in Adams 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, 2000 was $23,868,000. - -------------------------------------------------------------------------------- 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 2000 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. <TABLE> <CAPTION> <S> <C> <C> Offices with the Corporation Principal Occupation Name and Age And Subsidiary Banks During Past Five Years - ------------------------------------------- ---------------------------------------- ---------------------------------------- Michael L. Cox President, Chief Executive Officer Chief Executive Officer of the 56 Corporation and First Merchants Corporation since April 1999; President First Merchants from April 1999 to September 2000; 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 Roger M. Arwood Executive Vice President, Corporation President and chief Executive Officer First 49 and President and CEO First Merchants Merchants since September 2000, Bank of since September 19, 2000 America from 1983 to February 2000. Executive Vice President of the Corporation and First Merchants since February of 2000; Executive Vice President, Larry R. Helms Executive Vice President, Corporation Executive Vice President, Corporation 60 and First Merchants since September since September 2000; Senior Vice President 2000; General Counsel and Secretary, General Counsel, Corporation 1982 to September Corporation 2000 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 James L. Thrash Senior Vice President, Corporation Senior Vice President and Chief 51 and First Merchants; Chief Financial Financial Officer of the Corporation Officer, Corporation since 1990; Senior Vice President, First Merchants since 1990 Roy A. Eon Senior Vice President of Operations Senior Vice President One Valley Bancorp; 49 and Technology, Corporation and First Senior Vice President and National Manager of Merchants since January 8, 2001 Deposit Operations, Banc One Corporation; Senior Vice President State Operations Manager for Kentucky, Banc One Corporation. </TABLE> 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 41 of the Corporation's 2000 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 2 of the Corporation's 2000 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 3 through 10 of the Corporation's 2000 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 5 and 19 of the Corporation's 2000 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 pages 11 through 39 of the Corporation's 2000 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, 2000, 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 2000 Proxy Statement furnished to its stockholders in connection with an annual meeting to be held April 11, 2001 (The "2000 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 2000 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 2000 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 2000 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. - -------------------------------------------------------------------------------- <TABLE> <CAPTION> Exhibit 13 Page Number -------------------- <S> <C> (a) 1. Financial Statements: Independent auditor's report.................................11 Consolidated balance sheet at December 31, 2000 and 1999..............................12 Consolidated statement of income, years ended December 31, 2000, 1999 and 1998...........................................13 Consolidated statement of comprehensive income, Years ended December 31, 2000, 1999, and 1998...........14 Consolidated statement of cash flows, years ended December 31, 2000, 1999 and 1998...........................................15 Notes to consolidated financial statements.............................................16-39 </TABLE> (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 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) - -------------------------------------------------------------------------------- 10d First Merchants Corporation Change of Control Agreements are incorporated by reference to registrant's Form 10-Q for quarter ended June 30, 1999. 10e First Merchants Corporation Unfunded Deferred Compensation Plan is incorporated by reference to registrant's Form 10-K for year ended December 31, 1996 10f 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. 10g 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 2000 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, 2000 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, 2001. 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. KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of First Merchants Corporation, an Indiana corporation, hereby constitute and appoint James L. Thrash, the true and lawful agent and attorney-in-fact of the undersigned with full power and authority in said agent and attorney-in-fact to sign for the undersigned and in their respective names as directors and officers of the Corporation the Form 10-K of the Corporation to be filed with the Securities and Exchange Commission, Washington, D.C., under the Securities Exchange Act of 1934, as amended, and to sign any amendment to such Form 10-K, hereby ratifying and confirming all acts taken by such agent and attorney-in-fact, as herein authorized. Dated: February 13, 2001 /s/ Michael L. Cox /s/ Stefan S. Anderson - ------------------------------ ----------------------------------- Michael L. Cox Officer Stefan S. Anderson Director /s/ James L. Thrash /s/ Roger M. Arwood - ------------------------------ ------------------------------------ James L. Thrash Officer Roger M. Arwood Director /s/ James F. Ault ------------------------------------ James F. Ault Director /s/ Dennis A. Bieberich ------------------------------------ Dennis A. Bieberich Director /s/ Frank A. Bracken ------------------------------------ Frank A. Bracken Director /s/ Thomas B. Clark ------------------------------------ Thomas B. Clark Director /s/ Michael L. Cox ------------------------------------ Michael L. Cox Director /s/ Barry Hudson ------------------------------------ Barry Hudson Director /s/ Norman M. Johnson ------------------------------------ Norman M. Johnson Director /s/ George A. Sissel ------------------------------------ George A. Sissel Director ------------------------------------ Robert M. Smitson Director /s/ John E. Worthen ------------------------------------ John E. Worthen Director * 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 Page 26
INDEX TO EXHIBITS - -------------------------------------------------------------------------------- (a) 3. Exhibits: Exhibit No: Description of Exhibit: 10.1 First Merchants Corporation Management Incentive Compensation Program 10.5 First Merchants Corporation Change of Control Agreements 13 2000 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 99.1 Financial statements and independent auditor's report for First Merchants Corporation Employee Stock Purchase Plan Page 27