<PAGE>
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, 1994 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
Muncie, Indiana 47305-2814
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 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
1934 during 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 $93,100,704 as of March 9,
1995.
As of March 9, 1995 there were outstanding 3,367,490 common shares, without
par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Documents Into Which Incorporated
1994 Annual Report to Stockholders Part II (Items 5 through 8)
Definitive Proxy Statement for
Annual Meeting of Shareholders
to be held March 30, 1995 Part III (Items 10 through 13)
EXHIBIT INDEX: Pages 23 Total Pages 112
<PAGE>
FORM 10-K TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
Part I
Item 1 - Business . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 - Properties . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 16
Item 4 - Submission of Matters to a Vote of Security Holders . . . . 16
Supplemental Information - Executive Officers of the Registrant. . . . 17
Part II
Item 5 - Market For the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . 18
Item 6 - Selected Financial Data . . . . . . . . . . . . . . . . . . 18
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 18
Item 8 - Financial Statements and Supplementary Data . . . . . . . . 18
Item 9 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures . . . . . . . . . . . . 18
Part III
Item 10 - Directors and Executive Officers of the Registrant . . . . 18
Item 11 - Executive Compensation . . . . . . . . . . . . . . . . . . 18
Item 12 - Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . 19
Item 13 - Certain Relationships and Related Transactions . . . . . . 19
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 19
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Page 2
<PAGE>
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 on February 6, 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.
The Corporation is headquartered in Muncie, Indiana, and is presently engaged in
conducting commercial banking business through the 21 offices of its three
banking subsidiaries. As of December 31, 1994, the Corporation and its
subsidiaries had 372 full-time equivalent employees.
COMPETITION
The Corporation's banking subsidiaries are located in Delaware, Madison, and
Henry counties, Indiana. 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.
SUPERVISION AND REGULATION
The Corporation is a bank holding company ("BHC") subject to regulation under
the Bank Holding Company Act of 1956, as amended (the "Act"). The Act generally
requires a BHC to obtain prior approval of the Federal Reserve Board (the "FRB")
to acquire or hold more than a 5% voting interest in any bank. The Act
restricts the non-banking activities of BHCs to those which are closely related
to banking activities. As a result of the provisions in the Financial
Institutional Reform, Recovery and Enforcement Act of 1989, BHCs may now own and
operate savings and loan associations or savings banks which, in the past, was
prohibited. First Merchants is a national bank and is supervised, regulated and
examined by the Comptroller of the Currency. Pendleton and First United are
state banks and are supervised, regulated and examined by the Indiana Department
of Financial Institutions. In addition, First Merchants, as a member of the
Federal Reserve System, is supervised and regulated by the Federal Reserve. In
addition, Pendleton and First United, which are not members of the Federal
Reserve System, are supervised and regulated by the Federal Deposit Insurance
Corporation ("FDIC"). The deposits of First Merchants, Pendleton, and First
United (the "Banks") are insured by the FDIC. Each regulator has the authority
to issue cease-and-desist orders if it determines their activities represent an
unsafe and unsound practice or violation of law.
Under the Act and under regulations of the FRB, the Corporation and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with the extension of credit and are subject to limitations as to
certain intercompany transactions.
Page 3
<PAGE>
--------------------------------------------------------------------------------
SUPERVISION AND REGULATION (CONTINUED)
Subject to certain limitations, an Indiana bank may establish branches de novo
and may establish branches by acquisition in any location or locations within
Indiana. Indiana law permits intrastate bank holding company acquisitions,
subject to certain limitations. Effective July 1, 1992, Indiana bank holding
companies were permitted to acquire banks, and banks and bank holding companies
in Indiana were permitted to be acquired by bank holding companies, located in
any state in the United States which permits reciprocal entry by Indiana bank
holding companies. Prior to July 1, 1992, such interestate bank holding company
acquisitions were permitted only on a regional, as opposed to national, basis.
Neither the Corporation nor its subsidiaries presently contemplate engaging in
any non-banking related business activities.
During 1991, Congress passed the Federal Deposit Insurance Corporation
Improvement Act ("FDICIA"). In addition to addressing the insurance fund's
financial needs, FDICIA expanded the power of the federal banking regulators.
FDICIA introduced a new system of classifying financial institutions with
respect to their capitalization. Effective in 1993, FDICIA also requires
certain financial institutions, such as First Merchants, to have annual audits
and requires management to issue supplemental reports attesting to an
institution's compliance with laws and regulations and to the adequacy of its
internal controls and procedures.
The Corporation is under the jurisdiction of the Securities and Exchange
Commission and state securities commission for matters relating to the offering
and sale of its securities and is subject to the Securities and Exchange
Commission's rules and regulations relating to periodic reporting, reporting to
stockholders, proxy solicitation, and insider trading.
The Corporation's income is principally derived from dividends paid on the
common stock of its subsidiaries. The payment of these dividends are subject to
certain regulatory restrictions.
Page 4
<PAGE>
--------------------------------------------------------------------------------
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>
1994 1993 1992
---------------------------- ----------------------------- --------------------------
Interest Interest Interest
Average Income/ Average Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
(Dollars in Thousands on Fully Taxable Equivalent Basis)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold . . . . . . $ 4,808 $ 217 4.5% $ 15,653 $ 454 2.9% $ 13,949 $ 475 3.4%
Interest-bearing time
deposits . . . . . . . . . . 35 2 5.7 648 35 5.4 1,977 124 6.3
Federal Reserve and
Federal Home Loan Bank
stock . . . . . . . . . . . . 1,879 103 5.5 522 29 5.6 307 18 6.0
Securities:
Taxable . . . . . . . . . . . 149,063 8,552 5.7 163,006 10,265 6.3 179,966 13,343 7.4
Tax-exempt. . . . . . . . . . 52,678 3,690 7.0 50,152 3,631 7.2 40,518 3,264 8.1
-------- ------- --------- -------- --------- -------
Total Securities. . . . . . . 201,741 12,242 6.1 213,158 13,896 6.5 220,484 16,607 7.5
Loans:*
Commercial . . . . . . . . . . 156,465 12,861 8.2 148,657 10,919 7.3 136,602 10,790 7.9
Bankers' acceptances and
commercial paper purchased. . 454 22 4.8 112 4 3.6 1,016 38 3.7
Real estate mortgage . . . . . 143,568 11,711 8.2 132,932 11,364 8.5 121,677 11,981 9.8
Installment. . . . . . . . . . 86,824 7,128 8.2 73,226 6,418 8.8 67,559 6,827 10.1
Tax-exempt loans . . . . . . . 1,328 127 9.6 2,101 185 8.8 2,896 235 8.1
-------- ------- --------- -------- ---------- ------
Total loans. . . . . . . . . 388,639 31,849 8.2 357,028 28,890 8.1 329,750 29,871 9.1
-------- ------- --------- -------- ---------- ------
Total earning assets . . . . 597,102 44,413 7.4 587,009 43,304 7.4 566,467 47,095 8.3
------- -------- ------
Net unrealized loss on
securities available for
sale . . . . . . . . . . . . (1,387)
Allowance for loan losses . . . (4,936) (4,584) (4,253)
Cash and due from banks . . . . 23,316 23,373 22,067
Premises and equipment. . . . . 9,318 8,634 7,206
Other assets. . . . . . . . . . 11,455 11,966 11,580
-------- --------- ----------
Total assets. . . . . . . . . $634,868 $626,398 $603,067
-------- --------- ----------
-------- --------- ----------
Liabilities:
Interest-bearing deposits:
NOW accounts. . . . . . . . . $ 85,973 1,786 2.1 $ 79,106 1,811 2.3 $ 70,068 2,189 3.1
Money market deposit
accounts . . . . . . . . . . 105,083 3,101 3.0 111,136 3,112 2.8 104,855 3,795 3.6
Savings deposits. . . . . . . 55,755 1,429 2.6 51,697 1,414 2.7 46,001 1,654 3.6
Certificates and other time
deposits . . . . . . . . . . 195,475 7,978 4.1 206,833 9,094 4.4 220,328 11,675 5.3
-------- ------- -------- ------ --------- ------
Total interest-bearing
deposits . . . . . . . . . . 442,286 14,294 3.2 448,772 15,431 3.4 441,252 19,313 4.4
Short-term borrowings. . . . . 45,639 1,837 4.0 35,317 1,067 3.0 35,796 1,382 3.9
-------- ------- -------- ------ --------- ------
Total interest-bearing
liabilities . . . . . . . . 487,925 16,131 3.3 484,089 16,498 3.4 477,048 20,695 4.3
Noninterest-bearing
deposits . . . . . . . . . . 71,743 69,054 60,274
Other liabilities. . . . . . . 5,096 6,368 4,499
-------- -------- ---------
Total liabilities . . . . . . 564,764 559,511 541,821
Stockholders' equity . . . . . . 70,104 66,887 61,246
-------- -------- ---------
Total liabilities and
stockholders' equity . . . . $634,868 16,131 2.7** $626,398 16,498 2.8** $603,067 20,695 3.7**
-------- -------- ---------- -------- --------- -------
-------- ---------- ---------
Net interest income. . . . . . $28,282 4.7 $26,806 4.6 $26,400 4.7
-------- -------- -------
-------- -------- -------
<FN>
-------------
*Nonaccruing loans have been
included in the average
balances.
**Total interest expense
divided by total earning
assets
Adjustment to convert tax exempt
investment securities to fully
taxable equivalent basis, using
marginal rate of 34%. . . . . . $ 1,299 $ 1,298 $ 1,190
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
Page 5
<PAGE>
--------------------------------------------------------------------------------
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>
1994 Compared to 1993 1993 Compared to 1992
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. . . . . . . . . . . . $ (411) $ 174 $ (237) $ 54 $ (75) $ (21)
Interest-bearing time
deposits. . . . . . . . . . . . . . . . . (35) 2 (33) (73) (16) (89)
Federal Reserve and Federal
Home Loan Bank stock . . . . . . . . . . 75 (1) 74 12 (1) 11
Scurities . . . . . . . . . . . . . . . . (769) (885) (1,654) (540) (2,171) (2,711)
Loans . . . . . . . . . . . . . . . . . . 2,597 362 2,959 2,411 (3,392) (981)
--------- ------- -------- --------- -------- --------
Totals . . . . . . . . . . . . . . . . . . 1,457 (348) 1,109 1,864 (5,655) (3,791)
--------- ------- -------- --------- -------- --------
Interest expense:
NOW accounts. . . . . . . . . . . . . . . 145 (170) (25) 248 (626) (378)
Money market deposit
accounts . . . . . . . . . . . . . . . (197) 186 (11) 211 (894) (683)
Savings deposits. . . . . . . . . . . . . 81 (66) 15 195 (435) (240)
Certificates and other
time deposits. . . . . . . . . . . . . . (498) (618) (1,116) (684) (1,897) (2,581)
Short-term borrowings . . . . . . . . . . 360 410 770 (18) (297) (315)
---------- -------- --------- ---------- --------- ----------
Totals . . . . . . . . . .. . . . . . . (109) (258) (367) (48) (4,149) (4,197)
---------- -------- --------- ---------- --------- ----------
Change in net interest
income (fully taxable
equivalent basis) . . . . . . . . . . . . $1,566 $ (90) 1,476 $1,912 $(1,506) 406
----------- -------- ---------- ----------
----------- -------- ---------- ----------
Tax equivalent adjustment
using marginal rate
of 34%. . . . . . . . . . . . . . . . . . (1) (108)
---------- -----------
Change in net interest
income. . . . . . . . . . . . . . . . . . $1,475 $ 298
---------- -----------
---------- -----------
</TABLE>
--------------------------------------------------------------------------------
Page 6
<PAGE>
STATISTICAL DATA (Continued)
INVESTMENT PORTFOLIO
The amortized cost, gross unrealized gains, gross unrealized losses and
approximate market value of the investment securities portfolio 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>
Securities available for sale at
December 31, 1994:
U.S. Treasury. . . . . . . . . . . . . . . . $ 11,817 $ 550 $ 11,267
Federal agencies . . . . . . . . . . . . . . 35,565 1,271 34,294
State and municipal. . . . . . . . . . . . . 9,762 $ 31 385 9,408
Mortgage and other
asset-backed securities. . . . . . . . . . 22,171 29 836 21,364
Corporate obligations. . . . . . . . . . . . 24,221 4 1,195 23,030
---------- --------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $ 103,536 $ 64 $ 4,237 $ 99,363
---------- --------- --------- ----------
---------- --------- --------- ----------
Securities held to maturity at
December 31, 1994:
U.S. Treasury. . . . . . . . . . . . . . . . $ 12,630 $ 21 $ 222 $ 12,429
Federal agencies . . . . . . . . . . . . . . 24,529 29 469 24,089
State and municipal. . . . . . . . . . . . . 38,117 211 680 37,648
Mortgage and other
asset-backed securities. . . . . . . . . . 370 370
Corporate obligations. . . . . . . . . . . . 2,031 45 1,986
---------- --------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $ 77,677 $ 261 $ 1,416 $ 76,522
---------- --------- --------- ----------
---------- --------- --------- ----------
Securities held to maturity at
December 31, 1993:
U.S. Treasury. . . . . . . . . . . . . . . . $ 45,397 $ 654 $ 1 $ 46,050
Federal agencies . . . . . . . . . . . . . . 53,452 691 62 54,081
State and municipal. . . . . . . . . . . . . 44,866 1,211 55 46,022
Mortgage and other
asset-backed securities. . . . . . . . . . 23,690 219 93 23,816
Corporate obligations. . . . . . . . . . . . 36,958 582 87 37,453
---------- --------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $ 204,363 $ 3,357 $ 298 $ 207,422
---------- --------- --------- ----------
---------- --------- --------- ----------
Securities held to maturity at
December 31, 1992:
U.S. Treasury. . . . . . . . . . . . . . . . $ 53,120 $ 1,348 $ 105 $ 54,363
Federal agencies . . . . . . . . . . . . . . 66,778 1,544 85 68,237
State and municipal. . . . . . . . . . . . . 33,203 911 76 34,038
Mortgage and other
asset-backed securities. . . . . . . . . . 16,073 508 2 16,579
Corporate obligations. . . . . . . . . . . . 26,804 710 36 27,478
---------- --------- --------- ----------
Total. . . . . . . . . . . . . . . . . . $ 195,978 $ 5,021 $ 304 $ 200,695
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
Page 7
<PAGE>
--------------------------------------------------------------------------------
STATISTICAL DATA (Continued)
<TABLE>
<CAPTION>
Cost
-----------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Federal Reserve and Federal Home Loan
Bank Stock at December 31:
Federal Reserve Bank Stock . . . . .$ 307 $ 307 $ 307
Federal Home Loan Bank Stock . . . . 1,572 1,572
--------- --------- ---------
Total. . . . . . . . . . . . . .$ 1,879 $ 1,879 $ 307
--------- --------- ---------
--------- --------- ---------
</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, 1994 were:
Securities available for sale December 31, 1994:
<TABLE>
<CAPTION>
Mortgage and other
Within 1 Year 1-5 Years 5 - 10 Years asset-backed Total
------------- --------- ------------ ------------ -----
Amount Yield* Amount Yield* Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury . . . . . $11,267 5.30% $ 11,267 5.30%
Federal Agencies. . . . $ 9,050 5.86% 25,244 5.76 34,294 5.79
State and Muncipal. . . 6,034 6.82 $ 3,374 7.35% 9,408 7.01
Corporate Obligations . 3,512 7.47 19,518 5.40 23,030 5.70
Mortgage and other
asset-backed. . . . . $ 21,364 5.80% 21,364 5.80
-------- ------- -------- -------- --------
Total . . . . . . . $ 12,562 6.30 $62,063 5.66 $ 3,374 7.35 $ 21,364 5.80 $ 99,363 5.83
-------- ------- -------- -------- --------
-------- ------- -------- -------- --------
</TABLE>
Securities held to maturity at December 31, 1994:
<TABLE>
<CAPTION>
Mortgage and other
Within 1 Year 1 - 5 Years 5 - 10 Years asset-backed Total
------------- ----------- ------------ ------------ -----
Amount Yield* Amount Yield* Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury. . . . . $ 7,508 6.75% $ 5,122 5.63% $ 12,630 6.29%
Federal Agencies . . . 16,681 6.20 7,848 5.45 24,529 5.96
State and Municipal. . 7,323 7.10 27,323 7.07 $ 3,471 7.90% 38,117 7.15
Corporate Obligations. 1,530 4.21 501 4.48 2,031 4.28
Mortgage and other
asset-backed . . . . $ 370 6.74% 370 6.74
-------- -------- -------- -------- --------
Total. . . . . . . . $ 33,042 6.44% $ 40,794 6.54% $ 3,471 7.90 $ 370 6.74 $ 77,677 6.56
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
<FN>
*Interest yields on state and municipal securities are presented on a fully
taxable equivalent basis using a 34% rate.
</TABLE>
Federal Reserve and Federal Home Loan Bank Stock at December 31, 1994:
<TABLE>
<CAPTION>
Amount Yield
------ -----
<S> <C> <C>
Federal Reserve Bank Stock . . . . . . . . 307 6.00%
Federal Home Loan Bank Stock . . . . . . . 1,572 5.50
-------
Total. . . . . . . . . . . . . . . . . . $ 1,879 5.58
-------
-------
</TABLE>
Page 8
<PAGE>
--------------------------------------------------------------------------------
STATISTICAL DATA (Continued)
LOAN PORTFOLIO
TYPES OF LOANS
The loan portfolio at the dates indicated is presented below:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans at December 31:
Commercial and
industrial loans . . . . . . . . . . $ 78,943 $ 76,760 $ 70,959 $ 76,245 $ 70,254
Bankers acceptances and loans
to financial institutions. . . . . . 3,000 9,496 2,092 9,927
Agricultural production
financing and other loans
to farmers . . . . . . . . . . . . . 5,310 5,591 6,240 6,887 5,449
Real estate loans:
Construction . . . . . . . . . . . . 8,126 8,127 2,619 3,191 3,512
Commercial and farmland. . . . . . . 64,110 58,235 52,402 51,323 41,789
Residential. . . . . . . . . . . . . 164,760 150,572 140,526 120,281 101,993
Individuals' loans for
household and other
personal expenditures. . . . . . . . 78,041 70,347 60,625 58,000 47,897
Tax-exempt loans . . . . . . . . . . . 1,204 1,474 2,402 2,309 2,938
Other loans. . . . . . . . . . . . . . 1,111 2,766 5,039 3,054 4,028
-------- -------- -------- -------- --------
Total loans . . . . . . . . . . . . $401,605 $376,872 $350,308 $323,382 $287,787
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
Presented in the table below are the maturities of loans (excluding commercial
real estate, farmland, residential real estate and individuals' loans)
outstanding as of December 31, 1994. 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 5
1 Year Years Years Total
------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial loans. . . . . . . . . $ 67,402 $ 8,382 $ 3,159 $ 78,943
Agricultural production financing
and other loans to farmers . . . . . . . . . . 4,985 253 72 5,310
Real estate - Construction . . . . . . . . . . . 7,936 190 8,126
Tax-exempt loans . . . . . . . . . . . . . . . . 97 519 588 1,204
Other loans. . . . . . . . . . . . . . . . . . . 1,090 21 1,111
-------- -------- -------- --------
Total . . . . . . . . . . . . . . . . . . . $ 81,510 $ 9,365 $ 3,819 $ 94,694
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Page 9
<PAGE>
--------------------------------------------------------------------------------
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 . . . . . . . . . . . $ 5,855 $ 2,594
Variable rate . . . . . . . . . . 3,510 1,225
------- --------
Total . . . . . . . . . . . . . $ 9,365 $ 3,819
------- --------
------- --------
</TABLE>
RISK ELEMENTS
<TABLE>
<CAPTION>
December 31
----------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans. . . . . . . . . . $ 326 $ 527 $ 493 $1,434 $1,178
Loans contractually past due 90
days or more other than
nonaccruing . . . . . . . . . . . . 703 616 949 1,356 1,972
Restructured loans . . . . . . . . . 754 879 548 828 864
</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 $66,000 for the year ended December 31, 1994, was recognized
on the nonaccruing and restructured loans listed in the table above, whereas
interest income of $105,000 would have been recognized under their original loan
terms.
Potential problem loans:
Management has identified certain other loans totaling $2,711,716 as of December
31, 1994, not included in the risk elements table, which are current as to
principal and interest, about which there are doubts as to the to the borrowers'
ability to comply with present repayment terms.
Page 10
<PAGE>
--------------------------------------------------------------------------------
STATISTICAL DATA (Continued)
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the loan loss experience for the years indicated.
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at January 1 . . . . . . $ 4,800 $ 4,351 $ 3,867 $ 3,254 $ 2,915
Addition resulting from
acqisition . . . . . . . . . . 252
------- ------- ------- ------- -------
Chargeoffs:
Commercial . . . . . . . . . . 526 391 588 806 614
Real estate mortgage . . . . . 41 129 100 41 46
Installment. . . . . . . . . . 346 388 552 511 590
------- ------- ------- ------- -------
Total chargeoffs. . . . . . . 913 908 1,240 1,358 1,250
------- ------- ------- ------- -------
Recoveries:
Commercial . . . . . . . . . . 216 240 215 227 195
Real estate mortgage . . . . . 30 5 38 7 1
Installment. . . . . . . . . . 83 98 114 84 98
------- ------- ------- ------- -------
Total recoveries. . . . . . . 329 343 367 318 294
------- ------- ------- ------- -------
Net chargeoffs . . . . . . . . . 584 565 873 1,040 956
------- ------- ------- ------- -------
Provisions for loan losses . . . 782 1,014 1,357 1,401 1,295
------- ------- ------- ------- -------
Balance at December 31 . . . . . $ 4,998 $ 4,800 $ 4,351 $ 3,867 $ 3,254
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Ratio of net chargeoffs during the
period to average loans
outstanding during the period. . .15% .16% .26% .35% .35%
</TABLE>
Page 11
<PAGE>
--------------------------------------------------------------------------------
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>
1994 1993
------------------ ------------------
Amount Per Cent Amount Per Cent
------ -------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at December 31:
Commercial, financial and
agricultural . . . . . . . $ 2,261 21.3% $ 2,187 23.4%
Real estate - construction . 2.0 2.2
Real estate - mortgage . . . 560 57.0 384 55.4
Installment. . . . . . . . . 1,263 19.4 1,266 18.6
Tax-exempt loans . . . . . . .3 .4
Unallocated. . . . . . . . . 914 N/A 963 N/A
-------- ------ ------- ------
Totals . . . . . . . . . . . $ 4,998 100.0% $ 4,800 100.0%
-------- ------ ------- ------
-------- ------ ------- ------
1992 1991
------------------- ------------------
Amount Per Cent Amount Per Cent
------ -------- ------ --------
(Dollars in Thousands)
Balance at December 31:
Commercial, financial and
agricultural . . . . . . . $ 2,193 26.2% $ 2,127 27.3%
Real estate - construction . .7 1.0
Real estate - mortgage . . . 435 55.1 193 53.1
Installment. . . . . . . . . 1,473 17.3 1,547 17.9
Tax-exempt loans . . . . . . .7 0.7
Unallocated. . . . . . . . . 250 N/A N/A
------- ------ ------- ------
Totals . . . . . . . . . . . $ 4,351 100.0% $ 3,867 100.0%
------- ------ ------- ------
------- ------ ------- ------
</TABLE>
<TABLE>
<CAPTION>
1990
-------------------
Amount Per Cent
------ --------
(Dollars in Thousands)
<S> <C> <C>
Balance at December 31:
Commercial, financial and
agricultural . . . . . . . . $ 1,789 31.2%
Real estate - construction . . 1.2
Real estate - mortgage . . . . 163 50.0
Installment. . . . . . . . . . 1,302 16.6
Tax-exempt loans . . . . . . . 1.0
Unallocated. . . . . . . . . . N/A
------- ------
Totals . . . . . . . . . . . . $ 3,254 100.0%
------- ------
------- ------
</TABLE>
Page 12
<PAGE>
--------------------------------------------------------------------------------
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. Pendleton'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.
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.
Page 13
<PAGE>
--------------------------------------------------------------------------------
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>
1994 1993 1992
-------------- --------------- --------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31:
Noninterest bearing
deposits. . . . . $ 71,743 $ 69,054 $ 60,274
NOW accounts . . . 85,973 2.1% 79,106 2.3% 70,068 3.1%
Money market deposit
accounts. . . . . 105,083 3.0 111,136 2.8 104,855 3.6
Savings deposits . 55,755 2.6 51,697 2.7 46,001 3.6
Certificates of
deposit and other
time deposits . . 195,475 4.1 206,833 4.4 220,328 5.3
-------- -------- --------
Total deposits. $514,029 2.8 $517,826 3.0 $501,526 3.9
-------- -------- --------
-------- -------- --------
</TABLE>
As of December 31, 1994, 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 . . $ 13,526 $ 6,763 $ 3,599 $ 9,734 $33,622
Per cent . . . . . 40% 20% 11% 29%
</TABLE>
RETURN ON EQUITY AND ASSETS
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Return on assets (net income
divided by average total assets). . . 1.44% 1.39% 1.29%
Return on equity (net income
divided by average equity). . . . . . 13.06 13.01 12.71
Dividend payout ratio (dividends
per share divided by net income
per share). . . . . . . . . . . . . . 39.11 36.86 36.96
Equity to assets ratio (average
equity divided by average total
assets) . . . . . . . . . . . . . . . 11.04 10.68 10.16
</TABLE>
Page 14
<PAGE>
--------------------------------------------------------------------------------
STATISTICAL DATA (Continued)
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at December 31:
Federal funds purchased. . . . . . . $ 12,198 $ 5,300
Securities sold under repurchase
agreements. . . . . . . . . . . . 17,776 26,363 $27,340
U.S. Treasury demand notes . . . . . 9,215 15,227 9,733
-------- -------- -------
Total short-term borrowings. . . $ 39,189 $ 46,890 $37,073
-------- -------- -------
-------- -------- -------
</TABLE>
Securities sold under repurchase agreements are borrowings maturing within one
year and are secured by U. S. Government securities.
Pertinent information with respect to short-term borrowings is summarized below:
<TABLE>
1994 1993 1992
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Weighted average interest rate on
outstanding balance at December 31:
Securities sold under repurchase
agreements . . . . . . . . . . . . 4.86% 2.86% 3.07%
Total short-term borrowings . . . . 5.42 2.88 3.00
Weighted average interest rate during the
year:
Securities sold under repurchase
agreements . . . . . . . . . . . . 3.91 2.94 3.88
Total short-term borrowings . . . . 4.03 3.02 3.86
Highest amount outstanding at any month end
during the year:
Securities sold under repurchase
agreements . . . . . . . . . . . . $ 29,115 $ 33,949 $39,949
Total short-term borrowings . . . . 68,609 51,130 49,141
Average amount outstanding during the year:
Securities sold under repurchase
agreements . . . . . . . . . . . . 23,389 22,882 23,518
Total short-term borrowings . . . . 45,639 35,317 35,796
</TABLE>
Page 15
<PAGE>
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
seven branch buildings are owned by First Merchants; six remaining branches of
First Merchants are located in leased premises. Nine automated cash dispensers
are located in leased premises; two cash dispensers are located in premises that
are provided free of charge. 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. 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. 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, 1994 was $9,545,153.
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 1994 to a vote of
security holders, through the solicitation of proxies or otherwise.
Page 16
<PAGE>
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 and Chairman of the Board
60 President, Corporation and of the Corporation and
First Merchants First Merchants since
1987; President of
First Merchants since
1979 and of the
Corporation since 1982
Michael L. Cox Executive Vice President, Chief Executive Vice
50 Operating Officer and Director, President and Chief
Corporation; Executive Vice Operating Officer,
President, First Merchants Corporation since May,
1994; Executive Vice
President, First
Merchants, since May,
1994; Director,
Corporation and First
Merchants since
December, 1984
Roger W. Gilcrest Executive Vice President and Executive Vice
57 Director, First Merchants President First
Merchants since July,
1988; Senior Vice
President, First
Source Bank prior to
July, 1988; Director
of First Merchants
since July 1992.
Paul R. Hoover Senior Vice President, Senior Vice
53 First Merchants President, First
Merchants since 1987
Larry R. Helms Senior Vice President and Senior Vice President,
54 General Counsel, Corporation; Corporation since 1982
Senior Vice President, First and First Merchants
Merchants; Director of First since 1979; Director
United; Director of Pendleton of First United and
Pendleton since 1992
Lowell E. Williams Senior Vice President, First Senior Vice President,
63 First Merchants First Merchants since
1979
James L. Thrash Senior Vice President and Senior Vice President
45 Chief Financial Officer, and Chief Financial
Corporation; Senior Vice Officer of the
President, First Merchants Corporation since
1990; Chief Financial
Officer, Corporation
prior to May 1990;
Senior Vice President,
First Merchants since
1990; Vice President,
First Merchants prior
to April 1990
Jack L. Demaree Senior Vice President and Senior Vice President,
46 Senior Commercial Loan Officer, First Merchants Bank
First Merchants since March 1992,
Senior Commercial Loan
Officer, First
Merchants since 1987;
Vice President, First
Merchants prior to
March 1992
Page 17
<PAGE>
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 2
and 3 of the Corporation's 1994 Annual Report to Stockholders, "Everything You'd
Expect...and more," under the caption "Stockholder Information," Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
--------------------------------------------------------------------------------
The information required under this item is incorporated by reference to page 1
of the Corporation's 1994 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 2
through 6 of the Corporation's 1994 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 inside cover and pages 7 through 22 of the
Corporation's 1994 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, 1994, 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.
PART III
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 1995 Proxy Statement furnished to its
stockholders in connection with an annual meeting to be held March 30, 1995 (the
"1995 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 1995 Proxy Statement, under the captions, "Compensation of
Directors" and "Compensation of Executive Officers," which Proxy Statement has
been filed with the Commission.
Page 18
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------------------------
The information required under this item is incorporated by reference to the
Corporation's 1995 Proxy Statement, under the caption, "Security Ownership of
Certain Beneficial Owners and Management," which Proxy Statement has been filed
with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
--------------------------------------------------------------------------------
The information required under this item is incorporated by reference to the
Corporation's 1995 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.
--------------------------------------------------------------------------------
Annual Report
"Financial Review" Form 10-K
Page Page
Number Number
----------------- ------------
(a)1. Financial Statements:
Independent auditor's
report . . . . . . . . . . . . . . . Inside 90
Cover
Consolidated balance sheet
at December 31, 1994 and 1993. . . . 7 97
Consolidated statement of income,
years ended December 31, 1994,
1993 and 1992. . . . . . . . . . . . 8 98
Consolidated statement of changes in
stockholders' equity, years ended
December 31, 1994, 1993 and 1992 . . 9 99
Consolidated statement of cash flows,
years ended December 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . 9-10 99-100
Notes to consolidated financial
statements . . . . . . . . . . . . . 11-22 101-112
(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:
---------- ----------------------
3.1 Articles of Incorporation, dated
September 20, 1982 and the Articles
of Amendment thereto dated March 13,
1985 and March 14, 1988 . . . . . . . 27-49
3.2 Bylaws and amendments thereto dated
February 12, 1985, February 20, 1987,
July 14, 1987, December 8, 1987,
December 13, 1988, November 14, 1989,
August 13, 1991, April 14, 1992, and
February 15, 1994 and August 9, 1994 . 50-70
Page 19
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(Continued)
--------------------------------------------------------------------------------
Form 10-K
Page
Exhibit No: Description of Exhibit: Number
---------- ---------------------- ---------
10.1 First Merchants Bank, National
Association Management Incentive
Plan . . . . . . . . . . . . . . . . (A)
10.2 Unfunded Deferred Compensation Plan,
as Amended . . . . . . . . . . . . (D)
10.3 Employee Stock Purchase Plan (1989) . (B)
10.4 1989 Stock Option Plan . . . . . . . (C)
10.5 Employee Stock Purchase Plan (1994) . . (E)
10.6 1994 Stock Option Plan . . . . . . . . (E)
13 1993 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) . . . . . 71-112
22 Subsidiaries of Registrant . . . . . . 24
23 Consent of Independent Auditors. . . . 25
27 Financial Data Schedule
99.1 Financial statements and independent
auditor's report for First Merchants
Corporation Employee Stock Purchase
Plan. . . . . . . . . . . . . . . . . 26
(A) Incorporated by reference to Registrant's Registration Statement on Form
S-4 (SEC File No. 33-110) ordered effective on September 30, 1988.
(B) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (SEC File No. 33-28900) effective on May 24, 1989.
(C) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (SEC File No. 33-28901) effective on May 24, 1989.
(D) Incorporated by reference to Registrant's Form 10-K for year ended
December 31, 1990.
(E) Incorporated by reference to Registrant's Form 10-K for year ended
December 31, 1993.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the three months ended December
31, 1994.
Page 20
<PAGE>
--------------------------------------------------------------------------------
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 14th day of March,
1995.
FIRST MERCHANTS CORPORATION
By /s/ Stefan S. Anderson, Chairman
-----------------------------------
Stefan S. Anderson, Chairman
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/ Stefan S. Anderson Director and Chairman, March 14, 1995
------------------------- Principal Executive Officer
Stefan S. Anderson
/s/ Frank A. Bracken Director March 14, 1995
-------------------------
Frank A. Bracken
/s/ Thomas B. Clark Director March 14, 1995
-------------------------
Thomas B. Clark
/s/ Michael L. Cox Director March 14, 1995
-------------------------
Michael L. Cox
------------------------- Director March 14, 1995
David A. Galliher
/s/ Thomas K. Gardiner Director March 14, 1995
-------------------------
Thomas K. Gardiner
/s/ Hurley C. Goodall Director March 14, 1995
-------------------------
Hurley C. Goodall
/s/ John W. Hartmeyer Director March 14, 1995
-------------------------
John W. Hartmeyer
/s/ Nelson W. Heinrichs Director March 14, 1995
-------------------------
Nelson W. Heinrichs
Page 21
<PAGE>
------------------------------------------------------------------------------
Signature Capacity Date
------------------------- ------------------------------- -----------------
/s/ Jon H. Moll Director March 14, 1995
-------------------------
Jon H. Moll
/s/ Robert M. Smitson Director March 14, 1995
-------------------------
Robert M. Smitson
/s/ Joseph E. Wilson Director March 14, 1995
-------------------------
Joseph E. Wilson
------------------------- Director March 14, 1995
Robert F. Wisehart
/s/ John E. Worthen Director March 14, 1995
-------------------------
John E. Worthen
/s/ James L. Thrash Principal Financial and March 14, 1995
------------------------- Principal Accounting Officer
James L. Thrash
Page 22
<PAGE>
INDEX TO EXHIBITS
--------------------------------------------------------------------------------
Form 10-K
Page
Exhibit No: Description of Exhibit: Number
---------- ---------------------- ---------
3.1 Articles of Incorporation, dated
September 20, 1982 and the
Articles of Amendment thereto
dated March 13, 1985 and March
14, 1988 . . . . . . . . . . . . 27-49
3.2 Bylaws and amendments thereto dated
February 12, 1985, February 20, 1987,
July 14, 1987, December 8, 1987,
December 13, 1988, November 14, 1989,
August 13, 1991, April 14, 1992, and
February 15, 1994 and August 9, 1994 50-70
10.1 First Merchants Bank, National
Association Management Incentive Plan (A)
10.2 Unfunded Deferred Compensation Plan,
as Amended . . . . . . . . . . . (D)
10.3 Employee Stock Purchase Plan (1989) (B)
10.4 1989 Stock Option Plan . . . . . (C)
10.5 Employee Stock Purchase Plan (1994) (E)
10.6 1994 Stock Option Plan . . . . . (E)
13 1993 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) . . . 71-112
22 Subsidiaries of Registrant . . . . 24
23 Consent of Independent Auditors. . 25
27 Financial Data Schedules
99.1 Financial statements and independent
auditor's report for First Merchants
Corporation Employee Stock Purchase
Plan . . . . . . . . . . . . . . 26
(A) Incorporated by reference to Registrant's Registration Statement on Form
S-4 (SEC File No. 33-110) ordered effective on September 30, 1988.
(B) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (SEC File No. 33-28900) effective on May 24, 1989.
(C) Incorporated by reference to Registrant's Registration Statement on Form
S-8 (SEC File No. 33-28901) effective on May 24, 1989.
(D) Incorporated by reference to Registrant's Form 10-K for year ended
December 31, 1990.
(E) Incorporated by reference to Registrant's Form 10-K for year ended
December 31, 1993.
Page 23
<PAGE>
<TABLE>
<S> <C> <C>
FEE: Minimum fee for up Corporate Form No. 101 (Oct. 1981) -
to 1,000 shares . . . . . . . . . . . $ 36.00 Page One
. . . . . . . . . . . .
Fee for shares over 1,000 ARTICLES OF INCORPORATION
but less than 200,000 @ 2
CENTS per share . . . . . . . . . . . +$ 3,980.00 Edwin J. Simcox, Secretary of State of
. . . . . . . . . . . . Indiana
Fee for shares over
200,000 but less than Use White Paper - Size 8 1/2 x 11 - For
1,000,000 @ 1 CENT per Inserts
share . . . . . . . . . . . . . . . . +$ 3,000.00
. . . . . . . . . . . . Filing Requirements - Present 2
Fee for shares over originally signed and fully executed
1,000,000 @ 0.2 CENTS per copies to Secretary of State, Room
share . . . . . . . . . . . . . . . . +$ 155, State House, Indianapolis 46204
. . . . . . . . . . . .
Total Fee Due $ 7,016.00 Recording Requirements - Recording of
. . . . . . . . . . . . Articles of Incorporation in the
Office of the County Recorder is no
longer required by the Indiana
General Corporation Act.
</TABLE>
ARTICLES OF INCORPORATION
OF
FIRST MERCHANTS CORPORATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The undersigned incorporator or incorporators, desiring to form a
corporation (hereinafter referred to as the "Corporation") pursuant to the
provisions of (Indicate appropriate act)
/xx/ Indiana General Corporation Act
/ / Medical Professional Corporation Act
/ / Dental Professional Corporation Act
/ / Professional Corporation Act of 1965
/ / I.C. 23-1-13.5 (Professional Accounting Corporations)
pursuant to the Indiana General Corporation Act.
(Professional Accounting Corporations are considered to be
formed pursuant to the authority of the Indiana General
Corporation Act, but subject to the provisions of I.C.
23-1-13.5)
as amended (hereinafter referred to as the "Act"), execute the following
Article of Incorporation:
ARTICLE I
NAME
The name of the Corporation is FIRST MERCHANTS CORPORATION
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(The name must contain the word "Corporation" or "Incorporated", or an
abbreviation of one of these words.)
ARTICLE II
PURPOSES
The purposes for which the Corporation is formed are:
SECTION 1. To acquire control of The Merchants National Bank of Muncie
and to operate as a bank holding company.
State Form 4159R
<PAGE>
SECTION 2. GENERAL POWERS. To possess, exercise, and enjoy all
rights, powers and privileges conferred upon bank holding companies by the Bank
Holding Company Act of 1956 as amended and as hereafter amended or supplemented,
and all other rights and powers authorized by the laws of the State of Indiana,
and the laws of the United States of America applicable to bank holding
companies and the regulations of the Board of Governors of the Federal Reserve
System.
SECTION 3. TO DEAL IN REAL PROPERTY. Subject to the limitations of
Section 2 above, to acquire by purchase, exchange, lease or otherwise, and to
hold, own, use, construct, improve, equip, manage, occupy, mortgage, sell,
lease, convey, exchange or otherwise dispose of, alone or in conjunction with
others, real estate and leaseholds of every kind, character and description
whatsoever and wheresoever situated, and any other interests therein, including,
but without limiting the generality thereof, buildings, factories, warehouses,
offices and structures of all kinds.
SECTION 4. CAPACITY TO ACT. Subject to the limitations of Section 2
above, to have the capacity to act possessed by natural persons and to perform
such acts as are necessary and advisable to accomplish the purposes, activities
and business of the Corporation.
SECTION 5. TO ACT AS AGENT. Subject to the limitations of Section 2
above, to act as agent or representative for any firm, association, corporation,
partnership, government or person, public or private, with respect to any
activity or business of the Corporation.
SECTION 6. TO MAKE CONTRACTS AND GUARANTEES. Subject to the
limitations of Section 2 above, to make, execute and perform, or cancel and
rescind, contracts of every kind and description, including guarantees and
contracts of suretyship, with any firm, association, corporation, partnership,
government or person, public or private.
SECTION 7. TO BORROW FUNDS. Subject to the limitations of Section 2
above, to borrow moneys for any activity or business of the Corporation and,
from time to time, without limit as to amount, to draw, make, accept, endorse,
execute and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures, notes, trust receipts, and other negotiable or non-negotiable
instruments and evidences of indebtedness, and to secure the payment thereof,
and the interest thereon, by mortgage, pledge, conveyance, or assignment in
trust of all or any part of the assets of the Corporation, real, personal or
mixed, including contract rights, whether at the time owned or thereafter
acquired, and to sell, exchange or otherwise dispose of such securities or
other obligations of the Corporation.
SECTION 8. TO DEAL IN ITS OWN SECURITIES. Subject to the
limitations of Section 2 above, to purchase, take, receive or otherwise acquire,
and to hold, own, pledge, transfer or otherwise dispose of shares of its own
capital stock and other securities. Purchases of the Corporation's own shares,
whether direct or indirect, may be made without shareholder approval only to
the extent of unreserved and unrestricted earned surplus available therefor.
<PAGE>
Corporate Form No. 101 - Page Two
Prescribed by Edwin J. Simcox, Secretary of State
(Oct. 1981)
ARTICLE III
PERIOD OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
. . . . . . . . . .
(perpetual or a
stated period of
time)
ARTICLE IV
RESIDENT AGENT AND PRINCIPAL OFFICE
SECTION 1. RESIDENT AGENT. The name and address of the Corporation's
Resident Agent for service of process is
Rodney A. Medler 200 East Jackson Street
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Name) (Number and Street or Building)
Muncie Indiana 47305
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(City) (State) (Zip Code)
SECTION 2. PRINCIPAL OFFICE. The post office address of the principal
office of the Corporation is . . . . . . . . . . . . . . . . . . . . . . . . . .
200 East Jackson Street Muncie Indiana 47305
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Number and Street or Building) (City) (State) (Zip Code)
(THE RESIDENT AGENT AND PRINCIPAL OFFICE ADDRESS MUST BE LOCATED IN INDIANA.)
ARTICLE V
AUTHORIZED SHARES
SECTION 1. NUMBER OF SHARES:
The total number of shares which the Corporation is to have authority to issue
is 500,000.
A. The number of authorized shares which the corporation designates as having
par value is None
. . . . . . . .
with a par value of $ None
. . . . . . . . . .
B. The number of authorized shares which the corporation designates as without
par value is 500,000
. . . . . . . . . .
SECTION 2. TERMS OF SHARES (IF ANY):
SECTION 2. GENERAL TERMS. All of the authorized shares will be
designated as "Common Stock", and each share of Common Stock shall be equal to
every other share of Common Stock and shall participate equally in all earnings
and profits of the Corporation and on distribution of assets, either on
dissolution, liquidation or otherwise.
SECTION 3. VOTING RIGHTS. Each holder of the Common Stock shall have
the right to vote on all matters presented to shareholders and shall be entitled
on all matters including elections of directors to one vote for each share of
Common Stock registered in his name on the books of the Corporation.
<PAGE>
Corporate Form No. 101 - Page Three
Prescribed by Edwin J. Simcox, Secretary of State
(Oct. 1981)
ARTICLE VI
REQUIREMENTS PRIOR TO DOING BUSINESS
The Corporation will not commence business until consideration of the value
of at least $1,000 (one thousand dollars) has been received for the issuance of
shares.
ARTICLE II
DIRECTOR(S)
SECTION 1. NUMBER OF DIRECTORS: The initial Board of Directors is
composed of . . . . . . . . . . 16 . . . . . . . . . . . member(s). The number
of directors may be from time to time fixed by the By-Laws of the Corporation
at any number. In the absence of a By-Law fixing the number of directors, the
number shall be . . . . . . . . . sixteen . . . . . . . . .
SECTION 2. NAMES AND POST OFFICE ADDRESSES OF THE DIRECTOR(S): The
name(s) and post office address(es) of the initial Board of Director(s) of the
Corporation is (are):
<TABLE>
<CAPTION>
Name Number and Street or Building City State Zip Code
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C>
Stefan S. Anderson 2705 W. Twickingham Drive Muncie IN 47304
Thomas F. Bluemle 1900 N. Brentwood Lane Muncie IN 47304
Frank A. Bracken 1011 E. Parkway Drive Muncie IN 47304
Clell W. Douglass 305 Normandy Drive Muncie IN 47304
David A. Galliher 2500 West Berwyn Road Muncie IN 47304
William P. Givens 1209 West Beechwood Avenue Muncie IN 47303
John W. Hartmeyer 818 West Riverside Avenue Muncie IN 47303
David W. Howell Rural Route #2, Box 174 Middletown IN 47358
Betty J. Kendall Rural Route #14, Box 425 Muncie IN 47302
Don E. Marsh 1250 Warwick Road Muncie IN 47304
Robert H. Mohlman 3405 N. Vienna Woods Dr. Muncie IN 47304
Robert R. Park Rural Route #2, Box 126 Gaston IN 47342
Peter L. Roesner 2207 W. Wiltshire Rd. Muncie IN 47304
Hamer D. Shafer 3500 W. Gatewood Lane Muncie IN 47304
Robert W. Smitson 2601 W. Chelsea Drive Muncie IN 47304
Reed D. Voran 2308 W. Wiltshire Rd. Muncie IN 47304
</TABLE>
SECTION 3. QUALIFICATIONS OF DIRECTORS (IF ANY):
Directors need not be shareholders of the Corporation.
<PAGE>
Corporate Form No. 101 - Page Four
Prescribed by Edwin J. Simcox, Secretary of State
(Oct. 1981)
ARTICLE VIII
INCORPORATOR(S)
The name(s) and post office address(es) of the incorporator(s) of the
Corporation is (are):
Name Number and Street or Building City State Zip Code
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stefan S. Anderson 200 East Jackson Street Muncie IN 47305
ARTICLE IX
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
("Powers" of the Corporation, its directors or shareholders)
(Attach additional pages, if necessary)
SECTION 1. MEETINGS OF SHAREHOLDERS. Meetings of shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the notices or waivers of notice of such meetings.
SECTION 2. MEETINGS OF DIRECTORS. Meetings of Directors of the
Corporation shall be held at such place, within or without the State of Indiana,
as may be specified in the notices or waivers of notice of such meetings.
(See attached pages.)
THIS DOCUMENT MUST BE SIGNED BY ALL INCORPORATORS.
I (We) hereby verify subject to penalties of perjury that the facts contained
herein are true, (Notarization is not necessary)
/s/ Stefan S. Anderson
Stefan S. Anderson
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Written Signature) (Printed Signature)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Written Signature) (Printed Signature)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Written Signature) (Printed Signature)
This instrument was prepared by Defur, Voran, Hanley, Radcliff & Reed,
. . . . . . . . . . . . . . . . . . . . . . . . .
(Name)
Attorney at Law, 201 East Jackson Street Muncie IN 47305
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Number and Street or Building) (City) (State) (Zip Code)
<PAGE>
A member of the Board of Directors or of a committee designated by the Board may
participate in a meeting of the Board or committee by means of a conference
telephone or similar communications equipment by which all persons participating
in the meeting can communicate with each other, and participation by these
means constitutes presence in person at the meeting.
SECTION 3. CONSIDERATION FOR SHARES. Shares of stock of the
Corporation shall be issued or sold in such manner and for such amount of
consideration as may be fixed from time to time by the Board of Directors.
SECTION 4. BY-LAWS OF THE CORPORATION. The Board of Directors by a
majority vote of the actual number of Directors elected and qualified from time
to time shall have the power, without the assent or vote of the shareholders, to
make, alter, amend or repeal the By-Laws of the Corporation.
The Board of Directors may, by resolution adopted by a majority of the
actual number of Directors elected and qualified, from time to time, designate
from among its members an executive committee and one or more other committees,
each of which, to the extent provided in the resolution, the Articles of
Incorporation, or these By-Laws, may exercise all of the authority of the Board
of Directors of the Corporation, including, but not limited to, the authority to
issue and sell or approve any contract to issue and sell, securities or shares
of the Corporation or designate the terms of a series of a class of securities
or shares of the Corporation. The terms which may be affixed by each such
committee include, but are not limited to, the price, dividend rate, and
provisions of redemption, a sinking fund, conversion, voting or preferential
rights or other features of securities or class or series of a class of shares.
Each such committee may have full power to adopt a final resolution which sets
forth those terms and to authorize a statement of such terms to be filed with
the Secretary of State. However, no such committee has the authority to declare
dividends or distributions, amend the Articles of Incorporation or the By-Laws,
approve a plan of merger or consolidation even if such plan does not require
shareholder approval, reduce earned or capital surplus, authorize or approve the
reacquisition of shares unless pursuant to a general formula or method specified
by the Board of Directors, or recommend to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof. No member of any such
committee shall continue to be a member thereof after he ceases to be a Director
of the Corporation. The calling and holding of meetings of any such committee
and its method of procedure shall be determined by the Board of Directors. A
member of the Board of Directors shall not be liable for any action taken by any
such committee if he is not a member of that committee and has acted in good
faith and in a manner he reasonably believes is in the best interest of the
Corporation.
SECTION 5. CONSENT ACTION BY SHAREHOLDERS. Any action required by
statute to be taken at a meeting of the shareholders, or any action which may be
taken at a meeting of the shareholders, may be taken without a meeting if, prior
to such action, a consent in writing, setting forth the action so taken, shall
be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof, and such written consent is filed with the minutes of
the proceedings of the shareholders.
<PAGE>
SECTION 6. CONSENT ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors of any committee
thereof may be taken without a meeting, if prior to such action a written
consent to such action is signed by all members of the Board of Directors or
such committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee.
SECTION 7. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other
transaction between the Corporation or any corporation in which this Corporation
owns a majority of the capital stock shall be valid and binding,
notwithstanding that the directors or officers of this Corporation are identical
or that some or all of the directors or officers, or both, are also directors or
officers of such other corporation.
Any contract or other transaction between the Corporation and one or more
of its directors or members or employees, or between the Corporation and any
firm of which one or more of its directors are members or employees or in which
they are interested, or between the Corporation and any corporation or
association of which one or more of its directors are stockholders, members,
directors, officers, or employees, or in which they are interested, shall be
valid for all purposes notwithstanding the presence of such director or
directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and notwithstanding his
or their participation in such action, if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of Directors shall
authorize, approve and ratify such contract or transaction by a vote of a
majority of the directors present, such interested director or directors to be
counted in determining whether a quorum is present, but not to be counted in
calculating the majority of such quorum necessary to carry such vote. This
Section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
SECTION 8. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. Every person who is or was a director, officer, employee or agent of
this Corporation or of any other corporation for which he is or was serving in
any capacity at the request of this Corporation shall be indemnified by this
Corporation against any and all liability and expense that may be incurred by
him in connection with or resulting from or arising out of any claim, action,
suit or proceeding, provided that such person is wholly successful with respect
thereto or acted in good faith in what he reasonably believed to be in or not
opposed to the best interest of this Corporation or such other criminal action
or proceeding in which he had no reasonable cause to believe that his conduct
was unlawful. As used herein, "claim, action, suit or proceeding" shall include
any claim, action, suit or proceeding (whether brought by or in the right of
this Corporation or such other corporation or otherwise), civil, criminal,
administrative or investigative, whether actual or threatened or in connection
with an appeal relating thereto, in which a director, officer, employee or agent
of this Corporation may become involved, as a party or otherwise,
<PAGE>
(i) by reason of his being or having been a director, officer, employee,
or agent of this Corporation or such other corporation or arising out of his
status as such or
(ii) by reason of any past or future action taken or not taken by him in
any such capacity, whether or not he continues to be such at the time such
liability or expense is incurred.
The terms "liability" and "expense" shall include, but shall not be limited to,
attorneys' fees and disbursements, amounts of judgments, fines or penalties,
and amounts paid in settlement by or on behalf of a director, officer, employee,
or agent, but shall not in any event include any liability or expenses on
account of profits realized by him in the purchase or sale of securities of the
Corporation in violation of the law. The termination of any claim, action, suit
or proceeding, by judgment, settlement (whether with or without court approval)
or conviction or upon a plea of guilty or of nolo contendere, or its equivalent,
shall not create a presumption that a director, officer, employee, or agent did
not meet the standards of conduct set forth in this paragraph.
Any such director, officer, employee, or agent who has been wholly
successful with respect to any such claim, action, suit or proceeding shall be
entitled to indemnification as a matter of right. Except as provided in the
preceding sentence, any indemnification hereunder shall be made only if (i) the
Board of Directors acting by a quorum consisting of Directors who are not
parties to or who have been wholly successful with respect to such claim,
action, suit or proceeding shall find that the director, officer, employee, or
agent has met the standards of conduct set forth in the preceding paragraph; or
(ii) independent legal counsel shall deliver to the Corporation their written
opinion that such director, officer, employee, or agent has met such standards
of conduct.
If several claims, issues or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though he is
not entitled as to other matters.
The Corporation may advance expenses to or, where appropriate, may at its
expense undertake the defense of any such director, officer, employee, or agent
upon receipt of an undertaking by or on behalf of such person to repay such
expenses if it should ultimately be determined that he is not entitled to
indemnification hereunder.
The provisions of this Section shall be applicable to claims, actions,
suits or proceedings made or commenced after the adoption hereof, whether
arising from acts or omissions to act during, before or after the adoption
hereof.
The rights of indemnification provided hereunder shall be in addition to
any rights to which any person concerned may otherwise be entitled by contract
or as a matter of law and shall inure to the benefit of the heirs, executors and
administrators of any such person.
<PAGE>
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation against any liability asserted against him and
incurred by him in any capacity or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such
liability under the provisions of this Section or otherwise.
SECTION 9. DISTRIBUTIONS OUT OF CAPITAL SURPLUS. The Board of
Directors of the Corporation may from time to time distribute to its
shareholders out of the capital surplus of the Corporation a portion of its
assets, in cash or property, without the assent or vote of the shareholders,
provided that with respect to such a distribution the requirements of the
Indiana General Corporation Act other than shareholder approval are satisfied.
SECTION 10. POWERS OF DIRECTORS. In addition to the powers and the
authority granted by these Articles or by statute expressly conferred, the Board
of Directors of the Corporation is hereby authorized to exercise all powers and
to do all acts and things as may be exercised or done under the laws of the
State of Indiana by a corporation organized and existing under the provisions of
the Indiana Corporation Act and not specifically prohibited or limited by these
Articles.
<PAGE>
ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION
(Seal) State Form 38333R / Corporate Form No. 102 (June 1984)
Articles of Amendment (Amending Individual Articles Only)
Prescribe by Edwin J. Simcox. Secretary of State of Indiana
RECORDING REQUIREMENTS-RECORDING OF ARTICLES OF AMENDMENT IN THE OFFICE OF THE
COUNTY RECORDER IS GENERALLY NO LONGER REQUIRED BY THE INDIANA GENERAL
CORPORATION ACT. HOWEVER, IF THE NAME OF THE CORPORATION IS CHANGED BY THIS
AMENDMENT, A CERTIFIED COPY OF THE CERTIFICATE OF AMENDMENT MUST BE FILED WITH
THE RECORDER OF EVERY COUNTY IN WHICH THE CORPORATION OWNS REAL ESTATE.
INSTRUCTIONS: PRESENT 2 ORIGINALLY SIGNED AND FULLY EXECUTED COPIES TO:
SECRETARY OF STATE
ROOM 155, STATE HOUSE
INDIANAPOLIS, INDIANA 46204
(317) 232-6576
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
FIRST MERCHANTS CORPORATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The undersigned officers of
FIRST MERCHANTS CORPORATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(hereinafter referred to as the "Corporation") existing pursuant to the
provisions of:
(INDICATE APPROPRIATE ACT)
/x/ Indiana General Corporation Act / / Indiana Professional
Corporation Act of 1983 as amended (hereinafter referred to as the "Act"),
desiring to give notice of corporate action effectuating amendment of certain
provisions of its Articles of Incorporation, certify the following facts:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE I AMENDMENT(S)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1 The date of incorporation of the corporation is:
September 20, 1982
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2 The name of the corporation following this amendment to the Articles
of Incorporation is:
FIRST MERCHANTS CORPORATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3
The exact text of Article(s) V, Section 1 of Article VII, Sections 4, 11 and 12
. . . . . . . . . . . . . . . . . . . . . . . . . .
of Article IX, and Article X of the Articles of Incorporation is now as
. . . . . . . . . . . . . . .
follows:
(See Attached)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . .
ARTICLE II MANNER OF ADOPTION AND VOTE
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1 Action by Directors:
The Board of Directors of the Corporation duly adopted a resolution
proposing to amend the terms and provisions of Article(s) V, Section 1 of
. . . . . . . . . . . . .
Article VII, Sections 4, 11 and 12 of Article IX, and Article X of the Articles
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
of Incorporation and directing a meeting of the Shareholders, to be held on
March 13, 1985
. . . . . . . . . . . . . . ., allowing such shareholders to vote on the
proposed amendment.
The resolution was adopted by: (SELECT APPROPRIATE PARAGRAPH)
(a) Vote of the Board of Directors at a meeting held on February 12, 1985,
at which a quorum of such Board was present . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2 Action by Shareholders:
The Shareholders of the Corporation entitled to vote in respect of the
Articles of Amendment adopted the proposed amendment.
The amendment was adopted by: (SELECT APPROPRIATE PARAGRAPH)
(a) Vote of such Shareholders during the meeting called by the Board
of Directors. The result of such vote is as follows:
TOTAL
. . . . . . . . . . .
SHAREHOLDERS ENTITLED TO VOTE: 460,000
. . . . . . . . . . .
SHAREHOLDERS VOTED IN FAVOR: 360,219
. . . . . . . . . . .
SHAREHOLDERS VOTED AGAINST: 10,514
. . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3 Compliance with Legal Requirements
The manner of the adoption of the Articles of Amendment and the vote by
which they were adopted constitute full legal compliance with the provisions of
the Act, the Articles of Incorporation, and the By-Laws of the Corporation.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE III STATEMENT OF CHANGES MADE WITH RESPECT TO ANY INCREASE
IN THE NUMBER OF SHARES HERETOFORE AUTHORIZED
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aggregate Number of Shares
Previously Authorized 500,000
. . . . . . . . . . .
Increase (INDICATE "0" OR
"N/A" IF NO INCREASE) 2,000,000 (1,500,000 common, 500,000 preferred)
. . . . . . . . . . .
Aggregate Number of Shares
To Be Authorized After Effect 2,500,000 (2,000,000 common, 500,000 preferred)
of This Amendment . . . . . . . . . . .
I hereby verify subject to the penalties of perjury that the facts contained
herein are true.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Officer's Signature Officer's Name Printed
/s/ Stefan S. Anderson Stefan S. Anderson
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Officer's Title
President
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
TEXT OF ARTICLE V (As Amended)
ARTICLE V
AUTHORIZED SHARES
SECTION 1. NUMBER OF SHARES. The total number of shares of common
stock which the Corporation is to have authority to issue is 2,000,000, all with
no par value. The total number of shares of preferred stock the Corporation is
to have authority to issue is 500,000, all with no par value.
SECTION 2. TERMS OF SHARES. The authorized shares of "Common Stock"
shall be equal to every other share of Common Stock and shall participate
equally with other shares of Common Stock in all earnings and profits of the
Corporation and on distribution of assets, either on dissolution, liquidation or
otherwise. The authorized shares of "Preferred Stock" shall be equal to every
other share of Preferred Stock and shall participate equally with other shares
of Preferred Stock. The terms of the Preferred Stock and its relative rights,
preferences, limitations or restrictions shall be established by the Board of
Directors prior to issuance of any Preferred Stock.
SECTION 3. VOTING RIGHTS. Each holder of Common Stock shall have the
right to vote on all matters presented to shareholders and shall be entitled on
all matters including elections of directors to one vote for each share of
Common Stock registered in his/her name on the books of the Corporation. The
voting rights of the Preferred Stock, if any, shall be determined by the Board
of Directors prior to issuance of the Preferred Stock.
<PAGE>
TEXT OF ARTICLE VII, Section 1 (As Amended)
ARTICLE VII
DIRECTORS
SECTION 1. NUMBER. The number of Directors of the Corporation shall
not be less than twelve (12) nor more than twenty-one (21), as may be specified
from time to time by the By-Laws. If and whenever the By-Laws do not contain a
provision specifying the number of Directors, the number shall be sixteen (16).
The Directors shall be classified, with respect to the time for which they
severally hold office, into three (3) classes as nearly equal in number as
possible, as shall be specified in the By-Laws, one class to be originally
elected for a term expiring at the annual meeting of shareholders to be held in
1986, another class to be originally elected for a term expiring at the annual
meeting of shareholders to be held in 1987, and another class to be originally
elected for a term expiring at the annual meeting of shareholders to be held in
1988, with each Director to hold office until his successor is elected and
qualified. At each annual meeting of shareholders, the successor of each
Director whose term expires at that meeting shall be elected to hold office for
a term expiring at the annual meeting of shareholders held in the third year
following the year of his election, or until his successor is elected and
qualified.
<PAGE>
TEXT OF ARTICLE IX
Sections 4 (Amended),
11 (new) and 12 (new)
ARTICLE IX
PROVISIONS FOR REGULATION OF BUSINESS
AND CONDUCT OF AFFAIRS OF CORPORATION
SECTION 4. BY-LAWS OF THE CORPORATION. The Board of Directors, unless
otherwise provided in the By-Laws or in these Articles of Incorporation, may by
a majority vote of the actual number of Directors elected and qualified from
time to time make, alter, amend or repeal the By-Laws.
(The balance of Section 4 remains unchanged).
SECTION 11. REMOVAL OF DIRECTORS. Any or all of the Board of Directors
may be removed, with or without cause, at a meeting of the shareholders called
expressly for that purpose by the affirmative vote of the holders of not less
than two-thirds (2/3) of the outstanding shares of capital stock then entitled
to vote on the election of Directors, except that if the Board of Directors, by
an affirmative vote of at least two-thirds (2/3) of the entire Board of
Directors, recommends removal of a Director to the shareholders, such removal
may be effected by the affirmative vote of the holders of not less than a
majority of the outstanding shares of capital stock then entitled to vote on the
election of Directors at a meeting of a shareholders called expressly for that
purpose.
SECTION 12. FAIR PRICE, FORM OF CONSIDERATION AND PROCEDURAL SAFEGUARDS
FOR CERTAIN BUSINESS COMBINATIONS.
(A) The affirmative vote of the holders of not less than three-fourths
(3/4) of the Voting Shares (as hereinafter defined) of the Corporation shall be
required for the authorization or adoption, except as provided in subparagraph
(D) of this section, of the following transactions:
<PAGE>
1. Any merger or consolidation of the Corporation or its subsidiary or
subsidiaries (as hereinafter defined) with or into either of the
following:
(a) 10% Shareholders (as hereinafter defined); or
(b) Any other corporation (whether or not itself a 10% Shareholder)
which, after such merger or consolidation, would be an Affiliate
(as hereinafter defined) of a 10% Shareholder.
2. Any sale, lease, exchange, transfer or other disposition (including,
without limitation, the granting of a mortgage or other security
interest) to or with any 10% Shareholder of any material part of the
assets of the Corporation or any of its subsidiaries; and
3. A liquidation or dissolution of the Corporation or any material
subsidiary thereof or adoption of any plan with respect thereto.
4. Any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its subsidiaries or any
other transaction (whether or not with or into or otherwise involving
a 10% Shareholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
subsidiary which is directly or indirectly owned by any 10%
Shareholder; and
5. Any agreement, contract or other arrangement providing for any one or
more of the actions specified in the foregoing clauses (A) 1. through
(A) 4.
(B) Prior to the approval of any of the transactions referred to in
subsection (A) of this section ("Business Combination"), the Board of Directors
of the Corporation shall make an evaluation of all relevant factors and issues
arising out of or in connection with any such Business Combination and shall
report to the shareholders the conclusion which the Board of Directors reaches
from such evaluation. Relevant factors
2.
<PAGE>
and issues shall include consideration of the impact which any such Business
Combination will have on the community in which the Corporation or its
subsidiaries conducts business, the employees of the Corporation or any of its
subsidiaries, and the suppliers and customers of the Corporation and its
subsidiaries, and shall also include any and all other factors which the Board
of Directors in its discretion deems relevant.
(C) The following definitions shall apply when used in this section:
1. "10% Shareholder" shall mean, in respect of any Business Combination,
any person (other than the Corporation) who or which, as of the record
date for the determination of shareholders entitled to notice of and
to vote on such Business Combination or immediately prior to the
consummation of any such Business Combination:
(a) Is the beneficial owner (as determined in accordance with Rule
13d-3 promulgated by the Securities and Exchange Commission)
("Beneficial Owner"), directly or indirectly, of not less than
ten percent (10%) or the Voting Shares; or
(b) Is an Affiliate (as hereinafter defined) of the Corporation and
at any time within two years prior thereto was the Beneficial
Owner, directly or indirectly, of not less than ten percent (10%)
of the then outstanding Voting Shares; or
(c) Any individual, corporation, partnership or other person or
entity which, together with any of its Affiliates (as hereinafter
defined), beneficially owns in the aggregate more than ten
percent (10%) of the Voting Shares of the Corporation.
2. "Voting Shares" includes:
(a) Any securities of the Corporation which are entitled to vote on
any matter referred to in this section;
(b) Any securities, including but not limited to, preferred stock,
bonds, debentures, or options, which can be
3.
<PAGE>
converted into voting securities at the time of the vote
referred to in this section; and
(c) Security agreements of any nature for which voting securities
are pledged as collateral.
3. "Affiliate" shall include all persons who would be defined as
affiliates under Rule 12b-2 under the Securities Exchange Act of 1934.
4. "Subsidiary" means any corporation of which a majority of any class of
equity securities (as defined in Rule 3a 11-1 of the general rules and
regulations under the Securities Exchange Act of 1934) are owned,
directly or indirectly by the Corporation; provided, however, that for
the purposes of the definition of a 10% Shareholder set forth above,
the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
5. "Fair Market Value" means:
(1) In the case of stock, in the absence of any determination
price as established on a national, regional, or local exchange or
over-the-counter market, or in the absence of any market-maker
dealing in the stock on a regular basis, the fair market value of such
stock on the date in question as determined by the Board in good
faith; and
(2) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
the Board in good faith.
(D) The additional voting requirement set forth in subsection (A) above
shall not be applicable, and any such Business Combination shall require the
affirmative vote of two-thirds (2/3) of the Voting Shares, if one of the
following occur:
1. The Business Combination shall have been approved by two-thirds (2/3)
of the Directors of the Corporation; or
4.
<PAGE>
2. All of the following conditions shall have been set:
(a) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of Common Stock in such Business
Combination shall be at least equal to the greater of (i) and (ii), where (i)
is the highest per share price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the 10% Shareholder or any other
party for any shares of Common Stock acquired within the two-year period
immediately prior to the first public announcement of the proposal of the
Business Combination (the "Announcement Date") or, if higher, the per share
price paid in the transaction in which the 10% Shareholder became a 10%
Shareholder, and (ii) is the per share book value of the Corporation reported at
the end of the fiscal quarter immediately preceding the later of any public
announcement of any proposed Business Combination or the meeting date on which
the shareholders are to consider the proposed Business Combination;
(b) The consideration to be received by holders of a particular class
of outstanding Voting Stock (including Common Stock) shall be in cash or in the
same form as the 10% Shareholder has previously paid for shares of such class of
Voting Stock. If the 10% Shareholder has paid for shares of any class of
Voting Stock with varying forms of consideration, the form of consideration for
such class of Voting Stock shall be either cash or the form used to acquire the
largest number of shares of such class of Voting Stock previously acquired by
it;
(c) A proxy or information statement describing the proposed merger
or consolidation and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations)
5.
<PAGE>
shall be mailed to Shareholders of the Corporation at least thirty (30) days
prior to the meeting of shareholders called to consider the proposed Business
Combination or, if no meeting, thirty (30) days prior to the consummation of
such Business Combination (whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent provision).
6.
<PAGE>
TEXT OF ARTICLE X (new)
ARTICLE X
AMENDMENTS
These Articles of Incorporation may be amended at any time, subject to the
provisions of this Article, by the affirmative vote of a majority of the
outstanding shares of stock of the Corporation entitled to vote on such
amendment. No amendment shall be adopted which shall repeal, modify, amend,
alter or diminish in any way the provisions of Article V, Section 1 of Article
VII, Section 4 of Article IX, Section 11 of Article IX, Section 12 of Article
IX, or this Article X without the affirmative vote of three-fourths (3/4) of the
outstanding shares of stock of the Corporation entitled to vote on such
amendment.
The By-Laws of the Corporation may be amended as provided herein and
therein except that no amendment shall in any way repeal, modify, amend, alter,
or diminish the provisions of this Article or the other provisions of the
Articles of Incorporation referenced in this Article.
<PAGE>
ARTICLES OF AMENDMENT
(August, 1987)
Prescribed by Evan Bayh
Secretary of State of Indiana
Present Original and One Copy
Filing Fee: $30
ARTICLES OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
FIRST MERCHANTS CORPORATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Corporate Name)
The above corporation (hereinafter referred to as the "Corporation") existing
pursuant to the Indiana Business Corporation Law, desiring to give notice of
corporate action effectuating amendment of certain provisions of its Article of
Incorporation, sets forth the following facts:
ARTICLE I
AMENDMENT(S)
SECTION 1: The name of the Corporation following this amendment is:
First Merchants Corporation
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2: The exact text of Article V, Section 1
. . . . . . . . . . . . . . . . . .
of the Articles of Incorporation is now as follows (Attach
additional pages if necessary):
ARTICLE V
AUTHORIZED SHARES
SECTION 1. NUMBER OF SHARES. The total number of shares of common
stock which the Corporation is to have authority to issue is 5,000,000, all with
no par value. The total number of shares of preferred stock the Corporation is
to have authority to issue is 500,000, all with no par value.
SECTION 3: The date of each amendment's adoption is:
March 9, 1988
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
SECTION 4: (Complete this section only if amendment provides for an
exchange, reclassification or cancellation of issued shares and
provisions for implementing the amendment are not contained in
the amendment itself.)
Provisions for implementing the exchange, reclassification or
cancellation of issued shares are set forth below (Attach
additional pages if necessary):
N/A
ARTICLE II
MANNER OF ADOPTION AND VOTE
(Strike inapplicable section)
SECTION 1:
SECTION 2: VOTE OF SHAREHOLDERS
The designation (i.e. common, preferred and any classification
where different classes of stock exists), number of outstanding
shares, number of votes entitled to be cast by each voting group
entitled to vote separately on the amendment and the number of
votes of each voting group represented at the meeting is set
forth below:
TOTAL A B C
Designation of Each Voting Group Common
. . . . . . . . . . . . . . . .
Number of Outstanding Shares 1,840,000
. . . . . . . . . . . . . . . .
Number of Votes Entitled To Be Cast 1,840,000
. . . . . . . . . . . . . . . .
Number of Votes Represented at Meeting 1,635,380
. . . . . . . . . . . . . . . .
Shares Voted in Favor 1,627,751
. . . . . . . . . . . . . . . .
Shares Voted Against 7,629
. . . . . . . . . . . . . . . .
<PAGE>
ARTICLE III
STATEMENT OF CHANGES MADE WITH RESPECT
TO ANY INCREASE IN THE NUMBER OF SHARES
HERETOFORE AUTHORIZED
Aggregate Number of Shares 2,000,000 Common
Previously Authorized 500,000 Preferred
Increase (indicate "0" or 3,000,000 Common
"N/A" if no increase)
Aggregate Number of Shares 5,000,000 Common
to be Authorized After Effect 500,000 Preferred
of this Amendment
/s/ Stefan S. Anderson
. . . . . . . . . . . . . . . . . . . .
(Signature)
Stefan S. Anderson
. . . . . . . . . . . . . . . . . . . .
(Printed Name)
Chairman of the Board and President
. . . . . . . . . . . . . . . . . . . .
(Title)
<PAGE>
BY-LAWS
OF
FIRST MERCHANTS CORPORATION
ARTICLE I
SECTION 1. NAME. The name of the corporation is First Merchants
Corporation ("Corporation").
SECTION 2. PRINCIPAL OFFICE OF THE RESIDENT AGENT. The post office
address of the principal office of the Corporation is 200 East Jackson Street,
Muncie, Indiana, 47305, and the name of its Resident Agent in charge of such
office is Rodney A. Medler.
SECTION 3. SEAL. The seal of the Corporation shall be circular in
form and mounted upon a metal die, suitable for impressing the same upon paper.
About the upper periphery of the seal shall appear the words "First Merchants
Corporation" and about the lower periphery thereof the words "Muncie, Indiana".
In the center of the seal shall appear the word "Seal".
ARTICLE II
The fiscal year of the Corporation shall begin each year on the first day
of January and end on the last day of December of the same year.
ARTICLE III
CAPITAL STOCK
SECTION 1. NUMBER OF SHARES AND CLASSES OF CAPITAL STOCK. The total
number of shares of capital stock which the Corporation shall have authority to
issue shall be as stated in the Articles of Incorporation.
SECTION 2. CONSIDERATION FOR NO PAR VALUE SHARES. The shares of stock
of the Corporation without par value shall be issued or sold in such manner and
for such amount of consideration as may be fixed from time to time by the Board
of Directors. Upon payment of the consideration fixed by the Board of
Directors, such shares of stock shall be fully paid and nonassessable.
SECTION 3. CONSIDERATION FOR TREASURY SHARES. Treasury shares may be
disposed of by the Corporation for such consideration as may be determined from
time to time by the Board of Directors.
SECTION 4. PAYMENT FOR SHARES. The consideration for the issuance of
shares of capital stock of the Corporation may be paid, in whole or in part, in
money, in other property, tangible or intangible, or in labor actually performed
for, or services actually rendered to the Corporation; provided, however, that
the part of the surplus of the Corporation which is transferred to stated
capital upon the issuance of shares as a share dividend shall be deemed to be
the consideration for the issuance of such shares. When payment of the
consideration for which a share was authorized to be issued shall have been
received by the Corporation, or when surplus shall have been transferred to
stated capital upon the issuance of a share dividend, such share shall be
declared and taken to be fully paid and not liable to any further call or
assessment, and the holder thereof shall not be liable for any further payments
thereon. In the absence of actual fraud in the transaction, the judgment of the
Board of Directors as to the value of such property, labor or services received
as consideration, or the value placed by the Board of Directors upon the
corporate assets in the event of a share dividend, shall be conclusive.
Promissory notes, uncertified checks, or future services shall not be accepted
in payment or part payment of the capital stock of the Corporation, except as
permitted by the Indiana General Corporation Act.
<PAGE>
SECTION 5. CERTIFICATE FOR SHARES. Each holder of capital stock of
the Corporation shall be entitled to a stock certificate, signed by the
President or a Vice President and the Secretary or any Assistant Secretary of
the Corporation, with the seal of the Corporation thereto affixed, stating the
name of the registered holder, the number of shares represented by such
certificate, the par value of each share of stock or that such shares of stock
are without par value, and that such shares are fully paid and nonassessable.
If such shares are not fully paid, the certificate shall be legibly stamped to
indicate the per cent which has been paid, and as further payments are made, the
certificate shall be stamped accordingly.
If the Corporation is authorized to issue shares of more than one class,
every certificate shall state the kind and class of shares represented thereby,
and the relative rights, interests, preferences and restrictions of such class,
or a summary thereof; provided, that such statement may be omitted from the
certificate if it shall be set forth upon the face or back of the certificate
that such statement, in full, will be furnished by the Corporation to any
shareholder upon written request and without charge.
SECTION 6. FACSIMILE SIGNATURES. If a certificate is countersigned by
the written signature of a transfer agent other than the Corporation or its
employee, the signatures of the officers of the Corporation may be facsimiles.
If a certificate is countersigned by the written signature of a registrar other
than the Corporation or its employee, the signatures of the transfer agent and
the officers of the Corporation may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of its issue.
SECTION 7. TRANSFER OF SHARES. The shares of capital stock of the
Corporation shall be transferable only on the books of the Corporation upon
surrender of the certificate or certificates representing the same, properly
endorsed by the registered holder or by his duly authorized attorney or
accompanied by proper evidence of succession, assignment or authority to
transfer.
SECTION 8. CANCELLATION. Every certificate surrendered to the
Corporation for exchange or transfer shall be cancelled, and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled, except in cases provided
for in Section 10 of this Article III.
SECTION 9. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint a transfer agent and a registrar for each class of capital stock of the
Corporation and may require all certificates representing such shares to bear
the signature of such transfer agent and registrar. Shareholders shall be
responsible for notifying the Corporation or transfer agent and registrar for
the class of stock held by such shareholder in writing of any changes in their
addresses from time to time, and failure so to do shall relieve the Corporation,
its shareholders, directors, officers, transfer agent and registrar of
liability for failure to direct notices, dividends, or other documents or
property to an address other than the one appearing upon the records of the
transfer agent and registrar of the Corporation.
SECTION 10. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
may cause a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Corporation may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum and in such form as it may direct to indemnify
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed or the issuance of
such new certificate. The Corporation, in its discretion, may authorize the
issuance of such new certificates without any bond when in its judgment it is
proper to do so.
-2-
<PAGE>
SECTION 11. REGISTERED SHAREHOLDERS. The Corporation will be entitled
to recognize the exclusive right of a person registered on its books as the
owner of such shares to receive dividends, to vote as such owner, to hold liable
for calls and assessments, and to treat as owner in all other respects, and
shall not be bound to recognize any equitable or other claims to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of Indiana.
SECTION 12. OPTIONS TO OFFICERS AND EMPLOYEES. The issuance,
including, the consideration, of rights or options to directors, officers or
employees of the Corporation, and not to the shareholders generally, to purchase
from the Corporation shares of its capital stock shall be approved by the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon or shall be authorized by and consistent with a plan approved by such a
vote of the shareholders.
ARTICLE IV
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. Meetings of shareholders of the
Corporation shall be held at such place, within or without the State of Indiana,
as may from time to time be designated by the Board of Directors, or as may be
specified in the notices or waivers of notice of such meetings.
SECTION 2. ANNUAL MEETING. The annual meeting of shareholders for the
election of Directors, and for the transaction of such other business as may
properly come before the meeting, shall be held on the third Tuesday in April of
each year, if such day is not a holiday, and if a holiday, then on the first
following day that is not a holiday, or in lieu of such a day may be held on
such other day as the Board of Directors may set by resolution, but not later
than the end of the fifth month following the close of the fiscal year of the
Corporation. Failure to hold the annual meeting at the designated time shall not
work any forfeiture or a dissolution of the Corporation, and shall not affect
otherwise valid corporate acts.
SECTION 3. SPECIAL MEETINGS. Special meeting of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the Board of Directors or the
President and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing
of shareholders holding of record not less than one-fourth of all the shares
outstanding and entitled by the Articles of Incorporation to vote on the
business for which the meeting is being called.
SECTION 4. NOTICE OF MEETINGS. A written or printed notice, stating
the place, day and hour of the meeting, and in case of a special meeting, or
when required by any other provision of the Indiana General Corporation Act, or
of the Articles of Incorporation, as now or hereafter amended, or these By-
Laws, the purpose or purposes for which the meeting is called, shall be
delivered or mailed by the Secretary, or by the officers or persons calling the
meeting, to each shareholder of record entitled by the Articles of
Incorporation, as now or hereafter amended, and by the Indiana General
Corporation Act to vote at such meeting, at such address as appears upon the
records of the Corporation, at least ten (10) days before the date of the
meeting. Notice of any such meeting may be waived in writing by any
shareholder, if the waiver sets forth in reasonable detail the purpose or
purposes for which the meeting is called, and the time and place thereof.
Attendance at any meeting in person, or by proxy, shall constitute a waiver of
notice of such meeting. Each shareholder, who has in the manner above provided
waived notice of a shareholders' meeting, or who personally attends a
shareholders' meeting, or is represented thereat by a proxy authorized to
appear by an instrument of proxy, shall be conclusively presumed to have been
given due notice of such meeting. Notice of any adjourned meeting of
shareholders shall not be required to be given if the time and place thereof
are announced at the meeting at which the adjournment is taken except as may be
expressly required by law.
-3-
<PAGE>
SECTION 5. ADDRESSES OF SHAREHOLDERS. The address of any shareholder
appearing upon the records of the Corporation shall be deemed to be the latest
address of such shareholder appearing on the records maintained by the
Corporation or its Transfer Agent for the class of stock held by such
shareholder.
SECTION 6. VOTING AT MEETINGS.
(a) QUORUM. The holders of record of a majority of the issued and
outstanding stock of the Corporation entitled to vote at such meeting, present
in person or by proxy, shall constitute a quorum at all meetings of shareholders
for the transaction of business, except where otherwise provided by law, the
Articles of Incorporation or these By-Laws. In the absence of a quorum, any
officer entitled to preside at, or act as secretary of, such meeting shall have
the power to adjourn the meeting from time to time until a quorum shall be
constituted. At any such adjourned meeting at which a quorum shall be present,
any business may be transacted which might have been transacted at the original
meeting, but only those shareholders entitled to vote at the original meeting
shall be entitled to vote at any adjournment or adjournments thereof unless a
new record date is fixed by the Board of Directors for the adjourned meeting.
(b) VOTING RIGHTS. Except as otherwise provided by law or by the
provisions of the Articles of Incorporation, every shareholder shall have the
right at every shareholder's meeting to one vote for each share of stock having
voting power, registered in his name on the books of the Corporation on the date
for the determination of shareholders entitled to vote, on all matters coming
before the meeting including the election of directors. At any meeting of
shareholders, every shareholder having the right to vote shall be entitled to
vote in person, or by proxy executed in writing by the shareholder or a duly
authorized attorney in fact and bearing a date not more than eleven months prior
to its execution, unless a longer time is expressly provided therein.
(c) REQUIRED VOTE. When a quorum is present at any meeting, the vote of
the holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of the Indiana
General Corporation Act or of the Articles of Incorporation or by these By-Laws,
a greater vote is required, in which case such express provision shall govern
and control the decision of such question.
SECTION 7. VOTING LIST. The Corporation or its Transfer Agent shall
make, at least five days before each election of directors, a complete list of
the shareholders entitled by the Articles of Incorporation, as now or hereafter
amended, to vote at such election, arranged in alphabetical order, with the
address and number of shares so entitled to vote held by each, which list shall
be on file at the principal office of the Corporation and subject to inspection
by any shareholder. Such list shall be produced and kept open at the time and
place of election and subject to the inspection of any shareholder during the
holding of such election. The original stock register or transfer book, or a
duplicate thereof kept in the State of Indiana, shall be the only evidence as to
who are the shareholders entitled to examine such list or the stock ledger or
transfer book or to vote at any meeting of the shareholders.
SECTION 8. FIXING OF RECORD DATE TO DETERMINE SHAREHOLDERS ENTITLED TO
VOTE. The Board of Directors may prescribe a period not exceeding 50 days prior
to meetings of the shareholders, during which no transfer of stock on the books
of the Corporation may be made; or, in lieu of prohibiting the transfer of stock
may fix a day and hour not more than 50 days prior to the holding of any meeting
of shareholders as the time as of which shareholders entitled to notice of, and
to vote at, such meeting shall be determined, and all persons who are holders of
record of voting stock at such time, and no others, shall be entitled to notice
of, and to vote at, such meeting. In the absence of such a determination, such
date shall be 10 days prior to the date of such meeting.
-4-
<PAGE>
SECTION 9. NOMINATIONS FOR DIRECTOR. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any shareholder
of any outstanding class of capital stock of the Corporation entitled to vote
for the election of directors. Nominations, other than those made by or on
behalf of the existing management of the Corporation, shall be made in writing
and shall be delivered or mailed to the president of the Corporation not less
than 10 days nor more than 50 days prior to any meeting of shareholders called
for the election of directors. Such notification shall contain the following
information to the extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the total number of shares of capital stock of the
Corporation that will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the number of shares
of capital stock of the Corporation owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his discretion, be
disregarded by the chairman of the meeting, and upon his instructions, the vote
tellers may disregard all votes cast for each such nominee.
ARTICLE V
BOARD OF DIRECTORS
Section 1. ELECTION, NUMBER AND TERM OF OFFICE. Directors shall be
elected at the annual meeting of shareholders, or, if not so elected, at a
special meeting of shareholders called for that purpose, by the holders of the
shares of stock entitled by the Articles of Incorporation to elect Directors.
The number of Directors of the Corporation to be elected by the holders of
the shares of stock entitled by the Articles of Incorporation to elect Directors
shall be sixteen unless changed by amendment of this section.
All Directors elected by the holders of such shares, except in the case of
earlier resignation, removal or death, shall hold office until their respective
successors are chosen and qualified. Directors need not be shareholders of the
Corporation.
Any vacancy on the Board of Directors caused by an increase in the number
of Directors shall be filled by a majority vote of the members of the Board of
Directors, until the next annual or special meeting of the shareholders or, at
the discretion of the Board of Directors, such vacancy may be filled by vote of
the shareholders at a special meeting called for that purpose. No decrease in
the number of Directors shall have the effect of shortening the term of any
incumbent Director.
SECTION 2. VACANCIES. Any vacancy occurring in the Board of Directors
caused by resignation, death or other incapacity shall be filled by a majority
vote of the remaining members of the Board of Directors, until the next annual
meeting of the shareholders. If the vote of the remaining members of the Board
shall result in a tie, such vacancy, at the discretion of the Board of
Directors, may be filled by vote of the shareholders at a special meeting called
for that purpose.
SECTION 3. ANNUAL MEETING OF DIRECTORS. The Board of Directors shall
meet each year immediately after the annual meeting of the shareholders, at the
place where such meeting of the shareholders has been held either within or
without the State of Indiana, for the purpose of organization, election of
officers, and consideration of any other business that may properly come before
the meeting. No notice of any kind to either old or new members of the Board of
Directors for such annual meeting shall be necessary.
-5-
<PAGE>
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times and places, either within or without the
State of Indiana, as may be fixed by the Directors. Such regular meetings of
the Board of Directors may be held without notice or upon such notice as may be
fixed by the Directors.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President, or by not
less than a majority of the members of the Board of Directors. Notice of the
time and place, either within or without the State of Indiana, of a special
meeting shall be served upon or telephoned to each Director at least twenty-four
hours, or mailed, telegraphed or cabled to each Director at his usual place of
business or residence at least forty-eight hours, prior to the time of the
meeting. Directors, in lieu of such notice, may sign a written waiver of
notice either before the time of the meeting, at the meeting or after the
meeting. Attendance by a director in person at any special meeting shall
constitute a waiver of notice.
SECTION 6. QUORUM. A majority of the actual number of Directors
elected and qualified, from time to time, shall be necessary to constitute a
quorum for the transaction of any business except the filling of vacancies, and
the act of a majority of the Directors present at the meeting, at which a quorum
is present, shall be the act of the Board of Directors, unless the act of a
greater number is required by the Indiana General Corporation Act, by the
Articles of Incorporation, or by these By-Laws. A Director, who is present at a
meeting of the Board of Directors, at which action on any corporate matter is
taken, shall be conclusively presumed to have assented to the action taken,
unless (a) his dissent shall be affirmatively stated by him at and before the
adjournment of such meeting (in which event the fact of such dissent shall be
entered by the secretary of the meeting in the minutes of the meeting), or (b)
he shall forward such dissent by registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. The right of
dissent provided for by either clause (a) or clause (b) of the immediately
preceding sentence shall not be available, in respect of any matter acted upon
at any meeting, to a Director who voted at the meeting in favor of such matter
and did not change his vote prior to the time that the result of the vote on
such matter was announced by the chairman of such meeting.
A member of the Board of Directors may participate in a meeting of the
Board by means of a conference telephone or similar communications equipment by
which all directors participating in the meeting can communicate with each
other, and participation by these means constitutes presence in person at the
meeting.
SECTION 7. CONSENT ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if prior to such action a
written consent to such action is signed by all members of the Board of
Directors or such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board of Directors or committee.
SECTION 8. REMOVAL OF DIRECTORS. Any or all members of the Board of
Directors may be removed, with or without cause, at a meeting of shareholders
called expressly for that purpose by a vote of the holders of not less than a
majority of the outstanding shares of capital stock then entitled to vote at
the election of directors.
SECTION 9. DIVIDENDS. The Board of Directors shall have power,
subject any restrictions contained in the Indiana General Corporation Act or in
the Articles of Incorporation and out of funds legally available therefor, to
declare and pay dividends upon the outstanding capital stock of the Corporation
as and when they deem expedient. Before declaring any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the Board of Directors from time to time in their absolute discretion
deem proper for working capital, or as a reserve or reserves to meet
contingencies or for such other purposes as the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
-6-
<PAGE>
SECTION 10. FIXING OF RECORD DATE TO DETERMINE SHAREHOLDERS ENTITLED TO
RECEIVE CORPORATE BENEFITS. The Board of Directors may fix a day and hour not
exceeding 50 days preceding the date fixed for payment of any dividend or for
the delivery of evidence of rights, or for the distribution of other corporate
benefits, or for a determination of shareholders for any other purpose, as a
record time for the determination of the shareholders entitled to receive any
such dividend, rights or distribution, and in such case only shareholders of
record at the time so fixed shall be entitled to receive such dividend, rights
or distribution. If no record date is fixed for the determination of
shareholders entitled to receive payment of a dividend, the end of the day on
which the resolution of the Board of Directors declaring such dividend is
adopted shall be the record date for such determination.
SECTION 11. INTEREST OF DIRECTORS IN CONTRACTS. Any contract or other
transaction between the Corporation or any corporation in which this Corporation
owns a majority of the capital stock shall be valid and binding, notwithstanding
that the directors or officers of this Corporation are identical or that some or
all of the directors or officers, or both, are also directors or officers of
such other corporation.
Any contract or other transaction between the Corporation and one or more
of its directors or members or employees, or between the Corporation and any
firm of which one or more of its directors are members or employees or in which
they are interested, or between the Corporation and any corporation or
association of which one or more of its directors are stockholders, members,
directors, officers, or employees or in which they are interested, shall be
valid for all purposes, notwithstanding the presence of such director or
directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and notwithstanding his
or their participation in such action, if the fact of such interest shall be
disclosed or known to the Board of Directors and the Board of Directors shall
authorize, approve and ratify such contract or transaction by a vote of a
majority of the directors present, such interested director or directors to be
counted in determining whether a quorum is present, but not to be counted in
calculating the majority of such quorum necessary to carry such vote. This
Section shall not be construed to invalidate any contract or other transaction
which would otherwise be valid under the common and statutory law applicable
thereto.
SECTION 12. COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the actual number of Directors elected and qualified,
from time to time, designate from among its members an executive committee and
one or more other committees, each of which, to the extent provided in the
resolution, the Articles of Incorporation, or these By-Laws, may exercise all of
the authority of the Board of Directors of the Corporation, including, but not
limited to, the authority to issue and sell or approve any contract to issue and
sell, securities or shares of the Corporation or designate the terms of a series
of a class of securities or shares of the Corporation. The terms which may be
affixed by each such committee include, but are not limited to, the price,
dividend rate, and provisions of redemption, a sinking fund, conversion, voting,
or preferential rights or other features of securities or class or series of a
class of shares. Each such committee may have full power to adopt a final
resolution which sets forth those terms and to authorize a statement of such
terms to be filed with the Secretary of State. However, no such committee has
the authority to declare dividends or distributions, amend the Articles of
Incorporation or the By-Laws, approve a plan of merger or consolidation even if
such plan does not require shareholder approval, reduce earned or capital
surplus, authorize or approve the reacquisition of shares unless pursuant to a
general formula or method specified by the Board of Directors, or recommend to
the shareholders a voluntary dissolution of the Corporation or a revocation
thereof. No member of any such committee shall continue to be a member thereof
after he ceases to be a Director of the Corporation. The calling and holding of
meetings of any such committee and its method of procedure shall be determined
by the Board of Directors. A member of the Board of Directors shall not be
liable for any action taken by any such committee if he is not a member of that
committee and has acted in good faith and in a manner he reasonably believes is
in the best interest of the Corporation. A member of a committee may
participate in a meeting of the committee by means of a conference telephone or
similar communications equipment by which all members participating in the
meeting can communicate with each other, and participation by these means
constitutes presence in person at the meeting.
-7-
<PAGE>
ARTICLE VI
OFFICERS
SECTION 1. PRINCIPAL OFFICERS. The principal officers of the
Corporation shall be a Chairman of the Board, Vice Chairman of the Board, a
President, one or more Vice Presidents, a Treasurer and a Secretary. The
Corporation may also have, at the discretion of the Board of Directors, such
other subordinate officers as may be appointed in accordance with the provisions
of these By-Laws. Any two or more offices may be held by the same person except
the duties of the President and Secretary shall not be performed by the same
person. No person shall be eligible for the office of Chairman of the Board,
Vice Chairman of the Board, or President who is not a director of the
Corporation.
SECTION 2. ELECTION AND TERM OF OFFICE. The principal officers of the
Corporation shall be chosen annually by the Board of Directors at the annual
meeting thereof. Each such officer shall hold office until his successor shall
have been duly chose and qualified, or until his death, or until he shall
resign, or shall have been removed in the manner hereinafter provided.
SECTION 3. REMOVAL. Any principal officer may be removed, either with
or without cause, at any time, by resolution adopted at any meeting of the Board
of Directors by a majority of the actual number of Directors elected and
qualified from time to time.
SECTION 4. SUBORDINATE OFFICERS. In addition to the principal
officers enumerated in Section 1 of this Article VI, the Corporation may have
one or more Assistant Treasurers, one or more Assistant Secretaries and such
other officers, agents and employees as the Board of Directors may deem
necessary, each of whom shall hold office for such period, may be removed with
or without cause, have such authority, and perform such duties as the
President, or the Board of Directors may from time to time determine. The Board
of Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents, and employees.
SECTION 5. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Chairman of the Board or to the Board of Directors or to
the President or to the Secretary. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 6. VACANCIES. Any vacancy in any office for any cause may be
filled for the unexpired portion of the term in the manner prescribed in these
By-Laws for election or appointment to such office for such term.
SECTION 7. CHAIRMAN OF THE BOARD. The Chairman of the Board, who
shall be chosen from among the Directors, shall preside at all meetings of the
shareholders and at all meetings of the Board of Directors. He shall perform
such other duties and have such other powers as, from time to time, may be
assigned to him by the Board of Directors.
SECTION 8. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the
Board, who shall be chosen from among the directors, shall act in the absence of
the Chairman of the Board. He shall perform such other duties and have such
other power as, from time to time, may be assigned to him by the Board of
Directors.
SECTION 9. PRESIDENT. The President, who shall be chose from among
the Directors, shall be the chief executive officer of the Corporation and as
such shall have general supervision of the affairs of the Corporation, subject
to the control of the Board of Directors. He shall be an ex officio member of
all standing committees. In the absence or disability of the Chairman of the
Board and Vice Chairman of the Board, the President shall preside all meetings
of shareholders and at all meetings of the Board of Directors. Subject to the
control and direction of the Board of Directors, the President may enter into
any contract or execute and deliver any
-8-
<PAGE>
instrument in the name and on behalf of the Corporation. In general, he shall
perform all duties and have all powers incident to the office of President, as
herein defined, and all such other duties and powers as, from time to time, may
be assigned to him by the Board of Directors.
SECTION 10. VICE PRESIDENTS. The Vice Presidents in the order of
their seniority, unless otherwise determined by the Board of Directors, shall,
in the absence or disability of the President and Executive Vice President,
perform the duties and exercise the powers of the President. They shall perform
such other duties and have such other powers as the President or the Board of
Directors may from time to time assign.
SECTION 11. TREASURER. The Treasurer shall have charge and custody of
and be responsible for, all funds and securities of the Corporation and shall
deposit all such funds in the name of the Corporation in such banks or other
depositories as shall be selected by the Board of Directors. He shall upon
request exhibit at all reasonable times his books of account and records to any
of the directors of the Corporation during business hours at the office of the
Corporation where such books and records shall be kept; shall render upon
request by the Board of Directors a statement of the condition of the finances
of the Corporation at any meeting of the Board of Directors or at the annual
meeting of the shareholders; shall receive, and give receipt for, moneys due and
payable to the Corporation from any source whatsoever; and in general, shall
perform all duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the President or the Board of
Directors. The Treasurer shall give such bond, if any, for the faithful
discharge of his duties as the Board of Directors may require.
SECTION 12. SECRETARY. The Secretary shall keep or cause to be kept in
the books provided for that purpose the minutes of the meetings of the
shareholders and of the Board of Directors; shall duly give and serve all
notices required to be given in accordance with the provisions of these By-Laws
and by the Indiana General Corporation Act; shall be custodian of the records
and of the seal of the Corporation and see that the seal is affixed to all
documents, the execution of which on behalf of the Corporation under its seal
is duly authorized in accordance with the provisions of these By-Laws; and, in
general, shall perform all duties incident to the office of Secretary and such
other duties as may, from time to time, be assigned to him by the President or
the Board of Directors.
SECTION 13. SALARIES. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors, and the salaries of any
subordinate officers may be fixed by the President.
SECTION 14. VOTING CORPORATION'S SECURITIES. Unless otherwise ordered
by the Board of Directors, the Chairman of the Board, the President and
Secretary, and each of them, are appointed attorneys and agents of the
Corporation, and shall have full power and authority in the name and on behalf
of the Corporation, to attend, to act, and to vote all stock or other securities
entitled to be voted at any meetings of security holders of corporations, or
associations in which the Corporation may hold securities, in person or by
proxy, as a stockholder or otherwise, and at such meetings shall possess and
may exercise any and all rights and powers incident to the ownership of such
securities, and which as the owner thereof the Corporation might have possessed
and exercised, if present, or to consent in writing to any action by any such
other corporation or association. The Board of Directors by resolution from
time to time may confer like powers upon any other person or persons.
-9-
<PAGE>
ARTICLE VII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. Every person who is or was a director, officer, employee or agent of
this Corporation or of any other corporation for which he is or was serving in
any capacity at the request of this Corporation shall be indemnified by this
Corporation against any and all liability and expense that may be incurred by
him in connection with or resulting from or arising out of any claim, action,
suit or proceeding, provided that such person is wholly successful with respect
thereto or acted in good faith in what he reasonably believed to be in or not
opposed to the best interests of this Corporation or such other corporation, as
the case may be, and , in addition, in any criminal action or proceeding in
which he had no reasonable cause to believe that his conduct was unlawful. As
used herein, "claim, action, suit or proceeding" shall include any claim,
action, suit or proceeding (whether brought by or in the right of this
Corporation or such other corporation or otherwise), civil, criminal,
administrative or investigative, whether actual or threatened or in connection
with an appeal relating thereto, in which a director, officer, employee or agent
of this Corporation may become involved, as a party or otherwise,
(i) by reason of his being or having been a director, officer, employee or
agent of this Corporation or such other corporation or arising out of
his status as such or
(ii) by reason of any past or future action taken or not taken by him in
any such capacity, whether or not he continues to be such at the time
such liability or expense is incurred.
The terms "liability" and "expense" shall include, but shall not be limited to,
attorneys' fees and disbursements, amounts of judgments, fines or penalties, and
amounts paid in settlement by or on behalf of a director, officer, employee, or
agent, but shall not in any event include any liability or expenses on account
of profits realized by him in the purchase or sale of securities of the
Corporation in violation of the law. The termination of any claim, action, suit
or proceeding, by judgment, settlement (whether with or without court approval)
or conviction or upon a plea of guilty or nolo contendere, or its equivalent,
shall not create a presumption that a director, officer, employee, or agent, did
not meet the standards of conduct set forth in this paragraph.
Any such director, officer, employee, or agent who has been wholly
successful with respect to any such claim, action, suit or proceeding shall be
entitled to indemnification as a matter of right. Except as provided in the
preceding sentence, any indemnification hereunder shall be made only if
(i) the Board of Directors acting by a quorum consisting of Directors who
are not parties to or who have been wholly successful with respect to
such claim, action, suit or proceeding shall find that the director,
officer, employee, or agent, has met the standards of conduct set
forth in the preceding paragraph; or
(ii) independent legal counsel shall deliver to the Corporation their
written opinion that such director, officer, employee, or agent, has
met such standards of conduct.
If several claims, issues, or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though he is
not entitled as to other matters.
The Corporation may advance expenses to or, where appropriate, may at its
expense undertake the defense of any such director, officer, employee, or agent,
upon receipt of an undertaking by or on behalf of such person to repay such
expenses if it should ultimately be determined that he is not entitled to
indemnification hereunder.
-10-
<PAGE>
The provisions of this Section shall be applicable to claims, actions,
suits or proceedings made or commenced after the adoption hereof, whether
arising from acts or omissions to act during, before or after adoption hereof.
The rights of indemnification provided hereunder shall be in addition to
any rights to which any person concerned may otherwise be entitled by contract
or as a matter of law and shall inure to the benefit of the heirs, executors and
administrators of any such person.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation as a
director, officer, employee, or agent of another corporation against any
liability asserted against him and incurred by him in any capacity or arising
out of his status as such, whether or not the Corporation would have the power
to indemnify him against such liability under the provisions of this Section or
otherwise.
ARTICLE VIII
AMENDMENTS
The power to make, alter, amend, or repeal these By-Laws is vested in the
Board of Directors, but the affirmative vote of a majority of the actual number
of directors elected and qualified, from time to time, shall be necessary to
effect any alteration, amendment or repeal of these By-Laws.
-11-
<PAGE>
AMMENDMENTS TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
ARTICLE V
BOARD OF DIRECTORS
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of stock
entitled by the Articles of Incorporation to elect Directors shall be sixteen
(16) unless changed by amendment of this Section by a two-thirds (2/3) vote of
the Directors.
The Directors shall be divided into three (3) classes as nearly equal in
number as possible, all Directors to serve three (3) year terms, with one class
to be elected at each annual meeting of the shareholders, by the holders of the
shares of stock entitled by the Articles of Incorporation to elect Directors.
The classes to be originally elected for terms expiring at the annual meetings
of the shareholders to be held in 1986 and 1987 shall each have five (5)
Directors, and the class to be originally elected for a term expiring at the
annual meeting of the shareholders to be held in 1988 shall have six (6)
Directors. No decrease in the number of Directors shall have the effect of
shortening the term of any incumbent Director.
All Directors elected by the holders of such shares, except in the case of
earlier resignation, removal or death, shall hold office until their respective
successors are chosen and qualified. Directors need not be shareholders of the
Corporation.
The provisions of this Section of the By-Laws may not be changed or amended
except by a two-thirds (2/3) vote of the Board of Directors.
SECTION 2. VACANCIES. Any vacancy occurring in the Board of Directors
caused by resignation, death or other incapacity, or an increase in the number
of Directors, shall be filled by a majority vote of the remaining members of the
Board of Directors, until the next annual meeting of the shareholders, or at the
discretion of the Board of Directors, such vacancy may be filled by a vote of
the shareholders at a special meeting called for that purpose.
SECTION 8. REMOVAL. Any or all members of the Board of Directors may
be removed, with or without cause, at a meeting of the shareholders called
expressly for that purpose by the affirmative vote of the holders of not less
than two-thirds (2/3) of the outstanding shares of capital stock then entitled
to vote on the election of Directors, except that if the Board of Directors, by
an affirmative vote of at least two-thirds (2/3) of the entire Board of
Directors, recommends removal of a Director to the shareholders, such removal
may be effected by the affirmative vote of the holders of not less than a
majority of the outstanding shares of capital stock then entitled to vote on
the election of Directors at a meeting of shareholders called expressly for that
purpose.
The provisions in this Section of the By-Laws may not be changed or amended
except by a two-thirds (2/3) vote of the Board of Directors.
ARTICLE VIII
AMENDMENTS
Except as expressly provided herein or in the Articles of Incorporation,
the Board of Directors may make, alter, amend or repeal these By-Laws by an
affirmative vote of a majority of the actual number of Directors elected and
qualified.
Dated: February 12, 1985
-12-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
In accordance with Article IX, Section 6 of the Corporation's Articles of
Incorporation, and Article V, Section 7 of the By-Laws of the Corporation, the
following resolution is adopted by unanimous written consent of the Board of
Directors, effective March 11, 1987.
RESOLVED that, Paragraph 1 of Article V, Section 1 of the By-Laws of the
Corporation will be amended to read as follows:
"The number of Directors of the Corporation to be elected by the holders of
the shares of common stock entitled by the Articles of Incorporation to
elect Directors shall be fourteen (14) unless changed by amendment of this
section by a two-thirds (2/3) vote of the Board of Directors."
Be it further resolved that,
The number of members included in Class II of the Board of Directors shall
be reduced from five (5) to four (4). The number of members in Class III
shall be reduced from six (6) to five (5).
Dated: February 20, 1987
-13-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
In accordance with Article IX, Section 6 of the Corporation's Articles of
Incorporation, and Article V, Section 7 of the Corporation's By-Laws, the
following resolution is adopted by unanimous written consent of the Board of
Directors, effective July 14, 1987.
RESOLVED, that Article V, Section 1, of the By-Laws of the Corporation is
amended to read as follows:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
fifteen (15) unless changed by amendment of this Section by a two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms, with
one class to be elected at each annual meeting of the shareholders, by the
holders of the shares of stock entitled by the Articles of Incorporation to
elect Directors. Unless the number of Directors is changed by amendment of
this Section, each class shall have five (5) Directors. No decrease in the
number of Directors shall have the effect of shortening the term of any
incumbent Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
their respective successors are chosen and qualified. Directors need not
be shareholders of the Corporation.
The provisions of this Section of the By-Laws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Dated: July 14, 1987
-14-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
RESOLVED that Article V, Section 1, of the By-Laws of the Corporation is
amended to read as follows, effective March 9, 1988:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
thirteen (13) unless changed by amendment of this Section by two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms, with
one class to be elected at each annual meeting of the shareholders, by the
holders of the shares of stock entitled by the Articles of Incorporation to
elect Directors. Unless the number of Directors is changed by amendment of
this Section, Class I shall have five (5) Directors, and Classes II and III
shall each have four (4) Directors. No decrease in the number of Directors
shall have the effect of shortening the term of any incumbent Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
their respective successors are chosen and qualified.
The provisions of this Section of the By-Laws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Dated: December 8, 1987
-15-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
RESOLVED that Article V, Section 1, of the By-Laws of the Corporation is
hereby amended to read as follows, effective March 29, 1989:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
thirteen (13) unless changed by amendment of this Section by a two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms, with
one class to be elected at each annual meeting of the shareholders, by the
holders of the shares of stock entitled by the Articles of Incorporation to
elect directors. Unless the number of Directors is changed by amendment of
this Section, Class I shall have five (5) Directors, and Classes II and III
shall each have four (4) Directors. No decrease in the number of Directors
shall have the effect of shortening the term of any incumbent Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
their respective successors are chosen and qualified.
The provisions of this Section of the By-Laws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Dated December 12, 1988
-16-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
RESOLVED that Article V, Section 1, of the By-Laws of the Corporation is
hereby amended to read as follows, effective immediately:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
fourteen (14) unless changed by amendment of this Section by a two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms, with
one class to be elected at each annual meeting of the shareholders, by the
holders of the shares of stock entitled by the Articles of Incorporation to
this Section, Classes I and II shall each have five (5) Directors, and
Class III shall have four (4) Directors. No decrease in the number of
Directors shall have the effect of shortening the term of any incumbent
Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
their respective successors are chosen and qualified.
The provisions of this Section of By-Laws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Dated: November 14, 1989
-17-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
WHEREAS, under the Agreement of Reorganization and Merger (the "Merger
Agreement") between First Merchants Corporation (the "Corporation") and First
United Bancorp, Inc., the Corporation agreed to create a vacancy on its Board of
Directors and to elect Robert F. Wisehart to fill this vacancy, effective as of
the consummation of the Merger Agreement; and
WHEREAS, the Merger Agreement was consummated on JULY 31, 1991.
NOW, THEREFORE, BE IT RESOLVED that Article V, Section 1, of the By-Laws of
the Corporation is hereby amended to read as follows, effective immediately:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
fifteen (15) unless changed by amendment of this Section by a two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms, with
one class to be elected at each annual meeting of the shareholders, by the
holders of the shares of stock entitled by the Articles of Incorporation to
elect Directors. Unless the number of Directors is changed by amendment of
this Section, Classes I, II and III shall each have five (5) Directors. No
decrease in the number of Directors shall have the effect of shortening the
term of any incumbent Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
thier respective successors are chosen and qualified.
The provisions of this Section of the By-Laws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Dated: August 13, 1991
-18-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
RESOLVED that Article V, Section 1, of the By-Laws of the Corporation is
hereby amended to read as follows, effective immediately:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
sixteen (16) unless changed by amendment of this Section by a two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms, with
one class to be elected at each annual meeting of the shareholders, by the
holders of the shares of stock entitled by the Articles of Incorporation to
elect Directors. Unless the number of Directors is changed by amendment of
this Section, Classes I and III shall each have five (5) Directors, and
Class II shall have six (6) Directors. No decrease in the number of
Directors shall have the effect of shortening the term of any incumbent
Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
thier respective successors are chosen and qualified.
The provisions of this Section of the By-Laws may not be changed of
amended except by a two-thirds (2/3) vote of the Board of Directors.
Dated: April 14, 1992
-19-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
RESOLVED that Article V, Section 1, of the By-Laws of the Corporation is
hereby amended to read as follows, effective March 13, 1994:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
thirteen (13) unless changed by amendment of this Section by a two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes, all Directors
to serve three (3) year terms, with one class to be elected at each annual
meeting of the shareholders, by the holders of the shares of stock entitled
by the Articles of Incorporation to elect Directors. Unless the number of
Directors is changed by amendment of this Section, Class I shall have four
(4) Directors, Class II shall have six (6) Directors, and Class III shall
have three (3) Directors. No decrease in the number of Directors shall
have the effect of shortening the term of any incumbent Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
thier respective successors are chosen and qualified.
The provisions of this Section of the By-Laws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Dated: February 15, 1994
-20-
<PAGE>
AMENDMENT TO THE
BY-LAWS OF FIRST MERCHANTS CORPORATION
RESOLVED that Article V, Section 1, of the By-Laws of the Corporation is
hereby amended to read as follows, effective immediately:
SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The number of
Directors of the Corporation to be elected by the holders of the shares of
stock entitled by the Articles of Incorporation to elect Directors shall be
fourteen (14) unless changed by amendment of this Section by a two-thirds
(2/3) vote of the Board of Directors.
The Directors shall be divided into three (3) classes, all Directors
to serve three (3) year terms, with one class to be elected at each annual
meeting of the shareholders, by the holders of the shares of stock entitled
by the Articles of Incorporation to elect Directors. Unless the number of
Directors is changed by amendment of this Section, Classes I and III each
have four (4) Directors, and Class II shall have six (6) Directors. No
decrease in the number of Directors shall have the effect of shortening the
term of any incumbent Director.
All Directors elected by the holders of such shares, except in the
case of earlier resignation, removal or death, shall hold office until
thier respective successors are chosen and qualified.
The provisions of this Section of the By-Laws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
Date: August 9, 1994
-21-
<PAGE>
STOCKHOLDER INFORMATION
[GRAPHIC: MAP; FIRST MERCHANTS CORPORATION MARKET AREA]
First
Merchants
Corporation
Market Area
Corporate Office
200 East Jackson Street
Muncie, IN 47305
317-747-1500
First Merchants Corporation of Muncie, Indiana, was organized in September
1982, as the bank holding company for The Merchants National Bank, now First
Merchants Bank, N.A., an institution which has served Muncie and the surrounding
communities since 1893.
In November, 1988, First Merchants acquired Pendleton Banking Company of
Pendleton, Indiana, a commercial bank which was organized in 1872.
In July, 1991, the Corporation acquired First United Bank of Middletown,
Indiana, which was established in 1882.
First Merchants Corporation currently provides services through 21 offices
located in Delaware, Madison, and Henry counties, Indiana.
Subsidiaries of First Merchants Corporation conduct a full range of banking
operations, including commercial, industrial, consumer and real estate lending,
deposit and investment services, and other banking services. First Merchants
Bank, with more than $820,000,000 in fiduciary assets at market value, operates
one of the ten largest trust departments in Indiana.
First Merchants Corporation is committed to the sound management of its
subsidiaries and to leading its east central Indiana marketplace in meeting
customer banking needs and expectations.
<PAGE>
STOCK PRICE AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PRICE PER SHARE
QUARTER HIGH LOW DIVIDENDS DECLARED
1994 1993 1994 1993 1994 1993
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C> <C> <C>
First Quarter $30.75 $30.75 $28.50 $27.00 $.25 $.22
Second Quarter 29.50 29.00 28.00 26.50 .25 .22
Third Quarter 33.75 30.50 28.50 26.50 .28 .25
Fourth Quarter 33.50 31.25 30.50 29.00 .28 .25
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
The table above lists per share bid prices and dividend payments during 1993 and
1994, as adjusted for the 3-for-2 stock split of January, 1993.
Prices are as reported by the National Association of Securities Dealers
Automated Quotation - National Market System.
STOCK INFORMATION
COMMON STOCK LISTING
First Merchants Corporation common stock is traded over-the-counter on the
NASDAQ National Market System. Quotations are carried in many daily papers.
The NASDAQ symbol is FRME (Cusip #320817-10-9). At the close of business on
December 31, 1994, the number of shares outstanding was 3,366,346. There were
1,061 stockholders of record on that date.
STOCK TRANSFER AGENT AND REGISTRAR
First Merchants Bank, N.A.
Corporate Trust Department
P.O. Box 792
Muncie, Indiana 47308-0792
GENERAL STOCKHOLDER INQUIRIES
Stockholders and interested investors may obtain information about the
Corporation upon written request or by calling:
Mr. Douglas B. Harris
Assistant Vice President
Investor Services
First Merchants Corporation
P.O. Box 792
Muncie, Indiana 47308-0792
317-747-1346
1-800-262-4261
MARKET MAKERS
The following firms make a market in First Merchants Corporation stock:
City Securities Corporation
Herzog, Heine, Geduld, Inc.
Howe, Barnes & Johnson, Inc.
David A. Noyes and Company
Raffensperger, Hughes & Co.
Sandler, O'Neill & Partners, L.P.
FORM 10-K AND
FINANCIAL INFORMATION
First Merchants Corporation, upon request and without charge, will furnish
stockholders, security analysts, and investors a copy of Form 10-K filed with
the Securities and Exchange Commission. Please contact:
Mr. James Thrash
Senior Vice President
and Chief Financial Officer
First Merchants Corporation
P.O. Box 792
Muncie, Indiana 47308-0792
317-747-1390
1-800-262-4261
ANNUAL MEETING
The Annual Meeting of Stockholders of First Merchants Corporation will be held
Thursday, March 30, 1995, 3:30 p.m., at the Horizon Convention Center, 401 South
High Street, Muncie, Indiana.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To the Stockholders & Board of Directors
First Merchants Corporation
Muncie, Indiana
We have audited the consolidated balance sheet of First Merchants Corporation
and subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in stockholder's equity and cash flows for each of
the three years in the period ended December 31, 1994 (pages 7-22). These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of First
Merchants Corporation and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in the notes to the Consolidated Financial Statements, the
Corporation changed its method of accounting for investments in securities in
1994 and for income taxes in 1993.
GEO S. OLIVE & CO. LLC
Indianapolis, Indiana
January 20, 1995
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TABLE OF CONTENTS
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA. . . . . . . . . . . . . 1
MANAGEMENT'S DISCUSSION & ANALYSIS . . . . . . . . . . . . . . . . . . 2
CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . 11
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net Interest Income
Fully Taxable Equivalent Basis . . . . . $ 28,282 $ 26,806 $ 26,400 $ 23,277 $ 20,055
Less Tax Equivalent Adjustment . . . . . . 1,299 1,298 1,190 1,320 983
. . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income. . . . . . . . . . . . 26,983 25,508 25,210 21,957 19,072
Provision for Loan Losses. . . . . . . . . 782 1,014 1,357 1,401 1,295
. . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Income
After Provision for Loan Losses. . . . . 26,201 24,494 23,853 20,556 17,777
Total Other Income . . . . . . . . . . . . 6,298 6,588 5,576 5,229 4,671
Total Other Expenses . . . . . . . . . . . 18,434 18,214 17,603 15,792 13,401
. . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Income Tax Expense
and Change in Accounting Method. . . . . 14,065 12,868 11,826 9,993 9,047
Income Tax Expense . . . . . . . . . . . . 4,907 4,396 4,041 3,234 3,023
. . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Change in Accounting
Method . . . . . . . . . . . . . . . . . 9,158 8,472 7,785 6,759 6,024
Change in Accounting Method for
Income Taxes . . . . . . . . . . . . . . 227
. . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . $ 9,158 $ 8,699 $ 7,785 $ 6,759 $ 6,024
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
PER SHARE DATA (1)
Income Before Change in Accounting
Method . . . . . . . . . . . . . . . . . $ 2.71 $ 2.48 $ 2.30 $ 2.09 $ 1.90
Net Income . . . . . . . . . . . . . . . . 2.71 2.55 2.30 2.09 1.90
Cash Dividends Paid. . . . . . . . . . . . 1.06 .94 .85 .79 .71
December 31 Book Value . . . . . . . . . . 21.10 20.30 18.79 17.36 16.29
December 31 Market Value (BID PRICE) . . . 31.25 29.00 28.50 18.67 13.83
AVERAGE BALANCES
Total Assets . . . . . . . . . . . . . . . $634,868 $626,398 $603,067 $560,412 $511,097
Total Loans. . . . . . . . . . . . . . . . 388,639 357,028 329,750 300,276 272,122
Total Deposits . . . . . . . . . . . . . . 514,029 517,826 501,526 441,302 408,804
Total Stockholders' Equity . . . . . . . . 70,104 66,887 61,246 54,473 49,906
YEAR-END BALANCES
Total Assets . . . . . . . . . . . . . . . $644,606 $626,113 $616,859 $596,573 $541,124
Total Loans. . . . . . . . . . . . . . . . 401,605 376,872 350,308 323,382 287,787
Total Deposits . . . . . . . . . . . . . . 529,830 506,302 511,971 484,824 429,675
Total Stockholders' Equity . . . . . . . . 71,018 68,804 63,935 58,472 51,277
FINANCIAL RATIOS
Return on Average Assets . . . . . . . . . 1.44% 1.39% 1.29% 1.21% 1.18%
Return on Average Stockholders' Equity . . 13.06 13.01 12.71 12.41 12.07
Average Earning Assets to Total Assets . . 94.05 93.71 93.93 93.82 93.55
Allowance for Loan Losses
as % of Total Loans . . . . . . . . . 1.24 1.27 1.24 1.20 1.13
Dividend Payout Ratio. . . . . . . . . . . 39.11 36.86 36.96 37.79 37.37
Average Stockholder's Equity to
Average Assets . . . . . . . . . . . . . 11.04 10.68 10.16 9.72 9.76
Tax Equivalent Yield on Earning Assets . . 7.44 7.38 8.31 9.48 10.09
Cost of Supporting Liabilities . . . . . . 2.70 2.81 3.65 5.05 5.90
Net Interest Margin on Earning Assets. . . 4.74 4.57 4.66 4.43 4.19
<FN>
(1) Restated for 3-for-2 stock split distributed January, 1993.
</TABLE>
The amounts include First United Bank, subsequent to its acquisition on July 31,
1991
1
. . . . .
. . . . .
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
[Graphic; bar chart; Return on Average Assets]
[Graphic; bar chart; Return on Average Equity]
RESULTS OF OPERATION
Net income before cumulative effect of change in accounting method for the
year amounted to $9,158,000 or $2.71 per share, an increase of 9.3 per cent over
1993 at $2.48 per share.
Earnings per share for 1993 included $.07 per share resulting from the
required adoption in the first quarter of Statement of Financial Accounting
Standard No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES, a non-recurring
event. Total 1993 earnings per share amounted to $2.55.
Return on assets, increased to a record level of 1.44 per cent, up from
1.39 per cent in 1993.
Return on equity was 13.06 per cent in 1994, 13.01 per cent in 1993, and
12.71 per cent in 1992.
In 1994, First Merchants Corporation ("Corporation") recorded the
nineteenth consecutive year of improvement in net income on both an aggregate
and per share basis.
CAPITAL
The Corporation's capital strength continues to exceed regulatory minimums
and peer group averages. Management believes that strong capital is a distinct
advantage in the competitive environment in which the Corporation operates and
will provide a solid foundation for continued growth.
The Corporation's capital ratio was 11.02 per cent at year-end 1994 and
10.99 per cent at December 31, 1993. At December 31, 1994, the Corporation had
a Tier I risk-based capital ratio of 16.28 per cent, total risk-based capital
ratio of 17.41 per cent, and a leverage ratio of 11.54 per cent. Regulatory
capital guidelines require a Tier I risk-based capital ratio of 4.0 per cent and
a total risk-based capital ratio of 8.0 per cent.
The Corporation has an employee stock purchase plan and an employee stock
option plan. Activity under these plans is described in Note 11 to the
Consolidated Financial Statements.
The transactions under these plans have not had a material effect on the
Corporation's capital position.
On March 31, 1994, stockholders approved the 1994 Stock Option Plan. Under
the terms of the plan, 210,000 shares of Corporation common stock are reserved
for the granting of options to certain employees and non-employee directors.
The exercise price of the shares may not be less than the fair market value of
the shares upon the grant of the option. Options become 100 per cent vested
when granted and fully exercisable generally six months after the date of the
grant, for a period of ten years.
On March 31, 1994, stockholders approved the 1994 Employee Stock Purchase
Plan. A total of 112,500 shares of the Corporation's common stock are reserved
for issuance pursuant to the plan. The terms of the plan are described in Note
11 to the Consolidated Financial Statements.
ASSET QUALITY/PROVISION FOR LOAN LOSSES
The Corporation's asset quality and loan loss experience has consistently
been superior to that of its peer group, as summarized on the following page.
Asset quality has been a major factor in the Corporation's ability to generate
consistent profit improvement.
The allowance for loan losses is maintained through the provision for loan
losses, which is a charge against earnings.
The amount provided for loan losses and the determination of the adequacy
of the allowance are based on a continuous review of the loan portfolio,
including an internally administered loan review program. The evaluation takes
into consideration identified credit problems, as well as the possibility of
losses inherent in the loan portfolio that cannot be specifically identified.
The following table summarizes the risk elements for the Corporation and
its peer group consisting of bank holding companies with average assets between
$500 million and $1 billion. The peer group statistics were provided by the
Federal Reserve System. The table indicates that the Corporation's loan quality
compares favorably with the peer group.
2
. . . . .
. . . . .
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ASSET QUALITY/PROVISION FOR LOAN LOSSES (CONTINUED)
[Graphic; bar chart; Net Loan Losses]
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NON-PERFORMING LOANS (1) at DECEMBER 31 as a PER CENT of LOANS
<TABLE>
<CAPTION>
FIRST MERCHANTS PEER
CORPORATION GROUP
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C>
1994 . . . . . . . . . . . . . . . . . . . . . .26% NA
1993 . . . . . . . . . . . . . . . . . . . . . .30 1.54%
1992 . . . . . . . . . . . . . . . . . . . . . .41 1.87
1991 . . . . . . . . . . . . . . . . . . . . . .86 2.59
1990 . . . . . . . . . . . . . . . . . . . . . 1.09 2.62
</TABLE>
(1) Accruing loans past due 90 days or more, and non-accruing loans, but
excluding restructured loans. December 31, 1994, peer group comparisons are
not yet available.
At December 31, 1994, the allowance for loan losses was $4,998,000, up 4.1
per cent from year end 1993. As a per cent of loans, the allowance was 1.24 per
cent, down from 1.27 per cent at year end 1993.
The table below presents loan loss experience for the years indicated and
compares the Corporation's loss experience to that of its peer group. Again,
the Corporation compares favorably.
<TABLE>
<CAPTION>
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1994 1993 1992 1991 1990
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at January 1 . . . . . . $4,800 $4,351 $3,867 $3,254 $2,915
Addition resulting
from acquisition. . . . . . . 252
. . . . . . . . . . . . . . . . . . . .
Chargeoffs:
Commercial. . . . . . . . . . 526 391 588 806 614
Real estate mortgage. . . . . 41 129 100 41 46
Installment . . . . . . . . . 346 388 552 511 590
. . . . . . . . . . . . . . . . . . . .
Total chargeoffs. . . . . . 913 908 1,240 1,358 1,250
. . . . . . . . . . . . . . . . . . . .
Recoveries:
Commercial. . . . . . . . . . 216 240 215 227 195
Real estate mortgage. . . . . 30 5 38 7 1
Installment . . . . . . . . . 83 98 114 84 98
. . . . . . . . . . . . . . . . . . . .
Total recoveries. . . . . . 329 343 367 318 294
. . . . . . . . . . . . . . . . . . . .
Net chargeoffs . . . . . . . . . 584 565 873 1,040 956
. . . . . . . . . . . . . . . . . . . .
Provision for loan losses. . . . 782 1,014 1,357 1,401 1,295
. . . . . . . . . . . . . . . . . . . .
Balance at December 31 . . . . . $4,998 $4,800 $4,351 $3,867 $3,254
. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Ratio of net chargeoffs during
the period to average loans
outstanding during the period. . .15% .16% .26% .35% .35%
Peer Group . . . . . . . . . . . . NA .49 .63 .95 .93
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
As a result of Management's assessment of loan quality and the adequacy of
the allowance for loan losses, the 1994 provision for loan losses at $782,000
represented a $232,000 decrease from 1993. The amount provided exceeded net
chargeoffs by $198,000.
3
. . . . .
. . . . .
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LIQUIDITY AND INTEREST SENSITIVITY
Asset/Liability Management has been an important factor in the
Corporation's ability to record consistent earnings growth through periods of
interest rate volatility and product deregulation. Management and the Board of
Directors monitor the Corporation's liquidity and interest sensitivity positions
at regular meetings to ensure that changes in interest rates will not adversely
affect earnings. Decisions regarding investment and the pricing of loan and
deposit products are made after analysis of reports designed to measure
liquidity, rate sensitivity, the Corporation's exposure to changes in net
interest income given various rate scenarios, and the economic and competitive
environments.
The Corporation's liquidity and interest sensitivity position at December
31, 1994, remained adequate to meet the Corporation's primary goal of achieving
optimum interest margins while avoiding undue interest rate risk. The table
below presents the Corporation's interest rate sensitivity analysis as of
December 31, 1994.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTEREST-RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994
1-180 DAYS 181-365 DAYS 1-5 YEARS BEYOND 5 YEARS TOTAL
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C> <C>
Rate-Sensitive Assets:
Federal funds sold and
interest-bearing time deposits . . . . . . . . . . $ 3,698 $ 3,698
Securities available for sale. . . . . . . . . . . . 13,852 $ 9,364 $ 72,775 $ 3,372 99,363
Securities held to maturity. . . . . . . . . . . . . 16,800 16,409 40,996 3,472 77,677
Loans. . . . . . . . . . . . . . . . . . . . . . . . 207,590 47,136 104,792 42,087 401,605
Federal Reserve and
Federal Home Loan Bank stock . . . . . . . . . . . 1,572 307 1,879
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total rate-sensitive assets. . . . . . . . . . . . 243,512 72,909 218,563 49,238 584,222
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate-Sensitive Liabilities:
Savings and time deposits. . . . . . . . . . . . . . 191,190 31,546 207,305 122 430,163
Other borrowed funds . . . . . . . . . . . . . . . . 39,189 39,189
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total rate-sensitive liabilities . . . . . . . . . 230,379 31,546 207,305 122 469,352
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate sensitivity gap by period. . . . . . . . $ 13,133 $ 41,363 $ 11,258 $ 49,116
Cumulative gap . . . . . . . . . . . . . . . . . . . . 13,133 54,496 65,754 114,870
Cumulative ratio at December 31, 1994. . . . . . . . . 105.7% 120.8% 114.0% 124.5%
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
EARNING ASSETS
Earning assets declined $.8 million during 1994 after increasing $12.7
million during 1993. The Corporation shifted emphasis to loans from investments
to more profitably configure the balance sheet.
The following table presents the earning asset mix for the years ended
1994, 1993, and 1992.
<TABLE>
<CAPTION>
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EARNING ASSETS
(DOLLARS IN MILLIONS)
DECEMBER 31
1994 1993 1992
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C>
Federal funds sold and interest-bearing
time deposits. . . . . . . . . . . . . . . $ 3.7 $ 1.9 $ 25.7
Securities available for sale. . . . . . . . 99.3
Securities held to maturity. . . . . . . . . 77.7 204.3 196.0
Loans. . . . . . . . . . . . . . . . . . . . 401.6 376.9 350.3
Federal Reserve and Federal Home Loan
Bank stock . . . . . . . . . . . . . . . . 1.9 1.9 .3
. . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . $ 584.2 $ 585.0 $ 572.3
. . . . . . . . . . . .
. . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
4
. . . . .
. . . . .
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEPOSITS AND SHORT-TERM BORROWINGS
The following tables present the level of deposits and short-term
borrowings (Federal funds purchased, repurchase agreements with customers and
U.S. Treasury demand notes) based on both year-end levels and daily average
balances for the past three years:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
SHORT-TERM
DEPOSITS BORROWINGS
<S> <C> <C>
1994 $529,830,000 $39,189,000
1993 506,302,000 46,890,000
1992 511,971,000 37,073,000
<CAPTION>
AVERAGE BALANCES
SHORT-TERM
DEPOSITS BORROWINGS
1994 $514,029,000 $45,639,000
1993 517,826,000 35,317,000
1992 501,526,000 35,796,000
</TABLE>
NET INTEREST INCOME
Net interest income is the primary source of the Corporation's earnings.
It is a function of net interest margin and the level of average earning assets.
The table below presents the Corporation's asset yields, interest expense,
and net interest income as a per cent of average earning assets for the five-
year period ending in 1994. Asset yields improved slightly in 1994 (.06 per
cent), while interest expense declined 11 basis points. The resulting "spread"
increase of .17 per cent (4.74% vs 4.57%) accounted for approximately two-thirds
of the $1,476,000 increase in fully taxable equivalent net interest income. The
remaining increase is attributable to growth in average earning assets of
$10,093,000 (see table below).
<TABLE>
<CAPTION>
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTEREST INCOME INTEREST EXPENSE NET INTEREST INCOME NET INTEREST INCOME
(FTE) AS A PER CENT AS A PER CENT (FTE) AS A PER CENT AVERAGE ON A
OF AVERAGE OF AVERAGE OF AVERAGE EARNING FULLY TAXABLE
EARNING ASSETS EARNING ASSETS EARNING ASSETS ASSETS EQUIVALENT BASIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C> <C>
1994 7.44% 2.70% 4.74% $597,102 $28,282
1993 7.38 2.81 4.57 587,009 26,806
1992 8.31 3.65 4.66 566,467 26,400
1991 9.48 5.05 4.43 525,799 23,277
1990 10.09 5.90 4.19 478,113 20,055
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
OTHER INCOME
The Corporation has placed emphasis on the growth of non-interest income in
recent years by offering a wide range of fee-based services. Fee schedules are
regularly reviewed by a pricing committee to ensure that the products and
services offered by the Corporation are priced to be competitive and profitable.
Other income reached $6,588,000 in 1993, an increase of 18.2 per cent over
the prior year. Most of the increase was experienced in the major categories:
1. Trust revenues grew $180,000, or 8.1 per cent;
2. Service charges on deposit accounts were up by $250,000, or 11.1 per
cent;
3. Securities gains totalled $395,000, an increase of $328,000, or 493.4
per cent.
Other income declined in 1994 by $290,000, or 4.4 per cent. The decline is
attributable to two factors:
1. Loss on the sale of securities of $31,000 compared to gains of
$395,000 in 1993, a change of $426,000.
2. A $126,000 (5.0%) decline in deposit service charges.
The first factor is not relevant to the underlying fee income potential of
the Corporation. Without that change, fee income would have increased from
$6,194,000 to $6,329,000 (2.2 per cent).
OTHER EXPENSE
Total "other expenses" represent non-interest operating expenses of the
Corporation. Those expenses amounted to $18,434,000 in 1994, an increase of 1.2
per cent from the prior year.
Salary and benefit expenses, which account for one-half of the
Corporation's non-interest operation expenses, increased by $928,000, or 10.2
per cent. About one-fourth of that increase is attributable to the change in
the Corporation's data processing function described below. The rest is
attributable to normal salary increases and to key additions to staff.
5 (CONTINUED)
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER EXPENSE (CONTINUED)
In 1993, other expenses increased $611,000 to $18,215,000, an increase of
3.5 per cent. Salary and benefit expenses increased by $330,000, or 3.8 per
cent, and premises and equipment expenses rose $254,000, or 12.8 per cent.
In the fourth quarter of 1993, First Merchants assumed responsibility for
the data processing function for the Corporation and its subsidiaries. The
agreement with an outside party to provide data processing was terminated.
The cost of the conversion, equipment, and software was approximately
$1,700,000. The equipment and software costs will be depreciated on a straight-
line method based on useful lives of the assets. The Corporation estimates
that data processing costs declined under the new arrangement (net of
additional salary, benefit, equipment, and software costs) by more than
$400,000.
INCOME TAXES
The increase in 1994 tax expense of $512,000 is attributable to a
$1,198,000 increase in net pre-tax income.
The following is a breakdown, by year, of federal and state income taxes:
<TABLE>
<CAPTION>
. . . . . . . . . . . . . . . . . . . . .
FEDERAL AND STATE INCOME TAXES
1994 1993
(DOLLARS IN THOUSANDS)
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
<S> <C> <C>
Federal taxes $3,735 $3,272
State taxes 1,172 1,124
. . . . . . . .
Total $4,907 $4,396
. . . . . . . . . . . . . . . . . . . . .
</TABLE>
During 1993, the Corporation adopted Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES. As a result, the
beginning deferred tax asset was increased by $227,329, which is reported as the
cumulative effect of a change in accounting method in the income statement.
ACCOUNTING MATTERS
In May 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 114 (SFAS No. 114), ACCOUNTING
BY CREDITORS FOR IMPAIRMENT OF A LOAN. The Statement requires that impaired
loans that are within the scope of SFAS No. 114 be measured based on the present
value of expected future cash flows, discounted at the loan's effective interest
rate; at the loan's observable market price; or the fair value of the
collateral, if the loan is collateral dependent. Adoption of SFAS No. 114 is
required in 1995, with earlier adoption permitted. The Corporation has not
determined the impact of SFAS No. 114 on its financial condition and results of
operations, but expects it to be immaterial.
Also in May, 1993, the FASB issued Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. This Statement requires that investment securities be
classified as either held-to-maturity securities, which are reported at
amortized cost; trading securities, which are reported at fair value, with
unrealized gains and losses included in earnings; or available-for-sale
securities, which are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholders'
equity. SFAS No. 115 was adopted as of January 1, 1994. At that date,
securities with a carrying value of $107,569,000 were reclassified as available
for sale. This reclassification resulted in an increase in total stockholders'
equity, net of tax, of $644,000.
During 1994, the market value of securities available for sale (net of
taxes) declined by $3,164,000 and the unrealized loss of those securities (net
of taxes) was $2,520,000 on December 31, 1994.
INFLATION
Changing prices of goods, services, and capital affect the financial
position of every business enterprise. The level of market interest rates and
the price of funds loaned or borrowed fluctuate due to changes in the rate of
inflation and various other factors, including government monetary policy.
Fluctuating interest rates affect the Corporation's net interest income,
loan volume, and other operating expenses, such as employees' salaries and
benefits, reflecting the effects of escalating prices, as well as increased
levels of operations and other factors. As the inflation rate increases, the
purchasing power of the dollar decreases. Those holding fixed-rate monetary
assets incur a loss, while those holding fixed rate monetary liabilities enjoy a
gain. The nature of a bank holding company's operations is such that there will
be an excess of monetary assets over monetary liabilities, and, thus, a bank
holding company will tend to suffer from an increase in the rate of inflation
and benefit from a decrease.
6
. . . . .
. . . . .
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
December 31
-------------------------------
1994 1993
---- ----
<S> <C> <C>
ASSETS:
Cash and due from banks. . . . . . . . $ 42,684,174 $ 24,942,428
Federal funds sold . . . . . . . . . . 3,675,000 1,625,000
------------- ------------
Cash and cash equivalents. . . . . . 46,359,174 26,567,428
Interest-bearing time deposits . . . . 23,117 253,854
Securities available for sale. . . . . 99,363,240
Securities held to maturity
(approximate market value
$76,522,000 and $207,442,000) . . . . 77,676,818 204,363,290
Loans:
Loans. . . . . . . . . . . . . . . . 401,604,848 376,871,651
Less: Allowance for loan losses . . 4,997,847 4,800,366
------------- ------------
Net Loans. . . . . . . . . . . . . 396,607,001 372,071,285
Premises and equipment . . . . . . . . 9,545,153 9,440,635
Federal Reserve and Federal Home
Loan Bank Stock. . . . . . . . . . . 1,879,300 1,879,300
Interest receivable. . . . . . . . . . 5,627,391 5,664,780
Core deposit intangibles and goodwill. 1,976,594 2,107,771
Other assets . . . . . . . . . . . . . 5,548,184 3,764,616
------------- ------------
Total assets. . . . . . . . . . . $644,605,972 $626,112,959
------------- ------------
------------- ------------
LIABILITIES:
Deposits:
Noninterest bearing. . . . . . . . . $ 99,667,435 $ 74,546,331
Interest bearing . . . . . . . . . . 430,162,771 431,755,835
------------- ------------
Total deposits . . . . . . . . . . 529,830,206 506,302,166
Short-term borrowings. . . . . . . . . 39,188,990 46,890,127
Interest payable . . . . . . . . . . . 1,319,917 1,226,167
Other liabilities. . . . . . . . . . . 3,248,790 2,890,228
------------- ------------
Total liabilities. . . . . . . . . 573,587,903 557,308,688
STOCKHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized and unissued--500,000
shares . . . . . . . . . . . . . . .
Common stock, $.125 stated value:. . .
Authorized--20,000,000 shares. . . .
Issued and outstanding--3,366,346
and 3,389,591 shares . . . . . . . 420,793 423,699
Additional paid-in capital . . . . . . 16,230,765 17,068,603
Retained earnings. . . . . . . . . . . 56,886,450 51,311,969
Net unrealized loss on securities
available for sale . . . . . . . . . ( 2,519,939)
------------- ------------
Total stockholders' equity . . . . 71,018,069 68,804,271
------------- ------------
Total liabilities and
stockholders'equity. . . . . . . $644,605,972 $626,112,959
------------- ------------
------------- ------------
</TABLE>
See notes to consolidated financial statements.
7
=
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31,721,626 $28,704,848 $29,636,313
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,412 122,422 155,339
Securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,552,888 10,264,922 13,341,891
Tax exempt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,434,992 2,396,031 2,153,806
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . 217,035 453,805 475,065
Interest-bearing time deposits . . . . . . . . . . . . . . . . . . . 1,743 35,295 124,023
Federal Reserve and Federal Home Loan Bank stock . . . . . . . . . . 102,785 28,933 18,432
------------ ----------- -----------
Total interest income. . . . . . . . . . . . . . . . . . . . . . . 43,114,481 42,006,256 45,904,869
------------ ----------- -----------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,294,358 15,431,588 19,313,198
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . 1,836,794 1,066,592 1,381,953
------------ ----------- -----------
Total Interest expense . . . . . . . . . . . . . . . . . . . . . . 16,131,152 16,498,180 20,695,151
------------ ----------- -----------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . 26,983,329 25,508,076 25,209,718
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . . 782,000 1,013,765 1,356,536
------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,201,329 24,494,311 23,853,182
------------ ----------- -----------
OTHER INCOME
Trust fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,549,660 2,408,632 2,228,936
Service charges on deposit accounts. . . . . . . . . . . . . . . . . 2,380,166 2,506,483 2,256,646
Other customer fees. . . . . . . . . . . . . . . . . . . . . . . . . 1,061,332 1,049,751 793,743
Securities gains (losses), net . . . . . . . . . . . . . . . . . . . ( 31,317) 394,551 66,488
Other operating income . . . . . . . . . . . . . . . . . . . . . . . 337,927 228,794 230,218
------------ ----------- -----------
Total other income . . . . . . . . . . . . . . . . . . . . . . . . 6,297,768 6,588,211 5,576,031
------------ ----------- -----------
OTHER EXPENSES
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . 10,051,455 9,123,874 8,793,835
Net occupancy expenses . . . . . . . . . . . . . . . . . . . . . . . 1,106,107 1,096,771 1,000,987
Equipment expenses . . . . . . . . . . . . . . . . . . . . . . . . . 1,586,398 1,138,180 979,755
Computer processing fees . . . . . . . . . . . . . . . . . . . . . . 130,882 1,176,957 1,341,464
Deposit insurance expense. . . . . . . . . . . . . . . . . . . . . . 1,134,194 1,138,463 1,087,072
Printing and office supplies . . . . . . . . . . . . . . . . . . . . 760,646 771,593 688,813
Marketing expense. . . . . . . . . . . . . . . . . . . . . . . . . . 484,657 525,685 494,629
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . 3,179,536 3,243,368 3,217,229
------------ ----------- -----------
Total other expenses . . . . . . . . . . . . . . . . . . . . . . . 18,433,875 18,214,891 17,603,784
------------ ----------- -----------
INCOME BEFORE INCOME TAX AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING METHOD. . . . . . . . . . . . . . . . . . . . . 14,065,222 12,867,631 11,825,429
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . 4,907,459 4,395,920 4,040,729
------------ ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD . . . . 9,157,763 8,471,711 7,784,700
CUMULATIVE EFFECT OF CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES . 227,329
------------ ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,157,763 $ 8,699,040 $ 7,784,700
------------ ----------- -----------
------------ ----------- -----------
PER SHARE
Income before cumulative effect of change in accounting method . . . $ 2.71 $ 2.48 $ 2.30
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.71 $ 2.55 $ 2.30
WEIGHTED AVERAGES SHARES OUTSTANDING . . . . . . . . . . . . . . . . . 3,384,871 3,416,417 3,385,349
</TABLE>
See notes to consolidated financial statements.
8
=
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
Common Stock Additional On Securities
------------------- Paid-In Retained Available for
Shares Amount Capital Earnings Sale Total
------ ------ ------- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1992. . . . . . . . . 2,244,847 $ 280,606 $ 17,260,573 $ 40,931,038 $ 58,472,217
Net income for 1992. . . . . . . . . . . 7,784,700 7,784,700
Cash dividends ($.85 per share). . . . . (2,890,082) ( 2,890,082)
Stock issued under employee benefit
plans. . . . . . . . . . . . . . . . . 9,499 1,187 189,564 190,751
Stock issued under dividend
reinvestment and stock purchase
plan . . . . . . . . . . . . . . . . . 4,787 599 185,130 185,729
Stock options exercised. . . . . . . . . 9,850 1,231 220,819 222,050
Stock redeemed . . . . . . . . . . . . . ( 841) ( 105) ( 30,701) (30,806)
Three-for-two stock split. . . . . . . . 1,134,071 141,759 ( 141,759)
---------- ---------- ------------ ------------ ------------- ------------
BALANCES, DECEMBER 31, 1992. . . . . . . . 3,402,213 425,277 17,683,626 45,825,656 63,934,559
Net Income for 1993. . . . . . . . . . . 8,699,040 8,699,040
Cash dividends ($.94 per share). . . . . (3,212,727) (3,212,727)
Stock issued under employee benefit
plans. . . . . . . . . . . . . . . . . 11,817 1,477 246,286 247,763
Stock issued under dividend
reinvestment and stock purchase
plan . . . . . . . . . . . . . . . . . 9,858 1,232 285,717 286,949
Stock options exercised. . . . . . . . . 9,299 1,163 153,222 154,385
Stock redeemed . . . . . . . . . . . . . ( 43,500) ( 5,438) ( 1,296,000) ( 1,301,438)
Cash paid in lieu of
issuing fractional shares. . . . . . . ( 96) ( 12) ( 4,248) ( 4,260)
---------- ---------- ------------ ------------ ------------- ------------
BALANCES, DECEMBER 31, 1993. . . . . . . . 3,389,591 423,699 17,068,603 51,311,969 68,804,271
Net Income for 1994. . . . . . . . . . . 9,157,763 9,157,763
Cash dividends ($1.06 per share) . . . . (3,583,282) ( 3,583,282)
Cumulative effect of change in method
of accounting for securities . . . . . $ 643,896 643,896
Net change in unrealized gain (loss)
on securities available for sale . . . (3,163,835) ( 3,163,835)
Stock issued under employee benefit
plans. . . . . . . . . . . . . . . . . 10,543 1,318 248,485 249,803
Stock issued under dividend
reinvestment and stock purchase
plan . . . . . . . . . . . . . . . . . 11,670 1,459 355,745 357,204
Stock options exercised. . . . . . . . . 4,875 609 107,275 107,884
Stock redeemed . . . . . . . . . . . . . ( 50,333) ( 6,292) ( 1,549,343) ( 1,555,635)
---------- ---------- ------------ ------------ ------------- ------------
BALANCES, DECEMBER 31, 1994. . . . . . . . 3,366,346 $ 420,793 $ 16,230,765 $ 56,886,450 $( 2,519,939) $ 71,018,069
---------- ---------- ------------ ------------ ------------- ------------
---------- ---------- ------------ ------------ ------------- ------------
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 9,157,763 $ 8,699,040 $ 7,784,700
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . 782,000 1,013,765 1,356,536
Depreciation and amortization. . . . . . . . . . . 1,125,697 696,782 619,329
Amortization of goodwill and intangibles . . . . . 131,177 131,181 131,181
Deferred income tax. . . . . . . . . . . . . . . . ( 127,976) ( 542,266) ( 647,526)
Securities amortization, net . . . . . . . . . . . 1,161,783 987,365 868,416
Securities losses (gains), net . . . . . . . . . . 31,317 ( 394,551) ( 66,488)
(Continued)
</TABLE>
9
=
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net change in:
Interest receivable. . . . . . . . . . . . . . . ( 28,505) 191,612 1,246,585
Interest payable . . . . . . . . . . . . . . . . 93,750 ( 279,409) ( 509,719)
Other adjustments. . . . . . . . . . . . . . . . . 163,867 829,887 ( 86,524)
----------- ------------ ------------
Net cash provided by operating activities. . . 12,490,873 11,333,406 10,696,490
----------- ------------ ------------
INVESTING ACTIVITIES:
Net change in interest-bearing time deposits . . . . 230,737 1,250,620 2,147
Purchases of:
Securities available for sale. . . . . . . . . . . ( 24,216,114)
Securities held to maturity. . . . . . . . . . . . ( 30,833,553) (120,299,746) ( 97,182,863)
Proceeds from maturities of:
Securities available for sale. . . . . . . . . . . 12,424,651
Securities held to maturity. . . . . . . . . . . . 49,498,914 104,327,097 104,880,500
Proceeds from sales of:
Securities available for sale. . . . . . . . . . . 15,083,461
Securities held to maturity. . . . . . . . . . . . 5,430,571 4,506,249
Net change in loans. . . . . . . . . . . . . . . . . ( 25,767,003) ( 27,530,846) ( 28,659,226)
Purchases of premises and equipment. . . . . . . . . ( 1,230,215) ( 2,642,213) ( 1,374,976)
Other investing activities . . . . . . . . . . . . . 707,118 683,511 698,700
----------- ------------ ------------
Net cash used by investing activities. . . . . (4,102,004) ( 38,781,006) ( 17,129,469)
----------- ------------ ------------
FINANCING ACTIVITIES:
Net change in:
Noninterest-bearing, NOW, money market
and savings deposits . . . . . . . . . . . . . . $ 24,818,997 $ 12,890,301 $ 31,562,748
Certificates of deposit and other time deposits. . ( 1,290,957) (18,559,253) ( 4,392,319)
Short-term borrowings. . . . . . . . . . . . . . . ( 7,701,137) 9,817,127 (11,990,228)
Cash dividends . . . . . . . . . . . . . . . . . . . ( 3,583,282) ( 3,212,727) ( 2,890,082)
Stock issued under employee benefit plans. . . . . . 249,803 247,763 190,751
Stock issued under dividend reinvestment
and stock purchase plan. . . . . . . . . . . . . . 357,204 286,949 185,729
Stock options exercised. . . . . . . . . . . . . . . 107,884 154,385 222,050
Stock redeemed . . . . . . . . . . . . . . . . . . . ( 1,555,635) ( 1,301,438) ( 30,806)
Cash paid in lieu of issuing fractional shares. . . ( 4,260)
------------ ------------ ------------
Net cash provided by financing activities. . . . 11,402,877 318,847 12,857,843
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . 19,791,746 (27,128,753) 6,424,864
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR. . . . . . . . . . . . . . . . . . 26,567,428 53,696,181 47,271,317
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF YEAR. . . . . . . . . . . . . . . . . . . . . $ 46,359,174 $ 26,567,428 $ 53,696,181
------------ ------------ ------------
------------ ------------ ------------
ADDITIONAL CASH FLOWS INFORMATION: . . . . . . . . . .
Interest paid. . . . . . . . . . . . . . . . . . . . $ 16,037,402 $ 16,777,589 $ 21,204,870
Income tax paid. . . . . . . . . . . . . . . . . . . 4,997,385 5,004,469 4,615,519
</TABLE>
See notes to consolidated financial statements.
10
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 1
ACCOUNTING POLICIES
The accounting and reporting policies of First Merchants Corporation
("Corporation"), and its wholly owned subsidiaries, First Merchants Bank, N.A.,
Pendleton Banking Company, and First United Bank ("Banks"), conform to generally
accepted accounting principles and reporting practices followed by the banking
industry. The more significant of the policies are described below.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Corporation and the Banks, after elimination of all material intercompany
transactions and accounts.
DESCRIPTION OF BUSINESS - The Banks generate commercial, mortgage, and consumer
loans and receive deposits from customers located primarily in central Indiana.
The Banks' loans are generally secured by specific items of collateral,
including real property, consumer assets, and business assets. Although the
Banks have a diversified loan portfolio, a substantial portion of their debtors'
ability to honor their contracts is dependent upon economic conditions in the
automotive industry.
SECURITIES - The Corporation adopted Statement of Financial Accounting
Standards No. 115 (SFAS No. 115), ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, on January 1, 1994.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities held
to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as available
for sale. Securities available for sale are carried at fair value with
unrealized gains and losses reported separately through stockholders' equity,
net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
At January 1, 1994, investment securities with an approximate carrying value of
$107,569,000 were reclassified as available for sale. This reclassification
resulted in an increase in total stockholders' equity, net of taxes, of
$644,000.
Prior to the adoption of SFAS No. 115, investment securities were carried at
cost, adjusted for amortization of premiums and discounts, and securities held
for sale and marketable equity securities were carried at the lower of aggregate
cost or market. Realized gains and losses on sales were included in other
income. Unrealized losses on securities held for sale were included in other
income. Unrealized losses on marketable equity securities were charged to
stockholders' equity. Gains and losses on the sale of securities were
determined on the specific-identification method.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. Loans are placed in a nonaccrual
status when the collection of interest becomes doubtful. Interest income
previously accrued, but not deemed collectible, is reversed and charged against
current income. Interest on these loans is then recognized as income when
collected. Certain loan fees and direct costs are being deferred and amortized
as an adjustment of yield on the loans.
ALLOWANCES FOR LOAN LOSSES is maintained to absorb potential loan losses based
on management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loan loss experience,
changes in the composition of the loan portfolio, and the current condition and
amount of loans outstanding.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets. Maintenance and repairs are expensed as incurred,
while major additions and improvements are capitalized. Gains and losses on
dispositions are included in current operations.
FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK are a required investment for
institutions that are members of the Federal Reserve Bank (FRB) and Federal Home
Loan Bank (FHLB) system. The required investment in the common stock is based
on a predetermined formula.
INCOME TAX in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The
Corporation has adopted the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES, for the year
ended December 31, 1993. The Corporation files consolidated income tax returns
with its subsidiaries.
EARNINGS PER SHARE have been computed based upon the weighted average common
shares outstanding during each year and have been restated to give effect to a
three-for-two stock split distributed to stockholders on January 25, 1993.
Common stock equivalents, consisting of shares issuable under employee benefit
plans, were not included since their effect on dilution was insignificant.
RECLASSIFICATIONS of certain amounts in the 1993 and 1992 consolidated financial
statements have been made to conform to the 1994 presentation.
11
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 2
RESTRICTION ON CASH AND DUE FROM BANKS
The Banks are required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at December 31, 1994, was
$8,528,000.
NOTE 3
SECURITIES
<TABLE>
<CAPTION>
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities available for sale at
December 31, 1994: . . . . . . .
U.S. Treasury. . . . . . . . . $ 11,817 $ 550 $ 11,267
Federal agencies . . . . . . . 35,565 1,271 34,294
State and municipal. . . . . . 9,762 $ 31 385 9,408
Mortgage and other asset-
backed securities. . . . . . 22,171 29 836 21,364
Corporate obligations. . . . . 24,221 4 1,195 23,030
-------- ------- ------ --------
Total securities available
for sale. . . . . . . . . $103,536 $ 64 $4,237 $ 99,363
-------- ------- ------ --------
-------- ------- ------ --------
Securities held to maturity at
December 31, 1994:
U.S. Treasury. . . . . . . . . $ 12,630 $ 21 $ 222 $ 12,429
Federal agencies . . . . . . . 24,529 29 469 24,089
State and municipal. . . . . . 38,117 211 680 37,648
Mortgage and other asset-
backed securities. . . . . . 370 370
Corporate obligations. . . . . 2,031 45 1,986
-------- ------- ------ --------
Total securities held to
maturity . . . . . . . . . $ 77,677 $ 261 $1,416 $ 76,522
-------- ------- ------ --------
-------- ------- ------ --------
Securities held to maturity at
December 31, 1993:
U.S. Treasury. . . . . . . . . $ 45,397 $ 654 $ 1 $ 46,050
Federal agencies . . . . . . . 53,452 691 62 54,081
State and municipal. . . . . . 44,866 1,211 55 46,022
Mortgage and other asset-
backed securities. . . . . . 23,690 219 93 23,816
Corporate obligations. . . . . 36,958 582 87 37,453
-------- ------- ------ --------
Total securities held to
maturity. . . . . . . . . . $204,363 $ 3,357 $ 298 $207,422
-------- ------- ------ --------
-------- ------- ------ --------
</TABLE>
The amortized cost and estimated market value of securities held to maturity and
available for sale at December 31, 1994, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------ ----------------
Amortized Approximate Amortized Approximate
Cost Market Value Cost Market Value
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Maturity distribution at December 31, 1994:
Due in one year or less . . . . . . . . . . . . . . $ 12,879 $ 12,562 $ 33,042 $ 32,880
Due after one through five years. . . . . . . . . . 64,955 62,063 40,794 39,917
Due after five through ten years. . . . . . . . . . 3,531 3,374 3,471 3,355
-------- -------- -------- --------
81,365 77,999 77,307 76,152
Mortgage and other asset-backed securities. . . . . 22,171 21,364 370 370
-------- -------- -------- --------
Totals. . . . . . . . . . . . . . . . . . . . . . $103,536 $ 99,363 $ 77,677 $ 76,522
-------- -------- -------- --------
-------- -------- -------- --------
(Continued)
</TABLE>
12
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 3
SECURITIES
(Continued)
Securities with a total amortized cost of approximately $83,411,000 and
$77,758,000 were pledged at December 31, 1994 and 1993, to secure certain
deposits and for other purposes as permitted or required by law.
Proceeds from sales of securities available for sale during 1994 were
$15,083,000. Gross gains of $156,000 and gross losses of $198,000 were realized
on those sales.
Proceeds from sales of securities held to maturity during 1993 and 1992 were
$5,431,000, and $4,506,000. Gross gains of $395,000, and $115,000 and gross
losses of $550, and $49,000 were realized on those sales.
NOTE 4
LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Loans at December 31:
Commercial and industrial loans. . . . . . . . . . $ 78,943 $ 76,760
Bankers' acceptances and loans to financial
institutions . . . . . . . . . . . . . . . . . . 3,000
Agricultural production financing and other
loans to farmers . . . . . . . . . . . . . . . . 5,310 5,591
Real estate loans:
Construction . . . . . . . . . . . . . . . . . . 8,126 8,127
Commercial and farmland. . . . . . . . . . . . . 64,110 58,235
Residential. . . . . . . . . . . . . . . . . . . 164,760 150,572
Individuals' loans for household and other
personal expenditures. . . . . . . . . . . . . . 78,041 70,347
Tax-exempt loans . . . . . . . . . . . . . . . . . 1,204 1,474
Other loans. . . . . . . . . . . . . . . . . . . . 1,111 2,766
--------- ---------
Total loans. . . . . . . . . . . . . . . . . . . $ 401,605 $ 376,872
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Allowance for loan losses:
Balances, January 1. . . . . . . . . $ 4,800 $ 4,351 $ 3,867
Provision for losses . . . . . . . . 782 1,014 1,357
Recoveries on loans. . . . . . . . . 329 343 367
Loans charged off. . . . . . . . . . ( 913) (908) (1,240)
--------- ---------- ----------
Balances, December 31. . . . . . . . $ 4,998 $ 4,800 $ 4,351
--------- ---------- ----------
--------- ---------- ----------
Nonperforming loans at December 31:
Nonaccruing loans. . . . . . . . . . $ 326 $ 527 $ 493
Loans contractually past due 90
days or more other than
nonaccruing. . . . . . . . . . . . 703 616 949
Restructured loans . . . . . . . . . 754 879 548
(Continued)
</TABLE>
13
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 4
LOANS AND ALLOWANCES (Continued)
Additional interest income of $39,000 for 1994, $39,000 for 1993, and $80,000
for 1992, would have been recorded had income on nonaccruing and restructured
loans been considered collectible and accounted for on the accrual basis under
the original terms of the loans.
The Corporation's banking subsidiaries have entered into transactions with
certain directors, executive officers, significant stockholders, and their
affiliates or associates (related parties). Such transactions were made in the
ordinary course of business on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other unfavorable
features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
<TABLE>
<S> <C>
Balances, December 31, 1993. . . . . . $ 13,057
New loans, including renewals. . . . . 10,064
Payments, etc., including renewals . . (10,241)
----------
Balances, December 31, 1994. . . . . . $ 12,880
----------
----------
</TABLE>
In May, 1993, the Financial Accounting Standards Board issued SFAS NO. 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. The Corporation will adopt
this standard in 1995, and does not expect the adoption to have a material
impact on financial position or results of operations.
NOTE 5
PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cost at December 31:
Land . . . . . . . . . . . . . . . . $ 1,324 $ 955
Buildings and leasehold
improvements . . . . . . . . . . . 9,231 8,694
Equipment. . . . . . . . . . . . . . 9,310 9,457
--------- ---------
Total cost . . . . . . . . . . . . 19,865 19,106
Accumulated depreciation . . . . . . . (10,320) ( 9,665)
--------- ---------
Net. . . . . . . . . . . . . . . . $ 9,545 $ 9,441
--------- ---------
--------- ---------
</TABLE>
The Corporation is committed under various noncancelable lease contracts for
certain subsidiary office facilities. Total lease expense for 1994, 1993, and
1992, was $113,000, $110,000, and $89,000, respectively. The future minimum
rental commitments required under the operating leases in effect at December 31,
1994, expiring at various dates through the year 2016, follow for the years
ending December 31:
<TABLE>
<S> <C>
1995. . . . . . . . . . . . . . . . . . . . . . $ 106
1996. . . . . . . . . . . . . . . . . . . . . . 94
1997. . . . . . . . . . . . . . . . . . . . . . 91
1998. . . . . . . . . . . . . . . . . . . . . . 82
1999. . . . . . . . . . . . . . . . . . . . . . 69
After 1999. . . . . . . . . . . . . . . . . . . 378
----------
Total future minimum obligations. . . . . . . $ 820
----------
----------
</TABLE>
14
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands, Except For Share Amounts)
NOTE 6
DEPOSITS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deposits at December 31:
Noninterest-bearing. . . . . . . . . . . . $ 99,667 $ 74,546
NOW accounts . . . . . . . . . . . . . . . 91,806 88,539
Money market deposit accounts. . . . . . . 88,979 95,258
Savings deposits . . . . . . . . . . . . . 55,468 52,759
Certificates and other time deposits
of $100,000 or more. . . . . . . . . . . 33,622 38,423
Other certificates and time deposits . . . 160,288 156,777
--------- ---------
Total deposits . . . . . . . . . . . . . $ 529,830 $ 506,302
--------- ---------
--------- ---------
</TABLE>
NOTE 7
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Short-term borrowings at December 31:
Federal funds purchased. . . . . . . . . . $ 12,198 $ 5,300
Securities sold under repurchase
agreements . . . . . . . . . . . . . . . 17,776 26,363
U.S. Treasury demand notes . . . . . . . . 9,215 15,227
--------- ---------
Total short-term borrowings. . . . . . . $ 39,189 $ 46,890
--------- ---------
--------- ---------
</TABLE>
NOTE 8
INCOME TAX
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income tax expense:
Currently payable: . . . . . .
Federal. . . . . . . . . . . $ 3,845 $ 3,576 $ 3,632
State. . . . . . . . . . . . 1,190 1,135 1,056
Deferred:. . . . . . . . . . .
Federal. . . . . . . . . . . ( 110) ( 304) ( 598)
State. . . . . . . . . . . . 18) ( 11) ( 49)
--------- ---------- ----------
Total income tax expense . $ 4,907 $ 4,396 $ 4,041
--------- ---------- ----------
--------- ---------- ----------
Deferred provision (benefit)
relating to:
Provision for loan losses. . . $ ( 469)
Deferred loan fees . . . . . . ( 115)
Other. . . . . . . . . . . . . ( 63)
----------
Deferred benefit . . . . . . $ ( 647)
----------
----------
Reconciliation of federal
statutory to actual tax
expense:
Federal statutory income
tax at 34% . . . . . . . . . $ 4,782 $ 4,375 $ 4,021
Tax exempt interest. . . . . . ( 759) ( 759) ( 696)
Effect of state income taxes . 774 742 665
Other. . . . . . . . . . . . . 110 38 51
--------- ---------- ----------
Actual tax expense . . . . . $ 4,907 $ 4,396 $ 4,041
--------- ---------- ----------
--------- ---------- ----------
Deferred tax benefit at
December 31. . . . . . . . . . $ 1,615
----------
----------
(Continued)
</TABLE>
15
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table dollar Amounts in Thousands)
NOTE 8
INCOME TAX (Continued)
Tax expense (benefit) applicable to security gains and losses for the years
ended December 31, 1994, 1993, and 1992, was $(12,000), $156,000, and $27,000,
respectively.
The components of the deferred tax asset included in other assets are as shown
in the table below.
No valuation allowance at December 31, 1994, was considered necessary.
During 1993, the Corporation adopted Statement of Financial Accounting Standards
No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES. As a result, the beginning
deferred tax asset was increased by $227,329, which is reported as the
cumulative effect of a change in accounting method.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
DEFFERRED TAX ASSET AT DECEMBER 31:
Differences in accounting for other real estate. . . $ 6
Differences in depreciation methods. . . . . . . . . $(595) (446)
Differences in accounting for loans and securities . (44) (43)
Differences in accounting for loan fees. . . . . . . 532 431
Differences in accounting for loan losses. . . . . . 2,124 2,004
Deferred compensation. . . . . . . . . . . . . . . . 275 269
Differences in accounting for pensions and
other employee benefits. . . . . . . . . . . . . . 147 74
Net unrealized loss on securities available
for sale . . . . . . . . . . . . . . . . . . . . . 1,653
State income tax . . . . . . . . . . . . . . . . . . (159) (163)
Other. . . . . . . . . . . . . . . . . . . . . . . . 5 25
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 3,938 $ 2,157
-------- --------
-------- --------
Assets . . . . . . . . . . . . . . . . . . . . . . . . $ 4,736 $ 2,855
Liabilities. . . . . . . . . . . . . . . . . . . . . . ( 798) (698)
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . $ 3,938 $ 2,157
-------- --------
-------- --------
</TABLE>
16
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 9
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Banks' exposure to credit loss in the event of nonperformance by the other party
to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual or notional amount of those
instruments. The Banks use the same credit policies in making such commitments
as they do for instruments that are included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31, were as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Commitments to extend credit . . . . . . . . . . . . . $87,244 $63,529
Standby letters of credit. . . . . . . . . . . . . . . 2,649 2,420
</TABLE>
Commitments to extend credit are agreements to lend to a customer, as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Banks upon extension of credit, is based on managements'
credit evaluation. Collateral held varies but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party.
The Corporation and Banks are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material adverse effect on the consolidated financial position of the
Corporation.
NOTE 10
STOCKHOLDERS' EQUITY
National and state banking laws restrict the maximum amount of dividends that a
bank may pay in any calendar year. National banks are limited to the bank's
retained net income (as defined by the Comptroller of the Currency) for that
year and the two preceding years. State banks are limited to retained earnings,
as defined. The amount at December 31, 1994, available for 1995 dividends to
the Corporation is $15,116,000. As a practical matter, the subsidiaries
restrict dividends to a lesser amount because of the need to maintain an
adequate capital structure.
Total net assets (stockholders' equity) of all subsidiaries at December 31,
1994, was $70,155,000, of which $55,039,000 was restricted from dividend
distribution to the Corporation.
The Corporation has a Dividend Reinvestment and Stock Purchase Plan, enabling
stockholders to elect to have their cash dividends on all shares held
automatically reinvested in additional shares of the Corporation's common stock.
In addition, stockholders may elect to make optional cash payments up to an
aggregate of $2,500 per quarter for the purchase of additional shares of common
stock. The stock is credited to participant accounts at fair market value.
Dividends are reinvested on a quarterly basis on the applicable dividend payment
that began with the first quarter of 1992 dividend payment. At December 31,
1994, 271,292 shares of common stock were reserved for purchase under the plan.
On December 1, 1992, the Board of Directors of the Corporation declared a three-
for-two stock split on its common shares and approved an increase in the
authorized common stock shares to 20,000,000 shares. The new shares were
distributed on January 25, 1993, to holders of record on January 18, 1993.
17
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 11
EMPLOYEE BENEFIT PLANS
The Corporation's defined-benefit pension plan covers substantially all of the
Banks' employees. The benefits are based primarily on years of service and
employees' pay near retirement. Contributions are intended to provide not only
for benefits attributed to service to date, but also for those expected to be
earned in the future. Pension expense was $193,000 for 1994, $56,000 for
1993, and $64,000 for 1992.
The following table sets forth the plan's funded status and amounts recognized
in the consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of:
Accumulated benefit obligation including vested
benefits of $7,595 and $8,100. . . . . . . . . . . $ 7,720 $ 8,279
------- ---------
------- ---------
Projected benefit obligation for service
rendered to date . . . . . . . . . . . . . . . . . $(9,189) $(10,116)
Plan assets at fair value, primarily interest-
bearing deposits and corporate bonds and
securities . . . . . . . . . . . . . . . . . . . . . 9,740 10,013
------- ---------
Plan assets in excess of (less than) projected
benefit obligation . . . . . . . . . . . . . . . . . 551 ( 103)
Unrecognized net loss from experience different than
that assumed . . . . . . . . . . . . . . . . . . . . 121 837
Unrecognized prior service cost. . . . . . . . . . . . ( 52) ( 59)
Unrecognized net asset at January 1, 1987, being
recognized over 15 years . . . . . . . . . . . . . . ( 755) ( 859)
------- ---------
Accrued pension cost included in the balance sheet . . $( 135) $( 184)
------- ---------
------- ---------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Pension expense includes the following
components:
Service cost-benefits earned during
the year . . . . . . . . . . . . . . $ 483 $ 389 $ 336
Interest cost on projected benefit
obligation . . . . . . . . . . . . . 678 619 569
Actual return on plan assets . . . . . ( 124) ( 1,072) (1,000)
Net amortization and deferral. . . . . ( 844) 120 159
------- --------- -------
$ 193 $ 56 $ 64
------- --------- -------
------- --------- -------
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Assumptions used in the accounting as
of December 31 were:
Discount rate. . . . . . . . . . . . . . 8.25% 6.85% 7.75%
Rate of increase in compensation . . . . 4.50% 4.50% 5.00%
Expected long-term rate of return
on assets. . . . . . . . . . . . . . . 8.75% 8.75% 8.50%
</TABLE>
(CONTINUED)
18
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 11
EMPLOYEE BENEFIT PLANS (Continued)
In 1989, stockholders approved the 1989 Stock Option Plan, reserving 112,500
shares of Corporation common stock for the granting of options to certain
employees. The exercise price of the shares may not be less than the fair
market value of the shares upon grant of the option. Options become 100 per
cent vested when granted and are fully exercisable generally six months after
the date of grant, for a period of ten years. Shares were not available for
grant at December 31, 1994.
On March 31, 1994,stockholders approved the 1994 Stock Option Plan, reserving
210,000 shares of Corporation common stock for the granting of options to
certain employees and non-employee directors. The excercise price of the shares
may not be less than the fair market value of the shares upon the grant of the
option. Options become 100 per cent vested when granted and are fully
exercisable generally six months after the date of the grant, for a period of
ten years. There were 170,150 shares available for grant at December 31, 1994.
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Shares under option after restatement
for stock split:
Outstanding at beginning of year . . . . 84,897 75,600 71,175
Adjustment for fractional shares . . . . ( 4)
Granted during the year. . . . . . . . . 39,850 20,100 19,200
Expired during the year. . . . . . . . . ( 1,500)
Exercised during the year. . . . . . . . ( 4,875) ( 9,299) (14,775)
Outstanding at end of year . . . . . . . 119,872 84,897 75,600
Exercisable at end of year . . . . . . . 80,022 65,097
Average option price at end of year. . . $ 23.72 $ 20.58 $ 18.48
Price of options excercised
Low . . . . . . . . . . . . . . . . . $ 16.17 $ 13.66 $ 13.66
High. . . . . . . . . . . . . . . . . $ 27.50 $ 25.83 $ 17.00
</TABLE>
In 1989, the stockholders also approved the Employee Stock Purchase Plan,
enabling eligible employees to purchase the Corporation's common stock. The
price of the stock to be paid by the employees is determined by the
Corporation's compensation committee, but may not be less than 85 per cent of
the lesser of the fair market value of the Corporation's common stock at the
beginning or at the end of the offering period. Common stock purchases are made
annually and are paid through advance payroll deductions of up to 20 per cent of
eligible compensation.
Participants under the plan purchased 10,543 shares in 1994 at $23.69375 per
share. The fair market value per share on the purchase date was $29.125.
On March 31, 1994, the stockholders approved the 1994 Employee Stock Purchase
Plan. A total of 112,500 shares of the Corporation's common stock are reserved
for issuance pursuant to the plan. The terms of the plan are similar to the
1989 Employee Stock Purchase Plan.
At December 31, 1994, 101,957 shares of Corporation common stock were reserved
for purchase under the plan, and $146,613 has been deducted from compensation,
plus interest, toward the purchase of shares after June 30, 1995, the end of the
annual offering period.
The Banks have a retirement savings 401(k) plan in which substantially all
employees may participate. The Banks match employees' contributions at the rate
of 25 per cent for the first 5 per cent of base salary contributed by
participants. The Banks' expense for the plan was $60,890 for 1994, $52,395 for
1993, and $61,700 for 1992.
19
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 12
FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, (SFAS No. 107), DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, requires that the Corporation
disclose estimated fair values for its financial instruments. The following
methods and assumptions were used to estimate the fair value of each class of
financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INTEREST-BEARING TIME DEPOSITS--The fair value of interest-bearing time deposits
approximates carrying value.
SECURITIES--Fair values are based on quoted market prices.
LOANS--For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans, are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
INTEREST RECEIVABLE/PAYABLE--The fair value of interest receivable/payable
approximates carrying values.
FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK--The fair value of FRB and FHLB
stock is based on the price at which it may be resold to the FRB and FHLB.
DEPOSITS--The fair values of noninterest-bearing, NOW, money market deposit and
savings accounts are equal to the amount payable on demand at the balance sheet
date. Fair values for fixed-rate certificates of deposit and other time
deposits are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on such time deposits. SFAS No. 107 does
not allow for inclusion of a core deposit intangible component in the fair value
estimate, and although it would be impractical from a cost-benefit standpoint to
estimate that value, the Company realizes that the dollar amount would be
significant.
FEDERAL FUNDS PURCHASED, SECURITIES SOLD UNDER REPURCHASE AGREEMENTS AND U.S.
TREASURY DEMAND NOTES--These financial instruments are short-term borrowing
arrangements. The rates at December 31, 1994, approximate market rates, thus
the fair value approximates carrying value.
OFF-BALANCE SHEET ITEMS - COMMITMENTS--Off-balance sheet commitments include
commitments to purchase and originate mortgage loans, commercial loans, charge
card loans, and standby letters of credit. The fair value of such commitments
are estimated to be equal to their carrying value.
The estimated fair values of the financial instruments are as follows:
<TABLE>
<CAPTION>
1994 1993
----------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Assets at December 31:
Cash and cash equivalents. . . . . . . . . . . . $ 46,359 $ 46,359 $ 26,567 $ 26,567
Interest-bearing time deposits . . . . . . . . . 23 23 254 254
Securities available for sale. . . . . . . . . . 99,363 99,363
Securities held to maturity. . . . . . . . . . . 77,677 76,522 204,363 207,422
Loans, net of unearned interest. . . . . . . . . 401,605 400,174 376,872 380,915
Federal Reserve and
Federal Home Loan Bank stock . . . . . . . . . 1,879 1,879 1,879 1,879
Interest receivable. . . . . . . . . . . . . . . 5,627 5,627 5,665 5,665
Liabilities at December 31:
Deposits . . . . . . . . . . . . . . . . . . . . 529,830 529,191 506,302 507,332
Short-term borrowings:
Federal funds purchased. . . . . . . . . . . . 12,198 12,198 5,300 5,300
Securities sold under repurchase
agreements. . . . . . . . . . . . . . . . . . 17,776 17,776 26,363 26,363
U.S. Treasury demand notes . . . . . . . . . . 9,215 9,215 15,227 15,227
Interest payable . . . . . . . . . . . . . . . . 1,320 1,320 1,226 1,226
Off-balance sheet items - commitments. . . . . . 89,893 89,893 65,949 65,949
</TABLE>
20
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 13
CONDENSED FINANCIAL INFORMATION (Parent Company Only)
Presented below is condensed financial information as to financial position,
results of operations, and cash flows of the Corporation:
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
----------------------
1994 1993
---------- ----------
<S> <C> <C>
Assets
Cash on deposit. . . . . . . . . . . . . . . . . $ 137 $ 342
Investment in subsidiaries . . . . . . . . . . . 70,089 67,657
Goodwill . . . . . . . . . . . . . . . . . . . . 711 749
Other assets . . . . . . . . . . . . . . . . . . 233 179
---------- ----------
Total assets . . . . . . . . . . . . . . . . . $ 71,170 $ 68,927
---------- ----------
---------- ----------
Liabilities
Other liabilities. . . . . . . . . . . . . . . . $ 152 $ 123
---------- ----------
Total liabilities. . . . . . . . . . . . . . . 152 123
Stockholders' equity
Common stock . . . . . . . . . . . . . . . . . . 421 424
Additional paid-in capital . . . . . . . . . . . 16,231 17,068
Retained earnings. . . . . . . . . . . . . . . . 56,886 51,312
Net unrealized loss on securities available
for sale of subsidiaries . . . . . . . . . . . ( 2,520)
---------- ----------
Total stockholders' equity . . . . . . . . . . 71,018 68,804
---------- ----------
Total liabilities and stockholders' equity . . $ 71,170 $ 68,927
---------- ----------
---------- ----------
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Income
Dividends from subsidiaries. . . . . . . . . . . . . $ 4,335 $ 3,571 $ 2,890
Other income . . . . . . . . . . . . . . . . . . . . 1
---------- ----------- ----------
Total income . . . . . . . . . . . . . . . . . . 4,335 3,571 2,891
---------- ----------- ----------
Expenses
Amortization of core deposit intangibles,
goodwill and fair value adjustments. . . . . . . . 32 19 4
Other expenses . . . . . . . . . . . . . . . . . . . 170 100 212
---------- ----------- ----------
Total Expenses . . . . . . . . . . . . . . . . . 202 119 216
---------- ----------- ----------
Income before income tax, equity in undistributed
income of subsidiaries and cumulative effect of
change in accounting method. . . . . . . . . . . . . 4,133 3,452 2,675
Income tax benefit . . . . . . . . . . . . . . . ( 73) ( 40) ( 79)
---------- ----------- ----------
Income before equity in undistributed income of
subsidiaries and cumulative effect of change in
accounting method. . . . . . . . . . . . . . . . . . 4,206 3,492 2,754
Equity in undistributed income of subsidiaries . 4,952 5,225 5,031
---------- ----------- ----------
Income before cumulative effect of change in
accounting method. . . . . . . . . . . . . . . . . . 9,158 8,717 7,785
Cumulative effect of change in method of accounting
for income taxes . . . . . . . . . . . . . . . . . . ( 18)
---------- ----------- ----------
Net Income . . . . . . . . . . . . . . . . . . . . . . $ 9,158 $ 8,699 $ 7,785
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
(CONTINUED)
21
==
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands)
NOTE 13 (Continued)
CONDENSED FINANCIAL INFORMATION (Parent Company Only, Continued)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . $ 9,158 $ 8,699 $ 7,785
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization . . . . . . . . . . . . . . . . . . . 32 19 4
Equity in undistributed income of subsidiaries . . ( 4,952) ( 5,225) (5,031)
Net change in:
Other assets . . . . . . . . . . . . . . . . . . ( 48) ( 64) ( 19)
Other liabilities. . . . . . . . . . . . . . . . 29 123
-------- --------- ---------
Net cash provided by operating activities. . . 4,219 3,552 2,739
-------- --------- ---------
Financing activities:
Cash dividends . . . . . . . . . . . . . . . . . . . ( 3,583) (3,213) (2,890)
Stock issued under employee benefit plans. . . . . . 250 247 191
Stock issued under dividend reinvestment
and stock purchase plan. . . . . . . . . . . . . . 357 287 186
Stock options exercised. . . . . . . . . . . . . . . 108 154 222
Stock redeemed . . . . . . . . . . . . . . . . . . . ( 1,556) (1,301) ( 31)
Cash paid in lieu of issuing fractional shares ( 4)
-------- --------- ---------
Net cash used by financing activities. . . . . . ( 4,424) (3,830) (2,322)
-------- --------- ---------
Net increase (decrease) in cash on deposit . . . . . . ( 205) ( 278) 417
Cash on deposit, beginning of year . . . . . . . . . . 342 620 203
-------- --------- ---------
Cash on deposit, end of year . . . . . . . . . . . . . $ 137 $ 342 $ 620
-------- --------- ---------
-------- --------- ---------
</TABLE>
NOTE 14
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain quarterly results for the years ended
December 31, 1994 and 1993:
<TABLE>
<CAPTION>
Net Provision Average
Interest Interest for Loan Net Shares Earnings
Quarter Ended Income Income Losses Income Outstanding per share
------ ------ ------ ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
March, 1994. . . . . . . . . . $ 10,211 $ 6,443 $ 193 $ 2,246 3,388,666 $ .66
June, 1994 . . . . . . . . . . 10,679 6,750 199 2,360 3,381,468 .70
September, 1994. . . . . . . . 11,016 6,825 201 2,227 3,390,705 .66
December, 1994 . . . . . . . . 11,208 6,965 189 2,325 3,378,645 .69
--------- --------- -------- --------- --------
$ 43,114 $ 26,983 $ 782 $ 9,158 3,384,871 $ 2.71
--------- --------- -------- --------- --------
--------- --------- -------- --------- --------
March, 1993. . . . . . . . . . $ 10,593 $ 6,254 $ 269 $ 2,282 3,407,803 $ .67
June, 1993 . . . . . . . . . . 10,707 6,475 270 2,319 3,411,165 .68
September, 1993. . . . . . . . 10,327 6,276 243 2,014 3,426,651 .59
December, 1993 . . . . . . . . 10,379 6,503 232 2,084 3,420,050 .61
--------- --------- -------- --------- --------
$ 42,006 $ 25,508 $ 1,014 $ 8,699 3,416,417 $ 2.55
--------- --------- -------- --------- --------
--------- --------- -------- --------- --------
</TABLE>
22
==
<PAGE>
ANNUAL REPORT APPENDIX - GRAPHIC & IMAGE INFORMATION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MAP: FIRST MERCHANTS CORPORATION MARKET AREA
This graphic is a map of Indiana showing the market area for First Merchants
Corporation ("Corporation"). The map illustrates the location of Delaware,
Madison and Henry counties, Indiana. The map identifies the communities with
Corporation offices. The following table summarizes the Corporation's office
locations:
LOCATION COUNTY
Muncie Delaware
Albany Delaware
Daleville Delaware
Eaton Delaware
Pendleton Madison
Edgewood Madison
Ingalls Madison
Lapel Madison
Markleville Madison
Middletown Henry
Sulphur Springs Henry
Mooreland Henry
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
ANNUAL REPORT APPENDIX - GRAPHIC & IMAGE INFORMATION (Continued)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bar chart: RETURN ON AVERAGE ASSETS
A bar graph with the following plot points for the respective years.
<TABLE>
<CAPTION>
RETURN ON AVERAGE ASSETS
(per cent)
1992 1993 1994
<S> <C> <C> <C>
Return on Average Assets 1.29% 1.39% 1.44%
</TABLE>
A narrative discussion of this data is provided in the Management's Discussion &
Analysis, under the caption "Results of Operation."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bar chart: RETURN ON AVERAGE EQUITY
A bar graph with the following plot points for the respective years.
<TABLE>
<CAPTION>
RETURN ON AVERAGE EQUITY
(per cent)
1992 1993 1994
<S> <C> <C> <C>
Return on Average Equity 12.71% 13.01% 13.06%
</TABLE>
A narrative discussion of the data is provided in the Management's Discussion &
Analysis, under the caption "Results of Operation."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bar chart: NET LOAN LOSSES
A bar graph with the following plot points for the respective years.
<TABLE>
<CAPTION>
NET LOAN LOSSES
(as a per cent of average loans)
1992 1993 1994
<S> <C> <C> <C>
First Merchants Corporation .26% .16% .15%
Peer Group .63% .49% N/A
</TABLE>
A narrative discussion of this data is provided in the Management's Discussion &
Analysis, under the caption "Asset Quality Provision for Loan Losses."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT 22--SUBSIDIARIES OF THE REGISTRANT
--------------------------------------------------------------------------------
State of
Name Incorporation
---- -------------
First Merchants Bank, National Association . . . . . . . . . U.S.
Pendleton Banking Company . . . . . . . . . . . . . . . . . Indiana
First United Bank. . . . . . . . . . . . . . . . . . . . . . Indiana
Page 24
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT 23--CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
We hereby consent to the incorporation by reference to Registration Statements
on Form S-8, File Numbers 33-28900 and 33-28901, of our report dated January 20,
1995 on the consolidated financial statements of First Merchants Corporation,
which report is incorporated by reference in the Annual Report on Form 10-K of
First Merchants Corporation.
/s/ Geo. S. Olive & Co. LLC
Indianapolis, Indiana
March 20, 1995
Page 25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 42,684
<INT-BEARING-DEPOSITS> 23
<FED-FUNDS-SOLD> 3,675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 99,363
<INVESTMENTS-CARRYING> 77,677
<INVESTMENTS-MARKET> 76,522
<LOANS> 401,605
<ALLOWANCE> 4,998
<TOTAL-ASSETS> 644,606
<DEPOSITS> 529,830
<SHORT-TERM> 39,189
<LIABILITIES-OTHER> 4,569
<LONG-TERM> 0
<COMMON> 421
0
0
<OTHER-SE> 70,597
<TOTAL-LIABILITIES-AND-EQUITY> 644,606
<INTEREST-LOAN> 31,804
<INTEREST-INVEST> 10,988
<INTEREST-OTHER> 322
<INTEREST-TOTAL> 43,114
<INTEREST-DEPOSIT> 14,294
<INTEREST-EXPENSE> 16,131
<INTEREST-INCOME-NET> 26,983
<LOAN-LOSSES> 782
<SECURITIES-GAINS> (31)
<EXPENSE-OTHER> 18,434
<INCOME-PRETAX> 14,065
<INCOME-PRE-EXTRAORDINARY> 9,158
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,158
<EPS-PRIMARY> 2.71
<EPS-DILUTED> 2.71
<YIELD-ACTUAL> 4.74
<LOANS-NON> 326
<LOANS-PAST> 703
<LOANS-TROUBLED> 754
<LOANS-PROBLEM> 2,712
<ALLOWANCE-OPEN> 4,800
<CHARGE-OFFS> 913
<RECOVERIES> 329
<ALLOWANCE-CLOSE> 4,998
<ALLOWANCE-DOMESTIC> 4,094
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 914
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
EXHIBIT 99.1--FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT FOR
FIRST MERCHANTS CORPORATION EMPLOYEE STOCK PURCHASE PLAN
--------------------------------------------------------------------------------
The annual financial statements and independent auditor's report thereon for
First Merchants Corporation Employee Stock Purchase Plan for the year ending
June 30, 1995, will be filed as an amendment to the 1994 Annual Report on Form
10-K no later than October 28, 1995.
Page 26
