<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, 1995 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 $117,223,514 as of March 5,
1996.
As of March 5, 1996 there were outstanding 5,057,632 common shares, without
par value, of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K
Documents Into Which Incorporated
--------- -----------------------
1995 Annual Report to Stockholders Part II (Items 5 through 8)
Definitive Proxy Statement for
Annual Meeting of Shareholders
to be held April 4, 1996 Part III (Items 10 through 13)
EXHIBIT INDEX: Page 26 Total Pages 157
<PAGE>
FORM 10-K TABLE OF CONTENTS
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Page
Part I
Item 1 - Business . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2 - Properties . . . . . . . . . . . . . . . . . . . . . . 18
Item 3 - Legal Proceedings. . . . . . . . . . . . . . . . . . . 18
Item 4 - Submission of Matters to a Vote of Security Holders. . 18
Supplemental Information - Executive Officers of the Registrant. 19
Part II
Item 5 - Market For the Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . 20
Item 6 - Selected Financial Data. . . . . . . . . . . . . . . . 20
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 20
Item 8 - Financial Statements and Supplementary Data. . . . . . 20
Item 9 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosures . . . . . . . . . 20
Part III
Item 10 - Directors and Executive Officers of the Registrant. . 21
Item 11 - Executive Compensation . . . . . . . . . . . . . . . 21
Item 12 - Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . 21
Item 13 - Certain Relationships and Related Transactions . . . 21
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K. . . . . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . 26
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.
As of December 31, 1995, the Corporation had consolidated assets of $707.9
million, consolidated deposits of $588.2 million and stockholders' equity of
$80.5 million.
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, 1995, the Corporation and its
subsidiaries had 379 full-time equivalent employees.
Through its subsidiaries, the Corporation offers a broad range of financial
services, including: accepting time and transaction deposits; making consumer,
commercial, agri-business and real estate mortgage loans; issuing credit cards;
renting safe deposit facilities; providing personal and corporate trust
services; and providing other corporate services, letters of credit and
repurchase agreements.
ACQUISITION POLICY AND PENDING TRANSACTIONS
The Corporation anticipates that it will continue its policy of geographic
expansion through consideration of acquisitions of additional financial
institutions. Management of the Corporation periodically engages in reviewing
and analyzing potential acquisitions. The Corporation is a party to a
definitive agreement to merge with Union National Bancorp and thereby acquire
its wholly-owned subsidiary, The Union County National Bank of Liberty. Union
National Bancorp's principal executive offices are located in Liberty, Indiana.
The Corporation is also a party to a definitive agreement to merge with Randolph
County Bancorp and thereby acquire its wholly-owned subsidiary, The Randolph
County Bank. Randolph County Bancorp's principal executive offices are located
in Winchester, Indiana.
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
Page 3
<PAGE>
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SUPERVISION AND REGULATION (CONTINUED)
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 (the "DFI"). 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.
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 Riegle Community Development and Regulatory Improvement Act of 1994 (Act)
was signed into law in 1994. The Act contains seven titles pertaining to
community development and home ownership protection, small business capital
formation, paperwork reduction and regulatory improvement, money laundering and
flood insurance. The Act grants the authority to several agencies to promulgate
regulations under the Act. No regulations have yet been promulgated. The
Corporation cannot predict with certainty the impact of the Act on the banking
industry.
In September, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (Interstate Act) was enacted into law. The Interstate Act
authorized interstate acquisitions, mergers and bank branching and agency
banking with affiliates in different states. The Interstate Act amends the Bank
Holding Company Act to allow adequately capitalized and managed bank holding
companies to acquire a bank located in another state beginning in September,
1995. The new act permits full interstate branching after June 1, 1997. After
that date, BHCs may merge
Page 4
<PAGE>
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SUPERVISION AND REGULATION (CONTINUED)
existing bank subsidiaries into one bank, with banks also permitted to merge
unaffiliated banks across state lines. States may permit interstate branching
earlier than June 1, 1997, where both states involved with a bank merger
expressly permit it by statute. The Interstate Act permits states to enact a
law expressly prohibiting interstate mergers. Such laws must apply equally to
all out-of-state banks and be passed before June 1, 1997.
The monetary policies of regulatory authorities, including the Federal Reserve
Board, have a significant effect on the operating results of banks and bank
holding companies. The nature of future monetary policies and the effect of
such policies on the future business and earnings of the Corporation and its
subsidiary banks cannot be predicted.
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.
CAPITAL REQUIREMENTS
The Corporation and its subsidiary banks must meet certain minimum capital
requirements mandated by the FRB, the FDIC and DFI. These regulatory agencies
require BHCs and banks to maintain certain minimum ratios of primary capital to
total assets and total capital to total assets. As of January 1, 1991, the FRB
required bank holding companies to maintain a minimum Tier 1 leverage ratio to 3
per cent capital to total assets; however, for all but the most highly rated
institutions which do not anticipate significant growth, the minimum Tier 1
ratio is 3 per cent plus an additional cushion of 100 to 200 basis points. As
of December 31, 1995, the Corporation's leverage ratio of capital to total
assets was 11.13 per cent.
The FRB and FDIC each have approved the imposition of "risk-adjusted" capital
ratios on BHCs and financial institutions. The Corporation and its subsidiaries
had capital to assets ratios and risk-adjusted capital ratios at December 31,
1995, in excess of the applicable regulatory minimum requirements.
The following table summarizes the Corporation's risk-adjusted capital ratios
under FRB guidelines at December 31, 1995:
<TABLE>
<CAPTION>
Corporation's Regulatory
Consolidated Minimum
Ratio Requirement
----- -----------
<S> <C> <C>
Tier 1 Capital to Risk-Weighted
Assets Ratio . . . . . . . . . . . . . . . . 16.99% 4.00%
Total Capital to Risk-Weighted
Assets Ratio . . . . . . . . . . . . . . . . 18.07% 8.00%
</TABLE>
Page 5
<PAGE>
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STATISTICAL DATA
The following tables set forth statistical data relating the Corporation and its
subsidiaries.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The daily average balance sheet amounts, the related interest income or expense,
and average rates earned or paid are presented in the following table.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- ------------------------- --------------------------
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 . . . . . . . . . . . . . $ 16,426 $ 907 5.5% $ 4,808 $ 217 4.5% $ 15,653 $ 454 2.9%
Interest-bearing time deposits . . . . . . . 87 4 4.6 35 2 5.7 648 35 5.4
Federal Reserve and
Federal Home Loan Bank stock . . . . . . . 1,888 149 7.9 1,879 103 5.5 522 29 5.6
Securities:
Taxable . . . . . . . . . . . . . . . . . . 146,140 8,624 5.9 149,063 8,552 5.7 163,006 10,265 6.3
Tax-exempt . . . . . . . . . . . . . . . . . 51,303 3,807 7.4 52,678 3,690 7.0 50,152 3,631 7.2
------- --------- -------- -------- ------- -------
Total Securities . . . . . . . . . . . . . 197,443 12,431 6.3 201,741 12,242 6.1 213,158 13,896 6.5
Mortgage loans held for sale . . . . . . . . 281 22 7.8
Loans:*
Commercial . . . . . . . . . . . . . . . . . 169,608 16,339 9.6 156,465 12,861 8.2 148,657 10,919 7.3
Bankers' acceptance and commercial paper
purchased . . . . . . . . . . . . . . . . 2,590 149 5.8 454 22 4.8 112 4 3.6
Real estate mortgage. . . . . . . . . . . . . 150,933 13,062 8.7 143,568 11,711 8.2 132,932 11,364 8.5
Installment . . . . . . . . . . . . . . . . . 89,692 8,179 9.1 86,824 7,128 8.2 73,226 6,418 8.8
Tax-exempt loans. . . . . . . . . . . . . . . 836 86 10.3 1,328 127 9.6 2,101 185 8.8
------- --------- -------- -------- ------- -------
Total loans . . . . . . . . . . . . . . . 413,659 37,815 9.1 388,639 31,849 8.2 357,028 28,890 8.1
------- --------- -------- -------- ------- -------
Total earning assets. . . . . . . . . . . 629,784 51,328 8.2 597,102 44,413 7.4 587,009 43,304 7.4
--------- -------- -------
Net unrealized loss on securities
available for sale . . . . . . . . . . . . ( 1,462) (1,387)
Allowance for loan losses . . . . . . . . . . ( 5,074) (4,936) (4,584)
Cash and due from banks . . . . . . . . . . . 22,049 23,316 23,373
Premises and equipment . . . . . . . . . . . 9,957 9,318 8,634
Other assets . . . . . . . . . . . . . . . . 10,093 11,455 11,966
-------- -------- --------
Total assets . . . . . . . . . . . . . . $665,347 $634,868 $626,398
-------- -------- --------
-------- -------- --------
Liabilities:
Interest-bearing deposits:
NOW accounts . . . . . . . . . . . . . . . $ 85,532 1,931 2.3 $ 85,973 1,786 2.1 $ 79,106 1,811 2.3
Money market deposit accounts. . . . . . . 94,710 3,675 3.9 105,083 3,101 3.0 111,136 3,112 2.8
Savings deposits . . . . . . . . . . . . . 53,202 1,434 2.7 55,755 1,429 2.6 51,697 1,414 2.7
Certificates and other time deposits . . . 230,659 12,525 5.4 195,475 7,978 4.1 206,833 9,094 4.4
-------- ------- -------- ------- -------- ------
Total interest-bearing deposits . . . . . 464,103 19,565 4.2 442,286 14,294 3.2 448,772 15,431 3.4
Short-term borrowings . . . . . . . . . . . 44,799 2,490 5.6 45,639 1,837 4.0 35,317 1,067 3.0
Federal Home Loan Bank advance . . . . . . . 515 28 5.4
-------- ------- -------- ------- -------- ------
Total interest-bearing liabilities. . . . 509,417 22,083 4.3 487,925 16,131 3.3 484,089 16,498 3.4
Noninterest-bearing deposits . . . . . . . . 74,436 71,743 69,054
Other liabilities . . . . . . . . . . . . . 5,493 5,096 6,368
-------- -------- --------
Total liabilities . . . . . . . . . . . . 589,346 564,764 559,511
Stockholders' equity . . . . . . . . . . . . 76,001 70,104 66,887
-------- -------- --------
Total liabilities and stockholders' equity $665,347 22,083 3.5**$634,868 16,131 2.7** $626,398 16,498 2.8**
-------- ------ -------- ------- -------- ------
-------- -------- --------
Net interest income . . . . . . . . . . . $ 29,245 4.6 $ 28,282 4.7 $26,806 4.6
-------- -------- -------
-------- -------- -------
*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 35% for 1995 and 34%
for 1994 and 1993 .................. $ 1,364 $ 1,299 $ 1,298
-------- -------- -------
-------- -------- -------
</TABLE>
Page 6
<PAGE>
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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>
1995 Compared to 1994 1994 Compared to 1993
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 . . . . . . . $ 632 $ 58 $ 690 $ (411) $ 174 $ (237)
Interest-bearing time
deposits. . . . . . . . . . . . 2 2 (35) 2 (33)
Federal Reserve and Federal
Home Loan Bank stock. . . . . . 46 46 75 (1) (74)
Securities . . . . . . . . . . . (243) 432 189 (769) (885) (1,654)
Mortgage loans held for sale . . 22 22
Loans. . . . . . . . . . . . . . 2,206 3,760 5,966 2,597 362 2,959
------- ------- ------- ------- ------- -------
Totals. . . . . . . . . . . . . 2,619 4,296 6,915 1,457 (348) 1,109
------- ------- ------- ------- ------- -------
Interest expense:
NOW accounts . . . . . . . . . . ( 10) 155 145 145 (170) (25)
Money market deposit
accounts. . . . . . . . . . . . ( 326) 900 574 (197) 186 (11)
Savings deposits . . . . . . . . ( 58) 63 5 81 (66) 15
Certificates and other
time deposits . . . . . . . . . 1,647 2,900 4,547 (498) (618) (1,116)
Short-term borrowings. . . . . . ( 36) 689 653 360 410 770
Federal Home Loan Bank advance . 28 28
------- ------- ------- ------- ------- -------
Totals. . . . . . . . . . . . . 1,245 4,707 5,952 (109) (258) (367)
------- ------- ------- ------- ------- -------
Change in net interest
income (fully taxable
equivalent basis). . . . . . . . $1,374 $ (411) 963 $1,566 $ (90) 1,476
------- ------- ------- -------
------- ------- ------- -------
Tax equivalent adjustment
using marginal rate
of 35% for 1995 and 34% for
1994 and 1993. . . . . . . . . . ( 65) (1)
------- -------
Change in net interest
income . . . . . . . . . . . . . $ 898 $1,475
------- -------
------- -------
</TABLE>
Page 7
<PAGE>
STATISTICAL DATA (Continued)
INVESTMENT SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
approximate market value of the investment securities at the dates
indicated were:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ ------------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available for sale at December 31, 1995:
U.S. Treasury. . . . . . . . . . . . $ 4,531 $ 26 $ 3 $ 4,554
Federal agencies . . . . . . . . . . 67,518 1,299 72 68,745
State and municipal. . . . . . . . . 18,769 398 37 19,130
Mortgage and other
asset-backed securities. . . . . . . 24,023 210 121 24,112
Corporate obligations. . . . . . . . 26,120 264 55 26,329
Marketable equity securities . . . . 250 250
----------- ------------ ------------ ----------
Total available for sale . . . . . . 141,211 2,197 288 143,120
Held to maturity at December 31, 1995:
U.S. Treasury. . . . . . . . . . . . 3,103 8 2 3,109
Federal agencies . . . . . . . . . . 11,645 69 21 11,693
State and municipal. . . . . . . . . 40,013 483 57 40,439
Mortgage and other
asset-backed securities. . . . . . . 2,953 8 1 2,961
Corporate obligations. . . . . . . . 500 499
----------- ------------ ------------ ----------
Total held to maturity . . . . . . . 58,214 568 81 58,701
----------- ------------ ------------ ----------
Total investment securities. . . . . $ 199,425 $ 2,765 $ 369 $ 201,821
----------- ------------ ------------ ----------
----------- ------------ ------------ ----------
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 available for sale . . . . . 103,536 64 4,237 99,363
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 held to maturity . . . . . . . 77,677 261 1,416 76,522
----------- ------------ ------------ ----------
Total investment securities. . . . . $ 181,213 $ 325 $ 5,653 $ 175,885
----------- ------------ ------------ ----------
----------- ------------ ------------ ----------
</TABLE>
Page 8
<PAGE>
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STATISTICAL DATA (Continued)
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
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 investment securities. . . $ 204,363 $ 3,357 $ 298 $ 207,422
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
<TABLE>
Cost
----------------------------------------
1995 1994 1993
----------- ---------- ------------
<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 . . . . 1,585 1,572 1,572
--------- --------- ---------
Total. . . . . . . . . . . . . . $ 1,892 $ 1,879 $ 1,879
--------- --------- ---------
--------- --------- ---------
</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, 1995 were:
Securities available for sale December 31, 1995:
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5 - 10 Years
--------------------- --------------------- ------------------
Amount Yield* Amount Yield* Amount Yield*
--------- ------- --------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury. . . . . . . . . . $ 1,519 5.37% $ 3,035 5.69%
Federal Agencies . . . . . . . . 17,194 6.26 50,452 6.37 $ 1,099 8.12%
State and Municipal. . . . . . . 11,891 7.29 7,239 7.76
Corporate Obligations. . . . . . 5,923 5.12 18,826 5.89 1,580 6.93
Marketable Equity Security . . . 250
Mortgage and other
asset-backed . . . . . . . . .
-------- -------- -------
Total . . . . . . . . . . . . $ 24,886 5.87 $ 84,204 6.37 $ 9,918 7.67
-------- -------- -------
-------- -------- -------
Mortgage and other
Due After Ten Years asset-backed Total
------------------- ------------ -----
Amount Yield* Amount Yield* Amount Yield*
------ ----- ------ ----- ------ ------
U.S. Treasury. . . . . . . . . . $ 4,554 5.59%
Federal Agencies . . . . . . . . 68,745 6.37
State and Municipal. . . . . . . 19,130 7.46
Corporate Obligations. . . . . . 26,329 5.78
Marketable Equity Security . . . 250
Mortgage and other
asset-backed. . . . . . . . . . $ 24,112 6.12% 24,112 6.12
-------- --------
-------- --------
Total . . . . . . . . . . . . $ 24,112 6.12 $143,120 6.34
-------- --------
-------- --------
</TABLE>
Page 9
<PAGE>
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STATISTICAL DATA (Continued)
Securities held to maturity at December 31, 1995:
<TABLE>
<CAPTION>
Within 1 Year 1-5 Years 5 - 10 Years
--------------------- --------------------- ------------------
Amount Yield* Amount Yield* Amount Yield*
--------- ------- --------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury. . . . . . . $ 3,103 5.87%
Federal Agencies . . . . . 6,898 6.13 $ 4,747 6.00%
State and Municipal. . . . 8,692 7.44 27,835 7.02 $ 2,866 8.27%
Corporate Obligations. . . 500 4.45
Mortgage and other
asset-backed . . . . . . ------- -------
Total . . . . . . . . . $19,193 6.64 $32,582 6.87 $ 2,866 8.27
------- ------- -------
------- ------- -------
<CAPTION>
Mortgage and other
Due After Ten Years asset-backed Total
------------------- ------------ ------------------
Amount Yield* Amount Yield* Amount Yield*
------ ----- ------ ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury. . . . . . . $ 3,103 5.87%
Federal Agencies . . . . . 11,645 6.08
State and Municipal. . . . $ 620 8.95% 40,013 7.23
Corporate Obligations. . . 500 4.45
Mortgage and other
asset-backed . . . . . . $ 2,953 6.85% 2,953 6.85
------- ------- -------
------- ------- -------
Total . . . . . . . . $ 620 8.95 $ 2,953 6.85 $58,214 6.88
------- ------- -------
------- ------- -------
</TABLE>
*Interest yields on state and municipal securities are presented on a fully
taxable equivalent basis using a 35% rate.
Federal Reserve and Federal Home Loan Bank stock at December 31, 1995:
<TABLE>
<CAPTION>
Amount Yield
------ -----
<S> <C> <C>
Federal Reserve Bank stock. . . . . . . $ 307 6.00%
Federal Home Loan Bank stock. . . . . . 1,585 8.00
-------
Total . . . . . . . . . . . . . . . . $ 1,892 7.68
-------
-------
</TABLE>
Page 10
<PAGE>
STATISTICAL DATA (Continued)
LOAN PORTFOLIO
Types of Loans
- --------------
The loan portfolio at the dates indicated is presented below:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans at December 31:
Commercial and
industrial loans.. . . . . . . . $ 85,690 $ 78,943 $ 76,760 $ 70,959 $ 76,245
Bankers acceptances and loans
to financial institutions. . . . 2,925 3,000 9,496 2,092
Agricultural production
financing and other loans
to farmers.. . . . . . . . . . . 5,796 5,310 5,591 6,240 6,887
Real estate loans:
Construction.. . . . . . . . . . 9,913 8,126 8,127 2,619 3,191
Commercial and farmland. . . . . 66,749 64,110 58,235 52,402 51,323
Residential. . . . . . . . . . . 166,414 164,760 150,572 140,526 120,281
Individuals' loans for
household and other
personal expenditures. . . . . . 79,993 78,041 70,347 60,625 58,000
Tax-exempt loans . . . . . . . . . 863 1,204 1,474 2,402 2,309
Other loans. . . . . . . . . . . . 651 1,111 2,766 5,039 3,054
-------- -------- -------- -------- --------
Total loans . . . . . . . . . . $418,994 $401,605 $376,872 $350,308 $323,382
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
At December 31, 1995, the Corporation had Residential Real Estate Loans Held
for Sale of $735,522.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
Presented in the table below are the maturities of loans (excluding commercial
real estate, farmland, residential real estate and individuals' loans)
outstanding as of December 31, 1995. 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 . . . $ 45,440 $ 18,497 $ 21,753 $ 85,690
Agricultural production financing
and other loans to farmers. . . . . 4,342 835 619 5,796
Real estate - Construction. . . . . . 8,075 13 1,825 9,913
Tax-exempt loans. . . . . . . . . . . 122 329 412 863
Other loans . . . . . . . . . . . . . 651 651
-------- -------- -------- --------
Total $ 58,630 $ 19,674 $ 24,609 $102,913
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Page 11
<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. . . . . . . $ 5,625 $ 10,190
Variable rate. . . . . . 14,049 14,419
-------- --------
Total. . . . . . . . . $ 19,674 $ 24,609
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
RISK ELEMENTS
December 31
---------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccruing loans . . . . . . . . . . $ 133 $ 326 $ 527 $ 493 $1,434
Loans contractually past due 90
days or more other than
nonaccruing. . . . . . . . . . . . . 863 703 616 949 1,356
Restructured loans. . . . . . . . . . 625 754 879 548 828
</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 $55,601 for the year ended December 31, 1995, was recognized
on the nonaccruing and restructured loans listed in the table above, whereas
interest income of $59,168 would have been recognized under their original loan
terms.
Potential problem loans:
Management has identified certain other loans totaling $3,122,000 as of
December 31, 1995, 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 12
<PAGE>
STATISTICAL DATA (Continued)
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the loan loss experience for the years indicated.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at January 1 . . . . . . $ 4,998 $ 4,800 $ 4,351 $ 3,867 $ 3,254
Addition resulting from
acquisition. . . . . . . . . . 252
Chargeoffs:
Commercial . . . . . . . . . . 586 526 391 588 806
Real estate mortgage . . . . . 41 129 100 41
Installment. . . . . . . . . . 296 346 388 552 511
------- ------ ------ ------- -------
Total chargeoffs. . . . . . . 882 913 908 1,240 1,358
------- ------ ------ ------- -------
Recoveries:
Commercial . . . . . . . . . . 89 216 240 215 227
Real estate mortgage . . . . . 4 30 5 38 7
Installment. . . . . . . . . . 108 83 98 114 84
------- ------ ------ ------- -------
Total recoveries. . . . . . . 201 329 343 367 318
------- ------ ------ ------- -------
Net chargeoffs . . . . . . . . . 681 584 565 873 1,040
------- ------ ------ ------- -------
Provisions for loan losses . . . 640 782 1,014 1,357 1,401
------- ------ ------ ------- -------
Balance at December 31 . . . . . $ 4,957 $ 4,998 $ 4,800 $ 4,351 $ 3,867
------- ------ ------ ------- -------
------- ------ ------ ------- -------
Ratio of net chargeoffs during the
period to average loans
outstanding during the period. . .16% .15% .16% .26% .35%
Peer Group . . . . . . . . . . . . N/A .25% .49% .65% .95%
</TABLE>
Page 13
<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>
1995 1994
--------------------- ---------------------
Amount Per Cent Amount Per Cent
--------- ---------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at December 31:
Commercial, financial and
agricultural. . . . . . . . . $ 2,212 22.7% $ 2,261 21.3%
Real estate - construction. . . 2.4 2.0
Real estate - mortgage. . . . . 587 55.6 560 57.0
Installment . . . . . . . . . . 1,200 19.1 1,263 19.4
Tax-exempt loans. . . . . . . . .2 .3
Unallocated . . . . . . . . . . 958 N/A 914 N/A
------- ------ ------- -----
Totals. . . . . . . . . . . . . $ 4,957 100.0% $ 4,998 100.0%
------- ------ ------- -----
------- ------ ------- -----
</TABLE>
<TABLE>
<CAPTION>
1993 1992
--------------------- ---------------------
Amount Per Cent Amount Per Cent
--------- ---------- -------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Balance at December 31:
Commercial, financial and
agricultural. . . . . . . . $ 2,187 23.4% $ 2,193 26.2%
Real estate - construction. . 2.2 .7
Real estate - mortgage. . . . 384 55.4 435 55.1
Installment . . . . . . . . . 1,266 18.6 1,473 17.3
Tax-exempt loans. . . . . . . .4 .7
Unallocated . . . . . . . . . 963 N/A 250 N/A
------- ------ ------- -----
Totals $ 4,800 100.0% $ 4,351 100.0%
------- ----- ------- -----
------- ----- ------- -----
</TABLE>
<TABLE>
<CAPTION>
1991
------------------------
Amount Per Cent
-------- -----------
(Dollars in Thousands)
<S> <C> <C>
Balance at December 31:
Commercial, financial and
agricultural. . . . . . . . $ 2,127 27.3%
Real estate - construction. . 1.0
Real estate - mortgage. . . . 193 53.1
Installment . . . . . . . . . 1,547 17.9
Tax-exempt loans. . . . . . . 0.7
Unallocated . . . . . . . . . N/A
------- -----
Totals $ 3,867 100.0%
------- -----
------- -----
</TABLE>
Page 14
<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.
Impaired loans are measured by the present value of expected future cash flows,
or the fair value of the collateral of the loans, if collateral dependent.
Impaired loans totaled $3,122,000 at December 31, 1995. An allowance for losses
at December 31, 1995, was not deemed necessary for impaired loans totaling
$1,900,000, but an allowance of $559,000 was recorded for the remaining balance
of impaired loans of $1,222,000. The average balance of impaired loans for 1995
was $1,682,000.
Page 15
<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>
1995 1994 1993
------------------- ------------------- --------------------
Amount Rate Amount Rate Amount Rate
-------- -------- --------- ------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31:
Noninterest bearing deposits. . . . $ 74,436 $ 71,743 $ 69,054
NOW accounts. . . . . . . . . . . . 85,532 2.3% 85,973 2.1% 79,106 2.3%
Money market deposit accounts . . . 94,710 3.9 105,083 3.0 111,136 2.8
Savings deposits. . . . . . . . . . 53,202 2.7 55,755 2.6 51,697 2.7
Certificates of deposit and
other time deposits. . . . . . . . 230,659 5.4 195,475 4.1 206,833 4.4
-------- -------- --------
Total deposits . . . . . . . . . $538,539 3.6 $514,029 2.8 $517,826 3.0
-------- -------- --------
-------- -------- --------
</TABLE>
As of December 31, 1995, 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
or less Months Months 12 Months Total
---------- --------- ---------- ------------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit and
other time deposits. . . . . $18,517 $ 9,969 $ 5,513 $15,217 $49,216
Per cent . . . . . . . . . . . 38% 20% 11% 31%
</TABLE>
<TABLE>
<CAPTION>
RETURN ON EQUITY AND ASSETS
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Return on assets (net income divided by
average total assets) . . . . . . . . . . . 1.48% 1.44% 1.39%
Return on equity (net income divided by
average equity). . . . . . . . . . . . . . 2.97 13.06 13.01
Dividend payout ratio (dividends per
share divided by net income per share) . . 39.49 39.44 37.06
Equity to assets ratio (average equity
divided by average total assets) . . . . . 11.42 11.04 10.68
</TABLE>
Page 16
<PAGE>
STATISTICAL DATA (Continued)
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Balance at December 31:
Federal funds purchased. . . . . . . . . $ 100 $ 12,198 $ 5,300
Securities sold under repurchase
agreements . . . . . . . . . . . . . . 27,293 17,776 26,363
U.S. Treasury demand notes . . . . . . . 6,582 9,215 15,227
--------- --------- --------
Total short-term borrowings. . . . . $ 33,975 $ 39,189 $ 46,890
--------- --------- --------
--------- --------- --------
</TABLE>
Securities sold under repurchase agreements are borrowings maturing within
one year and are secured by U. S. Treasury and Federal agency obligations.
Pertinent information with respect to short-term borrowings is summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Weighted average interest rate on outstanding
balance at December 31:
Securities sold under repurchase
agreements . . . . . . . . . . . . . . . 5.29% 4.86% 2.86%
Total short-term borrowings . . . . . . . . . 5.27 5.42 2.88
Weighted average interest rate during the year:
Securities sold under repurchase
agreements . . . . . . . . . . . . . . . 5.57 3.91 2.94
Total short-term borrowings . . . . . . . . . 5.56 4.03 3.02
Highest amount outstanding at any month end
during the year:
Securities sold under repurchase
agreements . . . . . . . . . . . . . . . $ 54,670 $ 29,115 $ 33,949
Total short-term borrowings . . . . . . . . . 64,443 68,609 51,130
Average amount outstanding during the year:
Securities sold under repurchase
agreements . . . . . . . . . . . . . . . 33,632 23,389 22,882
Total short-term borrowings . . . . . . . . . 44,799 45,639 35,317
</TABLE>
Page 17
<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
eight branch buildings are owned by First Merchants; five remaining branches of
First Merchants are located in leased premises. Ten automated cash dispensers
are located in leased premises; one cash dispenser is 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.
One automated dispenser is located in leased premises.
The principal offices of First United are located at 790 West Mill Street,
Middletown, Indiana. First United also operates two branches. All of First
United's properties are owned by First United and are located in Henry County,
Indiana.
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, 1995 was $10,475,935.
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 1995 to a vote of
security holders, through the solicitation of proxies or otherwise.
Page 18
<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.
<TABLE>
<CAPTION>
Name and Age Offices with the Corporation Principal Occupation
And Subsidiary Banks During Past Five Years
- -------------------- -------------------------------- --------------------------
<S> <C> <C>
Stefan S. Anderson Chairman of the Board and Chairman of the Board of
61 President, Corporation and the Corporation and First
First Merchants Merchants since 1987;
President of First
Merchants since 1979 and
of the Corporation since
1982
Thomas E. Buczek First Vice President, First Vice President,
49 First Merchants First Merchants since May
1995; Vice President
prior to May 1995
Michael L. Cox Executive Vice President, Executive Vice President
51 Chief Operating Officer and and Chief Operating
Director, Corporation; Officer, Corporation
Executive Vice President and since May, 1994;
Director, First Merchants Executive Vice President,
First Merchants, since
May, 1994; Director,
Corporation and First
Merchants since December,
1984; President, Information
Systems Group, Ontario Corporation
prior to May 1994.
Jack L. Demaree Senior Vice President and Senior Vice President,
47 Senior Commercial Loan First Merchants since
Officer, First Merchants March 1992, Senior
Commercial Loan Officer,
First Merchants since
1987; Vice President,
First Merchants prior to
March 1992
Roger W. Gilcrest Executive Vice President and Executive Vice President
58 Director, First Merchants First Merchants since
July, 1988; Director of
First Merchants since
July 1992
Paul R. Hoover Senior Vice President, Senior Vice President,
54 First Merchants First Merchants since
1987
Larry R. Helms Senior Vice President and Senior Vice President,
55 General Counsel, Corporation; Corporation since 1982 and
Senior Vice President, Senior Vice President and
First Merchants; General Counsel First
Director of First United; Merchants since 1979;
Director of Pendleton Director of First United
and Pendleton since 1992
Rodney A. Medler First Vice President, First Vice President,
59 First Merchants First Merchants since
May 1995; Vice President
and Cashier, First
Merchants prior to
May 1995
</TABLE>
Page 19
<PAGE>
SUPPLEMENTAL INFORMATION - EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
Name and Age Offices with the Corporation Principal Occupation
And Subsidiary Banks During Past Five Years
- -------------------- -------------------------------- --------------------------
<S> <C> <C>
Michael G. Richardson First Vice President, First Vice President
40 First Merchants since May 1995; Vice
President prior to May
1995
James L. Thrash Senior Vice President and Senior Vice President and
46 Chief Financial Officer, Chief Financial Officer
Corporation; Senior Vice of the Corporation since
President, First Merchants 1990; Chief Financial
Officer, Corporation
prior to May 1990; Senior
Vice President, First
Merchants since 1990
</TABLE>
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
of the Corporation's 1995 Annual Report to Stockholders under the caption
"Stockholder Information," Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA.
The information required under this item is incorporated by reference to page 1
of the Corporation's 1995 Annual Report to Stockholders 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 7 of the Corporation's 1995 Annual Report to Stockholders 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 8 through 24 of the
Corporation's 1995 Annual Report to Stockholders, 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, 1995, 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.
Page 20
<PAGE>
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 1996 Proxy Statement furnished
to its stockholders in connection with an annual meeting to be held April 4,
1996 (the "1996 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 1996 Proxy Statement, under the captions, "Compensation of
Directors" and "Compensation of Executive Officers," which Proxy Statement has
been filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated by reference to the
Corporation's 1996 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 1996 Proxy Statement, under the caption "Interest of Management
in Certain Transactions," which Proxy Statement has been filed with the
Commission.
Page 21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
Annual Report Form 10-K
Page Page
Number Number
------------- ----------
<S> <C> <C>
(a)1. Financial Statements:
Independent auditor's report . . . . . . . . Inside 130
Cover
Consolidated balance sheet at December 31,
1995 and 1994 . . . . . . . . . . . . . . . 8 138
Consolidated statement of income, years
ended December 31, 1995, 1994 and 1993 . . 9 139
Consolidated statement of changes in
stockholders' equity, years ended
December 31, 1995, 1994 and 1993 . . . . . 10 140
Consolidated statement of cash flows, years
ended December 31, 1995, 1994 and 1993 . . 10-11 140-141
Notes to consolidated financial statements . 12-24 142-154
(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.
</TABLE>
(a)3. Exhibits:
<TABLE>
<CAPTION>
Exhibit No: Description of Exhibit:
----------- -----------------------
<S> <C> <C>
3.1 Articles of Incorporation and the Articles
of Amendment thereto . . . . . . . . . . . . (F)
3.2 Bylaws and amendments thereto. . . . . . . . . 30-42
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)
10.7 Agreement of Reorganization and Merger by and
between First Merchants Corporation and
Randolph County Bancorp dated January 17,
1996 . . . . . . . . . . . . . . . . . . . . 43-72
10.8 Agreement of Reorganization and Merger by and
between First Merchants Corporation and
Union National Bancorp dated January 24,
1996 . . . . . . . . . . . . . . . . . . . . 73-106
</TABLE>
Page 22
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(Continued)
<TABLE>
<CAPTION>
Form 10-K
Page
Exhibit No: Description of Exhibit: Number
----------- ----------------------- ----------
<S> <C> <C>
13 1995 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). . . . . . . . . . . . . . . . . . . . 107-154
21 Subsidiaries of Registrant . . . . . . . . . 27
23 Consent of Independent Auditors . . . . . . . 28
27 Financial Data Schedule . . . . . . . . . . . 157
99.1 Financial statements and independent
auditor's report for First Merchants
Corporation Employee Stock Purchase Plan . . 29
</TABLE>
(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.
(F) Incorporated by reference to Registrant's Form 10-K for year ended
December 31, 1994.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the three months ended December 31,
1995.
Page 23
<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 12th day of
March, 1996.
FIRST MERCHANTS CORPORATION
By /s/ Stefan S. Anderson
----------------------------------------
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.
<TABLE>
<CAPTION>
Signature Capacity Date
- ----------------------------- ------------------------------ --------------
<S> <C> <C>
/s/ Stefan S. Anderson
- ----------------------------- Director and Chairman, March 12, 1996
Stefan S. Anderson Principal Executive Officer
/s/ Michael L. Cox Director, Executive Vice March 12, 1996
- ----------------------------- President and Chief Operating
Michael L. Cox Officer
/s/ James L. Thrash March 12, 1996
- ----------------------------- Principal Financial and
James L. Thrash Principal Accounting Officer
/s/ Frank A. Bracken
- ----------------------------- Director March 12, 1996
Frank A. Bracken
- ----------------------------- Director March 12, 1996
Thomas B. Clark
/s/ David A. Galliher
- ----------------------------- Director March 12, 1996
David A. Galliher
/s/ Thomas K. Gardiner
- ----------------------------- Director March 12, 1996
Dr. Thomas K. Gardiner
/s/ Hurley C. Goodall
- ----------------------------- Director March 12, 1996
Hurley C. Goodall
/s/ John W. Hartmeyer
- ----------------------------- Director March 12, 1996
John W. Hartmeyer
/s/ Nelson W. Heinrichs
- ----------------------------- Director March 12, 1996
Nelson W. Heinrichs
</TABLE>
Page 24
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
- ----------------------------- ------------------------------ --------------
<S> <C> <C>
/s/ Jon H. Moll
- ----------------------------- Director March 12, 1996
Jon H. Moll
/s/ George A. Sissel
- ----------------------------- Director March 12, 1996
George A. Sissel
/s/ Robert M. Smitson
- ----------------------------- Director March 12, 1996
Robert M. Smitson
/s/ Joseph E. Wilson
- ----------------------------- Director March 12, 1996
Joseph E. Wilson
/s/
- ----------------------------- Director March 12, 1996
Robert F. Wisehart
/s/ John E. Worthen
- ----------------------------- Director March 12, 1996
John E. Worthen
</TABLE>
Page 25
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Form 10-K
Page
Exhibit No: Description of Exhibit: Number
----------- ----------------------- ----------
<S> <C> <C>
3.1 Articles of Incorporation and the Articles of
Amendment thereto . . . . . . . . . . . . . . (F)
3.2 Bylaws and amendments thereto . . . . . . . . . 30-42
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)
10.7 Agreement of Reorganization and Merger by and
between First Merchants Corporation and
Randolph County Bancorp dated January 17,
1996 . . . . . . . . . . . . . . . . . . . . 43-72
10.8 Agreement of Reorganization and Merger by and
between First Merchants Corporation and
Union National Bancorp dated January 24,
1996 . . . . . . . . . . . . . . . . . . . . 73-106
13 1995 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) . . . . . . . . . . . . . . . . . . . . 107-154
21 Subsidiaries of Registrant . . . . . . . . . . 27
23 Consent of Independent Auditors . . . . . . . . 28
27 Financial Data Schedule . . . . . . . . . . . . 157
99.1 Financial statements and independent
auditor's report for First Merchants
Corporation Employee Stock Purchase Plan. . . 29
</TABLE>
(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.
(F) Incorporated by reference to Registrant's Form 10-K for year ended
December 31, 1994.
Page 26
<PAGE>
EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
State of
Name Incorporation
---- -------------
First Merchants Bank, National Association. . . . . . . . . U.S.
Pendleton Banking Company . . . . . . . . . . . . . . . . . Indiana
First United Bank . . . . . . . . . . . . . . . . . . . . . Indiana
Page 27
<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 19, 1996, except for Note 2 as to which the date is January 24,
1996 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 18, 1996
Page 28
<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, 1996, will be filed as an amendment to the 1995 Annual Report on
Form 10-K no later than October 28, 1996.
Page 29
<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 shall 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 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
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.
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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 chosen 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
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 chosen 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
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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.
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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.
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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.
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<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
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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 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, 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, Class II shall have six (6) 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 the Bylaws may not be changed or
amended except by a two-thirds (2/3) vote of the Board of Directors.
FURTHER RESOLVED that George A. Sissel is hereby elected a Director
of the Corporation, and that he shall fill the vacancy in Class I by the
increase in the number of Directors.
Date: June 13, 1995
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AGREEMENT OF REORGANIZATION AND MERGER
BETWEEN
FIRST MERCHANTS CORPORATION
AND
RANDOLPH COUNTY BANCORP
THIS AGREEMENT OF REORGANIZATION AND MERGER ("Agreement"), is entered this
17th day of January, 1996, by and between FIRST MERCHANTS CORPORATION ("First
Merchants") and RANDOLPH COUNTY BANCORP ("Randolph County").
W I T N E S S E T H:
WHEREAS, First Merchants is a corporation duly organized and existing under
the laws of the State of Indiana and a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, with its principal place of
business in Muncie, Delaware County, Indiana.
WHEREAS, Randolph County is a corporation duly organized and existing under
the laws of the State of Indiana and a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, with its principal place of
business in Winchester, Randolph County, Indiana.
WHEREAS, The Randolph County Bank (the "Bank") is a banking institution
duly organized and existing under the laws of the State of Indiana and a
wholly-owned subsidiary of Randolph County with its principal banking office in
Winchester, Randolph County, Indiana.
WHEREAS, it is the desire of First Merchants and Randolph County to effect
a transaction whereby the Bank will become a wholly-owned subsidiary of First
Merchants through a statutory merger of Randolph County with and into First
Merchants.
WHEREAS, a majority of the entire Board of Directors of First Merchants and
a majority of the entire Board of Directors of Randolph County have approved
this Agreement, designated it as a plan of reorganization within the provisions
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), and authorized its execution.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, First Merchants and Randolph County
hereby make this Agreement and prescribe the terms and conditions of the merger
of
<PAGE>
Randolph County with and into First Merchants and the mode of carrying the
transaction into effect as follows:
SECTION 1
THE MERGER
Subject to the terms and conditions of this Agreement, on the Effective
Date, as defined in Section 11 hereof, Randolph County shall be merged into and
under the Articles of Incorporation of First Merchants, which shall be the
"Continuing Company" and which shall continue its corporate existence under the
laws of the State of Indiana, pursuant to the provisions of and with the effect
provided in the Indiana Business Corporation Law and particularly Indiana Code
chapter 23-1-40 (the "Merger").
SECTION 2
EFFECT OF THE MERGER
Upon the Merger becoming effective:
2.01. GENERAL DESCRIPTION. The separate existence of Randolph County
shall cease and the Continuing Company shall possess all of the assets of
Randolph County including all of the issued and outstanding shares of capital
stock of the Bank and all of its rights, privileges, immunities, powers, and
franchises and shall be subject to and assume all of the duties and liabilities
of Randolph County.
2.02. NAME, OFFICES, AND MANAGEMENT. The name of the Continuing Company
shall continue to be "First Merchants Corporation." Its principal banking
office shall be located at 200 E. Jackson Street, Muncie, Indiana. The Board of
Directors of the Continuing Company, until such time as their successors have
been elected and qualified, shall consist of the current Board of Directors of
First Merchants. The officers of First Merchants immediately prior to the
Effective Date shall continue as the officers of the Continuing Company.
2.03. CAPITAL STRUCTURE. The amount of capital stock of the Continuing
Company shall not be less than the capital stock of First Merchants immediately
prior to the Effective Date increased by the amount of capital stock issued in
accordance with Section 3 hereof.
2.04. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and Bylaws of the Continuing Company shall be those
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of First Merchants immediately prior to the Effective Date until the same shall
be further amended as provided by law.
2.05. ASSETS AND LIABILITIES. The title to all assets, real estate and
other property owned by First Merchants and Randolph County shall vest in the
Continuing Company without reversion or impairment. All liabilities of Randolph
County shall be assumed by the Continuing Company.
SECTION 3
CONSIDERATION TO BE
DISTRIBUTED TO SHAREHOLDERS OF RANDOLPH COUNTY
3.01. CONSIDERATION. Upon and by reason of the Merger becoming effective,
shareholders of Randolph County of record on the Effective Date who have not
dissented to the Merger in accordance with Indiana Code Section 23-1-44, as
amended, shall be entitled to receive twenty and 53/100 (20.53) shares of First
Merchants common stock for each share of Randolph County common stock held.
3.02. NO FRACTIONAL FIRST MERCHANTS COMMON SHARES. Certificates for
fractional shares of common stock of First Merchants shall not be issued in
respect of fractional interests arising from the exchange ratio. Each Randolph
County shareholder who would otherwise have been entitled to a fraction of a
First Merchants share, upon surrender of all of his/her certificates
representing Randolph County common shares, shall be paid in cash in an amount
equal to the fraction of the average of the closing price of First Merchants
common stock as quoted by NASDAQ for the five business days preceding the
Effective Date.
3.03. RECAPITALIZATION. If, between the date of this Agreement and the
Effective Date, First Merchants issues a stock dividend with respect to its
shares of common stock, combines, subdivides, or splits up its outstanding
shares or takes any similar recapitalization action, then the number of shares
of First Merchants common stock into which each outstanding Randolph County
share will be converted under Section 3.01 hereof shall be adjusted so that each
Randolph County shareholder shall receive such number of First Merchants shares
as represents the same percentage of outstanding shares of First Merchants
common stock at the Effective Date as would have been represented by the number
of shares such shareholder would have received if the recapitalization had not
occurred.
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3.04. DISTRIBUTION OF FIRST MERCHANTS COMMON STOCK AND CASH.
(a) Following the Effective Date, distribution of stock certificates
representing First Merchants common stock and cash payments for fractional
shares shall be made by First Merchants to each former shareholder of
Randolph County within ten (10) days of such shareholder's delivery of
his/her certificates representing common stock of Randolph County to the
conversion agent, First Merchants Bank (the "Conversion Agent"). Interest
shall not accrue or be payable with respect to any cash payments.
(b) Following the Effective Date, stock certificates representing
Randolph County common stock shall be deemed to evidence only the right to
receive ownership of First Merchants common stock (for all corporate
purposes other than the payment of dividends) and cash for fractional
shares, as applicable. No dividends or other distributions otherwise
payable subsequent to the Effective Date on stock of First Merchants shall
be paid to any shareholder entitled to receive the same until such
shareholder has surrendered his/her certificates for Randolph County common
stock to the Conversion Agent in exchange for certificates representing
First Merchants common stock and cash. Upon surrender, there shall be paid
to the recordholder of the new certificate(s) evidencing shares of First
Merchants common stock, the amount of all dividends and other
distributions, without interest thereon, withheld with respect to such
common stock.
(c) First Merchants shall be entitled to rely upon the stock transfer
books of Randolph County to establish the persons entitled to receive cash
and shares of common stock of First Merchants, which books, in the absence
of actual knowledge by First Merchants of any adverse claim thereto, shall
be conclusive with respect to the ownership of such stock.
(d) With respect to any certificate for shares of Randolph County
common stock which has been lost, stolen, or destroyed, First Merchants
shall be authorized to issue common stock to the registered owner of such
certificate upon receipt of an affidavit of lost stock certificate, in form
and substance satisfactory to First Merchants, and upon compliance by the
Randolph County shareholder with all procedures historically required by
Randolph County in connection with lost, stolen, or destroyed certificates.
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SECTION 4
DISSENTING SHAREHOLDERS
Shareholders of Randolph County shall have the rights accorded to
dissenting shareholders under Indiana Code Section 23-1-44, as amended.
SECTION 5
REPRESENTATIONS AND
WARRANTIES OF RANDOLPH COUNTY
Randolph County represents and warrants to First Merchants with respect to
itself and the Bank as follows: (For the purposes of this Section, a
"Disclosure Letter" is defined as a letter referencing Section 5 of this
Agreement which shall be prepared and executed by an authorized executive
officer of Randolph County and delivered to and initialed by an authorized
executive officer of First Merchants contemporaneous with the execution of this
Agreement.)
5.01. ORGANIZATION AND AUTHORITY. Randolph County is a corporation duly
organized and validly existing under the laws of the State of Indiana, and Bank
is a state banking association duly organized and validly existing under the
laws of the State of Indiana. Randolph County and Bank have the power and
authority (corporate and other) to conduct their respective businesses in the
manner and by the means utilized as of the date hereof. Randolph County's only
subsidiary is Bank, and Bank has no subsidiaries. Bank is subject to primary
federal regulatory supervision and regulation by the Federal Deposit Insurance
Corporation.
5.02. AUTHORIZATION.
(a) Randolph County has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement, when executed and delivered, will have been duly authorized and
will constitute a valid and binding obligation of Randolph County,
enforceable in accordance with its terms except to the extent limited by
insolvency, reorganization, liquidation, readjustment of debt or other laws
of general application relating to or affecting the enforcement of
creditors' rights.
(b) Neither the execution of this Agreement, nor the consummation of
the transactions contemplated hereby, does or will (i) conflict with,
result in a breach of, or constitute
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a default under Randolph County's Articles of Incorporation or By-Laws or,
to the best of its knowledge, any federal, foreign, state or local law,
statute, ordinance, rule, regulation or court or administrative order or
decree, or any note, bond, indenture, mortgage, security agreement,
contract, arrangement or commitment, to which Randolph County or Bank is
subject or bound, the result of which would materially affect the business
or financial condition of Randolph County or the Bank; (ii) result in the
creation of or give any person the right to create any lien, charge,
encumbrance, security interest, or any other rights of others or other
adverse interest upon any right, property or asset of Randolph County or
Bank; (iii) terminate or give any person, corporation or entity, the right
to terminate, amend, abandon, or refuse to perform any note, bond,
indenture, mortgage, security agreement, contract, arrangement or
commitment to which Randolph County or Bank is subject or bound; or (iv)
accelerate or modify, or give any party thereto the right to accelerate or
modify, the time within which, or the terms according to which, Randolph
County is to perform any duties or obligations or receive any rights or
benefits under any note, bond, indenture, mortgage, security agreement,
contract, arrangement or commitment.
(c) Other than in connection or in compliance with the provisions of
the Bank Holding Company Act of 1956, federal and state securities laws and
applicable Indiana banking and corporate statutes, all as amended, and the
rules and regulations promulgated thereunder, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any public body
or authority is necessary for the consummation by Randolph County of the
transactions contemplated by this Agreement.
5.03. CAPITALIZATION.
(a) As of December 31, 1995, Randolph County had 60,000 shares of
common stock authorized, no par value per share, 27,555 shares of which
were issued and outstanding. Such issued and outstanding shares of
Randolph County common stock have been duly and validly authorized by all
necessary corporate action of Randolph County, are validly issued, fully
paid and nonassessable and have not been issued in violation of any
preemptive rights of any shareholders. Randolph County has no intention or
obligation to authorize or issue additional shares of its common stock.
Randolph County has not authorized the issuance of any other class of
stock. On a consolidated basis as of December 31, 1995, Randolph County
had total capital of $8,902,996, which consisted of common
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stock of $2,755,500, additional capital of $709,036, retained earnings of
$5,399,994, and unrealized gain of $38,466.
(b) As of December 31, 1995, Bank had 1,000 shares of common stock
authorized, $100.00 par value per share, all of which shares were issued
and outstanding to Randolph County. Such issued and outstanding shares of
Bank common stock have been duly and validly authorized by all necessary
corporate action of Bank, are validly issued, fully paid and nonassessable,
and have not been issued in violation of any preemptive rights of any Bank
shareholders. All the issued and outstanding shares of Bank common stock
are owned by Randolph County free and clear of all liens, pledges, charges,
claims, encumbrances, restrictions, security interests, options and
preemptive rights and of all other rights of any other person, corporation
or entity with respect thereto. As of December 31, 1995, Bank had total
capital of $8,906,739, which consisted of common stock of $100,000, capital
surplus of $2,500,000, undivided profits of $6,268,273, and unrealized gain
of $38,466.
(c) There are no options, commitments, calls, agreements,
understandings, arrangements or subscription rights regarding the issuance,
purchase or acquisition of capital stock, or any securities convertible
into or representing the right to purchase or otherwise receive the capital
stock or any debt securities, of Randolph County or Bank by which Randolph
County or Bank is or may become bound. Neither Randolph County or Bank has
any outstanding contractual or other obligation to repurchase, redeem or
otherwise acquire any of its respective outstanding shares of capital
stock.
(d) Except as set forth in the Disclosure Letter, no person or entity
beneficially owns 5% or more of Randolph County's outstanding shares of
common stock.
5.04. ORGANIZATIONAL DOCUMENTS. The respective Articles of Incorporation
or Association and By-Laws of Randolph County and Bank have been delivered to
First Merchants and represent true, accurate and complete copies of such
corporate documents of Randolph County and Bank in effect as of the date of this
Agreement.
5.05. COMPLIANCE WITH LAW. Neither Randolph County nor Bank has engaged
in any activity nor taken or omitted to take any action which has resulted or,
to the knowledge of Randolph County could result, in the violation of any local,
state, federal or foreign law, statute, rule, regulation or ordinance or of any
order, injunction, judgment or decree of any court or government agency or
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body, the violation of which could materially affect the business, prospects,
condition (financial or otherwise) or results of operations of Randolph County
or Bank. Randolph County and Bank possess all licenses, franchises, permits and
other authorizations necessary for the continued conduct of their respective
businesses without material interference or interruption and such licenses,
franchises, permits and authorizations shall be transferred to First Merchants
on the Effective Date without any restrictions or limitations thereon or the
need to obtain any consents of third parties. All agreements and understandings
with, and all orders and directives of, all regulatory agencies or government
authorities with respect to the business or operations of Randolph County or
Bank, including all correspondence, communications and commitments related
thereto, are set forth in the Disclosure Letter. Bank has received no inquiries
from any regulatory agency or government authority relating to its compliance
with the Bank Secrecy Act, the Truth-in-Lending Act or the Community
Reinvestment Act or any laws with respect to the protection of the environment
or the rules and regulations promulgated thereunder.
5.06. ACCURACY OF STATEMENTS. Neither this Agreement nor any report,
statement, list, certificate or other information furnished or to be furnished
by Randolph County or Bank to First Merchants in connection with this Agreement
or any of the transactions contemplated hereby (including, without limitation,
any information which has been or shall be supplied by Randolph County or Bank
with respect to their businesses, operations and financial condition for
inclusion in the proxy statement and registration statement relating to the
Merger) contains or shall contain (in the case of information relating to the
proxy statement at the time it is mailed and for the registration statement at
the time it becomes effective) any untrue statement of a material fact or omits
or shall omit to state a material fact necessary to make the statements
contained herein or therein not misleading.
5.07. LITIGATION AND PENDING PROCEEDINGS. Except as set forth in the
Disclosure Letter, there are no material claims of any kind, nor any material
action, suits, proceedings, arbitrations or investigations pending or to the
knowledge of Randolph County or Bank threatened in any court or before any
government agency or body, arbitration panel or otherwise (nor does Randolph
County or Bank have any knowledge of a basis for any claim, action, suit,
proceeding, arbitration or investigation) against, by or materially adversely
affecting Randolph County or Bank or their respective officers and/or directors,
businesses, prospects, conditions (financial or otherwise), results of
operations or assets, or which would prevent the performance of this Agreement
or declare the same unlawful or cause the rescission hereof. There are no
material uncured violations, or violations with respect to which material
refunds or restitutions may be required, cited in any compliance
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report to Randolph County or Bank as a result of an examination by any
regulatory agency or body.
5.08. FINANCIAL STATEMENTS.
(a) Randolph County's consolidated balance sheets as of the end of
the three fiscal years ended December 31, 1992, 1993 and 1994 and the nine
months ended September 30, 1995 and the related consolidated statements of
income, shareholders' equity and cash flows for the years or period then
ended (hereinafter collectively referred to as the "Financial Information")
present fairly the consolidated financial condition or position of Randolph
County as of the respective dates thereof and the consolidated results of
operations of Randolph County for the respective periods covered thereby
and have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis. All required regulatory reports
have been filed by Randolph County and Bank with their respective primary
federal regulators during 1995, 1994, 1993 and 1992, are true, accurate and
complete and were prepared in conformity with generally accepted regulatory
accounting principles applied on a consistent basis.
(b) All loans reflected in the Financial Information and which have
been made, extended or acquired since September 30, 1995, (i) have been
made for good, valuable and adequate consideration in the ordinary course
of business; (ii) constitute the legal, valid and binding obligation of the
obligor and any guarantor named therein; (iii) are evidenced by notes,
instruments or other evidences of indebtedness which are true, genuine and
what they purport to be; and (iv) to the extent that Bank has a security
interest in collateral or a mortgage securing such loans, are secured by
perfected security interests or mortgages naming Bank as the secured party
or mortgagee.
5.09. ABSENCE OF CERTAIN CHANGES. Except for events and conditions
relating to the business environment in general or as set forth in the
Disclosure Letter, since September 30, 1995, no events or conditions of any
character, whether actual, threatened or contemplated, have occurred, or, to the
knowledge of Randolph County, can reasonably be expected to occur, which
materially adversely affect Randolph County's or Bank's business, prospects,
conditions (financial or otherwise), assets or results of operations or which
have caused, or can reasonably be expected to cause, Randolph County's or Bank's
business to be conducted in a materially less profitable manner than prior to
September 30, 1995.
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5.10. ABSENCE OF UNDISCLOSED LIABILITIES. Neither Randolph County nor
Bank is a party to any agreement, contract, obligation, commitment, arrangement,
liability, lease or license which individually exceeds $10,000 per year or which
may not be terminated within one year from the date of this Agreement, except as
set forth in the Disclosure Letter and except for unfunded loan commitments made
in the ordinary course of Bank's business consistent with past practices, nor to
the knowledge of Randolph County, does there exist any circumstances resulting
from transactions effected or to be effected or events which have occurred or
may occur or from any action taken or omitted to be taken which could reasonably
be expected to result in any such agreement, contract, obligation, commitment,
arrangement, liability, lease or license.
5.11. TITLE TO ASSETS. Except as set forth in the Disclosure Letter,
Randolph County and Bank have good and marketable title in fee simple absolute
to all real property (including, without limitation, all real property used as
bank holding company or bank premises and all other real estate owned) and
personal property reflected in the Financial Information as of September 30,
1995, good and marketable title to all other properties and assets which
Randolph County or Bank purport to own, good and marketable title to or right to
use by terms of lease or contract all other property used in Randolph County's
or Bank's business and good and marketable title to all property and assets
acquired since September 30, 1995, free and clear of all mortgages, liens,
pledges, restrictions, security interests, charges, claims or encumbrances of
any nature. All real property owned by Randolph County or Bank is in compliance
with all applicable zoning laws and all laws, statutes, rules, regulations and
ordinances relating to the environment, pollution and the treatment, storage,
disposal, discharge or release of chemicals and hazardous or toxic substances or
wastes.
5.12. LOANS AND INVESTMENTS.
(a) Except as set forth in the Disclosure Letter, there is no loan of
Bank in excess of $10,000 that has been classified by bank regulatory
examiners as "Other Loans Specially Mentioned," "Substandard," "Doubtful"
or "Loss," nor is there any loan of Bank in excess of $10,000 that has been
identified by accountants or auditors (internal or external) as having a
significant risk of uncollectibility.
Bank's loan watch list and all loans in excess if $10,000 that Bank's
management has determined to be ninety (90) days or more past due with
respect to principal or interest or has placed on nonaccrual status are set
forth in the Disclosure Letter.
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(b) Each of the reserves and allowances for possible loan losses and
the carrying value for real estate owned which are shown on the Financial
Information is, in the opinion of Randolph County and Bank, adequate in all
material respects under the requirements of generally accepted accounting
principles applied on a consistent basis to provide for possible losses on
loans outstanding and real estate owned as of the date of such Financial
Information.
(c) Except as set forth in the Disclosure Letter, none of the
investments reflected in the Financial Information and none of the
investments made by Randolph County or Bank since September 30, 1995 is
subject to any restrictions, whether contractual or statutory, which
materially impairs the ability of Randolph County or Bank to dispose freely
of such investment at any time. Except as set forth in the Disclosure
Letter, neither Randolph County nor Bank are a party to any repurchase
agreements with respect to securities.
5.13. EMPLOYEE BENEFIT PLANS.
(a) The Disclosure Letter contains a list identifying each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which (i) is subject to any
provision of ERISA, and (ii) is maintained, administered or contributed to
by Randolph County or Bank and covers any employee or former employee of
Randolph County or Bank under which Randolph County or Bank has any
liability. Copies of such plans (and, if applicable, related trust
agreements or insurance contracts) and all amendments thereto and written
interpretations thereof have been furnished to First Merchants together
with the three most recent annual reports prepared in connection with any
such plan and the current summary plan descriptions. Such plans are
hereinafter referred to individually as an "Employee Plan" and collectively
as the "Employee Plans." The Employee Plans which individually or
collectively would constitute an "employee pension benefit plan" as defined
in Section 3(2) of ERISA are identified in the list referred to above.
(b) The Employee Plans comply with and have been operated in
accordance with all applicable laws, regulations, rulings and other
requirements the breach or violation of which could materially affect
Randolph County, Bank, or an Employee Plan. Each Employee Plan has been
administered in substantial conformance with such requirements and all
reports and information required with respect to each Employee Plan has
been timely given.
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(c) No "prohibited transaction," as defined in Section 406 of ERISA
or Section 4975 of the Code, for which no statutory or administrative
exemption exists, and no "reportable event," as defined in Section 4043(b)
of ERISA, has occurred with respect to any Employee Plan. Neither Randolph
County or Bank has any liability to the Pension Benefit Guaranty
Corporation ("PBGC"), to the Internal Revenue Service ("IRS"), to the
Department of Labor ("DOL") or to an employee or Employee Plan beneficiary
under Section 502 of ERISA.
(d) No "fiduciary," as defined in Section (3)(21) of ERISA, of an
Employee Plan has failed to comply with the requirements of Section 404 of
ERISA.
(e) Each of the Employee Plans which is intended to be qualified
under Code Section 401(a) has been amended to comply in all material
respects with the applicable requirements of the Code, including the Tax
Reform Act of 1986, the Revenue Act of 1987, the Technical and
Miscellaneous Revenue Act of 1988, the Omnibus Budget Reconciliation Act of
1989, the Revenue Reconciliation Act of 1990, the Tax Extension Act of
1991, the Unemployment Compensation Amendments of 1992, the Omnibus Budget
Reconciliation Act of 1993, and the Retirement Protection Act of 1994 and
any rules, regulations or other requirements promulgated thereunder (the
"Acts"). In addition, each such Employee Plan has been and is being
operated in substantial conformance with the applicable provisions of ERISA
and the Code, as amended by the Acts. Except as set forth in the
Disclosure Letter, Randolph County and/or Bank, as applicable, sought and
received favorable determination letters from the IRS within the applicable
remedial amendment periods under Code Section 401(b), and has furnished to
First Merchants copies of the most recent IRS determination letters with
respect to any such Employee Plan.
(f) Except as set forth in the Disclosure Letter, no Employee Plan
owns any security of Randolph County or Bank.
(g) No Employee Plan has incurred an "accumulated funding
deficiency," as determined under Code Section 412 and ERISA Section 302.
(h) No Employee Plan has been terminated or incurred a partial
termination (either voluntarily or involuntarily).
(i) No claims against an Employee Plan, Randolph County or Bank, with
respect to an Employee Plan, (other than normal benefit claims) have been
asserted or threatened.
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(j) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Randolph County or Bank that, individually
or collectively, could give rise to the payment of any amount that would
not be deductible by reason of Section 280G or Section 162(a)(1) of the
Code.
(k) No event has occurred that would cause the imposition of the tax
described in Code Section 4980B. All requirements of ERISA Section 601
have been met.
(l) The Disclosure Letter contains a list of each employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including
any self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits
or deferred compensation, profit sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (i) is not an Employee Plan, (ii)
was entered into, maintained or contributed to, as the case may be, by
Randolph County or Bank and (iii) covers any employee or former employee of
Randolph County or Bank. Such contracts, plans and arrangements as are
described above, copies or descriptions of all of which have been furnished
previously to First Merchants, are hereinafter referred to collectively as
the "Benefit Arrangements." Each of the Benefit Arrangements has been
maintained in substantial compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangements.
(m) Except as set forth in the Disclosure Letter, neither Randolph
County nor Bank has any present or future liability in respect of
post-retirement health and medical benefits for former employees of
Randolph County or Bank.
(n) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not
written) by Randolph County or Bank relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement
which would increase materially the expense of maintaining such Employee
Plans or Benefit Arrangements above the level of the expense incurred in
respect thereof for the fiscal year ended December 31, 1994.
(o) For purposes of this Section 5.13, references to Randolph County
or Bank are deemed to include (i) all predecessors of Randolph County or
Bank, (ii) any subsidiary
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of Randolph County or Bank, (iii) all members of any controlled group (as
determined under Code Section 414(b) or (c)) that includes Randolph County
or Bank, and (iv) all members of any affiliated service group (as
determined under Code Section 414(m) or (n)) that includes Randolph County
or Bank.
5.14 OBLIGATIONS TO EMPLOYEES. Except as set forth in the Disclosure
Letter, all accrued obligations and liabilities of Randolph County and Bank,
whether arising by operation of law, by contract or by past custom, for payments
to trust or other funds, to any government agency or body or to any individual
director, officer, employee or agent (or his heirs, legatees or legal
representative) with respect to unemployment compensation or social security
benefits and all pension, retirement, savings, stock purchase, stock bonus,
stock ownership, stock option, stock appreciation rights or profit sharing plan,
any employment, deferred compensation, consultant, bonus or collective
bargaining agreement or group insurance contract or other incentive, welfare or
employee benefit plan or agreement maintained by Randolph County or Bank for
their current or former directors, officers, employees and agents have been and
are being paid to the extent required by law or by the plan or contract, and
adequate actuarial accruals and/or reserves for such payments have been and are
being made by Randolph County or Bank in accordance with generally accepted
accounting and actuarial principles. All obligations and liabilities of
Randolph County and Bank, whether arising by operation of law, by contract, or
by past custom, for all forms of compensation which are or may be payable to
their current or former directors, officers, employees or agents have been and
are being paid, and adequate accruals and/or reserves for payment therefor have
been and are being made in accordance with generally accepted accounting
principles. All accruals and reserves referred to in this Section 5.14, are
correctly and accurately reflected and accounted for in the books, statements
and records of Randolph County and Bank.
5.15. TAXES, RETURNS AND REPORTS. Randolph County and Bank have (a) duly
filed all federal, state, local and foreign tax returns of every type and kind
required to be filed as of the date hereof, and each return is true, complete
and accurate in all material respects; (b) paid in all materials respects all
taxes, assessments and other governmental charges due or claimed to be due upon
them or any of their income, properties or assets; and (c) not requested an
extension of time for any such payments (which extension is still in force).
Except for taxes not yet due and payable, the reserve for taxes on the Financial
Information is adequate to cover all of Randolph County's and Bank's tax
liabilities (including, without limitation, income taxes and franchise fees)
that may become payable in future years with
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respect to any transactions consummated prior to December 31, 1994. Neither
Randolph County nor Bank has or will have, any liability for taxes of any nature
for or with respect to the operation of their business, including the assets of
any subsidiary, from December 31, 1994 up to and including the Effective Date,
except to the extent reflected on their Financial Information or on financial
statements of Randolph County or Bank subsequent to such date and as set forth
in the Disclosure Letter. Neither Randolph County nor Bank is currently under
audit by any state or federal taxing authority. Except as set forth in the
Disclosure Letter, neither the federal, state, or local tax returns of Randolph
County or Bank have been audited by any taxing authority during the past five
(5) years.
5.16. DEPOSIT INSURANCE. The deposits of Bank are insured by the Federal
Deposit Insurance Corporation ("FDIC") in accordance with the Federal Deposit
Insurance Act, and Bank has paid all premiums and assessments with respect to
such deposit insurance.
5.17. BROKER'S OR FINDER'S FEES. Except as set forth in the Disclosure
Letter, no agent, broker or other person acting on behalf of Randolph County or
Bank or under any authority of Randolph County or Bank is or shall be entitled
to any commission, broker's or finder's fee or any other form of compensation or
payment from any of the parties hereto, other than attorneys' or accountants'
fees, in connection with any of the transactions contemplated by this Agreement.
5.18. BRING DOWN OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Randolph County and Bank contained in this Section 5 shall be
true, accurate and correct on and as of the Effective Date except as affected by
the transactions contemplated by and specified within the terms of this
Agreement.
5.19. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Section 5 shall expire on the Effective Date,
and thereafter Randolph County and Bank and all directors, officers and
employees of Randolph County and Bank shall have no further liability with
respect thereto unless a court of competent jurisdiction should determine that
any misrepresentation or breach of a warranty was willfully or intentionally
caused either by action or inaction.
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SECTION 6
REPRESENTATIONS AND
WARRANTIES OF FIRST MERCHANTS
First Merchants hereby represents and warrants to Randolph County as
follows:
6.01. ORGANIZATION AND QUALIFICATION. First Merchants is a corporation
organized and existing under the laws of the State of Indiana and has the
corporate power and authority to conduct its business in the manner and by the
means utilized as of the date hereof.
6.02. AUTHORIZATION.
(a) First Merchants has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder subject to
certain required regulatory approvals. The Agreement, when executed and
delivered, will have been duly authorized and will constitute a valid and
binding obligation of First Merchants, enforceable in accordance with its
terms, except to the extent limited by insolvency, reorganization,
liquidation, readjustment of debt, or other laws of general application
relating to or affecting the enforcement of creditor's rights.
(b) Neither the execution of this Agreement, nor the consummation of
the transactions contemplated hereby, does or will (i) conflict with,
result in a breach of, or constitute a default under First Merchant's
Articles of Incorporation or By-laws or, to the best of its knowledge, any
federal, foreign, state, or local law, statute, ordinance, rule,
regulation, or court or administrative order or decree, or any note, bond,
indenture, mortgage, security agreement, contract, arrangement, or
commitment, to which First Merchants is subject or bound, the result of
which would materially affect the business or financial condition of First
Merchants; (ii) result in the creation of or give any person the right to
create any lien, charge, claim, encumbrance, security interest, or any
other rights of others or other adverse interest upon any right, property
or asset of First Merchants; (iii) terminate or give any person,
corporation or entity the right to terminate, amend, abandon, or refuse to
perform any note, bond, indenture, mortgage, security agreement, contract,
arrangement, or commitment to which First Merchants is a party or by which
First Merchant is subject or bound; or (iv) accelerate or modify, or give
any party thereto the right to accelerate or modify, the time within which,
or the terms according to which, First Merchants is to perform any duties
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or obligations or receive any rights or benefits under any note, bond,
indenture, mortgage, security agreement, contract, arrangement, or
commitment.
(c) Other than in connection or in compliance with the provisions of
the Bank Holding Company Act of 1956, federal and state securities laws,
and applicable Indiana banking and corporate statutes, all as amended, and
the rules and regulations promulgated thereunder, no notice to, filing
with, authorization of, exemption by, or consent or approval of, any public
body or authority is necessary for the consummation by First Merchants of
the transactions contemplated by this Agreement.
6.03. CAPITALIZATION.
(a) At December 31, 1995 First Merchants had 20,000,000 authorized,
no par value, of which 5,053,901 shares were issued and outstanding. The
5,053,901 shares of common stock are validly issued, fully paid and
nonassessable.
(b) First Merchants has 500,000 shares of Preferred Stock authorized,
no par value, no shares of which have been issued and no commitments exist
to issue any of such shares.
(c) Other than in connection with the proposed merger of Union
National Bancorp with and into First Merchants and pursuant to First
Merchant's Dividend Reinvestment and Stock Purchase Plan, Stock Option
Plans and Employee Stock Purchase Plans, there are no options, commitments,
calls or agreements outstanding regarding the issuance of capital stock or
any securities representing the right to purchase or otherwise receive such
stock, or any debt securities of First Merchants. First Merchants does not
have any outstanding contractual obligation to repurchase, redeem, or
otherwise acquire any of its outstanding shares of capital stock.
(d) The shares of First Merchants' common stock to be issued pursuant
to the Merger will be fully paid, validly issued and nonassessable.
6.04. ORGANIZATIONAL DOCUMENTS. The Articles of Incorporation and By-laws
of First Merchants in force as of the date hereof, have been delivered to
Randolph County. The documents delivered by it represent complete and accurate
copies of the corporate documents of First Merchants in effect as of the date of
this Agreement.
6.05. ACCURACY OF STATEMENTS. Neither this Agreement nor any report,
statement, list, certificate or other information furnished
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or to be furnished by First Merchants to Randolph County in connection with this
Agreement or any of the transactions contemplated hereby (including, without
limitation, any information which has been or shall be supplied by First
Merchants with respect to its business, operations and financial condition for
inclusion in the proxy statement and registration statement relating to the
Merger) contains or shall contain (in the case of information relating to the
proxy statement at the time it is mailed and to the registration statement at
the time it become effective) any untrue statement of a material fact or omits
or shall omit to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
6.06. COMPLIANCE WITH LAW. First Merchants has not engaged in any
activity nor taken or omitted to take any action which has resulted or, to the
knowledge of First Merchants, could result in the violation of any local, state,
federal or foreign law, statute, rule, regulation or ordinance or of any order,
injunction, judgment or decree of any court or government agency or body, the
violation of which could materially adversely affect the business, prospects,
condition (financial or otherwise) or results of operations of First Merchants.
First Merchants possesses all licenses, franchises, permits and other
authorizations necessary for the continued conduct of its business without
material interference or interruption. There are no agreements or
understandings with, nor any orders of directives of, any regulatory agencies or
government authorities, which would have a material adverse effect on the
consolidated financial position of First Merchants. First Merchants has
received no written inquiries from any regulatory agency or government authority
relating to its compliance with the Bank Secrecy Act, the Truth-in-Lending Act
or the Community Reinvestment Act.
6.07. FINANCIAL STATEMENTS. First Merchants consolidated balance sheets
as of the end of the three (3) fiscal years ended December 31, 1992, 1993 and
1994 and the nine months ended September 30, 1995 and the related consolidated
statements of income, shareholders' equity and cash flows for the years or
period then ended present fairly the consolidated financial condition or
position of First Merchants as of the respective dates thereof and the
consolidated results of operations of First Merchants for the respective periods
covered thereby and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis. All required regulatory
reports have been filed by First Merchants with its primary federal regulator
during 1995, 1994, 1993 and 1992, are true, accurate and complete and have been
prepared in conformity with generally accepted regulatory accounting principles
applied on a consistent basis.
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6.08. ABSENCE OF CERTAIN CHANGES. Except for events and conditions
relating to the business environment in general, since September 30, 1995, no
events or conditions of any character, whether actual, threatened or
contemplated, have occurred, or can reasonably be expected to occur, which
materially adversely affect First Merchants consolidated business, prospects,
conditions (financial or otherwise), assets or results of operations or which
have caused, or can reasonably be expected to cause, First Merchants business,
on a consolidated basis, to be conducted in a materially less profitable manner
than prior to September 30, 1995.
6.09. FIRST MERCHANTS SECURITIES AND EXCHANGE COMMISSION FILINGS. First
Merchants has filed all reports and other documents required to be filed by it
under the Securities Exchange Act of 1934 and the Securities Act of 1933,
including First Merchants' Annual Report on Form 10-K for the year ended
December 31, 1994, and Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, copies of which have previously been delivered to Randolph
County.
6.10. BRING DOWN OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of First Merchants contained in this Section 6 shall be true,
accurate and correct on and as of the Effective Date except as affected by the
transactions contemplated by and specified within the terms of this Agreement.
6.11. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Section 6 shall expire on the Effective Date,
and thereafter First Merchants and all directors, officers and employees of
First Merchants shall have no further liability with respect thereto unless a
court of competent jurisdiction should determine that any misrepresentation or
breach of a warranty was willfully or intentionally caused either by action or
inaction.
SECTION 7
COVENANTS OF RANDOLPH COUNTY
Randolph County covenants and agrees with First Merchants, and covenants
and agrees to cause Bank to act, as follows:
7.01. SHAREHOLDER APPROVAL. Randolph County shall submit this Agreement
to its shareholders for approval at a meeting to be called and held in
accordance with applicable law and the Articles of Incorporation and By-Laws of
Randolph County at the earliest possible reasonable date, and the Board of
Directors of Randolph County shall subject to their fiduciary duties recommend
to the
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shareholders of Randolph County that such shareholders approve this Agreement.
7.02. OTHER APPROVALS. Randolph County and Bank shall proceed
expeditiously, cooperate fully and use their best efforts to procure upon
reasonable terms and conditions all consents, authorizations, approvals,
registrations and certificates, to complete all filings and applications and to
satisfy all other requirements prescribed by law which are necessary for
consummation of the Merger on the terms and conditions provided in this
Agreement at the earliest possible reasonable date.
7.03. CONDUCT OF BUSINESS.
(a) On and after the date of this Agreement and until the Effective
Date or until this Agreement shall be terminated as herein provided,
neither Randolph County nor Bank shall, without the prior written consent
of First Merchants, (i) make any material changes in their capital
structure; (ii) authorize a class of stock or issue, or authorize the
issuance of, stock other than or in addition to the outstanding stock as
set forth in Section 5.03 hereof; (iii) declare, distribute or pay any
dividends on their shares of common stock, or authorize a stock split, or
make any other distribution to their shareholders, except for (a) the
payment by Randolph County prior to the Effective Date of quarterly cash
dividends on its common stock in April, 1996 (for the first fiscal quarter)
and July, 1996 (for the second fiscal quarter), which dividends shall not
exceed One and 50/100 Dollars ($1.50) and One and 50/100 Dollars ($1.50)
per share, respectively, provided that Randolph County shall not pay any
such dividend with respect to any fiscal quarter in which the Merger shall
become effective and in which Randolph County shareholders will become
entitled to receive dividends on the shares of First Merchants into which
the shares of Randolph County have been converted, and (b) the payment by
the Bank to Randolph County of dividends to pay Randolph County's expenses
of operations and its business and payment of fees and expenses incurred in
connection with the transactions contemplated by this Agreement; (iv)
merge, combine or consolidate with or sell their assets or any of their
securities to any other person, corporation or entity, effect a share
exchange or enter into any other transaction not in the ordinary course of
business; (v) incur any liability or obligation, make any commitment,
payment or disbursement, enter into any contract, agreement, understanding
or arrangement or engage in any transaction, or acquire or dispose of any
property or asset having a fair market value in excess of $10,000.00
(except for personal or real property acquired or disposed of in connection
with foreclosures on mortgages or enforcement of
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security interests and loans made or sold by Bank in the ordinary course of
business); (vi) subject any of their properties or assets to a mortgage,
lien, claim, charge, option, restriction, security interest or encumbrance;
(vii) promote or increase or decrease the rate of compensation (except for
promotions and non-material increases in the ordinary course of business
and in accordance with past practices) or enter into any agreement to
promote or increase or decrease the rate of compensation of any director,
officer or employee of Randolph County or Bank; (viii) execute, create,
institute, modify or amend any pension, retirement, savings, stock
purchase, stock bonus, stock ownership, stock option, stock appreciation or
depreciation right or profit sharing plans, any employment, deferred
compensation, consultant, bonus or collective bargaining agreement, group
insurance contract or other incentive, welfare or employee benefit plan or
agreement for current or former directors, officers of employees of
Randolph County or Bank, change the level of benefits or payments under any
of the foregoing or increase or decrease any severance or termination of
pay benefits or any other fringe or employee benefits other than as
required by law or regulatory authorities; (ix) amend their Articles of
Incorporation or By-Laws from those in effect on the date of this
Agreement; (x) modify, amend or institute new employment policies or
practices, or enter into, renew or extend any employment or severance
agreements with respect to any present or former Randolph County or Bank
directors, officers or employees; (xi) give, dispose, sell, convey, assign,
hypothecate, pledge, encumber or otherwise transfer or grant a security
interest in any common stock of Bank; and (xii) fail to make additions to
Bank's reserve for loan, losses, or any other reserve account, in the
ordinary course of business and in accordance with sound banking practices.
(b) Randolph County and Bank shall maintain, or cause to be
maintained, in full force and effect insurance on its properties and
operations and fidelity coverage on its directors, officers and employees
in such amounts and with regard to such liabilities and hazards as
customarily are maintained by other companies operating similar businesses.
(c) Randolph County and Bank shall continue to give to First
Merchants and its employees, accountants, attorneys and other authorized
representatives reasonable access during regular business hours and other
reasonable times to all their premises, properties, statements, books and
records.
7.04. PRESERVATION OF BUSINESS. On and after the date of this Agreement
and until the Effective Date or until this Agreement is terminated as herein
provided. Randolph County and Bank each
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shall (a) carry on their business diligently, substantially in the same manner
as heretofore conducted, and in the ordinary course of business; (b) use their
best efforts to preserve their business organizations intact, to keep their
present officers and employees and to preserve their present relationship with
customers and others having business dealings with them; and (c) not do or fail
to do anything which will cause a material breach of, or material default in,
any contract, agreement, commitment, obligation, understanding, arrangement,
lease or license to which they are a party or by which they are or may be
subject or bound.
7.05. OTHER NEGOTIATIONS. Except with the prior written approval of First
Merchants, on and after the date of this Agreement and until the Effective Date,
Randolph County and Bank shall not, and shall not permit or authorize their
respective directors, officers, employees, agents or representatives to,
directly or indirectly, initiate, solicit, encourage, or engage in discussions
or negotiations with, or provide information to, any corporation, association,
partnership, person or other entity or group concerning any merger,
consolidation, share exchange, combination, purchase or sale of substantial
assets, sale of shares of capital stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing the right to acquire, capital stock), tender offer, acquisition of
control of Randolph County or Bank or similar transaction involving Randolph
County or Bank (all such transactions hereinafter referred to as "Acquisition
Transactions"). Randolph County and Bank shall promptly communicate to First
Merchants the terms of any proposal, written or oral, which either may receive
with respect to an Acquisition Transaction and any request by or indication of
interest on the part of any third party with respect to initiation of any
Acquisition Transaction or discussion with respect thereto.
7.06. RESTRICTIONS REGARDING AFFILIATES. Randolph County shall, within 30
days after the date of this Agreement and promptly thereafter until the
Effective Date to reflect any changes, provide First Merchants with a list
identifying each person who may be deemed to be an "affiliate" of Randolph
County for purposes of Rule 145 under the Securities Act of 1933, as amended
("1933 Act"). Each director, executive officer and other person who is an
"affiliate" of Randolph County for purposes of the 1933 Act shall deliver to
First Merchants on or prior to the Effective Date hereunder a written agreement,
in form and substance satisfactory to counsel to First Merchants, providing that
such person will not sell, pledge, transfer, dispose of or otherwise reduce his
market risk with respect to shares of First Merchants common stock to be
received by such person pursuant to this Agreement (a) during the period 30 days
prior to the Effective Date, (b) until such time as financial results covering
at least 30 days of combined operations of First Merchants and Randolph County
have been published within
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the meaning of Section 201.01 of the Securities and Exchange Commission's
Codification of Financial Reporting Policies, and (c) unless such sales are
pursuant to an effective registration statement under the 1933 Act or pursuant
to Rule 145 of the Securities and Exchange Commission or another exemption from
the 1933 Act.
7.07. PRESS RELEASE. Neither Randolph County or Bank shall issue any
press releases or make any other public announcements or disclosures relating to
the Merger without the prior approval of First Merchants.
7.08. DISCLOSURE LETTER UPDATE. Randolph County shall promptly
supplement, amend and update monthly and as of the Effective Date the Disclosure
Letter with respect to any matters hereafter arising which, if in existence or
having occurred as of the date of this Agreement, would have been required to be
set forth or described in the Disclosure Letter.
SECTION 8
COVENANTS OF FIRST MERCHANTS
First Merchants covenants and agrees with Randolph County as follows:
8.01. APPROVALS. First Merchants shall proceed expeditiously, cooperate
fully and use its best efforts to procure upon reasonable terms and conditions
all consents, authorizations, approvals, registrations and certificates, to
complete all filings and applications and to satisfy all other requirements
prescribed by law which are necessary for consummation of the Merger on the
terms and conditions provided in this Agreement. First Merchants shall provide
Randolph County with copies of proposed regulatory filings in connection with
the Merger and afford Randolph County the opportunity to offer comment on the
filings before filing. The approval of First Merchants shareholders of the
transactions contemplated by this Agreement is not required.
8.02. EMPLOYEE BENEFIT PLANS. Within one (1) year following the Effective
Date, First Merchants will permit Bank employees to participate in any
tax-qualified retirement plan First Merchants maintains for its employees,
provided that such an employee meets the applicable participation requirements,
in lieu of the Bank's current tax-qualified retirement plan. Until that time,
the Bank's current tax-qualified retirement plan will be maintained at the same
level, with respect to benefit accruals, provided for on the Effective Date.
Following the Effective Date, Bank employees will otherwise receive employee
benefits that in the aggregate are
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substantially comparable to the employee benefits provided to those employees by
Randolph County or the Bank on the Effective Date. For purposes of determining
a Randolph County or Bank employee's eligibility and vesting service under a
First Merchant's employee benefit plan that the employee is permitted to enter,
service with Randolph County or Bank will be treated as service with First
Merchants; provided, however, that service with Randolph County or Bank will not
be treated as service with First Merchants for purposes of benefit accrual.
8.03. FIRST MERCHANTS BOARD OF DIRECTORS. In connection with the first
annual meeting of the shareholders of First Merchants following the Effective
Date, First Merchants shall cause all necessary action to be taken to cause the
current Chairman of the Board of the Bank, Michael Wickersham, to be nominated
for election as a member of the First Merchants' Board of Directors for a three
(3)-year term.
8.04. PRESS RELEASE. Except as required by law, First Merchants shall not
issue any press release to any national wire service relating solely to the
Merger without the prior approval of Randolph County.
8.05. CONFIDENTIALITY. First Merchants shall, and shall use its best
efforts to cause its officers, employees, and authorized representatives to,
hold in strict confidence all confidential data and information obtained by it
from Randolph County or Bank, unless such information (i) was already known to
First Merchants, (ii) becomes available to First Merchants from other sources,
(iii) is independently developed by First Merchants, (iv) is disclosed outside
of First Merchants with and in accordance with the terms of prior written
approval of Randolph County or Bank , or (v) is or becomes readily ascertainable
from public or published information or trade sources or public disclosure of
such information is required by law or requested by a court or other
governmental agency, commission, or regulatory body. First Merchants further
agrees that in the event the Agreement is terminated, it will return to Randolph
County all information obtained by First Merchants regarding Randolph County or
Bank, including all copies made of such information by First Merchants.
8.06. COVENANTS REGARDING THE BANK. Upon consummation of the Merger, the
Bank shall be a bank organized under the laws of the State of Indiana and the
officers and directors of the Bank in office immediately prior to the
consummation of the Merger shall be the officers and directors of the Bank at
the Effective Date subject to the provisions of the Bank's Articles of
Incorporation and By-Laws. The Bank directors will be subject to First
Merchants' policy of mandatory retirement at age seventy (70); provided,
however, the policy of mandatory retirement will not
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apply to any of the Bank's current directors until twelve (12) months after the
Effective Date. First Merchants intends to continue to operate the Bank as an
operating subsidiary of First Merchants under the name "The Randolph County
Bank."
SECTION 9
CONDITIONS PRECEDENT TO THE MERGER
The obligation of each of the parties hereto to consummate the transaction
contemplated by this Agreement is subject to the satisfaction and fulfillment of
each of the following conditions on or prior to the Effective Date:
9.01. SHAREHOLDER APPROVAL. The shareholders of Randolph County shall
have approved, ratified and confirmed this Agreement as required by applicable
law.
9.02. REGISTRATION STATEMENT EFFECTIVE. First Merchants shall have
registered its shares of common stock to be issued to shareholders of Randolph
County in accordance with this Agreement with the Securities and Exchange
Commission pursuant to the 1933 Act, and all state securities and "blue sky"
approvals and authorizations required to offer and sell such shares shall have
been received by First Merchants. The registration statement with respect
thereto shall have been declared effective by the Securities and Exchange
Commission and no stop order shall have been issued or threatened.
9.03. TAX OPINION. The parties shall have obtained an opinion of counsel
which shall be in form and content satisfactory to counsel for all parties
hereto, to the effect that the Merger effected pursuant to this Agreement shall
constitute a tax-free transaction (except to the extent cash is received) to
each party hereto and to the shareholders of each party. Such opinion shall be
based upon factual representations received by such counsel from the parties,
which representations may take the form of written certifications.
9.04. AFFILIATE AGREEMENTS. First Merchants shall have obtained (a) from
Randolph County, a list identifying each affiliate of Randolph County and (b)
from each affiliate of Randolph County, the agreements contemplated by Section
7.06 hereof.
9.05. REGULATORY APPROVALS. The Board of Governors of the Federal Reserve
System and the Indiana Department of Financial Institutions shall have
authorized and approved the Merger and the transactions related thereto. In
addition, all appropriate orders,
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consents, approvals and clearances from all other regulatory agencies and
governmental authorities whose orders, consents, approvals or clearances are
required by law for consummation of the transactions contemplated by this
Agreement shall have been obtained.
9.06. OFFICER'S CERTIFICATE. First Merchants and Randolph County shall
have delivered to each other a certificate signed by their Chairman or President
and their Secretary, dated the Effective Date, certifying that (a) all the
representations and warranties of their respective corporations are true,
accurate and correct on and as of the Effective Date; (b) all the covenants of
their respective corporations have been complied with from the date of the
Agreement through and as of the Effective Date; and (c) their respective
corporations have satisfied and fully complied with all conditions necessary to
make this Agreement effective as to them.
9.07. FAIRNESS OPINION. Randolph County shall have obtained an opinion
from an investment banker of its choosing to the effect that the terms of the
Merger, is fair to the shareholders of Randolph County from a financial
viewpoint. Such opinion shall be (a) in form and substance reasonably
satisfactory to Randolph County, (b) dated as of a date not later than the
mailing date of the Proxy Statement relating to the Merger and (c) included in
the Proxy Statement.
9.08. POOLING OF INTERESTS. First Merchants shall have obtained from its
independent accountants, Geo. S. Olive & Co. LLC, a letter stating that, based
upon their review of such documents and information which they deemed relevant,
such firm is currently unaware of any reason why the Merger cannot be accounted
for as a "pooling of interests."
SECTION 10
TERMINATION OF MERGER
10.01. MANNER OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Effective Date by
written notice delivered by First Merchants to Randolph County or by Randolph
County to First Merchants:
(a) By Randolph County or First Merchants, if there has been a
material misrepresentation, a breach of warranty or a failure to comply
with any covenant on the part of any party in the representation,
warranties, and covenants set forth
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herein; provided the party in default shall have no right to terminate for
its own default;
(b) By Randolph County or First Merchants, if it shall determine in
its sole discretion that the transactions contemplated by this Agreement
have become inadvisable or impracticable by reason of commencement or
threat of material litigation or proceedings against any of the parties;
(c) By Randolph County or First Merchants, if the financial
condition, business, assets, or results of operations of the other party
shall have been materially and adversely changed from that in existence at
September 30, 1995;
(d) By Randolph County or First Merchants, if the transaction
contemplated herein has not been consummated by September 30, 1996;
(e) By First Merchants if any of the items, events or information set
forth in any update to the Disclosure Letter has had or may have a material
adverse effect on the financial condition, results of operations, business,
or prospects of Randolph County or Bank;
(f) By First Merchants or Randolph County if the Merger will not
constitute a tax-free reorganization under the Code; or
(g) By First Merchants if the Merger cannot be accounted for as a
"pooling of interests."
10.02. EFFECT OF TERMINATION. Upon termination by written notice, as
provided in this Section, this Agreement shall be void and of no further force
or effect and there shall be no obligation on the part of Randolph County or
First Merchants or their respective officers, directors, employees, agents, or
shareholders, except for payment of their respective expenses and First
Merchants obligations under Section 8.05.
SECTION 11
EFFECTIVE DATE OF MERGER
Subject to the terms and upon satisfaction of all requirements of law and
the conditions specified in this Agreement, the Merger shall become effective at
the close of business on the day specified in the Articles of Merger of Randolph
County with and into First Merchants as filed with the Secretary of State of
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Indiana ("Effective Date"). The Effective Date shall occur no later than the
last business day of the month in which that thirty (30) day period following
the last approval of the Merger by a federal regulatory agency or governmental
authority expires.
SECTION 12
CLOSING
12.01. CLOSING DATE AND PLACE. The closing of the Merger ("Closing")
shall take place at the main office of First Merchants on the Effective Date.
12.02. ARTICLES OF MERGER. Subject to the provisions of this Agreement,
on the Effective Date, the Articles of Merger shall be duly filed with the
Secretary of State of the State of Indiana.
12.03. OPINIONS OF COUNSEL. At the Closing, Randolph County shall deliver
an opinion of its counsel, Cook & Haviza, to First Merchants, and First
Merchants shall deliver an opinion of its counsel, Bingham Summers Welsh &
Spilman, to Randolph County, dated as of the date of the Closing and
substantially in the form set forth in Exhibit A and Exhibit B, respectively,
attached hereto.
SECTION 13
MISCELLANEOUS
13.01. EFFECTIVE AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but none of the provisions thereof shall inure to the benefit
of any other person, firm, or corporation whomsoever. Neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned or
transferred by either party hereto without the prior written consent of the
other party.
13.02. WAIVER; AMENDMENT.
(a) First Merchants and Randolph County may, by an instrument in
writing executed in the same manner as this Agreement: (i) extend the time
for the performance of any of the covenants or agreements of the other
party under this Agreement; (ii) waive any inaccuracies in the
representations or warranties of the other party contained in this
Agreement or in any document delivered pursuant hereto or thereto; (iii)
waive the performance by the other party of any of the covenants or
agreements to be performed by it or them under
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this Agreement; or (iv) waive the satisfaction or fulfillment of any
condition the nonsatisfaction or nonfulfillment of which is a condition to
the right of the party so waiving to terminate this Agreement. The waiver
by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any other or subsequent breach
hereunder.
(b) Notwithstanding approval by the shareholders of Randolph County,
this Agreement may be amended, modified, or supplemented by the written
agreement of Randolph County and First Merchants without further approval
of such shareholders, except that no such amendment, modification, or
supplement shall result in a decrease in the consideration specified in
Section 3 hereof or shall materially adversely affect the rights of
shareholders of Randolph County without the further approval of such
shareholders.
13.03. NOTICES. Any notice required or permitted by this Agreement shall
be deemed to have been duly given if delivered in person, receipted for or sent
by certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to First Merchants: With a copy to:
200 E. Jackson Street Bingham Summers Welsh & Spilman
Box 792 2700 Market Tower
Muncie, IN 47305 10 West Market Street
Attn: Stefan S. Anderson, Indianapolis, Indiana 46204-2982
President Attn: David R. Prechtel, Esq.
If to Randolph County: With a copy to:
122 West Washington St. Cook & Haviza
Winchester, IN 47394 111 North Main Street
Attn: Max Gordon, Winchester, IN 47384
Chairman Attn: John T. Cook, Esq.
or such substituted address as any of them have given to the other in writing.
13.04. HEADINGS. The headings in this Agreement have been inserted solely
for the ease of reference and should not be considered in the interpretation or
construction of this Agreement.
13.05. SEVERABILITY. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other
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provision of this Agreement, but this Agreement shall be construed as if such
invalid, illegal, or unenforceable provision or provisions had never been
contained herein.
13.06. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
13.07. GOVERNING LAW. This Agreement is executed in and shall be
construed in accordance with the laws of the State of Indiana.
13.08. ENTIRE AGREEMENT. This Agreement supersedes any other agreement,
whether oral or written, between First Merchants and Randolph County relating to
the matters contemplated hereby, and constitutes the entire agreement between
the parties hereto.
13.09. EXPENSES. First Merchants and Randolph County shall each pay their
own expenses incidental to the transactions contemplated hereby. It is
understood that the cost of the fairness opinion referenced in Section 9.07
shall be borne by Randolph County whether or not the Merger is consummated.
IN WITNESS WHEREOF, First Merchants and Randolph County have made and
entered into this Agreement as of the day and year first above written and have
caused this Agreement to be executed and attested by their duly authorized
officers.
FIRST MERCHANTS CORPORATION
ATTEST:
/S/ Rodney A. Medler By /S/ Stefan S. Anderson
- ----------------------------- -----------------------------
Rodney A. Medler, Secretary Stefan S. Anderson, President
RANDOLPH COUNTY BANCORP
ATTEST:
/S/ William H. Ward By /S/ Max Gordon
- ----------------------------- -----------------------------
William Ward, Secretary Max Gordon, Chairman
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AGREEMENT OF REORGANIZATION AND MERGER
BETWEEN
\
FIRST MERCHANTS CORPORATION
AND
UNION NATIONAL BANCORP
THIS AGREEMENT OF REORGANIZATION AND MERGER ("Agreement"), is entered this
24th day of January, 1996, by and between FIRST MERCHANTS CORPORATION ("First
Merchants") and UNION NATIONAL BANCORP ("Union National").
W I T N E S S E T H:
WHEREAS, First Merchants is a corporation duly organized and existing under
the laws of the State of Indiana and a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, with its principal place of
business in Muncie, Delaware County, Indiana.
WHEREAS, Union National is a corporation duly organized and existing under
the laws of the State of Indiana and a registered bank holding company under the
Bank Holding Company Act of 1956, as amended, with its principal place of
business in Liberty, Union County, Indiana.
WHEREAS, The Union County National Bank of Liberty (the "Bank") is a
national bank duly organized and existing under the laws of the United States
and a wholly-owned subsidiary of Union National with its principal banking
office in Liberty, Union County, Indiana.
WHEREAS, it is the desire of First Merchants and Union National to effect a
transaction whereby the Bank will become a wholly-owned subsidiary of First
Merchants through a statutory merger of Union National with and into First
Merchants.
WHEREAS, a majority of the entire Board of Directors of First Merchants and
a majority of the entire Board of Directors of Union National have approved this
Agreement, designated it as a plan of reorganization within the provisions of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), and authorized its execution.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
agreements herein contained and other good and valuable consideration, the
receipt of which is hereby acknowledged, First Merchants and Union National
hereby make this Agreement and prescribe the terms and conditions of the merger
of
<PAGE>
Union National with and into First Merchants and the mode of carrying the
transaction into effect as follows:
SECTION 1
THE MERGER
Subject to the terms and conditions of this Agreement, on the Effective
Date, as defined in Section 11 hereof, Union National shall be merged into and
under the Articles of Incorporation of First Merchants, which shall be the
"Continuing Company" and which shall continue its corporate existence under the
laws of the State of Indiana, pursuant to the provisions of and with the effect
provided in the Indiana Business Corporation Law and particularly Indiana Code
chapter 23-1-40 (the "Merger").
SECTION 2
EFFECT OF THE MERGER
Upon the Merger becoming effective:
2.01. GENERAL DESCRIPTION. The separate existence of Union National shall
cease and the Continuing Company shall possess all of the assets of Union
National including all of the issued and outstanding shares of capital stock of
the Bank and all of its rights, privileges, immunities, powers, and franchises
and shall be subject to and assume all of the duties and liabilities of Union
National.
2.02. NAME, OFFICES, AND MANAGEMENT. The name of the Continuing Company
shall continue to be "First Merchants Corporation." Its principal banking
office shall be located at 200 E. Jackson Street, Muncie, Indiana. The Board of
Directors of the Continuing Company, until such time as their successors have
been elected and qualified, shall consist of the current Board of Directors of
First Merchants. The officers of First Merchants immediately prior to the
Effective Date shall continue as the officers of the Continuing Company.
2.03. CAPITAL STRUCTURE. The amount of capital stock of the Continuing
Company shall not be less than the capital stock of First Merchants immediately
prior to the Effective Date increased by the amount of capital stock issued in
accordance with Section 3 hereof.
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2.04. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and Bylaws of the Continuing Company shall be those of First Merchants
immediately prior to the Effective Date until the same shall be further amended
as provided by law.
2.05. ASSETS AND LIABILITIES. The title to all assets, real estate and
other property owned by First Merchants and Union National shall vest in the
Continuing Company without reversion or impairment. All liabilities of Union
National shall be assumed by the Continuing Company.
SECTION 3
CONSIDERATION TO BE
DISTRIBUTED TO SHAREHOLDERS OF UNION NATIONAL
3.01. CONSIDERATION. Upon and by reason of the Merger becoming effective,
shareholders of Union National of record on the Effective Date who have not
dissented to the Merger in accordance with Indiana Code Chapter 23-1-44 shall be
entitled to receive four and 86/100 (4.86) shares of First Merchants common
stock for each share of Union National common stock held.
3.02. NO FRACTIONAL FIRST MERCHANTS COMMON SHARES. Certificates for
fractional shares of common stock of First Merchants shall not be issued in
respect of fractional interests arising from the exchange ratio, aggregating all
shares of First Merchants common stock to be received by each shareholder of
Union National. Each Union National shareholder who would otherwise have been
entitled to a fraction of a First Merchants share, upon surrender of all of
his/her certificates representing Union National common shares, shall be paid in
cash in an amount equal to the fraction of the average of the closing price of
First Merchants common stock as quoted by NASDAQ for the five trading days
preceding the Effective Date.
3.03. RECAPITALIZATION. If, between the date of this Agreement and the
Effective Date, First Merchants issues a stock dividend with respect to its
shares of common stock, combines, subdivides, or splits up its outstanding
shares or takes any similar recapitalization action, then the number of shares
of First Merchants common stock into which each outstanding Union National share
will be converted under Section 3.01 hereof shall be adjusted so that each Union
National shareholder shall receive such number of First Merchants shares as
represents the same percentage of outstanding shares of First Merchants common
stock at the Effective Date as would have been represented by the number of
shares such shareholder would have received if the recapitalization had not
occurred.
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3.04. DISTRIBUTION OF FIRST MERCHANTS COMMON STOCK AND CASH.
(a) Following the Effective Date, distribution of stock certificates
representing First Merchants common stock and cash payments for fractional
shares shall be made by First Merchants to each former shareholder of Union
National within ten (10) days of such shareholder's delivery of his/her
certificates representing common stock of Union National to the conversion
agent, First Merchants Bank (the "Conversion Agent"). Interest shall not
accrue or be payable with respect to any cash payments.
(b) Following the Effective Date, stock certificates representing
Union National common stock shall be deemed to evidence only the right to
receive ownership of First Merchants common stock (for all corporate
purposes other than the payment of dividends) and cash for fractional
shares, as applicable. No dividends or other distributions otherwise
payable subsequent to the Effective Date on stock of First Merchants shall
be paid to any shareholder entitled to receive the same until such
shareholder has surrendered his/her certificates for Union National common
stock to the Conversion Agent in exchange for certificates representing
First Merchants common stock and cash. Upon surrender, there shall be paid
to the recordholder of the new certificate(s) evidencing shares of First
Merchants common stock, the amount of all dividends and other
distributions, without interest thereon, withheld with respect to such
common stock.
(c) First Merchants shall be entitled to rely upon the stock transfer
books of Union National to establish the persons entitled to receive cash
and shares of common stock of First Merchants, which books, in the absence
of actual knowledge by First Merchants of any adverse claim thereto, shall
be conclusive with respect to the ownership of such stock.
(d) With respect to any certificate for shares of Union National
common stock which has been lost, stolen, or destroyed, First Merchants
shall be authorized to issue common stock to the registered owner of such
certificate upon receipt of an affidavit of lost stock certificate, in form
and substance satisfactory to First Merchants, and upon compliance by the
Union National shareholder with all procedures historically required by
Union National in connection with lost, stolen, or destroyed certificates.
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(e) Stock certificates that name Bank as issuer but represent Union
National common stock shall be deemed stock certificates representing Union
National common stock in connection with the Merger and for the purposes of
rights and obligations under this Agreement.
SECTION 4
DISSENTING SHAREHOLDERS
Shareholders of Union National shall have the rights accorded to dissenting
shareholders under Indiana Code Chapter 23-1-44.
SECTION 5
REPRESENTATIONS AND
WARRANTIES OF UNION NATIONAL
Union National represents and warrants to First Merchants with respect to
itself and the Bank as follows: (For the purposes of this Section, a
"Disclosure Letter" is defined as a letter referencing Section 5 of this
Agreement which shall be prepared and executed by an authorized executive
officer of Union National and delivered to and initialed by an authorized
executive officer of First Merchants contemporaneous with the execution of this
Agreement.)
5.01. ORGANIZATION AND AUTHORITY. Union National is a corporation duly
organized and validly existing under the laws of the State of Indiana, and Bank
is a national bank duly organized and validly existing under the laws of the
United States. Union National and Bank have the power and authority (corporate
and other) to conduct their respective businesses in the manner and by the means
utilized as of the date hereof. Union National's only subsidiary is Bank, and
Bank has no subsidiaries. Bank is subject to primary federal regulatory
supervision and regulation by the Office of the Comptroller of the Currency.
5.02. AUTHORIZATION.
(a) Union National has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. This
Agreement, when executed and delivered, will have been duly authorized and
will constitute a valid and binding obligation of Union National,
enforceable in accordance with its terms except to the extent limited by
insolvency, reorganization, liquidation,
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readjustment of debt or other laws of general application relating to or
affecting the enforcement of creditors' rights.
(b) Neither the execution of this Agreement, nor the consummation of
the transactions contemplated hereby, does or will (i) conflict with,
result in a breach of, or constitute a default under Union National's
Articles of Incorporation or By-Laws; (ii) to the best of its knowledge,
conflict with, result in a breach of, or constitute a default under any
federal, foreign, state or local law, statute, ordinance, rule, regulation
or court or administrative order or decree, or any note, bond, indenture,
mortgage, security agreement, contract, arrangement or commitment, to which
Union National or Bank is subject or bound, which as a result of any of the
foregoing in this subpart (ii) would materially adversely affect the
business or financial condition of Union National or the Bank; (iii) result
in the creation of or give any person, corporation or entity, the right to
create any material lien, charge, encumbrance, security interest, or any
other rights of others or other adverse interest upon any right, property
or asset of Union National or Bank; (iv) terminate or give any person,
corporation or entity, the right to terminate, amend, abandon, or refuse to
perform any note, bond, indenture, mortgage, security agreement, contract,
arrangement or commitment to which Union National or Bank is subject or
bound and which in the aggregate are in excess of $50,000; or (v)
accelerate or modify, or give any party thereto the right to accelerate or
modify, the time within which, or the terms according to which, Union
National or Bank is to perform any duties or obligations or receive any
rights or benefits under any note, bond, indenture, mortgage, security
agreement, contract, arrangement or commitment in the aggregate in excess
of $50,000.
(c) Other than in connection or in compliance with the provisions of
the Bank Holding Company Act of 1956, federal and state securities laws and
applicable Indiana banking and corporate statutes, all as amended, and the
rules and regulations promulgated thereunder, no notice to, filing with,
authorization of, exemption by, or consent or approval of, any public body
or authority is necessary for the consummation by Union National of the
transactions contemplated by this Agreement.
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5.03. CAPITALIZATION.
(a) As of December 31, 1995, Union National had 200,000 shares of
common stock authorized, no par value per share, 193,968 shares of which
were issued and outstanding. Such issued and outstanding shares of Union
National common stock have been duly and validly authorized by all
necessary corporate action of Union National, are validly issued, fully
paid and nonassessable and have not been issued in violation of any
preemptive rights of any shareholders. Union National has no intention or
obligation to authorize or issue additional shares of its common stock.
Union National has not authorized the issuance of any other class of stock.
On a consolidated basis as of December 31, 1995, Union National had total
capital of $15,741,000, which consisted of common stock of $970,000,
capital surplus of $1,957,000, and retained earnings of $12,814,000.
(b) As of December 31, 1995, Bank had 100,000 shares of common stock
authorized, $10 par value per share, all of which shares were issued and
outstanding to Union National. Such issued and outstanding shares of Bank
common stock have been duly and validly authorized by all necessary
corporate action of Bank, are validly issued, fully paid and nonassessable,
and have not been issued in violation of any preemptive rights of any Bank
shareholders. All the issued and outstanding shares of Bank common stock
are owned by Union National free and clear of all liens, pledges, charges,
claims, encumbrances, restrictions, security interests, options and
preemptive rights and of all other rights of any other person, corporation
or entity with respect thereto. As of December 31, 1995, Bank had total
capital of $15,446,000, which consisted of common stock of $1,000,000,
capital surplus of $2,000,000, and undivided profits of $12,446,000.
(c) There are no options, commitments, calls, agreements,
understandings, arrangements or subscription rights regarding the issuance,
purchase or acquisition of capital stock, or any securities convertible
into or representing the right to purchase or otherwise receive the capital
stock or any debt securities, of Union National or Bank by which Union
National or Bank is or may become bound. Neither Union National or Bank
has any outstanding contractual or other obligation to repurchase, redeem
or otherwise acquire any of its respective outstanding shares of capital
stock.
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(d) Except as set forth in the Disclosure Letter, no person or entity
beneficially owns 5% or more of Union National's outstanding shares of
common stock.
5.04. ORGANIZATIONAL DOCUMENTS. The respective Articles of Incorporation
or Association and By-Laws of Union National and Bank have been delivered to
First Merchants and represent true, accurate and complete copies of such
corporate documents of Union National and Bank in effect as of the date of this
Agreement.
5.05. COMPLIANCE WITH LAW. Neither Union National nor Bank has engaged in
any activity nor taken or omitted to take any action which has resulted or, to
the knowledge of Union National could result, in the violation of any local,
state, federal or foreign law, statute, rule, regulation or ordinance or of any
order, injunction, judgment or decree of any court or government agency or body,
the violation of which could materially adversely affect the business,
prospects, condition (financial or otherwise) or results of operations of Union
National or Bank. Union National and Bank possess all licenses, franchises,
permits and other authorizations necessary for the continued conduct of their
respective businesses without material interference or interruption and such
licenses, franchises, permits and authorizations shall be transferred to First
Merchants on the Effective Date without any restrictions or limitations thereon
or the need to obtain any consents of third parties. All agreements and
understandings with, and all orders and directives of, all regulatory agencies
or government authorities with respect to the business or operations of Union
National or Bank, including all correspondence, communications and commitments
related thereto, are set forth in the Disclosure Letter. Bank has received no
inquiries from any regulatory agency or government authority relating to its
material noncompliance with the Bank Secrecy Act, the Truth-in-Lending Act or
the Community Reinvestment Act or any laws with respect to the protection of
the environment or the rules and regulations promulgated thereunder.
5.06. ACCURACY OF STATEMENTS. Neither this Agreement nor any report,
statement, list, certificate or other information furnished or to be furnished
by Union National or Bank to First Merchants in connection with this Agreement
or any of the transactions contemplated hereby (including, without limitation,
any information which has been or shall be supplied by Union National or Bank
with respect to their businesses, operations and financial condition for
inclusion in the proxy statement and registration statement relating to the
Merger) contains or shall contain (in the case of information relating to the
proxy statement at the time it is mailed and for the registration statement at
the time it becomes effective) any untrue statement of a material
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act or omits or shall omit to state a material fact necessary to make the
statements contained herein or therein not misleading.
5.07. LITIGATION AND PENDING PROCEEDINGS. Except as set forth in the
Disclosure Letter, there are no material claims of any kind, nor any material
action, suits, proceedings, arbitrations or investigations pending or, to the
knowledge of Union National or Bank, threatened in any court or before any
government agency or body, arbitration panel or otherwise (nor does Union
National or Bank have any knowledge of a basis for any material claim, action,
suit, proceeding, arbitration or investigation) against, by or materially
adversely affecting Union National or Bank or their respective businesses,
prospects, conditions (financial or otherwise), results of operations or assets,
or which would prevent the performance of this Agreement or declare the same
unlawful or cause the rescission hereof. There are no material uncured
violations, or violations with respect to which material refunds or restitutions
may be required, cited in any compliance report to Union National or Bank as a
result of an examination by any regulatory agency or body.
5.08. FINANCIAL STATEMENTS.
(a) Union National's consolidated balance sheets as of the end of the
three fiscal years ended December 31, 1992, 1993 and 1994 and the nine
months ended September 30, 1995 and the related consolidated statements of
income, shareholders' equity and cash flows for the years or period then
ended (hereinafter collectively referred to as the "Financial Information")
present fairly, in all material respects, the consolidated financial
condition or position of Union National as of the respective dates thereof
and the consolidated results of operations of Union National for the
respective periods covered thereby and have been prepared in conformity
with generally accepted accounting principles applied on a consistent
basis. All required regulatory reports have been filed by Union National
and Bank with their respective primary federal regulators during 1995,
1994, 1993 and 1992, are true, accurate and complete, in all material
respects, and were prepared in conformity with generally accepted
regulatory accounting principles applied on a consistent basis.
(b) Except to the extent that failure to comply with this subsection
does not have a material adverse effect on Union National or the Bank, all
loans reflected in the Financial Information and which have been made,
extended or acquired since September 30, 1995, (i) have been made for good,
valuable and adequate consideration in the ordinary
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course of business; (ii) constitute the legal, valid and binding obligation
of the obligor and any guarantor named therein; (iii) are evidenced by
notes, instruments or other evidences of indebtedness which are true,
genuine and what they purport to be; and (iv) to the extent that Bank has a
security interest in collateral or a mortgage securing such loans, are
secured by perfected security interests or mortgages naming Bank as the
secured party or mortgagee.
5.09. ABSENCE OF CERTAIN CHANGES. Except for events and conditions
relating to the business environment in general or as set forth in the
Disclosure Letter, since September 30, 1995, there has not been any change or
event of any character, actual or to Union National's or Bank's knowledge
threatened, which in the aggregate materially adversely affects Union National's
or Bank's business, prospects, conditions (financial or otherwise), assets or
results of operations.
5.10. ABSENCE OF UNDISCLOSED LIABILITIES. Neither Union National nor Bank
is a party to any agreement, contract, obligation, commitment, arrangement,
liability, lease or license which individually exceeds $10,000 per year or which
may not be terminated within one year from the date of this Agreement, except as
set forth in the Disclosure Letter or reflected in the Financial Information and
except for unfunded loan commitments made in the ordinary course of Bank's
business consistent with past practices, nor to the knowledge of Union National
does there exist any circumstances resulting from transactions effected or to be
effected or events which have occurred or may occur or from any action taken or
omitted to be taken which could reasonably be expected to result in any such
agreement, contract, obligation, commitment, arrangement, liability, lease or
license.
5.11. TITLE TO ASSETS. Except as set forth in the Disclosure Letter or
except to the extent that failure to comply with this Section 5.11 does not have
a material adverse effect on Union National or the Bank, Union National and Bank
have good and marketable title in fee simple absolute to all real property
(including, without limitation, all real property used as bank holding company
or bank premises and all other real estate owned) and personal property
reflected in the Financial Information as of September 30, 1995, good and
marketable title to all other properties and assets which Union National or Bank
purport to own, good and marketable title to or right to use by terms of lease
or contract all other property used in Union National's or Bank's business and
good and marketable title to all property and assets acquired since
September 30, 1995, free and clear of all mortgages, liens, pledges,
restrictions, security interests, charges, claims or encumbrances of any nature.
All real property owned by Union National or Bank is in compliance with all
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applicable laws, statutes, rules, regulations and ordinances relating to the
environment, pollution and the treatment, storage, disposal, discharge or
release of chemicals and hazardous or toxic substances or wastes and, in all
material respects, with all applicable zoning law.
5.12. LOANS AND INVESTMENTS.
(a) Except as set forth in the Disclosure Letter, there is no loan of
Bank in excess of $10,000 that has been classified by bank regulatory
examiners as "Other Loans Specially Mentioned," "Substandard," "Doubtful"
or "Loss," nor is there any loan of Bank in excess of $10,000 that has been
identified by accountants or auditors (internal or external) as having a
significant risk of uncollectibility.
Bank's loan watch list and all loans in excess of $10,000 that Bank's
management has determined to be ninety (90) days or more past due with
respect to principal or interest or has placed on nonaccrual status are set
forth in the Disclosure Letter.
(b) Each of the reserves and allowances for possible loan losses and
the carrying value for real estate owned which are shown on the Financial
Information is, in the opinion of Union National and Bank, adequate in all
material respects under the requirements of generally accepted accounting
principles applied on a consistent basis to provide for possible losses on
loans outstanding and real estate owned as of the date of such Financial
Information.
(c) Except as set forth in the Disclosure Letter, none of the
investments reflected in the Financial Information and none of the
investments made by Union National or Bank since September 30, 1995 is
subject to any restrictions, whether contractual or statutory, which
materially impairs the ability of Union National or Bank to dispose freely
of such investment at any time. Except as set forth in the Disclosure
Letter, neither Union National nor Bank are a party to any repurchase
agreements with respect to securities.
5.13. EMPLOYEE BENEFIT PLANS.
(a) The Disclosure Letter contains a list identifying each "employee
benefit plan," as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), which (i) is subject to any
provision of ERISA, and (ii) is maintained, administered or contributed to
by Union National or Bank and covers any employee or former employee of
Union National or Bank under which Union
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National or Bank has any liability. Copies of such plans (and, if
applicable, related trust agreements or insurance contracts) and all
amendments thereto and written interpretations thereof have been furnished
to First Merchants together with the three most recent annual reports
prepared in connection with any such plan and the current summary plan
descriptions. Such plans are hereinafter referred to individually as an
"Employee Plan" and collectively as the "Employee Plans." The Employee
Plans which individually or collectively would constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA are identified in
the list referred to above.
(b) The Employee Plans comply with and have been operated in
accordance with all applicable laws, regulations, rulings and other
requirements the breach or violation of which could materially affect Union
National, Bank, or an Employee Plan. Each Employee Plan has been
administered in substantial conformance with such requirements and all
reports and information required with respect to each Employee Plan have
been timely given.
(c) No "prohibited transaction," as defined in Section 406 of ERISA
or Section 4975 of the Code, for which no statutory or administrative
exemption exists, and no "reportable event," as defined in Section 4043(b)
of ERISA, has occurred with respect to any Employee Plan. Neither Union
National or Bank has any liability to the Pension Benefit Guaranty
Corporation ("PBGC"), to the Internal Revenue Service ("IRS"), to the
Department of Labor ("DOL") or to an employee or Employee Plan beneficiary
under Section 502 of ERISA.
(d) No "fiduciary," as defined in Section (3)(21) of ERISA, of an
Employee Plan has failed to comply with the requirements of Section 404 of
ERISA.
(e) Each of the Employee Plans which is intended to be qualified
under Code Section 401(a) has been amended to comply in all material
respects with the applicable requirements of the Code, including the Tax
Reform Act of 1986, the Revenue Act of 1987, the Technical and
Miscellaneous Revenue Act of 1988, the Omnibus Budget Reconciliation Act of
1989, the Revenue Reconciliation Act of 1990, the Tax Extension Act of
1991, the Unemployment Compensation Amendments of 1992, the Omnibus Budget
Reconciliation Act of 1993, and the Retirement Protection Act of 1994 and
any rules, regulations or other requirements promulgated thereunder (the
"Acts"). In addition, each such Employee Plan has been and is being
operated in substantial
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conformance with the applicable provisions of ERISA and the Code, as
amended by the Acts. Except as set forth in the Disclosure Letter, Union
National and/or Bank, as applicable, sought and received favorable
determination letters from the IRS within the applicable remedial amendment
periods under Code Section 401(b), and has furnished to First Merchants
copies of the most recent IRS determination letters with respect to any
such Employee Plan.
(f) Except as set forth in the Disclosure Letter, no Employee Plan
owns any security of Union National or Bank.
(g) No Employee Plan has incurred an "accumulated funding
deficiency," as determined under Code Section 412 and ERISA Section 302.
(h) Except as set forth in the Disclosure Letter, no Employee Plan
has been terminated or incurred a partial termination (either voluntarily
or involuntarily).
(i) No claims against an Employee Plan, Union National or Bank, with
respect to an Employee Plan, (other than normal benefit claims) have been
asserted or threatened.
(j) There is no contract, agreement, plan or arrangement covering any
employee or former employee of Union National or Bank that, individually or
collectively, could give rise to the payment of any amount that would not
be deductible by reason of Section 280G or Section 162(a)(1) of the Code.
(k) No event has occurred that would cause the imposition of the tax
described in Code Section 4980B. All requirements of ERISA Section 601
have been met.
(l) The Disclosure Letter contains a list of each employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including
any self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits
or deferred compensation, profit sharing, bonuses, stock options, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits which (i) is not an Employee Plan, (ii)
was entered into, maintained or contributed to, as the case may be, by
Union National or Bank and (iii) covers any employee or former employee of
Union National or Bank. Such contracts, plans and
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arrangements as are described above, copies or descriptions of all of which
have been furnished previously to First Merchants, are hereinafter referred
to collectively as the "Benefit Arrangements." Each of the Benefit
Arrangements has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules
and regulations which are applicable to such Benefit Arrangements.
(m) Neither Union National nor Bank has any present or future
liability in respect of post-retirement health and medical benefits for
former employees of Union National or Bank.
(n) Except as set forth in the Disclosure Letter, there has been no
amendment to, written interpretation or announcement (whether or not
written) by Union National or Bank relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement
which would increase materially the expense of maintaining such Employee
Plans or Benefit Arrangements above the level of the expense incurred in
respect thereof for the fiscal year ended December 31, 1994.
(o) For purposes of this Section 5.13, references to Union National
or Bank are deemed to include (i) all predecessors of Union National or
Bank, (ii) any subsidiary of Union National or Bank, (iii) all members of
any controlled group (as determined under Code Section 414(b) or (c)) that
includes Union National or Bank, and (iv) all members of any affiliated
service group (as determined under Code Section 414(m) or (n)) that
includes Union National or Bank.
5.14 OBLIGATIONS TO EMPLOYEES. Except as set forth in the Disclosure
Letter, all accrued obligations and liabilities of Union National and Bank,
whether arising by operation of law, by contract or by past custom, for payments
to trust or other funds, to any government agency or body or to any individual
director, officer, employee or agent (or his heirs, legatees or legal
representative) with respect to unemployment compensation or social security
benefits and all pension, retirement, savings, stock purchase, stock bonus,
stock ownership, stock option, stock appreciation rights or profit sharing plan,
any employment, deferred compensation, consultant, bonus or collective
bargaining agreement or group insurance contract or other incentive, welfare or
employee benefit plan or agreement maintained by Union National or Bank for
their current or former directors, officers, employees and agents have been and
are being paid to the extent required by law or by the plan or contract. All
obligations and
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liabilities of Union National and Bank, whether arising by operation of law, by
contract, or by past custom, for all forms of compensation which are or may be
payable to their current or former directors, officers, employees or agents have
been and are being paid. All accruals and reserves referred to in this Section
5.14 are correctly and accurately reflected and accounted for in the books,
statements and records of Union National and Bank.
5.15. TAXES, RETURNS AND REPORTS. Union National and Bank have (a) duly
filed all federal, state, local and foreign tax returns of every type and kind
required to be filed as of the date hereof, and each return is true, complete
and accurate in all material respects; (b) paid in all materials respects all
taxes, assessments and other governmental charges due or claimed to be due upon
them or any of their income, properties or assets; and (c) not requested an
extension of time for any such payments (which extension is still in force).
Except for taxes not yet due and payable, the reserve for taxes reflected in the
Financial Information is adequate, in all material respects, to cover all of
Union National's and Bank's tax liabilities (including, without limitation,
income taxes and franchise fees) that may become payable in future years with
respect to any transactions consummated prior to December 31, 1994. Neither
Union National nor Bank has or will have, any material liability for taxes of
any nature for or with respect to the operation of their business, including the
assets of any subsidiary, from December 31, 1994 up to and including the
Effective Date, except to the extent reflected on their Financial Information or
on financial statements of Union National or Bank subsequent to such date and as
set forth in the Disclosure Letter. Neither Union National nor Bank is
currently under audit by any state or federal taxing authority. Except as set
forth in the Disclosure Letter, neither the federal, state, or local tax returns
of Union National or Bank have been audited by any taxing authority during the
past five (5) years.
5.16. DEPOSIT INSURANCE. The deposits of Bank are insured by the Federal
Deposit Insurance Corporation ("FDIC") in accordance with the Federal Deposit
Insurance Act, and Bank has paid all premiums and assessments with respect to
such deposit insurance.
5.17. BROKER'S OR FINDER'S FEES. Except as set forth in the Disclosure
Letter, no agent, broker or other person acting on behalf of Union National or
Bank or under any authority of Union National or Bank is or shall be entitled to
any commission, broker's or finder's fee or any other form of compensation or
payment from any of the parties hereto, other than attorneys' or
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accountants' fees, in connection with any of the transactions contemplated by
this Agreement.
5.18. BRING DOWN OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Union National and Bank contained in this Section 5 shall be
true, accurate and correct on and as of the Effective Date except as affected by
the transactions contemplated by and specified within the terms of this
Agreement.
5.19. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Section 5 shall expire on the Effective Date,
and thereafter Union National and Bank shall have no further liability with
respect thereto unless a court of competent jurisdiction should determine that
any misrepresentation or breach of a warranty was willfully or intentionally
caused either by action or inaction.
SECTION 6
REPRESENTATIONS AND
WARRANTIES OF FIRST MERCHANTS
First Merchants hereby represents and warrants to Union National as
follows:
6.01. ORGANIZATION AND QUALIFICATION. First Merchants is a corporation
organized and existing under the laws of the State of Indiana and has the
corporate power and authority to conduct its business in the manner and by the
means utilized as of the date hereof.
6.02. AUTHORIZATION.
(a) First Merchants has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder subject to
certain required regulatory approvals. The Agreement, when executed and
delivered, will have been duly authorized and will constitute a valid and
binding obligation of First Merchants, enforceable in accordance with its
terms, except to the extent limited by insolvency, reorganization,
liquidation, readjustment of debt, or other laws of general application
relating to or affecting the enforcement of creditor's rights.
(b) Neither the execution of this Agreement, nor the consummation of
the transactions contemplated hereby, does or will (i) conflict with,
result in a breach of, or constitute a default under First Merchant's
Articles of
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Incorporation or By-laws; (ii) to the best of its knowledge, conflict with,
result in a breach of, or constitute a default under any federal, foreign,
state, or local law, statute, ordinance, rule, regulation, or court or
administrative order or decree, or any note, bond, indenture, mortgage, security
agreement, contract, arrangement, or commitment, to which First Merchants is
subject or bound, which as a result of any of the foregoing in this subpart (ii)
would materially adversely affect the business or financial condition of First
Merchants; (iii) result in the creation of or give any person, corporation or
entity, the right to create any material lien, charge, claim, encumbrance,
security interest, or any other rights of others or other adverse interest upon
any right, property or asset of First Merchants; (iv) terminate or give any
person, corporation or entity, the right to terminate, amend, abandon, or refuse
to perform any note, bond, indenture, mortgage, security agreement, contract,
arrangement, or commitment to which First Merchants is a party or by which First
Merchant is subject or bound and which in the aggregate are in excess of
$50,000; or (v) accelerate or modify, or give any party thereto the right to
accelerate or modify, the time within which, or the terms according to which,
First Merchants is to perform any duties or obligations or receive any rights or
benefits under any note, bond, indenture, mortgage, security agreement,
contract, arrangement, or commitment in the aggregate in excess of $50,000.
(c) Other than in connection or in compliance with the provisions of
the Bank Holding Company Act of 1956, federal and state securities laws,
and applicable Indiana banking and corporate statutes, all as amended, and
the rules and regulations promulgated thereunder, no notice to, filing
with, authorization of, exemption by, or consent or approval of, any public
body or authority is necessary for the consummation by First Merchants of
the transactions contemplated by this Agreement.
6.03. CAPITALIZATION.
(a) At December 31, 1995 First Merchants had 20,000,000 authorized,
no par value, of which 5,053,901 shares were issued and outstanding. The
5,053,901 shares of common stock are validly issued, fully paid and
nonassessable.
(b) First Merchants has 500,000 shares of Preferred Stock authorized,
no par value, no shares of which have been issued and no commitments exist
to issue any of such shares.
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(c) Other than in connection with the proposed merger of Randolph
County Bancorp, Inc. with and into First Merchants and pursuant to First
Merchants Dividend Reinvestment and Stock Purchase Plan, Stock Option Plans
and Employee Stock Purchase Plans, there are no options, commitments, calls
or agreements outstanding regarding the issuance of capital stock or any
securities representing the right to purchase or otherwise receive such
stock, or any debt securities of First Merchants. First Merchants does not
have any outstanding contractual obligation to repurchase, redeem, or
otherwise acquire any of its outstanding shares of capital stock.
(d) The shares of First Merchants' common stock to be issued pursuant
to the Merger will be fully paid, validly issued and nonassessable.
6.04. ORGANIZATIONAL DOCUMENTS. The Articles of Incorporation and By-laws
of First Merchants in force as of the date hereof, have been delivered to Union
National. The documents delivered by it represent complete and accurate copies
of the corporate documents of First Merchants in effect as of the date of this
Agreement.
6.05. ACCURACY OF STATEMENTS. Neither this Agreement nor any report,
statement, list, certificate or other information furnished or to be furnished
by First Merchants to Union National in connection with this Agreement or any of
the transactions contemplated hereby (including, without limitation, any
information which has been or shall be supplied by First Merchants with respect
to its business, operations and financial condition for inclusion in the proxy
statement and registration statement relating to the Merger) contains or shall
contain (in the case of information relating to the proxy statement at the time
it is mailed and to the registration statement at the time it become effective)
any untrue statement of a material fact or omits or shall omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.
6.06. COMPLIANCE WITH LAW. First Merchants has not engaged in any
activity nor taken or omitted to take any action which has resulted or, to the
knowledge of First Merchants, could result in the violation of any local, state,
federal or foreign law, statute, rule, regulation or ordinance or of any order,
injunction, judgment or decree of any court or government agency or body, the
violation of which could materially adversely affect the business, prospects,
condition (financial or otherwise) or results of operations of First Merchants.
First Merchants possesses all licenses, franchises, permits and other
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authorizations necessary for the continued conduct of its business without
material interference or interruption. There are no agreements or
understandings with, nor any orders of directives of, any regulatory agencies or
government authorities, which would have a material adverse effect on the
consolidated financial position of First Merchants. First Merchants has
received no written inquiries from any regulatory agency or government authority
relating to its material noncompliance with the Bank Secrecy Act, the
Truth-in-Lending Act or the Community Reinvestment Act.
6.07. FINANCIAL STATEMENTS. First Merchants consolidated balance sheets
as of the end of the three (3) fiscal years ended December 31, 1992, 1993 and
1994 and the nine months ended September 30, 1995 and the related consolidated
statements of income, shareholders' equity and cash flows for the years or
period then ended present fairly, in all material respects, the consolidated
financial condition or position of First Merchants as of the respective dates
thereof and the consolidated results of operations of First Merchants for the
respective periods covered thereby and have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis. All
required regulatory reports have been filed by First Merchants with its primary
federal regulator during 1995, 1994, 1993 and 1992, are true, accurate and
complete, in all material respects, and have been prepared in conformity with
generally accepted regulatory accounting principles applied on a consistent
basis.
6.08. ABSENCE OF CERTAIN CHANGES. Except for events and conditions
relating to the business environment in general, since September 30, 1995, there
has not been any change or event of any character, actual or to First Merchants
knowledge threatened, which in the aggregate materially adversely affects First
Merchants consolidated business, prospects, conditions (financial or otherwise),
assets or results of operations.
6.09. FIRST MERCHANTS SECURITIES AND EXCHANGE COMMISSION FILINGS. First
Merchants has filed all reports and other documents required to be filed by it
under the Securities Exchange Act of 1934 and the Securities Act of 1933,
including First Merchants' Annual Report on Form 10-K for the year ended
December 31, 1994, and Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, copies of which have previously been delivered to Union
National (the "Securities Law Filings"). The Securities Law Filings do not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained therein not misleading.
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6.10. BRING DOWN OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of First Merchants contained in this Section 6 shall be true,
accurate and correct on and as of the Effective Date except as affected by the
transactions contemplated by and specified within the terms of this Agreement.
6.11. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in this Section 6 shall expire on the Effective Date,
and thereafter First Merchants shall have no further liability with respect
thereto unless a court of competent jurisdiction should determine that any
misrepresentation or breach of a warranty was willfully or intentionally caused
either by action or inaction.
SECTION 7
COVENANTS OF UNION NATIONAL
Union National covenants and agrees with First Merchants, and covenants and
agrees to cause Bank to act, as follows:
7.01. SHAREHOLDER APPROVAL. Union National shall submit this Agreement to
its shareholders for approval at a meeting to be called and held in accordance
with applicable law and the Articles of Incorporation and By-Laws of Union
National.
7.02. OTHER APPROVALS. Union National and Bank shall proceed
expeditiously, cooperate fully and use reasonable efforts to procure upon
reasonable terms and conditions all consents, authorizations, approvals,
registrations and certificates, to complete all filings and applications and to
satisfy all other requirements prescribed by law which are necessary for
consummation of the Merger on the terms and conditions provided in this
Agreement at the earliest possible reasonable date.
7.03. CONDUCT OF BUSINESS.
(a) On and after the date of this Agreement and until the Effective
Date or until this Agreement shall be terminated as herein provided,
neither Union National nor Bank shall, without the prior written consent of
First Merchants, (i) make any material changes in their capital structure;
(ii) authorize a class of stock or issue, or authorize the issuance of,
stock other than or in addition to the outstanding stock as set forth in
Section 5.03 hereof; (iii) declare, distribute or pay any dividends on
their shares of common stock, or authorize a stock split, or make any other
distribution to their shareholders, except for (a) the payment by Union
National prior to the Effective
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Date of quarterly cash dividends on its common stock in March, June, September
and December, 1996, which dividends shall not exceed thirty-five cents ($.35),
thirty-five cents ($.35), forty cents ($.40), and forty cents ($.40) per share,
respectively, provided that Union National shall not pay any such dividend
during the fiscal quarter in which the Merger shall become effective and in
which Union National shareholders will become entitled to receive dividends on
the shares of First Merchants into which the shares of Union National have been
converted or in any subsequent fiscal quarter (First Merchants shall advise
Union National in writing at least 15 days prior to the Effective Date if it
anticipates a change from its historical practice in establishing the record
date for determining those shareholders entitled to receive a dividend for the
fiscal quarter in which the Merger is to be consummated. Such written notice
shall describe the anticipated change in the record date.), and (b) the payment
by the Bank to Union National of dividends to pay Union National's expenses of
operations and its business and payment of fees and expenses incurred in
connection with the transactions contemplated by this Agreement; (iv) merge,
combine or consolidate with or, other than in the ordinary course of business,
sell their assets or any of their securities to any other person, corporation or
entity, effect a share exchange or enter into any other transaction not in the
ordinary course of business; (v) incur any liability or obligation, make any
commitment, payment or disbursement, enter into any contract, agreement,
understanding or arrangement or engage in any transaction, or acquire or dispose
of any property or asset having a fair market value in excess of $10,000.00
(except for personal or real property acquired or disposed of in connection with
foreclosures on mortgages or enforcement of security interests and loans made or
sold by Bank in the ordinary course of business); (vi) subject any of their
properties or assets to a mortgage, lien, claim, charge, option, restriction,
security interest or encumbrance; (vii) promote or increase or decrease the rate
of compensation (except for promotions and non-material increases in the
ordinary course of business and in accordance with past practices) or enter into
any agreement to promote or increase or decrease the rate of compensation of any
director, officer or employee of Union National or Bank; (viii) execute, create,
institute, modify or amend (except to allow a contribution to the Bank's defined
contribution plan in connection with the period commencing January 1, 1996 and
ending on the Effective Date in an amount based upon the participants'
compensation during such period and the Bank's historical contribution
percentage of participants' compensation as defined in the plan.), any
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pension, retirement, savings, stock purchase, stock bonus, stock ownership,
stock option, stock appreciation or depreciation right or profit sharing
plan, any employment, deferred compensation, consultant, bonus or
collective bargaining agreement, group insurance contract or other
incentive, welfare or employee benefit plan or agreement for current or
former directors, officers of employees of Union National or Bank, change
the level of benefits or payments under any of the foregoing or increase or
decrease any severance or termination of pay benefits or any other fringe
or employee benefits other than as required by law or regulatory
authorities; (ix) amend their Articles of Incorporation or By-Laws from
those in effect on the date of this Agreement; (x) modify, amend or
institute new employment policies or practices, or enter into, renew or
extend any employment or severance agreements with respect to any present
or former Union National or Bank directors, officers or employees; (xi)
give, dispose, sell, convey, assign, hypothecate, pledge, encumber or
otherwise transfer or grant a security interest in any common stock of
Bank; and (xii) fail to make additions to Bank's reserve for loan, losses,
or any other reserve account, in the ordinary course of business and in
accordance with sound banking practices.
(b) Union National and Bank shall maintain, or cause to be
maintained, in full force and effect insurance on its properties and
operations and fidelity coverage on its directors, officers and employees
in such amounts and with regard to such liabilities and hazards as have
previously been maintained by Union National and Bank.
(c) Union National and Bank shall continue to give to First Merchants
and its employees, accountants, attorneys and other authorized
representatives reasonable access during regular business hours and other
reasonable times to all their premises, properties, statements, books and
records.
7.04. PRESERVATION OF BUSINESS. On and after the date of this Agreement
and until the Effective Date or until this Agreement is terminated as herein
provided. Union National and Bank each shall (a) carry on their business
diligently, substantially in the same manner as heretofore conducted, and in the
ordinary course of business; (b) use their reasonable efforts to preserve their
business organizations intact, to keep their present officers and employees and
to preserve their present relationship with customers and others having business
dealings with them; and (c) not do or fail to do anything which will cause a
material breach of, or material default in, any contract, agreement, commitment,
obligation, understanding, arrangement,
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lease or license to which they are a party or by which they are or may be
subject or bound.
7.05. OTHER NEGOTIATIONS. Except with the prior written approval of First
Merchants, on and after the date of this Agreement and until the Effective Date,
Union National and Bank shall not, and shall not permit or authorize their
respective directors, officers, employees, agents or representatives to,
directly or indirectly, initiate, solicit, encourage, or engage in discussions
or negotiations with, or provide information to, any corporation, association,
partnership, person or other entity or group concerning any merger,
consolidation, share exchange, combination, purchase or sale of substantial
assets, sale of shares of capital stock (or securities convertible or
exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing the right to acquire, capital stock), tender offer, acquisition of
control of Union National or Bank or similar transaction involving Union
National or Bank (all such transactions hereinafter referred to as "Acquisition
Transactions"). Union National and Bank shall promptly communicate to First
Merchants the terms of any proposal, written or oral, which either may receive
with respect to an Acquisition Transaction and any request by or indication of
interest on the part of any third party with respect to initiation of any
Acquisition Transaction or discussion with respect thereto. The above
provisions of this Section 7.05 notwithstanding, nothing contained in this
Agreement shall prohibit (i) Union National from furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited proposal of an Acquisition Transaction if and to the extent that
(a) the Board of Directors of Union National, after consultation with and based
upon the written advice of legal counsel, determines in good faith that such
action is required for the directors of Union National to fulfill their
fiduciary duties and obligations to the Union National shareholders and other
constituencies under Indiana law, and (b) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
Union National provides immediate written notice to First Merchants to the
effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity, or (ii) the Board of Directors of
Union National from failing to make, withdrawing or modifying its recommendation
to shareholders regarding the Merger following receipt of a proposal for an
Acquisition Transaction if the Board of Directors of Union National, after
consultation with and based upon the written advice of legal counsel, determines
in good faith that such action is required for the directors of Union National
to fulfill their fiduciary duties and obligations to the Union National
shareholders and other constituencies under Indiana law.
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7.06. RESTRICTIONS REGARDING AFFILIATES. Union National shall, within 30
days after the date of this Agreement and promptly thereafter until the
Effective Date to reflect any changes, provide First Merchants with a list
identifying each person who may be deemed to be an "affiliate" of Union National
for purposes of Rule 145 under the Securities Act of 1933, as amended ("1933
Act"). Each director, executive officer and other person who is an "affiliate"
of Union National for purposes of the 1933 Act shall deliver to First Merchants
on or prior to the Effective Date hereunder a written agreement, in form and
substance reasonably satisfactory to counsel to First Merchants, providing that
such person will not sell, pledge, transfer, dispose of or otherwise reduce his
market risk with respect to shares of First Merchants common stock to be
received by such person pursuant to this Agreement (a) during the period 30 days
prior to the Effective Date, (b) until such time as financial results covering
at least 30 days of combined operations of First Merchants and Union National
have been published within the meaning of Section 201.01 of the Securities and
Exchange Commission's Codification of Financial Reporting Policies, except that
any such affiliate may pledge the shares of First Merchants common stock
received in connection with the Merger as collateral for other than non-recourse
loans without compliance with this Section 7.06(b) and (c) unless such sales,
pledges, transfers or dispositions are effected pursuant to an effective
registration statement under the 1933 Act or pursuant to Rule 145 of the
Securities and Exchange Commission or another exemption from the registration
requirements set forth in the 1933 Act, or are otherwise not subject to the
registration requirements set forth in the 1993 Act.
7.07. PRESS RELEASE. Neither Union National or Bank shall issue any press
releases or make any other public announcements or disclosures relating to the
Merger without the prior approval of First Merchants.
7.08. DISCLOSURE LETTER UPDATE. Union National shall promptly supplement,
amend and update monthly and as of the Effective Date the Disclosure Letter with
respect to any matters hereafter arising which, if in existence or having
occurred as of the date of this Agreement, would have been required to be set
forth or described in the Disclosure Letter.
7.09. COOPERATION. Union National shall generally cooperate with First
Merchants and its officers, employees, attorneys, accountants and other agents,
and, generally, do such other acts and things in good faith as may be
reasonable, necessary or appropriate to timely effectuate the intents and
purposes of this Agreement and the consummation of the transactions contemplated
hereby. Prior to the Closing (as
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defined in Section 12), Union National agrees to disclose to First Merchants any
fact or matter that comes to the attention of Union National that might indicate
that any of the representations or warranties of Union National may be untrue,
incorrect, or misleading in any material respect.
SECTION 8
COVENANTS OF FIRST MERCHANTS
First Merchants covenants and agrees with Union National as follows:
8.01. APPROVALS. First Merchants shall proceed expeditiously, cooperate
fully and use reasonable efforts to procure upon reasonable terms and conditions
all consents, authorizations, approvals, registrations and certificates, to
complete all filings and applications and to satisfy all other requirements
prescribed by law which are necessary for consummation of the Merger on the
terms and conditions provided in this Agreement. First Merchants shall provide
Union National with copies of proposed regulatory filings in connection with the
Merger and afford Union National the opportunity to offer comment on the filings
before filing. The approval of First Merchants shareholders of the transactions
contemplated by this Agreement is not required.
8.02. EMPLOYEE BENEFIT PLANS. Within one (1) year following the Effective
Date, First Merchants will permit Bank employees to participate in any
tax-qualified retirement plan First Merchants maintains for its employees,
provided that such an employee meets the applicable participation requirements,
in lieu of the Bank's current tax-qualified retirement plan. Until that time,
the Bank's current tax-qualified retirement plan will be maintained at the same
level, with respect to benefit accruals, provided for on the Effective Date.
Following the Effective Date, Bank employees will otherwise receive employee
benefits that in the aggregate provide substantially equivalent economic value
in comparison to the employee benefits provided to those employees by Union
National or the Bank on the Effective Date. For purposes of determining a Union
National or Bank employee's eligibility and vesting service under a First
Merchants employee benefit plan that the employee is permitted to enter, service
with Union National or Bank will be treated as service with First Merchants;
provided, however, that service with Union National and Bank will not be treated
as service with First Merchants for purposes of benefit accrual.
8.03. FIRST MERCHANTS BOARD OF DIRECTORS. In connection with the first
annual meeting of the shareholders of First
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Merchants following the Effective Date, First Merchants shall cause all
necessary action to be taken to cause two (2) of the current members of the
Board of Directors of Union National to be nominated for election as members of
the First Merchants' Board of Directors for three (3)-year terms.
8.04. PRESS RELEASE. Except as required by law, First Merchants shall not
issue any press release to any national wire service relating solely to the
Merger without the prior approval of Union National.
8.05. CONFIDENTIALITY. First Merchants shall, and shall use its best
efforts to cause its officers, employees, and authorized representatives to,
hold in strict confidence all confidential data and information obtained by it
from Union National or Bank, unless such information (i) was already known to
First Merchants, (ii) becomes available to First Merchants from other sources,
(iii) is independently developed by First Merchants, (iv) is disclosed outside
of First Merchants with and in accordance with the terms of prior written
approval of Union National or Bank , or (v) is or becomes readily ascertainable
from public or published information or trade sources or public disclosure of
such information is required by law or requested by a court or other
governmental agency, commission, or regulatory body. First Merchants further
agrees that in the event the Agreement is terminated, it will return to Union
National all information obtained by First Merchants regarding Union National or
Bank, including all copies made of such information by First Merchants.
8.06. COVENANTS REGARDING THE BANK. Upon consummation of the Merger, the
Bank shall be a bank organized under the laws of the State of Indiana and the
officers and directors of the Bank in office immediately prior to the
consummation of the Merger shall be the officers and directors of the Bank at
the Effective Date subject to the provisions of the Bank's Articles of
Incorporation and By-Laws. Thereafter, the Bank directors who desire to
continue serve in that capacity shall do so for at least the remainder of the
one (1) year terms to which they have been elected. The Bank directors will be
subject to First Merchants' policy of mandatory retirement at age seventy (70);
provided, however, the policy of mandatory retirement will not apply to any of
the Bank's current directors until twelve (12) months after the Effective Date.
First Merchants intends to continue to operate the Bank as an operating
subsidiary of First Merchants under the name "The Union County National Bank of
Liberty" with no changes in the number or locations of branches.
8.07. REGISTRATION STATEMENT; NASDAQ LISTING. First Merchants shall use
reasonable efforts to prepare and file with
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the Securities and Exchange Commission under the Securities Act of 1933, as
amended, a registration statement on Form S-4 or other appropriate registration
form to register the shares of common stock of First Merchants to be used in
connection with the Merger (the "Registration Statement") and to cause the
Registration Statement to be declared effective. First Merchants shall take all
such action as is reasonably necessary to qualify the shares of common stock of
First Merchants to be issued in connection with the Merger for quotation in the
National Association of Securities Dealers Automated Quotation System - National
Market System ("NASDAQ-NMS").
8.08 COOPERATION. First Merchants shall generally cooperate with Union
National and its officers, employees, attorneys, accountants and other agents,
and, generally, do such other acts and things in good faith as may be
reasonable, necessary or appropriate to timely effectuate the intents and
purposes of this Agreement and the consummation of the transactions contemplated
hereby. Prior to the Closing (as defined in Section 12), First Merchants agrees
to disclose to Union National any fact or matter that comes to the attention of
First Merchants that might indicate that any of the representations or
warranties of First Merchants may be untrue, incorrect, or misleading in any
material respect.
SECTION 9
CONDITIONS PRECEDENT TO THE MERGER
The obligation of each of the parties hereto to consummate the transaction
contemplated by this Agreement is subject to the satisfaction and fulfillment of
each of the following conditions on or prior to the Effective Date:
9.01. SHAREHOLDER APPROVAL. The shareholders of Union National shall have
approved, ratified and confirmed this Agreement as required by applicable law.
9.02. REGISTRATION STATEMENT EFFECTIVE. First Merchants shall have
registered its shares of common stock to be issued to shareholders of Union
National in accordance with this Agreement with the Securities and Exchange
Commission pursuant to the 1933 Act, and all state securities and "blue sky"
approvals and authorizations required to offer and sell such shares shall have
been received by First Merchants. The registration statement with respect
thereto shall have been declared effective by the Securities and Exchange
Commission and no stop order shall have been issued or threatened. The shares
of common stock of First
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Merchants to be issued in connection with the Merger shall be eligible for
quotation in NASDAQ-NMS upon notice of issuance.
9.03. TAX OPINION. The parties shall have obtained an opinion of counsel
which shall be in form and content reasonably satisfactory to counsel for all
parties hereto, to the effect that the Merger effected pursuant to this
Agreement shall constitute a tax-free transaction (except to the extent cash is
received) to each party hereto and to the shareholders of each party. Such
opinion shall be based upon factual representations received by such counsel
from the parties, which representations may take the form of written
certifications.
9.04. AFFILIATE AGREEMENTS. First Merchants shall have obtained (a) from
Union National, a list identifying each affiliate of Union National and (b) from
each affiliate of Union National, the agreements contemplated by Section 7.06
hereof.
9.05. REGULATORY APPROVALS. The Board of Governors of the Federal Reserve
System and the Indiana Department of Financial Institutions shall have
authorized and approved the Merger and the transactions related thereto. In
addition, all appropriate orders, consents, approvals and clearances from all
other regulatory agencies and governmental authorities whose orders, consents,
approvals or clearances are required by law for consummation of the transactions
contemplated by this Agreement shall have been obtained.
9.06. OFFICER'S CERTIFICATE. First Merchants and Union National shall
have delivered to each other a certificate signed by their Chairman or President
and their Secretary, dated the Effective Date, certifying that (a) all the
representations and warranties of their respective corporations are true,
accurate and correct on and as of the Effective Date; (b) all the covenants of
their respective corporations have been complied with from the date of the
Agreement through and as of the Effective Date; and (c) their respective
corporations have satisfied and fully complied with all conditions necessary to
make this Agreement effective as to them.
9.07. FAIRNESS OPINION. Union National shall have obtained an opinion
from an investment banker of its choosing to the effect that the terms of the
Merger are fair to the shareholders of Union National from a financial
viewpoint. Such opinion shall be (a) in form and substance reasonably
satisfactory to Union National, (b) dated as of a date not later than the
mailing date of the Proxy Statement relating to the Merger and (c) included in
the Proxy Statement.
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9.08. POOLING OF INTERESTS. First Merchants shall have obtained from its
independent accountants, Geo. S. Olive & Co. LLC, or from a nationally
recognized accounting firm, in First Merchants sole discretion, a letter to the
effect that based upon their review of such documents and information as they
deemed relevant, such firm is currently unaware of any reason why the Merger
cannot be accounted for as a "pooling of interests."
SECTION 10
TERMINATION OF MERGER
10.01. MANNER OF TERMINATION. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the Effective Date by
written notice delivered by First Merchants to Union National or by Union
National to First Merchants:
(a) By Union National or First Merchants, if there has been a
material misrepresentation, breach of warranty or failure to comply with
any covenant on the part of any party in the representations, warranties,
and covenants set forth herein; provided the party in default shall have no
right to terminate for its own default;
(b) By Union National or First Merchants, if it shall have reasonably
determined that the transactions contemplated by this Agreement have become
inadvisable or impracticable by reason of commencement or threat of
material litigation or proceedings against any of the parties;
(c) By Union National or First Merchants if there have been any
changes or events of any character, actual or threatened, since September
30, 1995, which in the aggregate materially adversely affect First
Merchant's (on the one hand) or Union National's or the Bank's (on the
other hand) business, prospects, condition (financial or otherwise), assets
or results of operations (excluding events and conditions relating to the
business environment in general and those set forth in the Disclosure
Letter);
(d) By Union National or First Merchants, if the transaction
contemplated herein has not been consummated by December 31, 1996;
(e) By First Merchants if any of the items, events or information set
forth in any update to the Disclosure Letter has had or, in the reasonable
discretion of First Merchants,
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may have a material adverse effect on the financial condition, results of
operations, business, or prospects of Union National or Bank;
(f) By First Merchants or Union National if, in the opinion of
counsel to First Merchants or Union National, the Merger will not
constitute a tax-free reorganization under the Code;
(g) By Union National if First Merchants or any of its subsidiary
banks is acquired by a third party in a merger, consolidation, share
exchange, stock transaction or asset transaction; if First Merchants enters
into an agreement containing the terms and conditions of such a
transaction; or if the terms and conditions of such a transaction are
publicly disclosed;
(h) By Union National if between the date of this Agreement and the
Effective Date, (i) First Merchants issues, grants, sells or redeems any of
its capital stock, or issues, grants, sells or redeems any security,
option, warrant or other right that provides for the purchase of capital
stock of First Merchants or that is convertible or exercisable into shares
of the capital stock of First Merchants, or makes or sets a record date for
a distribution of any kind to holders of the capital stock of First
Merchants other than regular quarterly cash dividends (excluding shares of
First Merchants capital stock and options therefor issued in connection
with the proposed merger of Randolph County Bancorp, Inc. with and into
First Merchants or pursuant to First Merchants Dividend Reinvestment and
Stock Purchase Plan, Stock Option Plans or Employee Stock Purchase Plans
(collectively, an "Equity Transaction"), or enters into an agreement,
contract or arrangement of any kind relating to an Equity Transaction, and
(ii) such Equity Transaction, after giving effect to the Merger, would
decrease the projected earnings per share or book value per share
attributable to the shares to be received by the shareholders of Union
National in connection with the Merger;
(i) By First Merchants if the Merger cannot be accounted for as a
"pooling of interests;"
(j) By Union National, if the appropriate discharge of the fiduciary
duties of the Board of Directors of Union National consistent with Section
7.05 requires that Union National terminate this Agreement; or
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(k) By First Merchants if it receives written notice under Section
7.05 that Union National intends to furnish information to or enter into
discussions or negotiations with a third party in connection with a
proposed Acquisition Transaction, if Union National fails to give any such
written notice as required in Section 7.05 or if Union National's Board of
Directors fails to make, withdraws or modifies its recommendation to Union
National shareholders to vote in favor of the Merger.
10.02. EFFECT OF TERMINATION. Except as set forth in this Section 10.02,
upon termination by written notice, as provided in this Section, this Agreement
shall be void and of no further force or effect and there shall be no obligation
on the part of Union National or First Merchants or their respective officers,
directors, employees, agents, or shareholders, except for payment of their
respective expenses and First Merchants obligations under Section 8.05.
Notwithstanding the foregoing, in the event of termination by First Merchants in
accordance with Section 10.01(k) or by Union National in accordance with Section
10.01(j), Union National shall pay First Merchants the sum of Five Hundred
Thousand Dollars ($500,000.00) as liquidated damages. Such payment shall be
made within ten (10) days of the date of notice of termination. Union National
acknowledges the reasonableness of such amount in light of the considerable time
and expense invested and to be invested by First Merchants and its
representatives in furtherance of the Merger. Such amount was agreed upon by
First Merchants and Union National as compensation to First Merchants for its
time and expense and not as a penalty to Union National, it being impossible to
ascertain the exact value of the time and expense to be invested. First
Merchants shall also be entitled to recover from Union National its reasonable
attorney's fees incurred in the enforcement of this Section.
SECTION 11
EFFECTIVE DATE OF MERGER
Subject to the terms and upon satisfaction of all requirements of law and
the conditions specified in this Agreement, the Merger shall become effective at
the close of business on the day specified in the Articles of Merger of Union
National with and into First Merchants as filed with the Secretary of State of
Indiana ("Effective Date"). The Effective Date shall occur no later than the
last business day of the month in which that thirty (30) day period following
the last approval of the Merger by a federal regulatory agency or governmental
authority expires.
Page 31
<PAGE>
SECTION 12
CLOSING
12.01. CLOSING DATE AND PLACE. The closing of the Merger ("Closing")
shall take place at the main office of First Merchants on the Effective Date.
12.02. ARTICLES OF MERGER. Subject to the provisions of this Agreement,
on the Effective Date, the Articles of merger shall be duly filed with the
Secretary of State of the State of Indiana.
12.03. OPINIONS OF COUNSEL. At the Closing, Union National shall deliver
an opinion of its counsel, Ice Miller Donadio & Ryan, to First Merchants, and
First Merchants shall deliver an opinion of its counsel, Bingham Summers Welsh &
Spilman, to Union National, dated as of the date of the Closing and in form
reasonably satisfactory to the other party and their counsel.
SECTION 13
MISCELLANEOUS
13.01. EFFECTIVE AGREEMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns, but none of the provisions thereof shall inure to the benefit
of any other person, firm, or corporation whomsoever. Neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned or
transferred by either party hereto without the prior written consent of the
other party.
13.02. WAIVER; AMENDMENT.
(a) First Merchants and Union National may, by an instrument in
writing executed in the same manner as this Agreement: (i) extend the time
for the performance of any of the covenants or agreements of the other
party under this Agreement; (ii) waive any inaccuracies in the
representations or warranties of the other party contained in this
Agreement or in any document delivered pursuant hereto or thereto; (iii)
waive the performance by the other party of any of the covenants or
agreements to be performed by it or them under this Agreement; or (iv)
waive the satisfaction or fulfillment of any condition the non-satisfaction
or nonfulfillment of which is a condition to the right of the party so
waiving to terminate this
Page 32
<PAGE>
Agreement. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach hereunder.
(b) Notwithstanding approval by the shareholders of Union National,
this Agreement may be amended, modified, or supplemented by the written
agreement of Union National and First Merchants without further approval of
such shareholders, except that no such amendment, modification, or
supplement shall result in a decrease in the consideration specified in
Section 3 hereof or shall materially adversely affect the rights of
shareholders of Union National without the further approval of such
shareholders.
13.03. NOTICES. Any notice required or permitted by this Agreement shall
be deemed to have been duly given if delivered in person, receipted for or sent
by certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to First Merchants: With a copy to:
200 E. Jackson Street Bingham Summers Welsh & Spilman
Box 792 2700 Market Tower
Muncie, IN 47305 10 West Market Street
Attn: Stefan S. Anderson, Indianapolis, Indiana 46204-2982
President Attn: David R. Prechtel, Esq.
If to Union National: With a copy to:
107 West Union Ice Miller Donadio & Ryan
P. O. Box 217 One American Square, Box 82001
Liberty, IN 47353 Indianapolis, Indiana 46282-0002
Attn: Ted J. Montgomery, Attn: Thomas H. Ristine, Esq.
President
or such substituted address as any of them have given to the other in writing.
13.04. HEADINGS. The headings in this Agreement have been inserted solely
for the ease of reference and should not be considered in the interpretation or
construction of this Agreement.
13.05. SEVERABILITY. In case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provision of this Agreement, but this Agreement shall be
Page 33
<PAGE>
construed as if such invalid, illegal, or unenforceable provision or provisions
had never been contained herein.
13.06. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
13.07. GOVERNING LAW. This Agreement is executed in and shall be
construed in accordance with the laws of the State of Indiana.
13.08. ENTIRE AGREEMENT. This Agreement supersedes any other agreement,
whether oral or written, between First Merchants and Union National relating to
the matters contemplated hereby, and constitutes the entire agreement between
the parties hereto.
13.09. EXPENSES. First Merchants and Union National shall each pay their
own expenses incidental to the transactions contemplated hereby. It is
understood that the cost of the fairness opinion referenced in Section 9.07
shall be borne by Union National whether or not the Merger is consummated.
IN WITNESS WHEREOF, First Merchants and Union National have made and
entered into this Agreement as of the day and year first above written and have
caused this Agreement to be executed and attested by their duly authorized
officers.
FIRST MERCHANTS CORPORATION
ATTEST:
/S/ Rodney A. Medler By /S/ Stefan S. Anderson
- ----------------------------- -----------------------------
Rodney A. Medler, Secretary Stefan S. Anderson, President
UNION NATIONAL BANCORP
ATTEST:
/S/ Millard E. Hays By /S/ Ted J. Montgomery
- ----------------------------- -----------------------------
Millard E. Hays, Secretary Ted J. Montgomery, President
Page 34
<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 currently provides services through 21 offices
located in Delaware, Madison, and Henry counties in Indiana.
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 $914,000,000 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.
-1-
<PAGE>
STOCKHOLDER INFORMATION
STOCK PRICE AND DIVIDEND INFORMATION
<TABLE>
<CAPTION>
PRICE PER SHARE
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
QUARTER HIGH LOW DIVIDENDS DECLARED
1995 1994 1995 1994 1995 1994
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C> <C> <C>
First Quarter $22.17 $20.33 $20.83 $19.00 $.19 $.17
Second Quarter 23.50 19.67 21.33 18.67 .19 .17
Third Quarter 26.50 22.50 22.67 19.00 .20 .19
Fourth Quarter 26.75 22.33 25.75 20.33 .20 .19
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
The table above lists per share prices and dividend payments during 1994 and
1995, as adjusted for the 3-for-2 stock split of October, 1995.
Prices are as reported by the National Association of Securities Dealers
Automated Quotation - National Market System.
Numbers rounded to the nearest cent when applicable.
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, 1995, the number of shares outstanding was 5,053,901. There were
1,115 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
317-747-1500
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.
McDonald and Company
NatCity Investments, Inc.
David A. Noyes and Company
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, April 4, 1996, 3:30 p.m., at the Horizon Convention Center, 401 South
High Street, Muncie, Indiana.
-2-
<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, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995 (pages 8-24). 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, 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.
/S/ GEO S. OLIVE & CO. LLC
Indianapolis, Indiana
January 19, 1996,
except for Note 2 as to which
the date is January 24, 1996
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TABLE OF CONTENTS
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA. . . . . . . . . . . . 1
MANAGEMENT'S DISCUSSION & ANALYSIS . . . . . . . . . . . . . . . . 2
CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . 12
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(INSIDE COVER)
<PAGE>
<TABLE>
<CAPTION>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands, Except per Share Amounts)
1995 1994 1993 1992 1991
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net Interest Income
Fully Taxable Equivalent Basis. . . . . . . . . . . . . . . . . $ 29,245 $ 28,282 $ 26,806 $ 26,400 $ 23,277
Less Tax Equivalent Adjustment . . . . . . . . . . . . . . . . . . 1,364 1,299 1,298 1,190 1,320
-------- -------- -------- -------- --------
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . 27,881 26,983 25,508 25,210 21,957
Provision for Loan Losses . . . . . . . . . . . . . . . . . . . . . 640 782 1,014 1,357 1,401
-------- -------- -------- -------- --------
Net Interest Income
After Provision for Loan Losses . . . . . . . . . . . . . . . . 27,241 26,201 24,494 23,853 20,556
Total Other Income . . . . . . . . . . . . . . . . . . . . . . . . 6,907 6,298 6,588 5,576 5,229
Total Other Expenses. . . . . . . . . . . . . . . . . . . . . . . . 18,842 18,434 18,214 17,603 15,792
-------- -------- -------- -------- --------
Income Before Income Tax Expense . . . . . . . . . . . . . . . . . . 15,306 14,065 12,868 11,826 9,993
Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . 5,448 4,907 4,396 4,041 3,234
-------- -------- -------- -------- --------
Income Before Change in Accounting Method . . . . . . . . . . . . . 9,858 9,158 8,472 7,785 6,759
Change in Accounting Method for Income Taxes . . . . . . . . . . . . 227
-------- -------- -------- -------- --------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,858 $ 9,158 $ 8,699 $ 7,785 $ 6,759
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
PER SHARE DATA (1)
Income Before Change in Accounting Method . . . . . . . . . . . . . $ 1.95 $ 1.80 $ 1.65 $ 1.53 $ 1.39
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.95 1.80 1.70 1.53 1.39
Cash Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . .77 .71 .63 .57 .57
December 31 Book Value . . . . . . . . . . . . . . . . . . . . . . 15.92 14.07 13.53 12.53 11.57
December 31 Market Value (Bid Price). . . . . . . . . . . . . . . . 25.75 20.83 19.33 19.00 12.45
AVERAGE BALANCES
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $665,347 $634,868 $626,398 $603,067 $560,412
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,940 388,639 357,028 329,750 300,276
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 538,539 514,029 517,826 501,526 441,302
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . 76,001 70,104 66,887 61,246 54,473
YEAR-END BALANCES
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $707,859 $644,606 $626,113 $616,859 $596,573
Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419,730 401,605 376,872 350,308 323,382
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . 588,156 529,830 506,302 511,971 484,824
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . 80,473 71,018 68,804 63,935 58,472
FINANCIAL RATIOS
Return on Average Assets . . . . . . . . . . . . . . . . . . . . . . . 1.48% 1.44% 1.39% 1.29% 1.21%
Return on Average Stockholders' Equity . . . . . . . . . . . . . . . . 12.97 13.06 13.01 12.71 12.41
Average Earning Assets to Total Assets. . . . . . . . . . . . . . . . 94.65 94.05 93.71 93.93 93.82
Allowance for Loan Losses as % of Total Loans. . . . . . . . . . . . . 1.18 1.24 1.27 1.24 1.20
Dividend Payout Ratio . . . . . . . . . . . . . . . . . . . . . . . . . 39.49 39.44 37.06 37.25 38.13
Average Stockholders' Equity to Average Assets. . . . . . . . . . . . . 11.42 11.04 10.68 10.16 9.72
Tax Equivalent Yield on Earning Assets. . . . . . . . . . . . . . . . . 8.15 7.44 7.38 8.31 9.48
Cost of Supporting Liabilities. . . . . . . . . . . . . . . . . . . . . 3.51 2.70 2.81 3.65 5.05
Net Interest Margin on Earning Assets . . . . . . . . . . . . . . . . . 4.64 4.74 4.57 4.66 4.43
</TABLE>
(1) Restated for 3- for- 2 stock splits distributed January, 1993, and October,
1995.
The amounts include First United Bank, subsequent to its acquisition on July 31,
1991.
-1-
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Asset quality has been a major factor in the Corporation's ability to generate
consistent profit improvement.
[Graphic; bar chart; Return on Average Assets]
[Graphic; bar chart; Return on Average Equity]
RESULTS OF OPERATIONS
Net income amounted to $9,858,000 or $1.95, an increase of 8.3 per cent
over 1994 at $1.80 per share.
Return on assets increased to a record level of 1.48 per cent, up from 1.44
per cent in 1994, and 1.39 per cent in 1993.
Return on equity was 12.97 per cent in 1995, 13.06 per cent in 1994, and
13.01 per cent in 1993.
In 1995, First Merchants Corporation ("Corporation") recorded the
twentieth 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 11.37 per cent at year-end 1995 and
11.02 per cent at December 31, 1994. At December 31, 1995, the Corporation had
a Tier I risk-based capital ratio of 16.99 per cent, total risk-based capital
ratio of 18.07 per cent, and a leverage ratio of 11.13 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 14 to the
Consolidated Financial Statements. The transactions under these plans have not
had a material effect on the Corporation's capital position.
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.
(continued)
-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>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . .16% N/A
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . .26 1.01%
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . .30 1.55
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . .41 1.85
1991 . . . . . . . . . . . . . . . . . . . . . . . . . . .86 2.59
</TABLE>
(1) Accruing loans past due 90 days or more, and non-accruing loans, but
excluding restructured loans. December 31, 1995, peer group comparisons are not
yet available.
- --------------------------------------------------------------------------------
At December 31, 1995, the allowance for loan losses was $4,957,000,
down slightly from year end 1994. As a per cent of loans, the allowance was
1.18 per cent, down from 1.24 per cent at year end 1994.
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>
1995 1994 1993 1992 1991
-----------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at January 1 . . . . . . . . . . . . . . . . . $ 4,998 $ 4,800 $ 4,351 $ 3,867 $ 3,254
Addition resulting
from acquisition . . . . . . . . . . . . . . . . 252
Chargeoffs:
Commercial. . . . . . . . . . . . . . . . . . . . . 586 526 391 588 806
Real estate mortgage . . . . . . . . . . . . . . . . 41 129 100 41
Installment . . . . . . . . . . . . . . . . . . . . 296 346 388 552 511
--------- --------- --------- --------- ---------
Total chargeoffs . . . . . . . . . . . . . . . 882 913 908 1,240 1,358
--------- --------- --------- --------- ---------
Recoveries:
Commercial. . . . . . . . . . . . . . . . . . . . . 89 216 240 215 227
Real estate mortgage . . . . . . . . . . . . . . . . 4 30 5 38 7
Installment . . . . . . . . . . . . . . . . . . . 108 83 98 114 84
--------- --------- --------- --------- ---------
Total recoveries . . . . . . . . . . . . . . . 201 329 343 367 318
--------- --------- --------- --------- ---------
Net chargeoffs . . . . . . . . . . . . . . . . . . . . . 681 584 565 873 1,040
--------- --------- --------- --------- ---------
Provision for loan losses. . . . . . . . . . . . . . . . 640 782 1,014 1,357 1,401
--------- --------- --------- --------- ---------
Balance at December 31 . . . . . . . . . . . . . . . . . $ 4,957 $ 4,998 $ 4,800 $ 4,351 $ 3,867
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Ratio of net chargeoffs during
the period to average loans
outstanding during the period. . . . . . . . . . . . . . .16% .15% .16% .26% .35%
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . N/A .25% .49% .65% .95%
</TABLE>
As a result of Management's assessment of loan quality and the
adequacy of the allowance for loan losses, the 1995 provision for loan losses
was reduced $142,000. Chargeoffs exceeded the amount provided by $41,000.
The Corporation adopted SFAS No. 114 and No. 118 ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN AND ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -
INCOME RECOGNITION AND DISCLOSURE on January 1, 1995. Impaired loans totaled
$3,122,000 at December 31, 1995. An allowance for losses at December 31, 1995,
was not deemed necessary for impaired loans totaling $1,900,000, but an
allowance of $559,000 was recorded for the remaining balance of impaired loans
of $1,222,000. The average balance of impaired loans for 1995 was $1,682,000.
-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 liquidity, rates 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, 1995, 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, 1995.
- --------------------------------------------------------------------------------
INTEREST-RATE SENSITIVITY ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
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 . . . . . . $ 37,655 $ 37,655
Securities available for sale. . . . . . . . 20,878 $ 10,544 $ 97,717 $ 13,981 143,120
Securities held to maturity. . . . . . . . . 11,823 7,882 35,023 3,486 58,214
Mortgage loans held for sale . . . . . . . . 736 736
Loans. . . . . . . . . . . . . . . . . . . . 216,417 46,588 105,521 50,468 418,994
Federal Reserve and
Federal Home Loan Bank stock . . . . . . . 1,585 307 1,892
-------- -------- -------- ------- -------
Total rate-sensitive assets . . . . . 288,358 65,014 238,261 68,978 660,611
-------- -------- -------- ------- -------
Rate Sensitive Liabilities:
Interest-bearing deposits. . . . . . . . . . 212,175 29,162 247,318 68 488,723
Short-term borrowings. . . . . . . . . . . . 33,975 33,975
Federal Home Loan Bank advance . . . . . . . 1,000 1,000
-------- -------- -------- ------- -------
Total rate-sensitive liabilities. . . 247,150 29,162 247,318 68 523,698
-------- -------- -------- ------- -------
Interest rate sensitivity gap by period. . . . $ 41,208 $ 35,852 $ (9,057) $ 68,910
Cumulative gap . . . . . . . . . . . . . . . . 41,208 77,060 68,003 136,913
Cumulative ratio at December 31, 1995. . . . . 116.67% 127.89% 112.99% 126.14%
</TABLE>
EARNING ASSETS
Earning assets increased $76.4 million during 1995 after declining $.8
million during 1994.
The following table presents the earning asset mix for the years 1995, 1994
and 1993.
- -------------------------------------------------------------------------------
EARNING ASSETS
(Dollars in Millions)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Federal funds sold and interest-bearing time deposits. . . . . . . . . $ 37.7 $ 3.7 $ 1.9
Securities available for sale. . . . . . . . . . . . . . . . . . . . . 143.1 99.3
Securities held to maturity. . . . . . . . . . . . . . . . . . . . . . 58.2 77.7 204.3
Mortgage loans held for sale . . . . . . . . . . . . . . . . . . . . . .7
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419.0 401.6 376.9
Federal Reserve and Federal Home Loan Bank stock . . . . . . . . . . . 1.9 1.9 1.9
------ ------ ------
Total. . . . . . . . . . . . . . . . . . . . . $660.6 $584.2 $585.0
------ ------ ------
------ ------ ------
</TABLE>
-4-
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
(Dollars in Thousands)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DEPOSITS, SHORT-TERM BORROWINGS AND FEDERAL HOME LOAN BANK ADVANCE
The following tables present the level of deposits and borrowed funds (Federal
funds purchased, repurchase agreements with customers, U.S. Treasury demand
notes and Federal Home Loan Bank stock) based on both year-end levels and daily
average balances for the past three years:
AS OF DECEMBER 31
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL HOME LOAN
DEPOSITS BORROWINGS BANK ADVANCE
-------- ---------- -----------------
<S> <C> <C> <C>
1995 $ 588,156 $ 33,975 $ 1,000
1994 529,830 39,189
1993 506,302 46,890
</TABLE>
AVERAGE BALANCES
<TABLE>
<CAPTION>
SHORT-TERM FEDERAL HOME LOAN
DEPOSITS BORROWINGS BANK ADVANCE
-------- ---------- -----------------
<S> <C> <C> <C>
1995 $ 538,539 $ 44,799 $ 515
1994 514,029 45,639
1993 517,826 35,317
</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 1995.
Asset yields improved in 1995 ( .71 per cent), while interest expense
increased .81 per cent.
The resulting "spread" decrease of .10 per cent (4.64% vs 4.74%) was offset
by a $32.7 million increase in earning assets enabling fully taxable equivalent
net interest income to grow by $963,000.
<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>
1995 8.15% 3.51% 4.64% $ 629,784 $ 29,245
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
</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 $6,907,000 in 1995, exceeding the prior year by
$609,000 or 9.7 per cent. Major factors included:
1. A $205,000 (8.0 per cent) increase in trust revenues.
2. A gain of $205,000 on the sale of approximately $8,000,000 of the
Corporation's student loans.
Other income declined in 1994 by $290,000, (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 per cent) 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 $6,239,000 (2.2 per cent).
OTHER EXPENSE
Total "other expenses" represent non-interest operating expenses of the
Corporation. Those expenses amounted to $18,842,000 in 1995, an increase of 2.2
per cent from the prior year.
Salary and benefit expenses, which account for over one-half of the
Corporation's non-interest operating expenses, increased by $510,000 (5.1 per
cent). Increases in occupancy, equipment, printing, and office supplies and
advertising expenses totaling $449,000 were offset by a $530,000 reduction in
the cost of deposit insurance and by a refund of $238,000 from the State of
Indiana for intangibles taxes paid in 1988 and 1989.
1994 expenses at $18,434,000 exceeded the prior year by $219,000 (1.2 per
cent). Salary and benefit expenses increased by $928,000 (10.2 per cent).
Approximately
(continued)
-5-
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OTHER EXPENSE (continued)
one-fourth of that increase was attributable to the change in the corporation's
data processing function described below. This change resulted in a direct
reduction of computer processing fees amounting to $1,046,000.
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 1995 tax expense of $541,000 is attributable primarily to a
$1,241,000 increase in net pre-tax income. Likewise, the $512,000 increase in
1994 resulted from a $1,198,000 increase in pre-tax net income.
- --------------------------------------------------------------------------------
FEDERAL and STATE INCOME TAXES
- --------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994 1993
- --------------------------------------------------------------------------------
Federal taxes $ 4,146 $ 3,735 $ 3,272
State taxes 1,302 1,172 1,124
--------- --------- ---------
Total $ 5,448 $ 4,907 $ 4,396
--------- --------- ---------
--------- --------- ---------
ACCOUNTING MATTERS
Derivative Financial Instruments and Fair Value of Financial Statements
SFAS No. 119 ("SFAS 119") requires disclosure about derivative financial
instruments-futures, forwards, swap and option contracts and other financial
instruments with similar characteristics (e.g., interest rate caps or floors and
loan commitments). The definition of derivatives excludes all on-balance sheet
receivables and payables, including those that "derive" their values or cash
flows from the price of another security or index, such as mortgage-backed
securities and interest-only obligations.
SFAS 119 requires disclosures about amounts, nature and terms of
derivatives that are not subject to SFAS No. 105 because they do not result in
off-balance sheet risk of accounting loss. It requires that a distinction be
made between financial instruments held or issued for trading purposes and
financial instruments held or issued for purposes other than trading. The
required disclosures, either in the body of the financial statements or in the
footnotes, include: (i) the face or contract amount (or notional principal
amount) and ii) the nature and terms, including at a minimum, a discussion of:
(1) the credit and market risk of those instruments, (2) the cash requirements
of those instruments, and (3) the related accounting policy.
SFAS 119 amends SFAS No. 105 and No. 107 to require disaggregation of
information about financial instruments with off-balance sheet risk of
accounting loss and to require that fair value information be presented without
combining, aggregating or netting the fair values of derivatives with fair value
of nonderivatives and be presented together with the related carrying amounts in
the body of the financial statements, a single footnote or a summary table in a
form that makes it clear whether the amounts represent assets or liabilities.
SFAS 119 was effective for the Company's financial statements issued for the
year ended December 31, 1995.
At December 31, the Corporation did not have any derivative financial
instruments as defined in SFAS 115.
Accounting for Mortgage Servicing Rights
During 1995, the FASB issued SFAS No. 122 ("SFAS 122") ACCOUNTING FOR
MORTGAGE SERVICING RIGHTS. SFAS 122 pertains to mortgage banking enterprises
and financial institutions that conduct operations that are substantially
similar to the primary operations of a mortgage banking enterprise. SFAS 122
eliminates the accounting distinction between mortgage servicing rights that are
acquired through loan origination activities and those acquired through purchase
transactions. Under SFAS 122, if a mortgage banking enterprise sells or
securitizes loans and retains the mortgage servicing rights, the enterprise must
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the rights) based on their relative fair values if
(continued)
-6-
<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCOUNTING MATTERS (continued)
it is practicable to estimate those fair values. If it is not practicable, the
entire cost should be allocated to the mortgage loans and no cost should be
allocated to the mortgage servicing rights. As entity would measure impairment
of mortgage service rights and loans based on the excess of the carrying amount
of the mortgage servicing rights portfolio over the fair value of that
portfolio.
SFAS 122 is to be applied prospectively in fiscal years beginning after
December 15, 1995, to transactions in which an entity acquires mortgage
servicing rights and to impairment evaluations of all capitalized mortgage
servicing rights. The Company has not yet determined the impact of SFAS 122 on
its financial condition and results of operations.
Accounting for Stock-based Compensation
The FASB issued SFAS 123, STOCK-BASED COMPENSATION. In December, 1994, the
FASB decided to require expanded disclosures rather than recognition of
compensation cost for fixed, at the money, options rather than recognition of
compensation expense as was originally proposed in the ED.
This statement establishes a fair value based method of accounting for
stock-based compensation plans. The FASB encourages employers to recognize the
related compensation expense; however, employers are permitted to continue to
apply the provisions of APB Opinion No. 25. Employers that choose to continue
to follow APB No. 25 are required to disclose in notes to the financial
statements the pro forma effects on their net income and earnings per share of
the new accounting method.
SFAS 123 is effective for the Corporation in 1996. The Corporation has not
yet determined the impact of adopting SFAS 123 on net income or financial
position in the year of adoption.
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.
-7-
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1995 1994
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks. . . . . . . . . . . . . $ 31,432,299 $ 42,684,174
Federal funds sold . . . . . . . . . . . . . . . 37,500,000 3,675,000
------------ ------------
Cash and cash equivalents. . . . . . . . . . . 68,932,299 46,359,174
Interest-bearing time deposits . . . . . . . . . 155,441 23,117
Investment securities
Available for sale . . . . . . . . . . . . . . 143,119,910 99,363,240
Held to maturity . . . . . . . . . . . . . . . 58,213,962 77,676,818
------------ ------------
Total investment securities . . . . . . . . 201,333,872 177,040,058
Mortgage loans held for sale . . . . . . . . . . 735,522
Loans. . . . . . . . . . . . . . . . . . . . . . 418,994,250 401,604,848
Less: Allowance for loan losses . . . . . . . (4,957,467) (4,997,847)
------------ ------------
Net Loans. . . . . . . . . . . . . . . . . . 414,036,783 396,607,001
Premises and equipment . . . . . . . . . . . . . 10,475,935 9,545,153
Federal Reserve and Federal Home Loan Bank
stock. . . . . . . . . . . . . . . . . . . . . 1,891,800 1,879,300
Interest receivable. . . . . . . . . . . . . . . 6,187,277 5,627,391
Core deposit intangibles and goodwill. . . . . . 1,845,417 1,976,594
Other assets . . . . . . . . . . . . . . . . . . 2,264,833 5,548,184
------------ ------------
Total assets. . . . . . . . . . . . . . . . $707,859,179 $644,605,972
------------ ------------
------------ ------------
LIABILITIES
Deposits:
Noninterest bearing. . . . . . . . . . . . . . $ 99,432,455 $ 99,667,435
Interest bearing . . . . . . . . . . . . . . . 488,723,230 430,162,771
------------ ------------
Total deposits . . . . . . . . . . . . . . . 588,155,685 529,830,206
Short-term borrowings. . . . . . . . . . . . . . 33,975,269 39,188,990
Federal Home Loan Bank advance . . . . . . . . . 1,000,000
Interest payable . . . . . . . . . . . . . . . . 1,866,499 1,319,917
Other liabilities. . . . . . . . . . . . . . . . 2,389,037 3,248,790
------------ ------------
Total liabilities. . . . . . . . . . . . . . 627,386,490 573,587,903
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--5,053,901 and
3,366,346 shares . . . . . . . . . . . . . . . 631,737 420,793
Additional paid-in capital . . . . . . . . . . . 15,852,082 16,230,765
Retained earnings. . . . . . . . . . . . . . . . 62,836,310 56,886,450
Net unrealized gain (loss) on securities
available for sale . . . . . . . . . . . . . . 1,152,560 (2,519,939)
------------ ------------
Total stockholders' equity. . . . . . . . . . . 80,472,689 71,018,069
------------ ------------
Total liabilities and stockholders'equity. . $707,859,179 $644,605,972
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
-8-
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable:
Taxable. . . . . . . . . . . . . . . . . . . . . .$ 37,750,745 $ 31,721,626 $28,704,848
Tax exempt . . . . . . . . . . . . . . . . . . . . 55,295 83,412 122,422
Investment securities:
Taxable. . . . . . . . . . . . . . . . . . . . . . 8,623,701 8,552,888 10,264,922
Tax exempt . . . . . . . . . . . . . . . . . . . . 2,474,920 2,434,992 2,396,031
Federal funds sold . . . . . . . . . . . . . . . . . 906,564 217,035 453,805
Deposits with financial institutions . . . . . . . . 3,728 1,743 35,295
Federal Reserve and Federal Home Loan Bank stock 149,110 102,785 28,933
------------ ----------- ----------
Total interest income. . . . . . . . . . . . . . . 49,964,063 43,114,481 42,006,256
------------ ----------- ----------
INTEREST EXPENSE
Deposits . . . . . . . . . . . . . . . . . . . . . . 19,565,304 14,294,358 15,431,588
Short-term borrowings. . . . . . . . . . . . . . . . 2,489,963 1,836,794 1,066,592
Federal Home Loan Bank advance . . . . . . . . . . . 27,502
------------ ----------- ----------
Total interest expense . . . . . . . . . . . . . . 22,082,769 16,131,152 16,498,180
------------ ----------- ----------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . 27,881,294 26,983,329 25,508,076
Provision for loan losses. . . . . . . . . . . . . . 640,000 782,000 1,013,765
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES. . . . . . . . . . . . . . 27,241,294 26,201,329 24,494,311
------------ ----------- ----------
OTHER INCOME
Fiduciary activities . . . . . . . . . . . . . . . . 2,754,667 2,549,660 2,408,632
Service charges on deposit accounts. . . . . . . . . 2,377,712 2,380,166 2,506,483
Other customer fees. . . . . . . . . . . . . . . . . 1,159,421 1,061,332 1,049,751
Net realized gains(losses) on
sale of available-for-sale securities. . . . . . (66,404) (31,317) 394,551
Other income . . . . . . . . . . . . . . . . . . . . 681,142 337,927 228,794
------------ ----------- ----------
Total other income . . . . . . . . . . . . . . . . 6,906,538 6,297,768 6,588,211
------------ ----------- ----------
OTHER EXPENSES
Salaries and employee benefits . . . . . . . . . . . 10,561,065 10,051,455 9,123,874
Net occupancy expenses . . . . . . . . . . . . . . . 1,209,807 1,106,107 1,096,771
Equipment expenses . . . . . . . . . . . . . . . . . 1,674,234 1,586,398 1,138,180
Computer processing fees . . . . . . . . . . . . . . 138,463 130,882 1,176,957
Deposit insurance expense. . . . . . . . . . . . . . 604,019 1,134,194 1,138,463
Printing and office supplies . . . . . . . . . . . . 915,703 760,646 771,593
Advertising expense. . . . . . . . . . . . . . . . . 586,738 484,657 525,685
Other expenses . . . . . . . . . . . . . . . . . . . 3,151,836 3,179,536 3,243,368
------------ ----------- ----------
Total other expenses . . . . . . . . . . . . . . . 18,841,865 18,433,875 18,214,891
------------ ----------- ----------
INCOME BEFORE INCOME TAX AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING METHOD. . . . . . . . . . . . . . . . . . . 15,305,967 14,065,222 12,867,631
Income tax expense . . . . . . . . . . . . . . . . . 5,448,153 4,907,459 4,395,920
------------ ----------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING METHOD. . . . . . . . . . . . . . 9,857,814 9,157,763 8,471,711
CUMULATIVE EFFECT OF CHANGE IN METHOD
OF ACCOUNTING FOR INCOME TAXES . . . . . . . . . . . . 227,329
------------ ----------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . .$ 9,857,814 $ 9,157,763 $ 8,699,040
------------ ----------- ----------
------------ ----------- ----------
PER SHARE. . . . . . . . . . . . . . . . . . . . . . .
Income before cumulative effect of change
in accounting method . . . . . . . . . . . . . . . .$ 1.95 $ 1.80 $ 1.65
Net Income . . . . . . . . . . . . . . . . . . . . .$ 1.95 $ 1.80 $ 1.70
WEIGHTED AVERAGE SHARES OUTSTANDING. . . . . . . . . . 5,055,169 5,077,307 5,124,626
</TABLE>
See Notes to Consolidated Financial Statements.
-9-
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET UNREALIZED
ADDITIONAL GAIN (LOSS) ON
COMMON STOCK PAID-IN RETAINED SECURITIES
SHARES AMOUNT CAPITAL EARNINGS AVAILABLE FOR SALE TOTAL
--------- --------- ----------- ----------- ------------------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1993 . . . . 3,402,213 $ 425,277 $17,683,626 $45,825,656 $63,934,559
Net income for 1993 . . . . . . 8,699,040 8,699,040
Cash dividends ($.63 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 ($.71 per share). (3,583,282) (3,583,282)
Cumulative effect of change in
method of accounting for
securities, net of taxes
of $422,334 . . . . . . . . . $ 643,896 643,896
Net change in unrealized gain
(loss) on securities available
for sale, net of taxes
of $2,075,170 . . . . . . . . (3,163,835) (3,163,835)
Stock issued under employee
benefit plans . . . . . . . . . 10,543 1,318 248,485 249,803
Stock issued under dividend
reinvestment and stock
purchase plan. . . . . . . . . 11,670 1,459 355,745 357,204
Stock options exercised. . . . . 4,875 609 107,275 107,884
Stock redeemed . . . . . . . . . ( 50,333) ( 6,292) ( 1,549,343) (1,555,635)
--------- --------- ----------- ----------- ------------------ -----------
BALANCES, DECEMBER 31, 1994 . . . 3,366,346 420,793 16,230,765 56,886,450 ( 2,519,939) 71,018,069
Net income for 1995 9,857,814 9,857,814
Cash dividends ($.77 per share). ( 3,907,954) (3,907,954)
Net change in unrealized gain
(loss) on securities
available for sale,
net of taxes of $2,408,806. . 3,672,499 3,672,499
Stock issued under employee
benefit plans . . . . . . . . . 11,175 1,397 275,254 276,651
Stock issued under dividend
reinvestment and stock purchase
plan . . . . . . . . . . . . . 13,928 1,741 1,454,498 456,239
Stock options exercised. . . . . 9,267 1,158 191,251 192,409
Stock redeemed . . . . . . . . . (30,000) (3,750) (1,085,125) (1,088,875)
Three-for-two stock split. . . . 1,683,344 210,418 ( 210,418)
Cash paid in lieu of issuing
fractional shares . . . . . . . (159) (20) ( 4,143) ( 4,163)
--------- --------- ----------- ----------- ------------------ -----------
BALANCES, DECEMBER 31, 1995 . . . 5,053,901 $ 631,737 $15,852,082 $ 62,836,310 $ 1,152,560 $80,472,689
--------- --------- ----------- ----------- ------------------ -----------
--------- --------- ----------- ----------- ------------------ -----------
</TABLE>
See Note to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,857,814 $ 9,157,763 $ 8,699,040
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses. . . . . . . . . . . . . . . . . . . . . 640,000 782,000 1,013,765
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 1,145,833 1,125,697 696,782
Amortization of goodwill and intangibles . . . . . . . . . . . . . 131,177 131,177 131,181
(continued)
-10-
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------
1995 1994 1993
-------- ---------- ---------
Deferred income tax. . . . . . . . . . . . . . . . . . . . . . . . . . $ 340,302 $( 127,976) $( 542,266)
Securities amortization, net. . . . . . . . . . . . . . . . . . . . . 597,523 1,161,783 987,365
Securities losses (gains), net. . . . . . . . . . . . . . . . . . . . 66,404 31,317 ( 394,551)
Mortgage loans originated for sale. . . . . . . . . . . . . . . . . . ( 4,491,484)
Proceeds from sales of mortgage loans . . . . . . . . . . . . . . . . 3,785,283
Net change in:
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . 497,818 28,505 191,612
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . 546,582 93,750 ( 279,409)
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . ( 300,938) 163,867 829,887
----------- ----------- -----------
Net cash provided by operating activities. . . . . . . . . . . . . . 11,820,678 12,490,873 11,333,406
----------- ----------- -----------
INVESTING ACTIVITIES:
Net change in interest-bearing deposits . . . . . . . . . . . . . . . ( 132,324) 230,737 1,250,620
Purchases of:
Securities available for sale. . . . . . . . . . . . . . . . . . . . (71,857,503) ( 24,216,114)
Securities held to maturity. . . . . . . . . . . . . . . . . . . . . (31,786,823) ( 30,833,553) (120,299,746)
Proceeds from maturities of:
Securities available for sale. . . . . . . . . . . . . . . . . . . . 26,537,062 12,424,651
Securities held to maturity. . . . . . . . . . . . . . . . . . . . . 46,522,672 49,498,914 104,327,097
Proceeds from sales of:
Securities available for sale. . . . . . . . . . . . . . . . . . . . 11,695,656 15,083,461
Securities held to maturity. . . . . . . . . . . . . . . . . . . . . 5,430,571
Net change in loans . . . . . . . . . . . . . . . . . . . . . . . . . (18,560,933) ( 25,767,003) ( 27,530,846)
Purchases of premises and equipment . . . . . . . . . . . . . . . . . ( 2,076,615) ( 1,230,215) ( 2,642,213)
Other investing activities. . . . . . . . . . . . . . . . . . . . . . 375,190 707,118 683,511
----------- ----------- -----------
Net cash used by investing activities. . . . . . . . . . . . . . . (39,283,618) ( 4,102,004) ( 38,781,006)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net change in:
Noninterest-bearing, interest-bearing
and savings deposits. . . . . . . . . . . . . . . . . . . . . . . . 6,602,698 24,818,997 12,890,301
Certificates of deposit and other time deposits. . . . . . . . . . . 51,722,781 ( 1,290,957) (18,559,253)
Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . ( 5,213,721) ( 7,701,137) 9,817,127
Federal Home Loan Bank advance. . . . . . . . . . . . . . . . . . . . 1,000,000
Cash dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 3,907,954) ( 3,583,282) ( 3,212,727)
Stock issued under employee benefit plans . . . . . . . . . . . . . . 276,651 249,803 247,763
Stock issued under dividend reinvestment
and stock purchase plan. . . . . . . . . . . . . . . . . . . . . . . 456,239 357,204 286,949
Stock options exercised . . . . . . . . . . . . . . . . . . . . . . . 192,409 107,884 154,385
Stock redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 1,088,875) ( 1,555,635) ( 1,301,438)
Cash paid in lieu of issuing fractional shares. . . . . . . . . . . . ( 4,163) ( 4,260)
----------- ----------- -----------
Net cash provided by financing activities. . . . . . . . . . . . . . 50,036,065 11,402,877 318,847
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 22,573,125 19,791,746 (27,128,753)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . 46,359,174 26,567,428 53,696,181
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,932,299 $ 46,359,174 $ 26,567,428
----------- ----------- -----------
----------- ----------- -----------
ADDITIONAL CASH FLOWS INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,536,187 $ 16,037,402 $ 16,777,589
Income tax paid . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,065,558 4,997,385 5,004,469
</TABLE>
See Notes to Consolidated Financial Statements.
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 1
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Merchants Corporation
("Corporation"), and its wholly owned subsidiaries, First Merchants Bank, N.A.
("First Merchants"), Pendleton Banking Company ("Pendleton"), and First United
Bank ("First United"), (collectively "the Banks",) conform to generally accepted
accounting principles and reporting practices followed by the banking industry.
The more significant of the policies are described below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Corporation is a bank holding company whose principal activity is the
ownership and management of the Banks. First Merchants operates under a
national bank charter and provides full banking services, including trust
services. As a national bank, First Merchants is subject to the regulation of
the Office of the Comptroller of the Currency and the Federal Deposit Insurance
Corporation. Pendleton and First United operate under state bank charters and
provide full banking services, including trust services. As state banks,
Pendleton and First United are subject to the regulation of the Department of
Financial Institutions, State of Indiana, and the Federal Deposit Insurance
Corporation.
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.
CONSOLIDATION - The consolidated financial statements include the accounts of
the Corporation and the Banks, after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES - The Corporation adopted Statement of Financial
Accounting Standards ("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.
MORTGAGE LOANS HELD FOR SALE are carried at the lower of aggregate cost or
market. Net unrealized losses are recognized through a valuation allowance by
charges to income.
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 nonaccrual loans is then recognized as income when
collected. Loans are considered impaired when it becomes probable that the
Banks will be unable to collect all amounts due according to the contractual
terms of the loan agreement. Interest income on these loans is recognized as
described above depending on the accrual status of the loan. Certain loan fees
and direct costs are being deferred and amortized as an adjustment of yield on
the loans.
ALLOWANCE 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
(continued)
-12-
<PAGE>
NOTE 1
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
management includes consideration of past loss experience, changes in the
composition of the loan portfolio, the current condition and amount of loans
outstanding, and the probability of collecting all amounts due. Impaired loans
are measured by the present value of expected future cash flows, or the fair
value of the collateral of the loan, if collateral dependent.
The determination of the adequacy of the allowance for loan losses
is based on estimates that are particularly susceptible to significant changes
in the economic environment and market conditions. Management believes that,
as of December 31, 1995, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline in
the area within which the Corporation operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
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 required investments for
institutions that are members of the Federal Reserve Bank ("FRB") and Federal
Home Loan Bank ("FHLB") systems. The required investment in the common stock is
based on a predetermined formula.
ADVERTISING COSTS are expensed as incurred.
INTANGIBLE ASSETS are being amortized on the straight-line basis over
periods ranging from 10 to 25 years. Such assets are periodically evaluated
as to the recoverability of their carrying value.
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 adopted the provisions of SFAS No. 109, ACCOUNTING
FOR INCOME TAXES, during 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
and on October 27, 1995. Common stock equivalents, consisting of shares
issuable under employee benefit plans, were not included since their effect on
dilution was insignificant.
NOTE 2
ACQUISITIONS
On January 18, 1996, the Corporation signed a definitive agreement to
acquire all of the outstanding shares of Randolph County Bancorp, Inc.,
Winchester, Indiana. Under terms of the agreement, the Corporation will issue
approximately 566,000 shares of its common stock. The transaction will be
accounted for under the pooling of interests method of accounting and is subject
to approval by stockholders of Randolph County Bancorp, Inc., and appropriate
regulatory agencies. Although the corporation anticipates that the merger will
be consummated during the second quarter of 1996, there can be no assurance that
the acquisition will be completed. At December 31, 1995, Randolph County
Bancorp, Inc., had total assets and stockholders' equity of $73,333,000 and
$8,867,000, respectively.
On January 24, 1996, the Corporation signed a definitive agreement to
acquire all of the outstanding shares of Union National Bancorp, Liberty,
Indiana. Under terms of the agreement, the Corporation will issue approximately
943,000 shares of its common stock. The transaction will be accounted for under
the pooling of interests method of accounting and is subject to approval by
stockholders of Union National Bancorp and appropriate regulatory agencies.
Although the Corporation anticipates that the merger will be consummated during
the second quarter of 1996, there can be no assurance that the acquisition will
be completed. At December 31, 1995, Union National Bancorp had total assets and
stockholders' equity of $161,078,000 and $15,741,000, respectively.
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 3
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, 1995, was $10,159,000.
NOTE 4
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Available for sale at December 31, 1995:
U.S. Treasury . . . . . . . . . . . . . $ 4,531 $ 26 $ 3 $ 4,554
Federal agencies. . . . . . . . . . . . 67,518 1,299 72 68,745
State and municipal . . . . . . . . . . 18,769 398 37 19,130
Mortgage and other
asset-backed securities . . . . . . . 24,023 210 121 24,112
Corporate obligations . . . . . . . . . 26,120 264 55 26,329
Marketable equity security. . . . . . . 250 250
-------- ------ ----- --------
Total available for sale . . . . . 141,211 2,197 288 143,120
Held to maturity at December 31, 1995:
U.S. Treasury . . . . . . . . . . . . . 3,103 8 2 3,109
Federal agencies. . . . . . . . . . . . 11,645 69 21 11,693
State and municipal . . . . . . . . . . 40,013 483 57 40,439
Mortgage and other
asset-backed securities . . . . . . . 2,953 8 2,961
Corporate obligations . . . . . . . . . 500 1 499
-------- ------ ----- --------
Total held to maturity . . . . . . 58,214 568 81 58,701
-------- ------ ----- --------
Total investment securities. . . . $199,425 $ 2,765 $ 369 $201,821
-------- ------ ----- --------
-------- ------ ----- --------
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 available for sale . . . . . 103,536 64 4,237 99,363
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 held to maturity. . . . . . . 77,677 261 1,416 76,522
-------- ------ ----- --------
Total investment securities . . . . $181,213 $ 325 $5,653 $175,885
-------- ------ ----- --------
-------- ------ ----- --------
</TABLE>
The amortized cost and estimated fair value of securities held to
maturity and available for sale at December 31, 1995, by contractual
maturity, are shown on the following page. 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.
(continued)
-14-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 4
INVESTMENT SECURITIES (continued)
<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
------------------------ -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Maturity distribution at December 31, 1995:
Due in one year or less . . . . . . . . . . $ 24,867 $ 24,886 $ 19,193 $ 19,251
Due after one through five years. . . . . . 82,767 84,204 32,582 32,891
Due after five through ten years. . . . . . 9,554 9,918 2,866 2,978
Due after ten years . . . . . . . . . . . . 620 620
-------- -------- -------- --------
117,188 119,008 55,261 55,740
Mortgage and other asset-backed
securities 24,023 24,112 2,953 2,961
-------- -------- -------- --------
Totals. . . . . . . . . . . . . . . . . . $141,211 $143,120 $ 58,214 $ 58,701
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Securities with a carrying value of approximately $91,090,000
and $83,411,000 were pledged at December 31, 1995 and 1994, to secure
certain deposits and for other purposes as permitted or required by law.
Proceeds from sales of securities available for sale during 1995
and 1994 were $11,696,000 and $15,083,000. Gross gains of $47,000 and
$167,000 and gross losses of $113,000 and $198,000 were realized on
those sales.
Proceeds from sales of securities held to maturity during 1993
were $5,431,000. Gross gains of $395,000 and gross losses of $500 were
realized on those sales.
On December 28, 1995, the Corporation transferred certain
securities from held to maturity to available for sale in accordance with a
transition reclassification allowed by the Financial Accounting Standards
Board. Such securities had a carrying value of $4,421,000 and a fair value
of $4,418,000.
NOTE 5
LOANS AND ALLOWANCE
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Loans at December 31:
Commercial and industrial loans . . . . . . . $ 85,690 $ 78,943
Bankers' acceptances and loans to financial
institutions. . . . . . . . . . . . . . . . 2,925
Agricultural production financing and other
loans to farmers. . . . . . . . . . . . . . 5,796 5,310
Real estate loans:
Construction. . . . . . . . . . . . . . . . 9,913 8,126
Commercial and farmland . . . . . . . . . . 66,749 64,110
Residential . . . . . . . . . . . . . . . . 166,414 164,760
Individuals' loans for household
and other personal expenditures . . . . . . 79,993 78,041
Tax-exempt loans. . . . . . . . . . . . . . . 863 1,204
Other loans . . . . . . . . . . . . . . . . . 651 1,111
--------- ---------
Total loans . . . . . . . . . . . . . . . . $ 418,994 $ 401,605
--------- ---------
--------- ---------
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Allowance for loan losses:
Balance, January 1 . . . . . . . . $ 4,998 $ 4,800 $ 4,351
Provision for losses . . . . . . . 640 782 1,014
Recoveries on loans. . . . . . . . 201 329 343
Loans charged off. . . . . . . . . (882) (913) (908)
-------- -------- --------
Balance, December 31 . . . . . . . $ 4,957 $ 4,998 $ 4,800
-------- -------- --------
-------- -------- --------
</TABLE>
(continued)
-15-
<PAGE>
NOTE 5
LOANS AND ALLOWANCE (continued)
The Corporation adopted SFAS No. 114 and No. 118 ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN and ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -
INCOME RECOGNITION AND DISCLOSURES on January 1, 1995. Impaired loans
totaled $3,122,000 at December 31, 1995. An allowance for losses at December
31, 1995, was not deemed necessary for impaired loans totaling $1,900,000,
but an allowance of $559,000 was recorded for the remaining balance of
impaired loans of $1,222,000. The average balance of impaired loans for 1995
was $1,682,000. Interest income and cash receipts of interest totaled $34,000
and $5,000 during the period in 1995 that the loans were impaired.
Nonaccruing and restructured loans totaled $1,080,000 and $1,406,000 at
December 31, 1994 and 1993.
Additional interest income of $39,000 for 1994 and $39,000 for 1993
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 Banks 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 shown below:
Balances, December 31, 1994 . . . . . . . . . . . $ 12,880
New loans, including renewals . . . . . . . . . . 5,727
Payments, etc., including renewals. . . . . . . . (8,279)
--------
Balances, December 31, 1995 . . . . . . . . . . . $ 10,328
--------
--------
NOTE 6
PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cost at December 31:
Land . . . . . . . . . . . . . . . . . . . . . $ 1,850 $ 1,324
Buildings and leasehold improvements . . . . . 9,706 9,231
Equipment. . . . . . . . . . . . . . . . . . . 10,328 9,310
------- --------
Total cost . . . . . . . . . . . . . . . . . 21,884 19,865
Accumulated depreciation . . . . . . . . . . . . (11,408) (10,320)
------- --------
Net. . . . . . . . . . . . . . . . . . . . . $ 10,476 $ 9,545
------- --------
------- --------
</TABLE>
The Corporation is committed under various noncancelable lease contracts
for certain subsidiary office facilities. Total lease expense for 1995, 1994
and 1993 was $127,000, $113,000, and $110,000, respectively. The future
minimum rental commitments required under the operating leases in effect at
December 31, 1995, expiring at various dates through the year 2016, follow on
the right for the years ending December 31:
1996 . . . . . . . . . . . . . . . . . . . . . . . $ 106
1997 . . . . . . . . . . . . . . . . . . . . . . . 255
1998 . . . . . . . . . . . . . . . . . . . . . . . 85
1999 . . . . . . . . . . . . . . . . . . . . . . . 72
2000 . . . . . . . . . . . . . . . . . . . . . . . 63
After 2000 . . . . . . . . . . . . . . . . . . . . 318
-----
Total future minimum obligations . . . . . . . . $ 899
-----
-----
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 7
DEPOSITS
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deposits at December 31:
Noninterest-bearing . . . . . . . . . . . . . . . . . . . . $ 99,432 $ 99,667
Interest-bearing demand . . . . . . . . . . . . . . . . . . 105,957 91,806
Savings deposits . . . . . . . . . . . . . . . . . . . . . 137,134 144,447
Certificates and other time deposits of $100,000 or more . 49,216 33,622
Other certificates and time deposits . . . . . . . . . . . 196,417 160,288
--------- --------
Total deposits. . . . . . . . . . . . . . . . . . . . . . $ 588,156 $529,830
--------- --------
--------- --------
</TABLE>
Certificates maturing in years ending December 31:
1996 . . . . . . . . . . . $ 155,357
1997 . . . . . . . . . . . 41,862
1998 . . . . . . . . . . . 27,939
1999 . . . . . . . . . . . 15,132
2000 . . . . . . . . . . . 5,273
After 2000 . . . . . . . . 70
---------
$ 245,633
---------
---------
NOTE 8
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Short-term borrowings at December 31:
Federal funds purchased . . . . . . . . . . . . $ 100 $12,198
Securities sold under repurchase agreements . . 27,293 17,776
U.S. Treasury demand notes. . . . . . . . . . . 6,582 9,215
------- -------
Total short-term borrowings . . . . . . . . . $33,975 $39,189
------- -------
------- -------
</TABLE>
Securities sold under agreements to repurchase consist of obligations of
the Banks to other parties. The obligations are secured by U.S. Treasury and
Federal agency obligations and generally mature within one to 185 days from
the transaction date. The following table summarizes certain information on
these repurchase agreements.
As of and for the Year Ended December 31:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Book value . . . . . . . . . . . . . . . . . . . . $ 27,293 $ 17,776
Collateral book value. . . . . . . . . . . . . . . 40,471 40,664
Collateral market value. . . . . . . . . . . . . . 40,748 40,539
Average balance of agreements during year. . . . . 33,632 23,389
Highest month-end balance during year. . . . . . . 54,670 29,115
Interest payable at end of year. . . . . . . . . . 87 41
Weighted average interest rate at end of year. . . 5.29% 4.86%
</TABLE>
NOTE 9
FEDERAL HOME LOAN BANK ADVANCE
At December 31, 1995, the Corporation had a $1,000,000 Federal
Home Bank advance maturing June 20, 1996, with an interest rate of 5.79
per cent.
The advance is secured by investment securities with a carrying value of
$1,561,000. The advance is subject to restrictions or penalties in the event
of prepayment.
NOTE 10
LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The loans are serviced primarily for the Federal
Home Loan Mortgage Corporation and the unpaid balances totaled $3,546,000 at
December 31, 1995.
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 11
INCOME TAX
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Income tax expense, for the year ended December 31:
Currently payable:
Federal . . . . . . . . . . . . . . . . . . . . . $ 3,879 $ 3,845 $ 3,576
State . . . . . . . . . . . . . . . . . . . . . . 1,229 1,190 1,135
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . 267 (110) (304)
State . . . . . . . . . . . . . . . . . . . . . . 73 (18) (11)
-------- -------- ---------
Total income tax expense. . . . . . . . . . . . $ 5,448 $ 4,907 $ 4,396
-------- -------- ---------
-------- -------- ---------
Reconciliation of federal statutory to
actual tax expense (benefit):
Federal statutory income tax at 34% . . . . . . . . $ 5,204 $ 4,782 $ 4,375
Tax exempt interest . . . . . . . . . . . . . . . . (727) (759) (759)
Effect of state income taxes . . . . . . . . . . . 859 774 742
Other . . . . . . . . . . . . . . . . . . . . . . . 112 110 38
-------- -------- ---------
Actual tax expense. . . . . . . . . . . . . . . . $ 5,448 $ 4,907 $ 4,396
-------- -------- ---------
-------- -------- ---------
</TABLE>
Tax expense (benefit) applicable to security gains and losses
for the years ended December 31, 1995, 1994, and 1993, was ($22,600),
($12,000) and $156,000, 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, 1995, was considered
necessary.
During 1993, the Corporation adopted 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>
1995 1994
-------- --------
<S> <C> <C>
Deferred Tax Asset at December 31:
Differences in depreciation methods. . . . . . . . . $ (701) $ (595)
Differences in accounting for loans and securities . (58) (44)
Differences in accounting for loan fees. . . . . . . 368 532
Differences in accounting for loan losses. . . . . . 2,107 2,124
Deferred compensation. . . . . . . . . . . . . . . . 280 275
Differences in accounting for pensions and
other employee benefits. . . . . . . . . . . . . . 85 147
Net unrealized (gain) loss on securities available
for sale . . . . . . . . . . . . . . . . . . . . . (756) 1,653
State income tax . . . . . . . . . . . . . . . . . . (134) (159)
Other. . . . . . . . . . . . . . . . . . . . . . . . (2) 5
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 1,189 $ 3,938
------- -------
------- -------
Assets. . . . . . . . . . . . . . . . . . . . . . . . $ 2,840 $ 4,736
Liabilities (1,651) (798)
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 1,189 $ 3,938
------- -------
------- -------
</TABLE>
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 12
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>
1995 1994
-------- -------
<S> <C> <C>
Commitments to extend credit . . . . . . . . . . . . . . $120,649 $87,244
Standby letters of credit . . . . . . . . . . . . . . . 2,820 2,649
</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 management's
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 13
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, 1995, available for 1996
dividends to the Corporation is $15,923,000. As a practical matter,
subsidiaries restrict dividends to a lesser amount because of the need to
maintain an adequate capital structure.
Total stockholders' equity for all subsidiaries at December 31, 1995,
was $78,940,000, of which $63,017,000 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. At December 31, 1995,
386,046 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. On
August 8, 1995, the Board of Directors of the Corporation declared a three-for-
two stock split on its common shares. The new shares were distributed on
October 27, 1995, to holders of record on October 20, 1995.
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 14
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 $201,000 for 1995, $193,000 for
1994 and $56,000 for 1993.
The following table sets forth the plan's funded status and amounts
recognized in the consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of:
Accumulated benefit obligation including vested
benefits of $8,997 and $7,595 . . . . . . . . . . . . . . . . . . . . $ 9,181 $ 7,720
-------- --------
-------- --------
Projected benefit obligation for service rendered to date . . . . . . . $(10,971) $(9,189)
Plan assets at fair value, primarily interest-bearing deposits
and corporate bonds and securities. . . . . . . . . . . . . . . . . . . 12,049 9,740
-------- --------
Plan assets in excess of projected benefit obligation . . . . . . . . . . 1,078 551
Unrecognized net loss from experience different than
that assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 569) ( 121)
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . ( 71) ( 52)
Unrecognized net asset at January 1, 1987, being
recognized over 15 years. . . . . . . . . . . . . . . . . . . . . . . . ( 650) ( 755)
-------- --------
Accrued pension cost included in the balance sheet. . . . . . . . . . . . $ ( 212) $( 377)
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Pension expense includes the following components:
Service cost benefits earned during the year . . . . . . $ 405 $ 483 $ 389
Interest cost on projected benefit obligation . . . . . . 740 678 619
Actual return on plan assets. . . . . . . . . . . . . . . (2,387) ( 124) ( 1,072)
Net amortization and deferral . . . . . . . . . . . . . . 1,443 ( 844) 120
-------- -------- --------
$ 201 $ 193 $ 56
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Assumptions used in the accounting as of December 31 were:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . 7.50% 8.25% 6.85%
Rate of increase in compensation. . . . . . . . . . . . . . 4.50% 4.50% 4.50%
Expected long-term rate of return on assets . . . . . . . . 8.75% 8.75% 8.75%
</TABLE>
(continued)
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 14
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. There were no shares available for
grant at December 31, 1995.
On March 31, 1994, stockholders approved the 1994 Stock Option
Plan, reserving 315,000 shares of Corporation common stock 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 are fully exercisable generally six months after the date of the
grant, for a period of ten years. There were 198,075 shares available for
grant at December 31, 1995.
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Shares under option after restatement for stock splits:
Outstanding at beginning of year . . . . . . . . . . . . 179,807 127,345 113,400
Adjustment for fractional shares . . . . . . . . . . . . (6)
Granted during the year. . . . . . . . . . . . . . . . . 57,150 59,775 30,150
Expired during the year. . . . . . . . . . . . . . . . . (2,250)
Exercised during the year. . . . . . . . . . . . . . . . (13,898) (7,313) (13,949)
Outstanding at end of year . . . . . . . . . . . . . . . 223,059 179,807 127,345
Exercisable at end of year . . . . . . . . . . . . . . . 165,909 120,032 97,646
Average option price at end of year. . . . . . . . . . . $ 18.07 $ 15.81 $ 13.72
Price of options exercised
Low . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.11 $ 10.78 $ 9.11
High. . . . . . . . . . . . . . . . . . . . . . . . . $ 19.42 $ 18.33 $ 17.22
</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 11,175 shares (prior
to stock split) in 1995 at $24.7563 per share. The fair market value per
share on the purchase date was $34.125.
On March 31, 1994, the stockholders approved the 1994
Employee Stock Purchase Plan. A total of 168,750 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, 1995, 136,173 shares of Corporation common
stock were reserved for purchase under the plan, and $152,725 has been
deducted from compensation, plus interest, toward the purchase of
shares after June 30, 1996, 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 $68,000
for 1995, $61,000 for 1994 and $52,000 for 1993.
SFAS No. 123, STOCK-BASED COMPENSATION, is effective for the
Corporation in 1996. This statement establishes a fair value based method of
accounting for stock-based compensation plans. The Corporation has not yet
determined the impact of adopting SFAS No. 123 on net income or financial
position in the year of adoption.
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 15
FAIR VALUES OF 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.
Mortgage Loans Held for Sale--The fair value of mortgages
held for sale approximates carrying values.
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 values of interest
receivable/payable approximate 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 demand accounts and
interest-bearing demand accounts are equal to the amount payable on demand
at the balance sheet date. The carrying amounts for variable rate, fixed-term
certificates of deposit approximate their fair values 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.
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, 1995 and 1994, approximate
market rates, thus the fair value approximates carrying value.
Federal Home Loan Bank Advance--The fair value of the Federal Home Loan
Bank advance approximates carrying value.
Off-Balance Sheet Standby Letters of Credit--The fair value of standby
letters of credit are based upon fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
The estimated fair values of the Corporation's financial instruments are
as follows:
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- --------- -------
<S> <C> <C> <C> <C>
ASSETS AT DECEMBER 31:
Cash and cash equivalents . . . . . . . . . . . $ 68,932 $ 68,932 $ 46,359 $ 46,359
Interest-bearing time deposits. . . . . . . . . 155 155 23 23
Investment securities available for sale. . . . 143,120 143,120 99,363 99,363
Investment securities held to maturity. . . . . 58,214 58,701 77,677 76,522
Mortgage loans held for sale. . . . . . . . . . 736 736
Loans . . . . . . . . . . . . . . . . . . . . . 418,994 420,424 401,605 400,174
Federal Reserve and
Federal Home Loan Bank stock. . . . . . . . . 1,892 1,892 1,879 1,879
Interest receivable . . . . . . . . . . . . . . 6,187 6,187 5,627 5,627
LIABILITIES AT DECEMBER 31:
Deposits. . . . . . . . . . . . . . . . . . . . 588,156 590,015 529,830 529,191
Short-term borrowings:
Federal funds purchased . . . . . . . . . . . 100 100 12,198 12,198
Securities sold under repurchase agreements . 27,293 27,293 17,776 17,776
U.S. Treasury demand notes . . . . . . . . . 6,582 6,582 9,215 9,215
Federal Home Loan Bank advance. . . . . . . . . 1,000 1,000
Interest payable . . . . . . . . . . . . . . . 1,866 1,866 1,320 1,320
Off-balance sheet standby letters of credit . 56 53
</TABLE>
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Amounts)
NOTE 16
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
----------------------
1995 1994
--------- --------
<S> <C> <C>
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 591 $ 137
Investment security available for sale . . . . . . . . . 250
Investment in subsidiaries. . . . . . . . . . . . . . . . 78,877 70,089
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . 673 711
Other assets. . . . . . . . . . . . . . . . . . . . . . . 287 233
--------- ---------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ 80,678 $ 71,170
--------- ---------
--------- ---------
LIABILITIES
Other liabilities . . . . . . . . . . . . . . . . . . . . $ 205 $ 152
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . . . . 205 152
STOCKHOLDERS' EQUITY. . . . . . . . . . . . . . . . . . . . $ 80,473 71,018
--------- ---------
Total liabilities and stockholders' equity. . . . . . . $ 80,678 $ 71,170
--------- ---------
--------- ---------
</TABLE>
CONDENSED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries . . . . . . . . . . . . . . . $ 4,857 $ 4,335 $ 3,571
---------- --------- ----------
Total income. . . . . . . . . . . . . . . . . . . . . 4,857 4,335 3,571
---------- --------- ----------
EXPENSES
Amortization of core deposit intangibles,
goodwill and fair value adjustments . . . . . . . . . . 38 32 19
Other expenses. . . . . . . . . . . . . . . . . . . . . . 153 170 100
---------- --------- ----------
Total expenses. . . . . . . . . . . . . . . . . . . . 191 202 119
---------- --------- ----------
Income before income tax, equity in undistributed income
of subsidiaries and cumulative effect of change in
accounting method . . . . . . . . . . . . . . . . . . . . 4,666 4,133 3,452
Income tax benefit. . . . . . . . . . . . . . . . . . (76) ( 73) ( 40)
---------- --------- ----------
Income before equity in undistributed income of
subsidiaries and cumulative effect of change in
accounting method . . . . . . . . . . . . . . . . . . . . 4,742 4,206 3,492
Equity in undistributed income of subsidiaries. . . . 5,116 4,952 5,225
---------- --------- ----------
Income before cumulative effect of change in
accounting method . . . . . . . . . . . . . . . . . . . . 9,858 9,158 8,717
Cumulative effect of change in method of accounting for
income taxes. . . . . . . . . . . . . . . . . . . . . . . ( 18)
---------- --------- ----------
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $ 9,858 $ 9,158 $ 8,699
---------- --------- ----------
---------- --------- ----------
</TABLE>
(continued)
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts In Thousands, Except Per Share Amounts)
NOTE 16
CONDENSED FINANCIAL INFORMATION (Parent Company Only, continued)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . $ 9,858 $ 9,158 $ 8,699
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization. . . . . . . . . . . . . . . . . . . . . . 38 32 19
Equity in undistributed income of subsidiaries. . . . . (5,116) ( 4,952) ( 5,225)
Net change in:
Other assets. . . . . . . . . . . . . . . . . . . . . ( 54) ( 48) ( 64)
Other liabilities . . . . . . . . . . . . . . . . . . 53 29 123
---------- --------- ----------
Net cash provided by operating activities . . . . . 4,779 4,219 3,552
---------- --------- ----------
INVESTING ACTIVITY:
Purchase of security available for sale . . . . . . ( 250)
----------
Net cash used by investing activities . . . . . . . ( 250)
-----------
FINANCING ACTIVITIES:
Cash dividends. . . . . . . . . . . . . . . . . . . . . . ( 3,908) ( 3,583) (3,213)
Stock issued under employee benefit plans . . . . . . . . 278 250 247
Stock issued under dividend reinvestment
and stock purchase plan . . . . . . . . . . . . . . . . 456 357 287
Stock options exercised . . . . . . . . . . . . . . . . . 192 108 154
Stock redeemed. . . . . . . . . . . . . . . . . . . . . . ( 1,089) ( 1,556) (1,301)
Cash paid in lieu of issuing fractional shares . . . . . ( 4) ( 4)
---------- --------- ----------
Net cash used by financing activities . . . . . . . . ( 4,075) ( 4,424) (3,830)
---------- --------- ----------
Net increase (decrease) in cash on deposit 454 ( 205) ( 278)
Cash on deposit, beginning of year. . . . . . . . . . . . . 137 342 620
---------- --------- ----------
Cash on deposit, end of year. . . . . . . . . . . . . . . . $ 591 $ 137 $ 342
---------- --------- ----------
---------- --------- ----------
</TABLE>
NOTE 17
QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table sets forth certain quarterly results for the
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
NET PROVISION AVERAGE
INTEREST INTEREST INTEREST FOR LOAN NET SHARES EARNINGS
QUARTER ENDED INCOME EXPENSE INCOME LOSSES INCOME OUTSTANDING PER SHARE
------------- -------- -------- -------- --------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
March, 1995. . . . $ 11,588 $ 4,661 $ 6,927 $ 160 $ 2,391 5,051,232 $ .47
June, 1995 . . . . 12,435 5,435 7,000 160 2,529 5,055,723 .50
September, 1995. . 12,796 5,840 6,956 160 2,414 5,062,748 .48
December, 1995 . . 13,145 6,147 6,998 160 2,524 5,050,974 .50
-------- -------- -------- -------- ------- -------
$ 49,964 $ 22,083 $ 27,881 $ 640 $ 9,858 5,055,169 $ 1.95
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
March, 1994. . . . $ 10,211 $ 3,768 $ 6,443 $ 193 $ 2,246 5,082,999 $ .44
June, 1994 . . . . 10,679 3,929 6,750 199 2,360 5,072,202 .47
September, 1994. . 11,106 4,281 6,825 201 2,227 5,086,058 .44
December, 1994 . . 11,118 4,153 6,965 189 2,325 5,067,968 .45
-------- -------- -------- -------- ------- -------
$ 43,114 $ 16,131 $ 26,983 $ 782 $ 9,158 5,077,307 $ 1.80
-------- -------- -------- -------- ------- -------
-------- -------- -------- -------- ------- -------
</TABLE>
-24-
<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
Delaville Delaware
Eaton Delaware
Pendleton Madison
Edgewood Madison
Ingalls Madison
Lapel Madison
Markleville Madison
Middletown Henry
Bulphur 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)
1993 1994 1995
<S> <C> <C> <C>
Return on Average Assets 1.39% 1.44% 1.48%
</TABLE>
A narrative discussion of this data is provided in the Management's Discussion
& Analysis, under the caption "Results of Operations."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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)
1993 1994 1995
<S> <C> <C> <C>
Return on Average Equity 13.01% 13.06% 12.97%
</TABLE>
A narrative discussion of the data is provided in the Management's Discussion
& Analysis, under the caption "Results of Operations."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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)
1993 1994 1995
<S> <C> <C> <C>
First Merchants Corporation .16% .15% .16%
Peer Group .49% .25% NA
</TABLE>
A narrative discussion of this data is provided in the Management's Discussion
& Analysis, under the caption "Asset Quality/Provision for Loan Losses."
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 31,432
<INT-BEARING-DEPOSITS> 155
<FED-FUNDS-SOLD> 37,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 143,120
<INVESTMENTS-CARRYING> 58,214
<INVESTMENTS-MARKET> 58,701
<LOANS> 418,994
<ALLOWANCE> 4,957
<TOTAL-ASSETS> 707,859
<DEPOSITS> 588,156
<SHORT-TERM> 33,975
<LIABILITIES-OTHER> 5,255
<LONG-TERM> 0
0
0
<COMMON> 632
<OTHER-SE> 79,841
<TOTAL-LIABILITIES-AND-EQUITY> 707,859
<INTEREST-LOAN> 37,806
<INTEREST-INVEST> 11,099
<INTEREST-OTHER> 1,059
<INTEREST-TOTAL> 49,964
<INTEREST-DEPOSIT> 19,565
<INTEREST-EXPENSE> 22,083
<INTEREST-INCOME-NET> 27,881
<LOAN-LOSSES> 640
<SECURITIES-GAINS> (66)
<EXPENSE-OTHER> 18,842
<INCOME-PRETAX> 15,306
<INCOME-PRE-EXTRAORDINARY> 9,858
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,858
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<YIELD-ACTUAL> 4.64
<LOANS-NON> 133
<LOANS-PAST> 863
<LOANS-TROUBLED> 625
<LOANS-PROBLEM> 3,122
<ALLOWANCE-OPEN> 4,998
<CHARGE-OFFS> 882
<RECOVERIES> 201
<ALLOWANCE-CLOSE> 4,957
<ALLOWANCE-DOMESTIC> 3,999
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 958
</TABLE>