First Merchants Corporation
Retirement Savings Plan
EIN 35-1544218 PN 002
Accountants' Report and Financial Statements
December 31, 2002 and 2001
First Merchants Corporation
Retirement Savings Plan
December 31, 2002 and 2001
Contents
Independent Accountants' Report...............................................................................1
Financial Statements
Statements of Net Assets Available for Benefits...........................................................2
Statements of Changes in Net Assets Available for Benefits................................................3
Notes to Financial Statements.............................................................................4
Supplemental Schedules
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes at End of Year.....................10
Schedule H, Line 4j - Schedule of Reportable Transactions................................................11
Exhibit
Exhibit 23, Consent of Independent Accountants...........................................................13
Independent Accountants' Report
Administrative Committee
First Merchants Corporation
Retirement Savings Plan
Muncie, Indiana
We have audited the accompanying statements of net assets available for benefits
of First Merchants Corporation Retirement Savings Plan as of December 31, 2002
and 2001, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of First Merchants
Corporation Retirement Savings Plan at December 31, 2002 and 2001, and the
changes in its net assets available for benefits for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying supplemental schedules of (1) assets held for investment
purposes at end of year, and (2) reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
are the responsibility of the Plan's management. The supplemental schedules have
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
BKD, LLP
Indianapolis, Indiana
May 16, 2003
Federal Employer Identification Number: 44-0160260
See Notes to Financial Statements
First Merchants Corporation
Retirement Savings Plan
Statements of Net Assets Available for Benefits
December 31, 2002 and 2001
Assets
2002 2001
-------------------------------------------
Investments, at fair value
Temporary deposit funds $ -- $ 880,831
Collective investment funds -- 11,295,638
Common stock 397,275 134,872
Mutual funds 12,399,376 1,089,898
Money market funds 1,012,993 --
---------------- ----------------
Total investments 13,809,644 13,401,239
Employer contributions receivable -- 15,651
Accrued income receivable 4,906 2,057
Cash 12,607 228
---------------- ----------------
Net Assets Available for Benefits $ 13,827,157 $ 13,419,175
================ ================
First Merchants Corporation
Retirement Savings Plan
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 2002 and 2001
2002 2001
-------------------------------------------
Additions
Investment income
Net depreciation in fair value of investments $ (628,121) $ (948,700)
Interest and dividends 199,247 65,008
---------------- ----------------
(428,874) (883,692)
Employee contributions 1,179,439 848,547
Employer contributions 182,857 126,549
Employee rollover contributions 202,273 210,367
Transfers from other plans -- 2,389,965
---------------- ----------------
Total additions 1,135,695 2,691,736
---------------- ----------------
Deductions
Benefits paid to participants 703,229 546,833
Administrative expenses 24,484 41,155
---------------- ----------------
Total deductions 727,713 587,988
---------------- ----------------
Net Increase 407,982 2,103,748
Net Assets Available for Benefits, Beginning of Year 13,419,175 11,315,427
---------------- ----------------
Net Assets Available for Benefits, End of Year $ 13,827,157 $ 13,419,175
================ ================
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
Note 1: Description of Plan
The following description of First Merchants Corporation Retirement
Savings Plan (Plan) provides only general information. Participants
should refer to the Plan document for a more complete description of the
Plan's provisions.
General
The Plan is a defined-contribution plan sponsored by First Merchants
Corporation (Corporation) for the benefit of all employees who have
completed one year of service and are age eighteen or older. As of July
1, 2002, employees are eligible on their date of hire. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974
(ERISA). First Merchants Bank, N.A. (Bank) is the trustee of the Plan.
Effective January 1, 2003, the Corporation named Merchants Trust Company
the trustee of the Plan. PrimeVest Financial Services is the custodian
for a majority of the Plan's assets.
Contributions
The Plan permits eligible employees through a salary deferral election
to have the Corporation make annual contributions of up to the
limitations of the Economic Growth and Tax Relief Act of 2001 (EGTRRA).
As discussed in Note 6, the Plan was amended during 2002 to provide for
automatic enrollment and deferral of 3% of compensation upon a
participant's date of hire unless they affirmatively elect to not
participate or to contribute a different percentage to the Plan.
Employee rollover contributions are also permitted. The Corporation
makes matching contributions of its employees' salary deferral amounts
of 25% of the first 5% of employees' eligible compensation. Forfeitures
are used to reduce the Corporation's contributions.
Participant Investment Account Options
Investment account options available include various funds including a
Corporation stock fund. Each participant has the option of directing his
contributions into any of the separate investment accounts and,
effective in 2002, may change the allocation daily.
Participant Accounts
Each participant's account is credited with the participant's
contribution, allocation of the Corporation contribution and Plan
earnings. Allocations of Plan earnings are based on participant account
balances, as defined. The benefit to which a participant is entitled is
the benefit that can be provided from the participant's account.
Vesting
Participants are immediately vested in their salary deferral and
rollover contribution accounts plus actual earnings thereon. Vesting in
the remainder of their accounts is based on years of continuous service.
A participant is 100% vested after five years of credited service.
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
Payment of Benefits
Upon termination of service, participants may elect to receive a
lump-sum amount or installments equal to the value of their accounts.
Withdrawals other than for termination are permitted under circumstances
provided by the Plan.
Plan Termination
Although it has not expressed any intent to do so, the Corporation has
the right under the Plan to discontinue its contributions at any time
and to terminate the Plan subject to the provisions of ERISA. In the
event of Plan termination, participants will become 100% vested in their
accounts.
Note 2: Summary of Significant Accounting Policies
Method of Accounting
The accompanying financial statements are prepared on the accrual method
of accounting.
Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of net assets and changes in net assets available for benefits.
Actual results could differ from those estimates.
Investments
Investments are valued at estimated fair value. Money market funds and
temporary deposit funds are valued at cost, which approximates market.
Purchases and sales of securities are recorded on a trade-date basis.
Payment of Benefits
Benefits are recorded when paid.
Administrative Expenses
Administrative expenses may be paid by the Corporation or the Plan, at
the Corporation's discretion.
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
Note 3: Investments
At December 31, 2002, the Plan's investments are held by PrimeVest
Financial Services and the Corporation. The Plan's investments
(including investments bought, sold, and held during the year)
depreciated in fair value as follows:
2002
Net
Appreciation
(Depreciation) Fair Value
in Fair Value at End
During Year of Year
-------------------------------------------
Investments at estimated fair value as determined by quoted
prices in an active market
Common stock $ (14,413) $ 397,275
Mutual funds 137,222 12,399,376
Money market funds -- 1,012,993
Investments at estimated fair value and cost which
approximates market
Collective investment funds (750,930) --
---------------- ----------------
$ (628,121) $ 13,809,644
================ ================
2001
Net
Appreciation
(Depreciation) Fair Value
in Fair Value at End
During Year of Year
-------------------------------------------
Investments at estimated fair value as determined by quoted
prices in an active market
Common stock $ 11,311 $ 134,872
Mutual funds (61,186) 1,089,898
Investments at estimated fair value and cost which
approximates market
Temporary deposit funds -- 880,831
Collective investment funds (898,825) 11,295,638
---------------- ----------------
$ (948,700) $ 13,401,239
================ ================
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
The fair values of individual investments that represented 5% or more of
the Plan's assets were as follows:
2002 2001
-----------------------------------------
Federated Prime Cash Obligations Fund $ 1,012,993 $ --
American Funds Amcap Fund 2,012,478 --
American Century Equity Income Fund 811,342 --
Federated Capital Preservation Fund 988,210 --
Franklin Short-Intermediate U. S. Government Securities Fund 1,016,651 --
MFS Value Fund 1,861,145 --
PIMCO Total Return Fund 1,754,784 --
Oppenheimer Main Street Income and Growth Fund 982,942 --
Oppenheimer Small Cap. Value Fund 713,842 --
First Merchants Bank, N.A. Intermediate Growth Fund for Tax
Exempt Accounts -- 8,766,390
First Merchants Bank, N.A. Intermediate Term Income Fund for
Tax Exempt Accounts -- 2,529,248
First Merchants Bank, N.A. Temporary Fund II -- 880,831
Note 4: Nonparticipant-directed Investments
Information about the net assets and the significant components of the
changes in net assets relating to the nonparticipant-directed
investments, is as follows:
2002 2001
----------------------------------------
Net Assets
Federated Prime Cash Obligations $ -- $ --
Temporary deposit funds -- --
---------------- ----------------
$ 0 $ 0
================ ================
2002 2001
----------------------------------------
Transfers in $ 12,337,615 $ 880,831
Transfers out (12,337,615) (880,831)
---------------- ----------------
$ 0 $ 0
================ ================
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
Note 5: Party-in-Interest Transactions
Party-in-interest transactions include those with fiduciaries or
employees of the Plan, any person who provides services to the Plan, an
employer whose employees are covered by the Plan, an employee
organization whose members are covered by the Plan, a person who owns 50
percent or more of such an employer or employee association, or
relatives of such persons.
The Plan invested in First Merchants Bank, N.A. Temporary Fund II,
Intermediate Growth Fund for Tax Exempt Account Intermediate Term Income
Fund for Tax Exempt Accounts through July 2002. The Plan continues to
invest in First Merchants Bank common stock.
Activity at fair value was as follows:
First Merchants First Merchants
Bank, N.A. Bank, N.A.
First Merchants Intermediate Growth Intermediate Term First Merchants
Bank, N.A. Fund for Tax Income Fund for Corporation
Temporary Exempt Tax Exempt Common
Deposit Fund Accounts Accounts Stock
---------------------------------------------------------------------------------
Balance, January 1,
2001 $ 415,194 $ 8,206,877 $ 2,025,591 $ --
Changes 465,637 559,513 503,657 134,872
-------------- ---------------- -------------- -------------
Balance, December 31,
2001 880,831 8,766,390 2,529,248 134,872
Changes (880,831) (8,766,390) (2,529,248) 262,403
-------------- ---------------- -------------- -------------
Balance, December 31,
2002 $ 0 $ 0 $ 0 $ 397,275
============== ================ ============== =============
The Corporation provides certain administrative services at no cost to
the Plan. Effective January 1, 2001, fees for certain trust and
administrative services provided by the trustee are now paid by the Plan
and were $24,484 and $41,155 for 2002 and 2001, respectively.
Note 6: Tax Status
The Internal Revenue Service has advised that the Plan constitutes a
qualified plan under Section 401 of the Internal Revenue Code and that
the trust established under the Plan is therefore exempt from federal
income taxes. The Plan has been amended since receiving the
determination letter. However, the Plan administrator believes that the
Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code and that the Plan
was qualified and the related trust was tax exempt as of the financial
statement date.
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2002 and 2001
Note 7: Plan Changes and Restatement
Effective January 1, 2001, employees of Decatur Bank and Trust Company
(Decatur Bank and Trust Company 401(k) Profit Sharing Plan) were added
to the Plan, and assets of approximately $2,390,000 were transferred
into the Plan.
The Plan was restated effective January 1, 1998. As of January 1, 2001,
a Corporation stock fund was added as an investment account option, and
the Plan eligibility age was lowered to age 18.
Effective January 1, 2002, the Plan was amended to provide participants
the opportunity to increase their contributions in accordance with the
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
Effective July 1, 2002, the Plan was amended to automatically enroll
employees in the Plan as of their date of hire unless they affirmatively
elect not to participate. Also, on July 1, 2002, the Plan was converted
from a quarterly to a daily valuation. As part of the conversion, all of
the previous fund options were replaced.
Supplemental Schedules
First Merchants Corporation
Retirement Savings Plan
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes
at End of Year
December 31, 2002
Employer Identification Number: 35-1544218 Plan Number: 002
(a) (b) (c) (e)
Identity of Issue, Description of Investment
Borrower, Lessor, or Including Par or Current
Similar Party Maturity Value Value
--------------------------------------------------------------------------------------------------------------------
Common Stock
*First Merchants Corporation 17,432 shares $ 397,275
Mutual Funds
AIM Small Cap. Equity Fund 30,970 shares 254,884
American Funds Amcap. Fund 154,806 shares 2,012,478
American Century Equity Income Fund 124,248 shares 811,342
American High Income Trust Fund 15,729 shares 162,481
Federated Capital Preservation Fund 98,821 shares 988,210
Federated Max-Cap. Index Fund 23,681 shares 420,567
Fidelity Advisor International Capital
Appreciation Fund 3,830 shares 41,519
Franklin Short-Intermediate U. S. Government
Securities Fund 96,001 shares 1,016,651
Franklin Templeton Foreign Fund 18,865 shares 156,765
MFS Value Fund 112,660 shares 1,861,145
MFS Mid-Cap. Growth Fund 72,043 shares 407,763
Oppenheimer Main Street Income and Growth Fund 37,805 shares 982,942
Oppenheimer Small Cap. Value Fund 36,796 shares 713,842
PIMCO Foreign Bond Fund 6,048 shares 63,987
PIMCO Total Return Fund 164,460 shares 1,754,784
Putnam Capital Opportunities Fund 34,409 shares 262,198
Putnam International Voyager Fund 9,742 shares 135,223
Putnam Small Cap. Growth Fund 28,118 shares 352,595
12,399,376
Money Market Fund
Federated Prime Cash Obligations Fund 1,012,993 shares 1,012,993
$ 13,809,644
*Party-in-interest
First Merchants Corporation
Retirement Savings Plan
Schedule H, Line 4j - Schedule of Reportable Transactions
(Transactions in Excess of 5% of Plan Assets at Beginning of Year)
Year Ended December 31, 2002
Employer Identification Number: 35-1544218 Plan Number: 002
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Current Value
Expenses of Asset on
Identity of Party Description of Purchase Selling Lease Incurred With Cost of Transaction Net Gain
Involved Assets Price Price Rental Transaction Asset Date or (Loss)
----------------------------------------------------------------------------------------------------------------------------------
Issuer Federated Prime Cash
Obligations Fund
Purchases $ 13,350,608 $ 13,350,608 $ 13,350,608
Sales $ 12,337,615 12,337,615 12,337,615 $ --
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
First Merchants Corporation on Form S-8 (File Number 333-50484) of our report
dated May 16, 2003, of our audit on the financial statements of First Merchants
Corporation Retirement Savings Plan for the year ended December 31, 2002, which
report is included in its Annual Report on Form 11-K.
BKD, LLP
Indianapolis, Indiana
June 25, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan
Administrator has duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
Date: 06/25/03 By: /s/ Kimberly J. Ellington
-------- -------------------------
Kimberly J. Ellington
First Merchants Corporation
Retirement Savings Plan