U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 0-17071
A. Full title of the plan and the address of the plan, if different from that
of the Issuer named below:
First Merchants Corporation
Retirement Savings Plan
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal office:
First Merchants Corporation
200 East Jackson Street
Muncie, Indiana 47305
First Merchants Corporation
Retirement Savings Plan
EIN 35-1544218 PN 002
Accountants' Report and Financial Statements
December 31, 2003 and 2002
First Merchants Corporation
Retirement Savings Plan
December 31, 2003 and 2002
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......................................................11
Schedule H, Line 4j - Schedule of Reportable Transactions.............12
Exhibit
Exhibit 23, Consent of Independent Accountants........................13
Signature.................................................................14
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, 2003
and 2002, 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 as of December 31, 2003 and 2002, 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 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. These 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.
[OBJECT OMITTED]
Indianapolis, Indiana
April 28, 2004
Federal Employer Identification Number: 44-0160260
Page 1
First Merchants Corporation
Retirement Savings Plan
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
Assets
2003 2002
--------------------------------------
Investments, at fair value
Common stock $ 619,177 $ 397,275
Mutual funds 15,705,757 11,411,166
Collective investment fund 1,222,302 988,210
Money market funds 433,587 1,012,993
--------------- ---------------
Total investments 17,980,823 13,809,644
Accrued income receivable 353 4,906
Cash 1,464 12,607
--------------- ---------------
Net Assets Available for Benefits $ 17,982,640 $ 13,827,157
=============== ===============
Page 2
First Merchants Corporation
Retirement Savings Plan
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 2003 and 2002
2003 2002
-------------------------------------------
Investment Income (Loss)
Net appreciation (depreciation) in fair value of investments $ 2,725,365 $ (628,121)
Interest and dividends 335,636 199,247
--------------- ---------------
Net investment income (loss) 3,061,001 (428,874)
--------------- ---------------
Contributions
Participants 1,415,358 1,179,439
Employer 220,350 182,857
Rollovers 60,813 202,273
Transfer from another plan 413,545
--------------- ---------------
2,110,066 1,564,569
--------------- ---------------
Total additions 5,171,067 1,135,695
--------------- ---------------
Deductions
Benefits paid directly to participants 1,015,584 703,229
Administrative expenses 24,484
--------------- ---------------
Total deductions 1,015,584 727,713
--------------- ---------------
Net Increase 4,155,483 407,982
Net Assets Available for Benefits, Beginning of Year 13,827,157 13,419,175
--------------- ---------------
Net Assets Available for Benefits, End of Year $ 17,982,640 $ 13,827,157
=============== ===============
Page 3
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2003 and 2002
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 and Summary Plan Description for a
more complete description of the Plan's provisions, which are available
from the plan administrator.
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) was 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.
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, the Corporation's contribution and plan earnings.
Allocations of Plan earnings are based on participant account balances,
as defined. The benefits to which a participant is entitled is the
benefit that can be provided from the participant's vested account.
Page 4
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2003 and 2002
Vesting
Participants are immediately vested in their voluntary contributions and
rollover contribution accounts plus earnings thereon. Vesting in the
Corporation's contribution portion of their accounts plus earnings
thereon is based on years of continuous service. A participant is fully
vested after five years of credited service. The nonvested balance is
forfeited upon termination of service. Forefeitures are used to reduce
the Corporation's contribution.
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.
Use of 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.
Page 5
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2003 and 2002
Valuation of Investments and Income Recognition
Quoted market prices, if available, are used to value investments. The
Federated Capital Preservation Fund is carried at contract value. Money
market funds are valued at cost, which approximates market. Investment
in the Corporation's unrestricted common stock is valued at the quoted
market price.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis.
Plan Tax Status
The Plan obtained its latest determination letter in September 2001, in
which the Internal Revenue Service stated that the Plan and related
trust, as then designed, were in compliance with the applicable
requirements of the Internal Revenue Code and therefore not subject to
tax. The Plan has been amended since receiving the determination letter.
However, the Plan administrator believes that the Plan and related trust
are currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code.
Payment of Benefits
Benefit payments to participants are recorded upon distribution.
Administrative Expenses
Administrative expenses may be paid by the Corporation or the Plan, at
the Corporation's discretion.
Reclassifications
Certain reclassifications have been made to the 2002 financial statement
to conform to the 2003 financial statement presentation. These
reclassifications had no effect on the change in net assets available
for benefits.
Page 6
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2003 and 2002
Note 3: Investments
At December 31, 2003, the Plan's investments are held by PrimeVest
Financial Services, Inc. and the Corporation. The investment contract
included in Plan assets may be subject to withdrawal charges upon
contract termination. Crediting interest rates on the guaranteed
interest portion of the investment contract are determined by the
issuer. The Plan's investments (including investments bought, sold, and
held during the year) appreciated (depreciated) in fair value as
follows:
2003
Net
Appreciation 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 $ 76,195 $ 619,177
Mutual funds 2,649,170 15,705,757
Investments at contract value
Federated Capital Preservation Fund 1,222,302
Investments at cost, which approximates market
Money market funds 433,587
--------------- ---------------
$ 2,725,365 $ 17,980,823
=============== ===============
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 11,411,166
Investments at cost, which approximates market
Money market funds 1,012,993
Investments at contract value
Federated Capital Preservation Fund 988,210
Investments at estimated fair value and cost which
approximates market
Collective investment funds (750,930)
--------------- ---------------
$ (628,121) $ 13,809,644
=============== ===============
Page 7
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2003 and 2002
Interest and dividends realized on the Plan's investments for the years
ended 2003 and 2002 were $335,636 and $199,247, respectively.
Information on the Federated Capital Preservation Fund carried at
contract value is as follows:
2003 2002
-----------------------------------------
Average yield 4.50% 5.27%
Crediting interest rate at December 31 4.02% 4.99%
Fair value $ 1,262,000 $ 1,047,000
The fair values of individual investments that represented 5% or more of
the Plan's assets were as follows:
2003 2002
-----------------------------------------
Federated Prime Cash Obligations Fund $ $ 1,012,993
American Funds Amcap Fund 3,037,555 2,012,478
American Century Equity Income Fund 1,394,376 811,342
Federated Capital Preservation Fund 1,222,302 988,210
Franklin Short-Intermediate U. S. Government Securities Fund 1,146,707 1,016,651
MFS Value Fund 2,565,200 1,861,145
PIMCO Total Return Fund 1,892,358 1,754,784
Oppenheimer Main Street Income and Growth Fund 1,337,599 982,942
Oppenheimer Small Cap. Value Fund 989,621 713,842
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:
2003 2002
----------------------------------------
Net Assets
Federated Prime Cash Obligations $ $
--------------- ---------------
$ 0 $ 0
=============== ===============
2003 2002
----------------------------------------
Transfers in $ 713,074 $ 12,337,615
Transfers out (713,074) (12,337,615)
--------------- ---------------
$ 0 $ 0
=============== ===============
Page 8
First Merchants Corporation
Retirement Savings Plan
Notes to Financial Statements
December 31, 2003 and 2002
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 Corporation common stock.
Activity at fair value was as follows:
First Merchants
Corporation
Common
Stock
---------------------
Balance, January 1, 2002 $ 134,872
Changes 262,403
------------
Balance, December 31, 2002 397,275
Changes 221,902
------------
Balance, December 31, 2003 $ 619,177
============
The Corporation provides certain administrative services at no cost to
the Plan. Fees for certain trust and administrative services provided by
the trustee were paid by the Plan through July 2002 and were $24,484.
The trustee no longer charges the Plan administrative fees.
Note 6: Plan Amendments
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.
In September 2003, employees of Frances Slocum Bank (Frances Slocum Bank
& Trust Company Profit Sharing Plan) were added to the Plan, and assets
of $413,545 were transferred into the Plan.
Page 9
Supplemental Schedules
Page 10
First Merchants Corporation
Retirement Savings Plan
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes
at End of Year
December 31, 2003
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 24,271 shares $ 619,177
---------------
Mutual Funds
AIM Small Cap. Equity Fund 31,661 shares 380,881
American Funds Amcap. Fund 180,270 shares 3,037,555
American Century Equity Income Fund 179,226 shares 1,394,376
American High Income Trust Fund 21,531 shares 265,479
Federated Max-Cap Index Fund 26,730 shares 599,030
Fidelity Advisor International Capital
Appreciation Fund 4,469 shares 68,282
Franklin Short-Intermediate U. S. Government
Securities Fund 110,366 shares 1,146,707
Franklin Templeton Foreign Fund 18,877 shares 200,856
MFS Value Fund 126,116 shares 2,565,200
MFS Mid-Cap. Growth Fund 71,432 shares 557,889
Oppenheimer Main Street Income and Growth Fund 40,780 shares 1,337,599
Oppenheimer Small Cap. Value Fund 36,652 shares 989,621
PIMCO Foreign Bond Fund 7,421 shares 77,109
PIMCO Total Return Fund 176,691 shares 1,892,358
Putnam Capital Opportunities Fund 35,158 shares 356,858
Putnam International Voyager Fund 11,584 shares 218,944
Putnam Small Cap. Growth Fund 32,855 shares 617,013
---------------
15,705,757
Collective Investment Fund
Federated Capital Preservation Fund 122,230 shares 1,222,302
---------------
Money Market Fund
Federated Prime Cash Obligations Fund 433,587 shares 433,587
---------------
$ 17,980,823
*Party-in-interest
Page 11
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, 2003
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 $ 133,668 $ 133,668 $ 133,668
Sales $ 713,074 713,074 713,074 $
Page 12
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 April 28, 2004, of our audit on the financial statements of First
Merchants Corporation Retirement Savings Plan for the year ended December 31,
2003, which report is included in its Annual Report on Form 11-K.
BKD, LLP
Indianapolis, Indiana
June 28, 2004
Page 13
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: 06/28/04 By: /s/ Kimberly J. Ellington
-------- -------------------------
Kimberly J. Ellington
First Merchants Corporation
Retirement Savings Plan
Page 14