UNITED STATES
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, 2006
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 Income and Savings Plan
EIN 35-1544218 PN 002
Accountants' Report and Financial Statements
December 31, 2006 and 2005
First Merchants Corporation
Retirement Income and Savings Plan
December 31, 2006 and 2005
Contents
Report of Independent Registered Public Accounting Firm........................................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 Schedule
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes at End of Year......11
Exhibit
Exhibit 23, Consent of Independent Registered Public Accounting Firm......................12
Signature.....................................................................................13
[LETTERHEAD OF BKD LLP]
Report of Independent Registered Public Accounting Firm
Audit and Administrative Committee
First Merchants Corporation Retirement and Savings Plan
Muncie, Indiana
We have audited the accompanying statements of net assets available for benefits
of First Merchants Corporation Retirement and Savings Plan as of December 31,
2006, and 2005, 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 the standards of the Public Company
Accounting Oversight Board (United States). 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.
The Plan has adopted FSP Nos. AAG INV-1 and SOP 94-4-1 as discussed in Note 2 to
the financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the plan as of
December 31, 2006, and 2005, 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 schedule is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is 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. This supplemental schedule is the
responsibility of the Plan's management. The supplemental schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated, in all material
respects, in relation to the basic financial statements taken as a whole.
/s/ BKD, LLP
Indianapolis, Indiana
June 25, 2007
Federal Employer Identification Number: 44-0160260
First Merchants Corporation
Retirement Income and Savings Plan
Statements of Net Assets Available for Benefits
December 31, 2006 and 2005
2005
Assets 2006 (Note 2)
-------------------------
Investments, at fair market value
Common stock $ 1,180,998 $ 1,073,188
Mutual funds 38,478,653 32,548,714
Collective investment fund 1,971,563 2,101,945
Money market funds 1,897,754 1,179,757
Participant loans 139,879 254,981
----------- -----------
Total investments 43,668,847 37,158,585
----------- -----------
Receivables
Accrued income 14,311 --
Employer contributions 1,399,525 1,108,481
Participant contributions -- 108,047
----------- -----------
Total receivables 1,413,836 1,216,528
----------- -----------
Cash 17,355 324
----------- -----------
Total assets 45,100,038 38,375,437
----------- -----------
Liabilities
Excess contributions refundable 5,468 6,224
----------- -----------
Net Assets Available at Fair Market Value 45,094,570 38,369,213
----------- -----------
Adjustment from fair value to contract value for
interest in collective trust relating to fully benefit-responsive
investment contracts 19,716 23,996
----------- -----------
Net Assets Available for Benefits $45,114,286 $38,393,209
=========== ===========
See Notes to Financial Statements 2
First Merchants Corporation
Retirement Income and Savings Plan
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 2006 and 2005
2005
2006 (Note 2)
-------------------------
Investment Income
Net appreciation in fair value of investments $ 2,478,543 $ 605,869
Interest and dividends 2,298,773 1,650,407
----------- -----------
Net investment income 4,777,316 2,256,276
----------- -----------
Contributions
Participants 2,828,581 2,458,499
Employer 2,312,050 1,846,810
Rollovers 650,796 1,111,492
Transfer from other plans -- 10,502,523
----------- -----------
5,791,427 15,919,324
----------- -----------
Total additions
10,568,743 18,175,600
Deductions - benefits paid to participants 3,847,666 1,935,392
----------- -----------
Net Increase 6,721,077 16,240,208
Net Assets Available for Benefits, Beginning of Year 38,393,209 22,153,001
----------- -----------
Net Assets Available for Benefits, End of Year $45,114,286 $38,393,209
=========== ===========
See Notes to Financial Statements 3
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2006 and 2005
Note 1: Description of Plan
The following description of First Merchants Corporation Retirement Income
and 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 are age 18
or older. It is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA). First Merchants Trust Company is the
trustee and recordkeeper of the Plan. Prime Vest Financial Services was
the custodian for a majority of the Plan's assets during 2005. In November
2005, the assets were transferred to Mid Atlantic Capital Corporation. In
October 2006, the assets were transferred from Mid Atlantic Capital
Corporation to Fidelity. Fidelity is now 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 75% of eligible
compensation up to the maximum allowed by law. Employee rollover
contributions are also permitted.
Prior to March 1, 2005, the Corporation made matching contributions of its
employees' salary deferral amounts of 25% of the first 5% of employees'
eligible compensation for all participating employees. After March 1,
2005, the matching contribution described above is the only type of
employer contribution granted to grandfathered participants who are at
least age 55 and credited with at least ten years of service at February
28, 2005. The remaining participants receive the following three different
types of employer contributions. The Corporation's contributions are as
follows:
o Retirement security contributions: range from 2% of pay to 7%
of pay based on years of service. The participant must have
1,000 hours of service and be employed at the end of the plan
year.
o Matching contributions: 50% of the first 6% of employees'
eligible compensation for all participating employees.
o Transition contributions: 3% of eligible compensation for all
participants who are at least age 45, credited with at least
ten years of service at February 28, 2005 and were
participating in the Corporation's defined-benefit plan at
February 28, 2005. The participant must have 1,000 hours of
service and be employed at the end of the plan year. This
contribution will only be applicable through the 2009 Plan
year.
4
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2006 and 2005
The entry date for retirement security and transition contributions is
March 1, 2005, and each subsequent January 1. Catch-up contributions are
also available for participants after they reach 50 years of age before
the end of the applicable year. Prior to March 1, 2005, the Corporation's
profit-sharing contributions were discretionary as determined by the
Corporation's Board of Directors.
The Plan document also includes an automatic deferral feature whereby a
participant is treated as electing to defer 3% of eligible compensation
unless the participant made an affirmative election otherwise.
Contributions are subject to certain limitations.
Participant Investment Account Options
Investment account options available include various funds including a
Corporation common stock fund. Each participant has the option of
directing his contributions into any of the separate investment accounts
and may change the allocation daily. Allocations to the Corporation common
stock fund are generally limited to 25% of the applicable account balance.
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.
Vesting
Participants are immediately vested in their voluntary contributions and
rollover contribution accounts plus earnings thereon. Vesting in the
Corporation's matching contribution portion of their accounts plus
earnings thereon is based on years of continuous service. A participant is
fully vested in the matching contribution portion of their account after
five years of credited service. Effective March 1, 2005, vesting in the
retirement security contribution portion of their account plus earnings is
100% after five years of service. Effective March 1, 2005, vesting in the
transition contribution portion of their account plus earnings is
immediate since all eligible participants have at least ten years of
service. The nonvested balance is forfeited upon termination of service.
Forefeitures are used to reduce the Corporation's contribution or to pay
reasonable administrative expenses of the Plan.
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. At December 31, 2006, plan assets include approximately $39,600
allocated to accounts of terminated or retired participants who have
elected to withdraw from the Plan but have not yet been paid.
5
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2006 and 2005
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.
As described in Financial Accounting Standards Board Staff Position, FSP
AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment
Contracts Held by Certain Investment Companies Subject to the AICPA
Investment Company Guide and Defined-Contribution Health and Welfare and
Pension Plans (the FSP), investment contracts held by a
defined-contribution plan are required to be reported at fair value.
However, contract value is the relevant measurement attribute for that
portion of the net assets available for benefits of a defined-contribution
plan attributable to fully benefit-responsive investment contracts because
contract value is the amount participants would receive if they were to
initiate permitted transactions under the terms of the plan. As required
by the FSP, the Statement of Net Assets Available for Benefits presents
the fair value of the investment contracts as well as the adjustment of
the fully-benefit responsive investment contracts from fair value to
contract value. The Statement of Changes in Net Assets Available for
Benefits is prepared on a contract value basis. The FSP is effective for
financial statements for the years ending after December 15, 2006 and the
financial statements for 2005 have been restated to reflect the
implementation of the new standard.
Valuation of Investments and Income Recognition
Quoted market prices, if available, are used to value investments.
Participant loans and 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. The Plan's interest in the
collective trust is valued based on information reported by the investment
advisor using the audited financial statements of the collective trust at
year-end.
6
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2006 and 2005
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 and restated 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.
Participant Loans
Effective March 1, 2005, participant loans were acquired from merged
plans. Participant loans have never been allowed in the Plan. Effective
March 1, 2005, no new loans will be granted under the Plan with respect to
any merged plan that had an active loan program. Any outstanding loan will
continue to be repaid based on the term of the loan from the merged plan.
Administrative Expenses
Administrative expenses may be paid by the Corporation or the Plan, at the
Corporation's discretion.
Note 3: Investments
At December 31, 2006, the Plan's investments are held by Fidelity and the
Corporation. The Federated Capital Preservation Fund 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
in fair value as follows:
7
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2006 and 2005
2006
Net
Appreciation Fair Value
in Fair Value at End
During Year of Year
-------------------------------
Investments at fair value
Common stock $ 56,851 $ 1,180,998
Mutual funds 2,421,692 38,478,653
Federated Capital Preservation Fund -- 1,971,563
Investments at cost, which approximates market
Money market funds -- 1,897,754
Participant loans -- 139,879
-------------- --------------
$ 2,478,543 $ 43,668,847
============== ==============
2005
Net
Appreciation
(Depreciation) Fair Value
in Fair Value at End
During Year of Year
-------------------------------
Investments at fair value
Common stock $ (65,023) $ 1,073,188
Mutual funds 670,892 32,548,714
Federated Capital Preservation Fund -- 2,101,945
Investments at cost, which approximates market
Money market funds -- 1,179,757
Participant loans -- 254,981
-------------- --------------
$ 605,869 $ 37,158,585
============== ==============
Interest and dividends realized on the Plan's investments for the years ended
2006 and 2005 were $2,298,773 and $1,650,407, respectively.
8
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2006 and 2005
The fair values of individual investments that represented 5% or more of the
Plan's assets were as follows:
2006 2005
-----------------------
American Funds Amcap Fund $5,531,041 $5,265,001
Goldman Sachs Mid Cap Equity Fund 4,500,401 3,786,673
MFS Value Fund 5,068,479 4,431,452
Oppenheimer Main Street Fund 2,770,000 2,538,016
PIMCO Total Return Fund 2,432,313 2,358,389
Oppenheimer Small & Mid Cap Value Fund 3,646,415 3,180,749
Federated Capital Preservation Fund 1,971,563 2,101,945
Note 4: 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 invests in First Merchants Corporation common stock. Activity at
fair value was as follows:
First
Merchants
Corporation
Common
Stock
-----------
Balance, January 1, 2005 $ 1,030,460
Changes 42,728
-----------
Balance, December 31, 2005 1,073,188
Changes 107,810
-----------
Balance, December 31, 2006 $ 1,180,998
===========
The Corporation provides certain administrative services at no cost to the
Plan.
9
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2006 and 2005
Note 5: Plan Amendments
Effective March 1, 2005, the Plan was amended and restated to allow the
employees of Lafayette Bank and Trust Company, Commerce National Bank,
First Merchants Insurance Services and Indiana Title Insurance Company to
become participants in the Plan. Approximately $10,500,000 was transferred
into the Plan from these 401(k) plans and approximately 400 new
participants were added to the Plan. The Plan's name was also changed to
First Merchants Corporation Retirement Income and Savings Plan and the
employer matching contribution changed as described in Note 1.
Note 6: Subsequent Event
Effective January 1, 2007, the Plan was amended to change the vesting of
the Corporation's retirement security contribution portion of
participant's accounts to 100% after three years of service from five
years of service.
10
Supplemental Schedule
First Merchants Corporation
Retirement Income and Savings Plan
Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes
at End of Year
December 31, 2006
Employer Identification Number: 35-1544218 Plan Number: 002
(a)(b) (c) (e)
Description of
Identity of Issue, Investment
Borrower, Lessor, or Including Par or Current
Similar Party Maturity Value Value
------------------------------------------------------------------------------------
Common Stock
*First Merchants Corporation 43,435 shares $ 1,180,998
-----------
Mutual Funds
AIM Small Cap Equity Fund 81,031 shares 991,817
AIM Real Estate Fund 19,776 shares 665,051
American Funds Amcap Fund 279,064 shares 5,531,041
American Funds Europacific 3 shares 136
American Funds High Income Trust Fund 78,541 shares 990,396
Federated Max-Cap Index Fund 80,766 shares 2,096,698
Fidelity Advisor Diversified International Fund 42,001 shares 947,553
Fidelity Advisor Freedom 2010 Fund 28,033 shares 336,679
Fidelity Advisor Freedom 2015 Fund 13,090 shares 158,914
Fidelity Advisor Freedom 2020 Fund 29,246 shares 386,051
Fidelity Advisor Freedom 2025 Fund 18,507 shares 236,144
Fidelity Advisor Freedom 2030 Fund 7,038 shares 98,043
Fidelity Advisor Freedom 2035 Fund 6,016 shares 78,876
Fidelity Advisor Freedom 2040 Fund 3,031 shares 43,439
First American Mid Cap Growth Opportunity Fund 32,733 shares 1,255,311
Franklin Limited Maturity U. S. Government Fund 167,093 shares 1,652,545
Goldman Sachs Mid Cap Equity Fund 117,443 shares 4,500,401
ING Index Plus Mid Cap Fund 64,219 shares 1,089,149
MFS Value Fund 189,689 shares 5,068,479
MFS International New Discovery Fund 33,482 shares 902,339
Oppenheimer Main Street Fund 69,008 shares 2,770,000
Oppenheimer Small & Mid Cap Value Fund 100,813 shares 3,646,415
PIMCO Foreign Bond Fund 23,522 shares 239,449
PIMCO Total Return Fund 234,327 shares 2,432,313
Putnam Small Cap Growth Fund 53,230 shares 1,166,276
Templeton Foreign Fund 88,267 shares 1,195,138
-----------
38,478,653
-----------
Collective Investment Fund
Federated Capital Preservation Fund 199,128 shares 1,971,563
-----------
Money Market Fund
Federated Prime Cash Obligations Fund 1,897,754 shares 1,897,754
-----------
*Participant Loans 7.25% - 9.00% 139,879
-----------
$43,668,847
===========
*Party-in-interest
11
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 June 25, 2007, of our audit on the financial statements of First Merchants
Corporation Retirement Income and Savings Plan for the year ended December 31,
2006, which report is included in its Annual Report on Form 11-K.
BKD, LLP
Indianapolis, Indiana
June 25, 2007
12
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: 06/29/07 By: /s/ Kimberly J. Ellington
-------- -------------------------
Kimberly J. Ellington
First Merchants Corporation
Retirement Savings Plan
13