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, 2007
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
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 May 31, 2008, of our audit on the financial statements of First Merchants
Corporation Retirement Income and Savings Plan for the year ended December 31,
2007, which report is included in its Annual Report on Form 11-K.
BKD, LLP
Indianapolis, Indiana
May 31, 2008
First Merchants Corporation
Retirement Income and Savings Plan
EIN 35-1544218 PN 002
Accountants' Report and Financial Statements
December 31, 2007 and 2006
First Merchants Corporation
Retirement Income and Savings Plan
December 31, 2007 and 2006
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
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 Income and Savings Plan as of December
31, 2007 and 2006, 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of First Merchants
Retirement Income and Savings Plan as of December 31, 2007 and 2006, 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.
Indianapolis, Indiana
May 31, 2008
Federal Employer Identification Number: 44-0160260
First Merchants Corporation
Retirement Income and Savings Plan
Statements of Net Assets Available for Benefits
December 31, 2007 and 2006
Assets
2007 2006
------------------------------------
Investments, at fair market value
Common stock $ 898,880 $ 1,180,998
Mutual funds 41,109,136 38,478,653
Collective investment fund 1,917,967 1,971,563
Money market funds 2,383,076 1,897,754
Participant loans 70,133 139,879
--------------- ----------------
Total investments 46,379,192 43,668,847
--------------- ----------------
Receivables
Accrued income 15,511 14,311
Employer contributions 1,467,396 1,399,525
--------------- ----------------
Total receivables 1,482,907 1,413,836
--------------- ----------------
Cash 17,229 17,355
--------------- ----------------
Total assets 47,879,328 45,100,038
Liabilities
Excess contributions refundable - 5,468
--------------- ----------------
Net Assets Available at Fair Market Value
Adjustment from fair value to contract value for
interest in collective trust relating to fully
benefit-responsive 47,879,328 45,094,570
investment contracts (9,487) 19,716
--------------- ----------------
Net Assets Available for Benefits $47,869,841 $45,114,286
=============== ================
See Notes to Financial Statements Page 2
First Merchants Corporation
Retirement Income and Savings Plan
Statements of Changes in Net Assets Available for Benefits
Years Ended December 31, 2007 and 2006
2007 2006
------------------------------------
Investment Income
Net appreciation (depreciation) in fair value of investments (1,638,645) 2,478,543
Interest and dividends 4,251,214 2,298,773
--------------- ----------------
Net investment income 2,612,569 4,777,316
--------------- ----------------
Contributions
Participants 2,864,855 2,828,581
Employer 2,394,262 2,312,050
Rollovers 324,418 650,796
Other contributions 10,636 -
--------------- ----------------
5,594,171 5,791,427
--------------- ----------------
Total additions 8,206,740 10,568,743
Deductions - benefits paid to participants 5,451,185 3,847,666
--------------- ----------------
Net Increase 2,755,555 6,721,077
Net Assets Available for Benefits, Beginning of Year 45,114,286 38,393,209
--------------- ----------------
Net Assets Available for Benefits, End of Year $47,869,841 $45,114,286
=============== ================
See Notes to Financial Statements Page 3
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006
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. 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. Effective January 1, 2007, the Plan will
accept Roth elective deferrals made on behalf of participants.
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 may receive 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.
Page 4
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006
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.
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 as well as
Corporation common stock. 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's common
stock 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 credited service. A participant
is fully vested in the matching contribution portion of their account
after five years of credited service. In 2006, the vesting in the
retirement security contribution portion of their account plus
earnings was 100% after five years of credited service and vesting in
the transition contribution portion of their account plus earnings is
immediate since all eligible participants have at least ten years of
service. 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 credited
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, 2007 and 2006,
plan assets include approximately $55,900 and $39,600, respectively,
allocated to accounts of terminated or retired participants who have
elected to withdraw from the Plan but have not yet been paid.
Page 5
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006
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 was effective for
financial statements for the years ending after December 15, 2006.
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 common stock is
valued at the quoted market price on the last business day of the plan
year. The Plan's interest in the collective investment fund (Federated
Capital Preservation Fund) is valued based on information reported by
the investment advisor using the audited financial statements of the
collective investment fund at year-end.
Page 6
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date.
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.
Page 7
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006
Note 3: Investments
At December 31, 2, 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
(depreciated) in fair value as follows:
2007
Net
Depreciation Fair Value
in Fair Value at End
During Year of Year
--------------- --- ----------------
Investments at fair value
Common stock $ (207,150) $ 898,880
Mutual funds (1,431,495) 41,109,136
Federated Capital Preservation Fund - 1,917,967
Investments at cost, which approximates market
Money market fund - 2,383,076
Participant loans - 70,133
--------------- ----------------
$(1,638,645) $46,379,192
=============== ================
Page 8
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006
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 fund - 1,897,754
Participant loans - 139,879
--------------- ----------------
$2,478,543 $43,668,847
=============== ================
Interest and dividends realized on the Plan's investments for the years ended
2007 and 2006 were $4,251,214 and $2,298,773, respectively.
The fair values of individual investments that represented 5% or more of the
Plan's assets were as follows:
2007 2006
------------------------------------
American Funds Amcap Fund $5,662,008 $5,531,041
Goldman Sachs Mid Cap Equity Fund 4,462,526 4,500,401
MFS Value Fund 5,427,506 5,068,479
Oppenheimer Main Street Fund 2,741,236 2,770,000
PIMCO Total Return Fund 2,565,006 2,432,313
Oppenheimer Small & Mid Cap Value Fund 3,743,401 3,646,415
Page 9
First Merchants Corporation
Retirement Income and Savings Plan
Notes to Financial Statements
December 31, 2007 and 2006
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, 2006 $1,073,188
Changes 107,810
----------------
Balance, December 31, 2006 1,180,998
Changes (282,118)
----------------
Balance, December 31, 2007 $ 898,880
================
The Corporation provides certain administrative services at no cost to the
Plan.
Note 5: Plan Amendments
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 credited service from 100% after five
years of credited service.
Also effective January 1, 2007, the Plan was amended to accept Roth 401(k)
elective deferrals made on behalf of participants.
Page 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, 2007
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 41,157 shares $ 898,880
----------------
Mutual Funds
AIM Small Cap Equity Fund 86,122 shares 1,009,352
AIM Real Estate Fund 23,011 shares 525,115
American Funds Amcap Fund 183,810 shares 5,662,008
American Funds Europacific Fund 11,641 shares 582,760
American Funds High Income Trust Fund 69,042 shares 818,833
Federated Max-Cap Index Fund 92,997 shares 2,184,490
Fidelity Advisor Diversified International Fund 55,150 shares 1,191,232
Fidelity Advisor Freedom 2010 Fund 30,317 shares 376,236
Fidelity Advisor Freedom 2015 Fund 26,102 shares 328,361
Fidelity Advisor Freedom 2020 Fund 44,152 shares 607,093
Fidelity Advisor Freedom 2025 Fund 23,592 shares 314,957
Fidelity Advisor Freedom 2030 Fund 13,062 shares 190,960
Fidelity Advisor Freedom 2035 Fund 17,077 shares 235,491
Fidelity Advisor Freedom 2040 Fund 7,625 shares 114,680
Fidelity Advisor Freedom 2045 Fund 732 shares 8,454
Fidelity Advisor Freedom 2050 Fund 2,495 shares 28,762
First American Mid Cap Growth Opportunity Fund 37,195 shares 1,486,321
Franklin Limited Maturity U. S. Government Fund 160,680 shares 1,626,082
Goldman Sachs Mid Cap Equity Fund 127,428 shares 4,462,526
ING Index Plus Mid Cap Fund 75,623 shares 1,095,018
Page 11
MFS Value Fund 204,889 shares 5,427,506
MFS International New Discovery Fund 43,664 shares 1,042,266
Oppenheimer Main Street Fund 75,850 shares 2,741,236
Oppenheimer Small & Mid Cap Value Fund 104,740 shares 3,743,401
PIMCO Foreign Bond Fund 25,535 shares 260,970
PIMCO Total Return Fund 239,944 shares 2,565,006
Putnam Small Cap Growth Fund 54,298 shares 1,055,010
Templeton Foreign Fund 115,013 shares 1,425,010
-----------------
41,109,136
-----------------
Collective Investment Fund
Federated Capital Preservation Fund 190,848 shares 1,917,967
-----------------
Money Market Fund
Federated Government Obligations Fund 2,383,076 shares 2,383,076
-----------------
*Participant Loans 5.00% - 6.25% 70,133
-----------------
$46,379,192
=================
*Party-in-interest
Page 12