First Merchants Corporation Announces Third Quarter 2013 Earnings

10/24/2013

MUNCIE, Ind.--(BUSINESS WIRE)-- First Merchants Corporation (NASDAQ: FRME) has reported third quarter 2013 earnings per share of $.35 equaling the same period in 2012 as net income available to common stockholders totaled $10 million. Year-to-date earnings per share totaled $1.07 compared to $.88, a 21.6 percent increase, after excluding a one time gain from the FDIC purchase of SCB Bank of $9.1 million, or $.21 per share, in the first quarter of 2012.

Michael C. Rechin, President and Chief Executive Officer, stated, “An improved net interest margin coupled with loan growth resulted in increased net interest income over the 2^nd quarter of this year. Despite the continued difficulty of the interest rate environment and softening mortgage market we completed a very solid quarter. The balance we have achieved in revenue enhancement and expense control is providing shareholder value. Credit-related metrics continue to improve as we prepare to add the Citizens market to our franchise in November.” Rechin also added, “Our plans to close on the accretive merger with Citizens in the near term are intact and we look forward to adding our new communities, customers and employees.”

Total assets equaled $4.3 billion as of quarter-end and total loans were $2.9 billion, an increase of $89.1 million, or 3.1 percent over the same period in 2012. Growth in the Corporation's commercial and industrial loans and commercial real estate portfolios increased by $59.8 million and $23.1 million, respectively. Construction loans increased by $56.3 million while residential real estate loans declined by $23 million during the same period.

Net-interest income totaled $37 million for the quarter and net-interest margin totaled 3.97 percent as yields on earning assets totaled 4.35 percent and the cost of supporting liabilities totaled .38 percent. Third quarter net-interest income declined by $2.9 million from the prior year; however, it improved over the second quarter of 2013 by $372,000. Year-to-date net-interest income totaled $113.1 million compared to $114.1 million during the first three quarters of 2012.

Provision expense totaled $1.5 million for the third quarter of 2013, compared to $4.6 million in 2012. Net charge-offs totaled $3.5 million for the third quarter, down from $5.3 million in the third quarter of 2012. Year-to-date provision expense totaled $5.6 million versus $8.8 million of net charge-offs. The allowance for loan losses totaled $66.2 million, or 2.26 percent of total loans and 189 percent of non-accrual loans. Additionally, non-performing assets declined by $27.3 million, or 35 percent year-over-year.

Non-interest income totaled $11.8 million for the quarter, a decrease from the third quarter 2012 total of $14.3 million. Of the $2.5 million decline, $1.2 million resulted from fewer net gains and fees on sales of mortgage loans and $843,000 was the result of fewer bond gains. 2013 year-to-date non-interest income totaled $39.7 million compared to $41 million in 2012, after excluding the $9.1 million gain on the FDIC modified whole bank transaction in the first quarter of 2012. Non-interest expense totaled $34.2 million for the quarter, down $185,000 from the third quarter of 2012. Year-to-date non-interest expense totaled $102.7 million, up modestly from the same period in 2012.

Included in the quarter’s results are the operating losses from a low income housing tax credit investment totaling $554,000. The loss is tax deductible and when coupled with the tax credit recognition of $791,000, reduces income tax expense by $985,000 for the quarter. When modified for the loss and the tax credits, our quarterly tax rate was 26.8 percent and in line with prior quarters.

As of September 30, 2013, the Corporation's total risk-based capital equaled 14.96 percent, Tier 1 common risk-based capital equaled 10.42 percent and tangible common equity ratio totaled 7.97 percent.

CONFERENCE CALL

First Merchants Corporation will conduct a third quarter earnings conference call and web cast at 2:30 p.m. (ET) on Thursday, October 24, 2013.

To participate, dial (Toll Free) 888-317-6016 and reference First Merchants Corporation's third quarter earnings release. International callers please call +1 412-317-6016. A replay of the call will be available until October 24, 2014. To access a replay of the call, US participants should dial (Toll Free) 877-344-7529 or for International participants, dial +1 412-317-0088. The replay passcode is 10034351.

In order to view the web cast and presentation slides, please go to http://services.choruscall.com/links/frme131024.html during the time of the call.

During the call, Forward-Looking Statements about the relative business outlook may be made. These Forward-Looking Statements and all other statements made during the call that do not concern historical facts, are subject to risks and uncertainties that may materially affect actual results.

Specific Forward-Looking Statements include, but are not limited to, any indications regarding the Financial Services industry, the economy and future growth of the balance sheet or income statement.

Detailed financial results are reported on the attached pages.

About First Merchants Corporation

First Merchants Corporation is a financial holding company headquartered in Muncie, Indiana. The Corporation is comprised of First Merchants Bank, N.A., which also operates as Lafayette Bank & Trust, Commerce National Bank, and First Merchants Trust Company as divisions of First Merchants Bank, N.A.First Merchants Corporation also operates First Merchants Insurance Group, a full-service property casualty, personal lines, and healthcare insurance agency.

First Merchants Corporation’s common stock is traded on the NASDAQ Global Select Market System under the symbol FRME. Quotations are carried in daily newspapers and can be found on the company’s Internet web page (http://www.firstmerchants.com).


CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)	September 30,
	2013			2012
ASSETS
Cash and cash equivalents	$	92,341		$	57,027
Interest-bearing time deposits	18,875			35,324
Investment securities	914,135			928,716
Mortgage loans held for sale	5,312			27,711
Loans	2,925,457			2,836,324
Less: Allowance for loan losses	(66,224		)	(69,493		)
Net loans	2,859,233			2,766,831
Premises and equipment	54,386			51,373
Federal Reserve and Federal Home Loan Bank stock	32,790			32,824
Interest receivable	16,171			17,519
Core deposit intangibles and goodwill	148,376			150,019
Cash surrender value of life insurance	127,322			124,702
Other real estate owned	12,052			13,780
Tax asset, deferred and receivable	31,385			29,344
Other assets	13,533			14,998
TOTAL ASSETS	$	4,325,911		$	4,250,168
LIABILITIES
Deposits:
Noninterest-bearing	$	790,174		$	679,818
Interest-bearing	2,465,672			2,514,933
Total Deposits	3,255,846			3,194,751
Borrowings:
Federal funds purchased	115,938			57,024
Securities sold under repurchase agreements	123,935			153,454
Federal Home Loan Bank advances	172,292			145,467
Subordinated debentures and term loans	111,849			112,169
Total Borrowings	524,014			468,114
Interest payable	1,155			1,591
Other liabilities	31,427			38,857
Total Liabilities	3,812,442			3,703,313
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value, $1,000 liquidation value:
Authorized -- 500,000 shares
Senior Non-Cumulative Perpetual Preferred Stock, Series B
Issued and outstanding - 34,043 and 90,782.94 shares	34,043			90,783
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:
Authorized -- 600 shares
Issued and outstanding - 125 shares	125			125
Common Stock, $.125 stated value:
Authorized -- 50,000,000 shares
Issued and outstanding - 28,825,465 and 28,672,177 shares	3,603			3,584
Additional paid-in capital	258,350			256,290
Retained earnings	233,546			198,094
Accumulated other comprehensive loss	(16,198		)	(2,021		)
Total Stockholders' Equity	513,469			546,855
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,325,911		$	4,250,168


CONSOLIDATED STATEMENTS OF INCOME	Three Months Ended						Nine Months Ended
(Dollars In Thousands, Except Per Share Amounts)	September 30,						September 30,
	2013			2012			2013			2012
INTEREST INCOME
Loans receivable:
Taxable	$	33,548		$	38,160		$	104,725		$	110,660
Tax-exempt	85			118			315			358
Investment securities:
Taxable	3,876			4,176			11,071			13,218
Tax-exempt	2,840			2,532			7,809			7,645
Deposits with financial institutions	18			16			99			69
Federal Reserve and Federal Home Loan Bank stock	369			345			1,108			1,035
Total Interest Income	40,736			45,347			125,127			132,985
INTEREST EXPENSE
Deposits	2,213			3,517			7,703			11,566
Federal funds purchased	72			38			84			62
Securities sold under repurchase agreements	192			211			594			703
Federal Home Loan Bank advances	506			492			1,427			2,123
Subordinated debentures and term loans	731			1,187			2,189			4,460
Total Interest Expense	3,714			5,445			11,997			18,914
NET INTEREST INCOME	37,022			39,902			113,130			114,071
Provision for loan losses	1,533			4,609			5,632			14,029
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	35,489			35,293			107,498			100,042
OTHER INCOME
Service charges on deposit accounts	3,120			2,913			8,761			8,625
Fiduciary activities	1,986			1,986			6,357			5,907
Other customer fees	2,899			2,740			8,495			8,476
Commission income	1,636			1,618			5,556			4,770
Earnings on cash surrender value of life insurance	611			685			1,921			2,725
Net gains and fees on sales of loans	1,673			2,849			6,508			7,115
Net realized gains on sales of available for sale securities				843			487			2,134
Gain on FDIC modified whole bank transaction										9,124
Other income	(125		)	639			1,651			1,220
Total Other Income	11,800			14,273			39,736			50,096
OTHER EXPENSES
Salaries and employee benefits	20,616			20,083			61,943			59,078
Net occupancy	2,430			2,568			7,299			7,692
Equipment	1,852			1,798			5,368			5,259
Marketing	559			536			1,561			1,542
Outside data processing fees	1,515			1,413			4,386			4,295
Printing and office supplies	320			287			962			848
Core deposit amortization	383			489			1,153			1,438
FDIC assessments	677			792			2,095			2,771
Other real estate owned and credit-related expenses	1,648			2,104			4,993			6,412
Other expenses	4,219			4,334			12,901			13,277
Total Other Expenses	34,219			34,404			102,661			102,612
INCOME BEFORE INCOME TAX	13,070			15,162			44,573			47,526
Income tax expense	2,667			3,926			11,490			12,714
NET INCOME	10,403			11,236			33,083			34,812
Preferred stock dividends	(430		)	(1,134		)	(2,139		)	(3,404		)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	9,973		$	10,102		$	30,944		$	31,408
Per Share Data:
Basic Net Income Available to Common Stockholders	$	0.35		$	0.35		$	1.08		$	1.09
Diluted Net Income Available to Common Stockholders	$	0.35		$	0.35		$	1.07		$	1.09
Cash Dividends Paid	$	0.05		$	0.03		$	0.13		$	0.07
Average Diluted Shares Outstanding (in thousands)	29,081			28,888			29,026			28,819

FINANCIAL HIGHLIGHTS
(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
NET CHARGE OFF'S	$	3,511		$	5,259		$	8,774		$	15,434

AVERAGE BALANCES:
Total Assets	$	4,286,982		$	4,237,590		$	4,288,645		$	4,230,186
Total Loans	2,918,207			2,845,398			2,912,700			2,803,706
Total Earning Assets	3,888,646			3,829,127			3,885,061			3,818,805
Total Deposits	3,295,369			3,248,100			3,332,589			3,243,217
Total Stockholders' Equity	508,034			540,988			528,156			530,153

FINANCIAL RATIOS:
Return on Average Assets	0.93		%	0.95		%	0.96		%	0.99		%
Return on Average Stockholders' Equity	7.85			7.47			7.81			7.90
Return on Average Common Stockholders' Equity	8.42			8.98			8.76			9.53
Average Earning Assets to Average Assets	90.71			90.36			90.59			90.28
Allowance for Loan Losses as % of Total Loans	2.26			2.43			2.26			2.43
Net Charge Off's as % of Average Loans (Annualized)	0.48			0.74			0.40			0.73
Average Stockholders' Equity to Average Assets	11.85			12.77			12.32			12.53
Tax Equivalent Yield on Earning Assets	4.35			4.89			4.44			4.79
Cost of Supporting Liabilities	0.38			0.57			0.41			0.66
Net Interest Margin (FTE) on Earning Assets	3.97			4.32			4.03			4.13

NON-PERFORMING ASSETS
(Dollars In Thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2013			2013			2013			2012			2012
Non-Accrual Loans	$	34,992		$	38,971		$	46,761		$	53,399		$	56,999
Renegotiated Loans	3,269			4,407			5,445			12,681			6,871
Non-Performing Loans (NPL)	38,261			43,378			52,206			66,080			63,870
Other Real Estate Owned	12,052			11,765			13,130			13,263			13,780
Non-Performing Assets (NPA)	50,313			55,143			65,336			79,343			77,650
90+ Days Delinquent	837			1,072			959			2,037			1,974
NPAS & 90 Day Delinquent	$	51,150		$	56,215		$	66,295		$	81,380		$	79,624

Loan Loss Reserve	$	66,224		$	68,202		$	68,537		$	69,366		$	69,493
Quarterly Net Charge-offs	3,511			2,332			2,931			4,632			5,259
NPAs / Actual Assets %	1.16		%	1.27		%	1.54		%	1.84		%	1.83		%
NPAs & 90 Day / Actual Assets %	1.18		%	1.30		%	1.56		%	1.89		%	1.87		%
NPAs / Actual Loans and REO %	1.71		%	1.87		%	2.24		%	2.70		%	2.70		%
Loan Loss Reserves / Actual Loans (%)	2.26		%	2.32		%	2.36		%	2.37		%	2.43		%
Net Charge Off's as % of Average Loans (Annualized)	0.48		%	0.32		%	0.40		%	0.65		%	0.74		%


CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2013			2013			2013			2012			2012
ASSETS
Cash and cash equivalents	$	92,341		$	69,404		$	51,592		$	101,460		$	57,027
Interest-bearing time deposits	18,875			59,898			60,407			38,443			35,324
Investment securities	914,135			908,992			869,563			874,363			928,716
Mortgage loans held for sale	5,312			14,531			26,555			22,300			27,711
Loans	2,925,457			2,920,080			2,879,542			2,902,209			2,836,324
Less: Allowance for loan losses	(66,224		)	(68,202		)	(68,537		)	(69,366		)	(69,493		)
Net loans	2,859,233			2,851,878			2,811,005			2,832,843			2,766,831
Premises and equipment	54,386			54,165			53,762			52,749			51,373
Federal Reserve and Federal Home Loan Bank stock	32,790			32,790			32,777			32,785			32,824
Interest receivable	16,171			15,186			15,346			16,367			17,519
Core deposit intangibles and goodwill	148,376			148,759			149,142			149,529			150,019
Cash surrender value of life insurance	127,322			126,710			126,098			125,397			124,702
Other real estate owned	12,052			11,765			13,130			13,263			13,780
Tax asset, deferred and receivable	31,385			30,959			27,597			30,867			29,344
Other assets	13,533			13,227			15,856			14,455			14,998
TOTAL ASSETS	$	4,325,911		$	4,338,264		$	4,252,830		$	4,304,821		$	4,250,168
LIABILITIES
Deposits:
Noninterest-bearing	790,174			741,095			$	763,965		$	801,597		$	679,818
Interest-bearing	2,465,672			2,591,698			2,546,843			2,544,786			2,514,933
Total Deposits	3,255,846			3,332,793			3,310,808			3,346,383			3,194,751
Borrowings:
Federal funds purchased	115,938			57,085						18,862			57,024
Securities sold under repurchase agreements	123,935			161,779			161,813			141,828			153,454
Federal Home Loan Bank advances	172,292			92,743			93,169			94,238			145,467
Subordinated debentures and term loans	111,849			111,778			111,778			112,161			112,169
Total Borrowings	524,014			423,385			366,760			367,089			468,114
Interest payable	1,155			1,150			1,348			1,841			1,591
Other liabilities	31,427			41,643			35,356			37,272			38,857
Total Liabilities	3,812,442			3,798,971			3,714,272			3,752,585			3,703,313
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value, $1,000 liquidation value:
Authorized -- 500,000 shares
Senior Non-Cumulative Perpetual Preferred Stock, Series B
Issued and outstanding	34,043			68,087			68,087			90,783			90,783
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:
Authorized -- 600 shares
Issued and outstanding	125			125			125			125			125
Common Stock, $.125 stated value:
Authorized -- 50,000,000 shares
Issued and outstanding	3,603			3,600			3,598			3,587			3,584
Additional paid-in capital	258,350			257,626			256,966			256,843			256,290
Retained earnings	233,546			225,034			216,530			206,397			198,094
Accumulated other comprehensive loss	(16,198		)	(15,179		)	(6,748		)	(5,499		)	(2,021		)
Total Stockholders' Equity	513,469			539,293			538,558			552,236			546,855
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,325,911		$	4,338,264		$	4,252,830		$	4,304,821		$	4,250,168


CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except Per Share Amounts)	September 30,			June 30,			March 31,			December 31,			September 30,
	2013			2013			2013			2012			2012
INTEREST INCOME
Loans receivable:
Taxable	$	33,548		$	34,018		$	37,159		$	36,085		$	38,160
Tax-exempt	85			113			117			122			118
Investment securities:
Taxable	3,876			3,577			3,618			3,809			4,176
Tax-exempt	2,840			2,515			2,454			2,544			2,532
Deposits with financial institutions	18			62			19			31			16
Federal Reserve and Federal Home Loan Bank stock	369			368			371			373			345
Total Interest Income	40,736			40,653			43,738			42,964			45,347
INTEREST EXPENSE
Deposits	2,213			2,599			2,891			3,234			3,517
Federal funds purchased	72			1			11			7			38
Securities sold under repurchase agreements	192			208			194			204			211
Federal Home Loan Bank advances	506			462			459			501			492
Subordinated debentures and term loans	731			733			725			753			1,187
Total Interest Expense	3,714			4,003			4,280			4,699			5,445
NET INTEREST INCOME	37,022			36,650			39,458			38,265			39,902
Provision for loan losses	1,533			1,997			2,102			4,505			4,609
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	35,489			34,653			37,356			33,760			35,293
OTHER INCOME
Service charges on deposit accounts	3,120			2,912			2,729			2,962			2,913
Fiduciary activities	1,986			2,264			2,107			1,984			1,986
Other customer fees	2,899			2,816			2,780			2,757			2,740
Commission income	1,636			1,748			2,172			1,454			1,618
Earnings on cash surrender value of life insurance	611			610			700			693			685
Net gains and fees on sales of loans	1,673			2,457			2,378			3,513			2,849
Net realized gains on sales of available for sale securities				239			248			255			843
Other income	(125		)	1,013			763			588			639
Total Other Income	11,800			14,059			13,877			14,206			14,273
OTHER EXPENSES
Salaries and employee benefits	20,616			20,536			20,791			20,320			20,083
Net occupancy	2,430			2,267			2,602			2,494			2,568
Equipment	1,852			1,742			1,774			1,942			1,798
Marketing	559			535			467			616			536
Outside data processing fees	1,515			1,391			1,480			1,361			1,413
Printing and office supplies	320			311			331			321			287
Core deposit amortization	383			383			387			489			489
FDIC assessments	677			674			744			738			792
Other real estate owned and credit-related expenses	1,648			1,479			1,866			1,766			2,104
Other expenses	4,219			4,424			4,258			4,456			4,334
Total Other Expenses	34,219			33,742			34,700			34,503			34,404
INCOME BEFORE INCOME TAX	13,070			14,970			16,533			13,463			15,162
Income tax expense	2,667			4,155			4,668			3,153			3,926
NET INCOME	10,403			10,815			11,865			10,310			11,236
Preferred stock dividends	(430		)	(852		)	(857		)	(1,135		)	(1,134		)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	9,973		$	9,963		$	11,008		$	9,175		$	10,102

Per Share Data:
Basic Net Income Available to Common Stockholders	$	0.35		$	0.35		$	0.38		$	0.32		$	0.35
Diluted Net Income Available to Common Stockholders	$	0.35		$	0.34		$	0.38		$	0.32		$	0.35
Cash Dividends Paid	$	0.05		$	0.05		$	0.03		$	0.03		$	0.03
Average Diluted Shares Outstanding (in thousands)	29,081			29,024			28,971			28,930			28,888
FINANCIAL RATIOS:
Return on Average Assets	0.93		%	0.92		%	1.04		%	0.85		%	0.95		%
Return on Average Stockholders' Equity	7.85			7.34			8.25			6.66			7.47
Return on Average Common Stockholders' Equity	8.42			8.40			9.47			7.97			8.98
Average Earning Assets to Average Assets	90.71			90.59			90.46			90.28			90.36
Allowance for Loan Losses as % of Total Loans	2.26			2.32			2.36			2.37			2.43
Net Charge Off's as % of Average Loans (Annualized)	0.48			0.32			0.40			0.65			0.74
Average Stockholders' Equity to Average Assets	11.85			12.54			12.56			12.84			12.77
Tax Equivalent Yield on Earning Assets	4.35			4.29			4.70			4.58			4.89
Cost of Supporting Liabilities	0.38			0.41			0.45			0.48			0.57
Net Interest Margin (FTE) on Earning Assets	3.97			3.88			4.25			4.10			4.32


LOANS
(Dollars In Thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2013			2013			2013			2012			2012
Commercial and industrial loans	$	652,356		$	657,764		$	637,952		$	622,579		$	592,517
Agricultural production financing and other loans to farmers	98,489			105,175			104,284			112,527			107,166
Real estate loans:
Construction	149,875			101,909			75,877			98,639			93,610
Commercial and farmland	1,264,180			1,272,761			1,280,611			1,266,682			1,241,054
Residential	452,277			460,108			467,629			473,537			475,272
Home Equity	206,816			203,788			201,767			203,406			204,888
Individuals' loans for household and other personal expenditures	70,380			79,258			73,314			75,748			77,171
Lease financing receivables, net of unearned income	1,815			1,828			2,013			2,590			2,970
Other loans	29,269			37,489			36,095			46,501			41,676
Loans	2,925,457			2,920,080			2,879,542			2,902,209			2,836,324
Allowance for loan losses	(66,224		)	(68,202		)	(68,537		)	(69,366		)	(69,493		)
NET LOANS	$	2,859,233		$	2,851,878		$	2,811,005		$	2,832,843		$	2,766,831


DEPOSITS
(Dollars In Thousands)	September 30,		June 30,		March 31,		December 31,		September 30,
	2013		2013		2013		2012		2012
Demand deposits	$	1,610,662	$	1,648,712	$	1,590,709	$	1,646,756	$	1,455,568
Savings deposits	937,521		916,481		891,061		831,952		837,409
Certificates and other time deposits of $100,000 or more	190,866		205,467		224,505		236,470		256,077
Other certificates and time deposits	422,151		448,885		481,446		502,927		527,304
Brokered deposits	94,646		113,248		123,087		128,278		118,393
TOTAL DEPOSITS	$	3,255,846	$	3,332,793	$	3,310,808	$	3,346,383	$	3,194,751

First Merchants Corporation
David L. Ortega, First Vice President/Director of Investor Relations, 765-378-8937
http://www.firstmerchants.com

Source: First Merchants Corporation

News Release Details

First Merchants Corporation Announces Third Quarter 2013 Earnings

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