First Merchants Corporation Announces Improved Second Quarter 2013 Earnings

First Merchants Corporation Announces Improved Second Quarter 2013 Earnings

MUNCIE, Ind.--(BUSINESS WIRE)-- First Merchants Corporation (NAS: FRME) has reported second quarter 2013 earnings per share of $0.34 compared to $0.28 during the same period in 2012. Net income available to common stockholders increased by $1.9 million totaling $10.0 million compared to $8.1 million during the same period in 2012. Year-to-date earnings per share totaled $0.72 compared to core earnings of $0.53 in the first half of 2012. Reported earnings for the first half of 2012 totaled $0.74 as the Corporation recorded a gain on its FDIC purchase of SCB Bank in Shelbyville, Indiana of $0.21 per share in the first quarter of 2012.

Michael C. Rechin, President and Chief Executive Officer, stated, "First Merchants continues to maintain earnings momentum despite modest margin compression. Loan volume growth is steady, all credit related metrics, including non-accrual assets, continue to show improvement and core net income is progressively better quarter-after-quarter. The quality of First Merchants credit statistics when combined with our earnings strength has allowed us to improve our capital structure as evidenced by the July redemption of $34.0 million in SBLF preferred stock."


Total assets equaled $4.3 billion as of quarter-end and loans were $2.9 billion, an increase of $122.4 million or 4.4 percent over the same period in 2012. The Corporation's commercial and industrial loans and commercial real estate loans increased by $105.4 million and $53.6 million, respectively. Residential real estate loans declined by $20.8 million during the same period as the Corporation continues to focus this line of business on fee for service mortgage loans. The Corporation's loan-to-deposit ratio is 87.6 percent and the loan-to-asset ratio is 67.3 percent.

Net-interest income totaled $36.7 million for the quarter as net-interest margin totaled 3.88 percent. Yields on earning assets totaled 4.29 percent and the cost of supporting liabilities totaled 0.41 percent. Net-interest income totaled $38.1 million during the same quarter in 2012 as net interest margin totaled 4.11 percent. Of the $1.4 million reduction in net interest income, $314,000 was related to a reduction in fair value accounting in 2013. Year-to-date net-interest income totaled $76.1 million compared to $74.2 million during the first half of 2012. The $2.5 million interest recapture recognized in the first quarter of 2013 accounted for all of the increase.

Provision expense totaled $2.0 million for the second quarter of 2013, compared to $4.5 million in 2012. Net charge-offs totaled $2.3 million for the second quarter, down from $4.8 million in the second quarter of 2012. Due to the adequacy of the allowance for loan losses, year-to-date provision expense totaled $4.1 million versus $5.3 million of net charge-off's. The allowance for loan losses totaled $68.2 million, or 2.32 percent of total loans and 175 percent of non-accrual loans. Non-performing assets declined by $26.1 million, or 32.1 percent year-over-year, and now total $55.1 million.

Non-interest income totaled $14.1 million for the quarter, an increase over the second quarter 2012 total of $13.2 million. Year-to-date non-interest income totaled $27.9 million compared to $35.8 in 2012, which included a $9.1 million gain on the FDIC modified whole bank transaction in the first quarter of 2012. Non-interest expense totaled $33.7 million for the quarter, down $438,000 from the second quarter of 2012. Year-to-date non-interest expense totaled $68.4 million up just one third of a percent from the first half of 2012.

As of June 30, 2013, the Corporation's total risk-based capital equaled 15.69 percent, Tier 1 common risk-based capital equaled 10.13 percent, and tangible common equity ratio totaled 7.74 percent.

CONFERENCE CALL

First Merchants Corporation will conduct a second quarter earnings conference call and web cast at 2:30 p.m. (ET) on Thursday, July 25, 2013.

To participate, dial (Toll Free) 888-317-6016 and reference First Merchants Corporation's second quarter earnings release. International callers please call +1 412-317-6016. A replay of the call will be available until July 25, 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 10030162.

In order to view the web cast and presentation slides, please go to http://services.choruscall.com/links/frme130725.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)

June 30,

2013

2012

ASSETS

Cash and cash equivalents

$

69,404

$

68,493

Interest-bearing time deposits

59,898

41,760

Investment securities

908,992

944,321

Mortgage loans held for sale

14,531

15,278

Loans

2,920,080

2,797,634

Less: Allowance for loan losses

(68,202

)

(70,143

)

Net loans

2,851,878

2,727,491

Premises and equipment

54,165

51,335

Federal Reserve and Federal Home Loan Bank stock

32,790

33,033

Interest receivable

15,186

16,506

Core deposit intangibles and goodwill

148,759

150,006

Cash surrender value of life insurance

126,710

124,018

Other real estate owned

11,765

14,183

Tax asset, deferred and receivable

30,959

32,003

Other assets

13,227

13,996

TOTAL ASSETS

$

4,338,264

$

4,232,423

LIABILITIES

Deposits:

Noninterest-bearing

$

741,095

$

684,101

Interest-bearing

2,591,698

2,604,797

Total Deposits

3,332,793

3,288,898

Borrowings:

Federal funds purchased

57,085

652

Securities sold under repurchase agreements

161,779

160,127

Federal Home Loan Bank advances

92,743

96,847

Subordinated debentures and term loans

111,778

115,951

Total Borrowings

423,385

373,577

Interest payable

1,150

2,168

Other liabilities

41,643

32,104

Total Liabilities

3,798,971

3,696,747

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 - 68,087 and 90,782.94 shares

68,087

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 - 28,801,848 and 28,643,264 shares

3,600

3,580

Additional paid-in capital

257,626

255,632

Retained earnings

225,034

188,863

Accumulated other comprehensive loss

(15,179

)

(3,307

)

Total Stockholders' Equity

539,293

535,676

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

4,338,264

$

4,232,423

CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended

Six Months Ended

(Dollars In Thousands, Except Per Share Amounts)

June 30,

June 30,

2013

2012

2013

2012

INTEREST INCOME

Loans receivable:

Taxable

$

34,018

$

36,652

$

71,177

$

72,500

Tax-exempt

113

123

230

240

Investment securities:

Taxable

3,577

4,468

7,195

9,042

Tax-exempt

2,515

2,551

4,969

5,113

Deposits with financial institutions

62

28

81

53

Federal Reserve and Federal Home Loan Bank stock

368

347

739

690

Total Interest Income

40,653

44,169

84,391

87,638

INTEREST EXPENSE

Deposits

2,599

3,939

5,490

8,049

Federal funds purchased

1

12

12

24

Securities sold under repurchase agreements

208

197

402

492

Federal Home Loan Bank advances

462

637

921

1,631

Subordinated debentures and term loans

733

1,331

1,458

3,273

Total Interest Expense

4,003

6,116

8,283

13,469

NET INTEREST INCOME

36,650

38,053

76,108

74,169

Provision for loan losses

1,997

4,545

4,099

9,420

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES

34,653

33,508

72,009

64,749

OTHER INCOME

Service charges on deposit accounts

2,912

2,893

5,641

5,712

Fiduciary activities

2,264

1,938

4,371

3,921

Other customer fees

2,816

3,150

5,596

5,736

Commission income

1,748

1,485

3,920

3,152

Earnings on cash surrender value of life insurance

610

662

1,310

2,040

Net gains and fees on sales of loans

2,457

2,314

4,835

4,266

Net realized gains on sales of available for sale securities

239

502

487

1,291

Gain on FDIC modified whole bank transaction

9,124

Other income

1,013

221

1,776

581

Total Other Income

14,059

13,165

27,936

35,823

OTHER EXPENSES

Salaries and employee benefits

20,536

19,641

41,327

38,995

Net occupancy

2,267

2,473

4,869

5,124

Equipment

1,742

1,656

3,516

3,461

Marketing

535

564

1,002

1,006

Outside data processing fees

1,391

1,506

2,871

2,882

Printing and office supplies

311

294

642

561

Core deposit amortization

383

480

770

949

FDIC assessments

674

862

1,418

1,979

Other real estate owned and credit-related expenses

1,479

2,122

3,345

4,308

Other expenses

4,424

4,582

8,682

8,943

Total Other Expenses

33,742

34,180

68,442

68,208

INCOME BEFORE INCOME TAX

14,970

12,493

31,503

32,364

Income tax expense

4,155

3,288

8,823

8,788

NET INCOME

10,815

9,205

22,680

23,576

Preferred stock dividends

(852

)

(1,135

)

(1,709

)

(2,270

)

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

$

9,963

$

8,070

$

20,971

$

21,306

Per Share Data:

Basic Net Income Available to Common Stockholders

$

0.35

$

0.28

$

0.73

$

0.74

Diluted Net Income Available to Common Stockholders

$

0.34

$

0.28

$

0.72

$

0.74

Cash Dividends Paid

$

0.05

$

0.03

$

0.08

$

0.04

Average Diluted Shares Outstanding (in thousands)

29,024

28,815

28,997

28,782

FINANCIAL HIGHLIGHTS

(Dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2013