First Merchants Reports Record Year

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Muncie-based First Merchants Corp. (Nasdaq: FRME) is reporting record net income for 2013. Chief Executive Officer Mike Rechin says the earnings report caps a "highly successful year," which included a merger with CFS Bancorp and organic loan growth. January 28, 2014

News Release

MUNCIE, Ind. -- First Merchants Corporation (NASDAQ: FRME) has reported full year 2013 record net income available to common shareholders of $42.2 million compared to $40.6 million earned in 2012. Full-year 2013 earnings per share totaled $1.41 equaling 2012. Included in the full year results are $5.4 million, or $.12 per share, of acquisition expenses related to the CFS Bancorp (CFS) merger. By contrast, 2012 results include a one-time gain from the FDIC purchase of SCB Bank totaling $9.1 million, or $.21 per share. Fourth quarter 2013 earnings per share totaled $.34 compared to $.32 in 2012. Net income available to common stockholders totaled $11.2 million, a $2 million increase over the $9.2 million reported in the fourth quarter of 2012.

Michael C. Rechin, President and Chief Executive Officer, stated, “Our teams are energized by the closing of the CFS merger on November 12th 2013, and we are looking forward to capturing the full earnings impact in our 2014 results.” Rechin also added, “2013 was a highly successful year for us by many measures, including record net income of $42.2 million, healthy organic loan growth and the addition of CFS with its $1.1 billion balance sheet. In addition, we optimized our capital structure and increased First Merchants market capitalization by more than 90 percent to over $800 million. Our employees take pride in our continued progress and our merger that caps 2013 and propels us into 2014.”

Total assets equaled $5.4 billion, as loans and investments totaled $3.6 billion and $1.1 billion, respectively. Total loans increased by $730 million during the year, including $133 million of organic growth and $597 million related to the acquisition of CFS. Investments increased by $222 million during the year primarily due to the acquisition of CFS as deposits exceed loan balances by $359 million.

Net-interest income totaled $154.3 million in 2013, an increase of $2 million. Net-interest margin remained strong totaling 3.99 percent, down from 4.12 percent in 2012, as yields on earning assets declined by 34 basis points and the cost of supporting liabilities declined by 21 basis points. Net-interest income totaled $41.1 million for the fourth quarter of 2013 compared to $38.3 million during the same period of 2012.

Non-interest income totaled $54.8 million in 2013 and $64.3 million in 2012, which included the one-time gain from the FDIC purchase of SCB Bank totaling $9.1 million. Fourth quarter non-interest income increased by $867,000 over the prior year, and totaled $15.1 million. Non-interest expense totaled $137.1 million in 2012 and $143.2 million in 2013, which included acquisition expenses of $5.4 million. During the quarter, non-interest expense totaled $40.6 million and included $4.5 million of the $5.4 million in acquisition expenses.

Provision expense totaled $6.6 million for the year, down from $18.5 million in 2012. Net charge-offs totaled $8.1 million during the year, also down from $20.1 million in 2012. CFS loan marks totaled nearly $40 million or 6.2 percent of purchased loans as of year-end. NPA's increased by $31.4 million, which includes CFS; however, our pre-merger NPA’s declined by 42 percent resulting in a lower total allowance for loan losses totaling $67.9 million, or 2.24 percent of loans excluding CFS.

As of December 31, 2013, the Corporation’s total risk-based capital equaled 14.54 percent, Tier 1 common risk-based capital equaled 10.37 percent, and tangible common equity ratio totaled 8.34 percent. During the quarter, the Corporation refinanced $50 million of sub-debt and redeemed $34 million of Small Business Lending Fund shares through a new $65 million, 15-year term no call 10, sub-debt instrument with a fixed coupon rate of 6.75 percent.

Mark K. Hardwick, Executive Vice President and Chief Financial Officer, stated, “The optimization of our capital structure and the repayment of the SBLF is rewarding and completes a journey that started in 2009 during the financial crisis.” Hardwick also added, “The increase in our tangible book value per share from $11.56 as of September 30, 2013 to $12.17 as of year-end is better than our earlier forecasts and market expectations. Net Income and other comprehensive income accounted for $.74 of the improvement which was offset by $.08 dilution from the acquisition and our fourth quarter dividend payment of $.05 per share. The dilution resulting from our acquisition of $.08 has an estimated one-year earn back, meaningfully shorter than our May 2013 announcement projecting three years.”

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.

Source: First Merchants Corp.