First Merchants Corporation Announces 2012 Record Net Income of More Than $40 Million Dollars

MUNCIE, Ind.--(BUSINESS WIRE)--First Merchants Corporation (NASDAQ: FRME) has reported full year 2012 record net income available to common shareholders of $40.6 million compared to $9.0 million earned in 2011.

“our team is encouraged by the momentum we take into 2013 despite the challenging low interest rate environment.”

Michael C. Rechin, President and Chief Executive Officer, stated, “Our 2012 results represent a return to high performance banking. Our Board of Directors, management team and dedicated employees are very pleased to have established record high net income results for our shareholders. Beyond the level of net income, our highlights for 2012 include a successful closing of an immediately accretive in-market acquisition, an increase in the rate of organic loan growth and an increase in the level of our common dividend.” Rechin also stated, “our team is encouraged by the momentum we take into 2013 despite the challenging low interest rate environment.”

Year-to-date earnings per share totaled $1.41, a $1.07 per share increase over the prior year total of $.34 per share. Within the $1.41 earnings per share, $.21 is related to the one-time gain on the Corporation’s FDIC purchase and assumption agreement with SCB Bank in Shelbyville, Indiana, during the first quarter of 2012. The balance of our 2012 results represent increased levels of earnings from our relationship-driven banking model that produced higher levels of revenue from multiple income sources.

Fourth quarter 2012 earnings per share of $.32 compared to $.24 per share during the same period in 2011. Net income available to common shareholders totaled $9.2 million for the quarter, a $2.7 million increase over the fourth quarter of 2011.

Total assets equaled $4.3 billion, as loans and investments totaled $2.9 billion and $874 million, respectively. Loans increased for the fifth consecutive quarter due to the addition of calling officers and economic improvements in our marketplace. The Corporation’s loan-to-deposit ratio and loan-to-asset ratio remained steady at 87 percent and 67 percent, respectively.

Net-interest income totaled $38.3 million for the fourth quarter of 2012 and net-interest margin remained strong totaling 4.10 percent as yields on earning assets totaled 4.58 percent and the cost of supporting liabilities totaled .48 percent. Discount accretion resulting from the SCB transaction added $1.3 million, or 13 basis points, to net-interest income and net-interest margin for the fourth quarter of 2012. YTD net-interest income totaled $152.3 million, an increase of $9.0 million over 2011.

Non-interest income totaled $14.2 million for the fourth quarter of 2012 and $64.3 million year-to-date. After normalizing for bond gains and the first quarter 2012 FDIC gain, non-interest income for 2012 improved by $5.7 million, or 12 percent over 2011. Gains from the sale of mortgage loans accounted for $3.2 million of the increase as our investment in mortgage origination and fulfillment maximized the advantageous mortgage rate environment. Total non-interest expenses of $137.1 million increased by $1.2 million, or less than 1 percent, during 2012.

Provision expense totaled $4.5 million for the fourth quarter 2012 and $18.5 million year-to-date, compared to $5.9 million and $22.6 million in 2011. Net charge-offs were $4.6 million for the fourth quarter of 2012 and $20.1 million year-to-date, compared to $8.0 million and $34.7 million in 2011. The allowance for loan losses is $69.4 million, or 2.37 percent of total loans and 130 percent of non-accrual loans, the highest coverage ratio since 2006.

As of December 31, 2012, the Corporation’s total risk-based capital equaled 16.34 percent, Tier 1 common risk-based capital equaled 9.62 percent, and tangible common equity ratio totaled 7.55 percent. As of December 31, 2011 the Corporation’s total risk-based capital equaled 16.54 percent, Tier 1 common risk-based capital equaled 8.83 percent, and tangible common equity ratio totaled 6.84 percent.

CONFERENCE CALL

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

To participate, dial (Toll Free) 888-317-6016 and reference First Merchants Corporation’s fourth quarter earnings release. International callers please call [phone]. A replay of the call will be available until January 24, 2014. To access a replay of the call, US participants should dial (Toll Free) 877-344-7529 or for International participants, dial [phone]. The replay passcode is 10023446.

In order to view the web cast and presentation slides, please go to http://services.choruscall.com/links/frme130124.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)	December 31,
	2012			2011
ASSETS
Cash and cash equivalents	$	101,460		$	73,312
Interest-bearing time deposits		38,443			52,851
Investment securities		874,363			946,400
Mortgage loans held for sale		22,300			17,864
Loans		2,902,209			2,713,415
Less: Allowance for loan losses		(69,366	)		(70,898	)
Net loans		2,832,843			2,642,517
Premises and equipment		52,749			51,013
Federal Reserve and Federal Home Loan Bank stock		32,785			31,270
Interest receivable		16,367			17,723
Core deposit intangibles and goodwill		149,529			150,471
Cash surrender value of life insurance		125,397			124,329
Other real estate owned		13,263			16,289
Tax asset, deferred and receivable		30,867			36,424
Other assets		14,455			12,613
TOTAL ASSETS	$	4,304,821		$	4,173,076
LIABILITIES
Deposits:
Noninterest-bearing	$	801,597		$	646,508
Interest-bearing		2,544,786			2,488,147
Total Deposits		3,346,383			3,134,655
Borrowings:
Federal funds purchased		18,862
Securities sold under repurchase agreements		141,828			156,305
Federal Home Loan Bank advances		94,238			138,095
Subordinated debentures and term loans		112,161			194,974
Total Borrowings		367,089			489,374
Interest payable		1,841			2,925
Other liabilities		37,272			31,655
Total Liabilities		3,752,585			3,658,609
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 - 90,782.94 shares		90,783			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 - 28,692,616 and 28,559,707 shares		3,587			3,570
Additional paid-in capital		256,843			254,874
Retained earnings		206,397			168,717
Accumulated other comprehensive loss		(5,499	)		(3,602	)
Total Stockholders' Equity		552,236			514,467
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,304,821		$	4,173,076

CONSOLIDATED STATEMENTS OF INCOME	Three Months Ended						Twelve Months Ended
(Dollars In Thousands, Except Per Share Amounts)	December 31,						December 31,
	2012			2011			2012			2011
INTEREST INCOME
Loans receivable:
Taxable	$	36,085		$	36,497		$	146,745		$	149,716
Tax-exempt		122			93			480			528
Investment securities:
Taxable		3,809			4,565			17,027			19,230
Tax-exempt		2,544			2,550			10,189			10,167
Federal funds sold											3
Deposits with financial institutions		31			54			100			282
Federal Reserve and Federal Home Loan Bank stock		373			314			1,408			1,319
Total Interest Income		42,964			44,073			175,949			181,245
INTEREST EXPENSE
Deposits		3,234			4,505			14,800			22,281
Federal funds purchased		7			3			69			25
Securities sold under repurchase agreements		204			363			907			1,511
Federal Home Loan Bank advances		501			1,114			2,624			4,181
Subordinated debentures and term loans		753			1,908			5,213			9,892
Total Interest Expense		4,699			7,893			23,613			37,890
NET INTEREST INCOME		38,265			36,180			152,336			143,355
Provision for loan losses		4,505			5,855			18,534			22,630
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		33,760			30,325			133,802			120,725
OTHER INCOME
Service charges on deposit accounts		2,962			3,027			11,587			11,972
Fiduciary activities		1,984			1,804			7,891			7,650
Other customer fees		2,757			2,572			11,233			10,024
Commission income		1,454			1,220			6,224			5,660
Earnings on cash surrender value of life insurance		693			803			3,418			2,596
Net gains and fees on sales of loans		3,513			2,747			10,628			7,418
Net realized gains on sales of available for sale securities		255			290			2,389			2,439
Other-than-temporary impairment on available for sale securities											(400	)
Gain on FDIC modified whole bank transaction								9,124
Other income		588			508			1,808			1,761
Total Other Income		14,206			12,971			64,302			49,120
OTHER EXPENSES
Salaries and employee benefits		20,320			19,035			79,398			74,735
Net occupancy		2,494			2,428			10,186			10,118
Equipment		1,942			1,672			7,201			6,794
Marketing		616			650			2,158			2,002
Outside data processing fees		1,361			1,377			5,656			5,671
Printing and office supplies		321			340			1,169			1,242
Core deposit amortization		489			591			1,927			3,548
FDIC assessments		738			775			3,509			5,531
Other real estate owned and credit-related expenses		1,766			2,569			8,178			10,614
Other expenses		4,456			3,999			17,733			15,683
Total Other Expenses		34,503			33,436			137,115			135,938
INCOME BEFORE INCOME TAX		13,463			9,860			60,989			33,907
Income tax expense		3,153			2,299			15,867			8,655
NET INCOME		10,310			7,561			45,122			25,252
Loss on CPP unamortized discount											(1,401	)
Loss on extinguishment of trust preferred securities											(10,857	)
Preferred stock dividends and discount accretion		(1,135	)		(1,135	)		(4,539	)		(3,981	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	9,175		$	6,426		$	40,583		$	9,013
Per Share Data:
Basic Net Income Available to Common Stockholders	$	0.32		$	0.24		$	1.42		$	0.34
Diluted Net Income Available to Common Stockholders	$	0.32		$	0.24		$	1.41		$	0.34
Cash Dividends Paid	$	0.03		$	0.01		$	0.10		$	0.04
Average Diluted Shares Outstanding (in thousands)		28,930			28,700			28,847			26,694

FINANCIAL HIGHLIGHTS
(Dollars in thousands)	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2012			2011			2012			2011
NET CHARGE OFF'S	$	4,632		$	8,031		$	20,066		$	34,709
AVERAGE BALANCES:
Total Assets	$	4,293,082		$	4,200,685		$	4,245,996		$	4,143,850
Total Loans		2,867,793			2,719,155			2,819,816			2,748,684
Total Earning Assets		3,875,969			3,766,352			3,833,174			3,744,027
Total Deposits		3,321,997			3,165,505			3,263,020			3,175,762
Total Stockholders' Equity		551,414			513,366			535,497			478,440
FINANCIAL RATIOS:
Return on Average Assets		0.85	%		0.61	%		0.96	%		0.22	%
Return on Average Stockholders' Equity		6.66			5.01			7.58			1.88
Return on Average Common Stockholders' Equity		7.97			6.08			9.13			2.22
Average Earning Assets to Average Assets		90.28			89.66			90.28			90.35
Allowance for Loan Losses as % of Total Loans		2.37			2.60			2.37			2.60
Net Charge Off's as % of Average Loans (Annualized)		0.65			1.18			0.71			1.26
Average Stockholders' Equity to Average Assets		12.84			12.22			12.61			11.55
Tax Equivalent Yield on Earning Assets		4.58			4.83			4.74			4.99
Cost of Supporting Liabilities		0.48			0.84			0.62			1.01
Net Interest Margin (FTE) on Earning Assets		4.10			3.99			4.12			3.98

NON-PERFORMING ASSETS
(Dollars In Thousands)	December 31,			September 30,			June 30,			March 31,			December 31,
	2012			2012			2012			2012			2011
Non-Accrual Loans	$	53,399		$	56,999		$	63,127		$	74,456		$	69,592
Renegotiated Loans		12,681			6,871			3,921			6,695			14,308
Non-Performing Loans (NPL)		66,080			63,870			67,048			81,151			83,900
Other Real Estate Owned		13,263			13,780			14,183			15,628			16,289
Non-Performing Assets (NPA)		79,343			77,650			81,231			96,779			100,189
90+ Days Delinquent		2,037			1,974			665			253			580
NPAS & 90 Day Delinquent	$	81,380		$	79,624		$	81,896		$	97,032		$	100,769
Loan Loss Reserve	$	69,366		$	69,493		$	70,143		$	70,369		$	70,898
Quarterly Net Charge-offs		4,632			5,259			4,771			5,404			8,031
NPAs / Actual Assets %		1.84	%		1.83	%		1.92	%		2.28	%		2.40	%
NPAs & 90 Day / Actual Assets %		1.89	%		1.87	%		1.93	%		2.29	%		2.41	%
NPAs / Actual Loans and REO %		2.70	%		2.70	%		2.87	%		3.42	%		3.65	%
Loan Loss Reserves / Actual Loans (%)		2.37	%		2.43	%		2.49	%		2.50	%		2.60	%
Net Charge Off's as % of Average Loans (Annualized)		0.65	%		0.74	%		0.68	%		0.78	%		1.18	%

CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)	December 31,			September 30,			June 30,			March 31,			December 31,
	2012			2012			2012			2012			2011
ASSETS
Cash and cash equivalents	$	101,460		$	57,027		$	68,493		$	60,991		$	73,312
Interest-bearing time deposits		38,443			35,324			41,760			34,290			52,851
Investment securities		874,363			928,716			944,321			960,032			946,400
Mortgage loans held for sale		22,300			27,711			15,278			22,138			17,864
Loans		2,902,209			2,836,324			2,797,634			2,792,989			2,713,415
Less: Allowance for loan losses		(69,366	)		(69,493	)		(70,143	)		(70,369	)		(70,898	)
Net loans		2,832,843			2,766,831			2,727,491			2,722,620			2,642,517
Premises and equipment		52,749			51,373			51,335			51,541			51,013
Federal Reserve and Federal Home Loan Bank stock		32,785			32,824			33,033			33,026			31,270
Interest receivable		16,367			17,519			16,506			16,730			17,723
Core deposit intangibles and goodwill		149,529			150,019			150,006			150,486			150,471
Cash surrender value of life insurance		125,397			124,702			124,018			123,355			124,329
Other real estate owned		13,263			13,780			14,183			15,628			16,289
Tax asset, deferred and receivable		30,867			29,344			32,003			32,112			36,424
Other assets		14,455			14,998			13,996			13,417			12,613
TOTAL ASSETS	$	4,304,821		$	4,250,168		$	4,232,423		$	4,236,366		$	4,173,076
LIABILITIES
Deposits:
Noninterest-bearing		801,597		$	679,818		$	684,101		$	677,643		$	646,508
Interest-bearing		2,544,786			2,514,933			2,604,797			2,601,935			2,488,147
Total Deposits		3,346,383			3,194,751			3,288,898			3,279,578			3,134,655
Borrowings:
Federal funds purchased		18,862			57,024			652			10,936
Securities sold under repurchase agreements		141,828			153,454			160,127			139,308			156,305
Federal Home Loan Bank advances		94,238			145,467			96,847			131,496			138,095
Subordinated debentures and term loans		112,161			112,169			115,951			115,969			194,974
Total Borrowings		367,089			468,114			373,577			397,709			489,374
Interest payable		1,841			1,591			2,168			2,094			2,925
Other liabilities		37,272			38,857			32,104			29,044			31,655
Total Liabilities		3,752,585			3,703,313			3,696,747			3,708,425			3,658,609
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		90,783			90,783			90,783			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		3,587			3,584			3,580			3,578			3,570
Additional paid-in capital		256,843			256,290			255,632			255,116			254,874
Retained earnings		206,397			198,094			188,863			181,664			168,717
Accumulated other comprehensive loss		(5,499	)		(2,021	)		(3,307	)		(3,325	)		(3,602	)
Total Stockholders' Equity		552,236			546,855			535,676			527,941			514,467
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,304,821		$	4,250,168		$	4,232,423		$	4,236,366		$	4,173,076

CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except Per Share Amounts)	December 31,			September 30,			June 30,			March 31,			December 31,
	2012			2012			2012			2012			2011
INTEREST INCOME
Loans receivable:
Taxable	$	36,085		$	38,160		$	36,652		$	35,848		$	36,497
Tax exempt		122			118			123			117			93
Investment securities:
Taxable		3,809			4,176			4,468			4,574			4,565
Tax exempt		2,544			2,532			2,551			2,562			2,550
Federal funds sold
Deposits with financial institutions		31			16			28			25			54
Federal Reserve and Federal Home Loan Bank stock		373			345			347			343			314
Total Interest Income		42,964			45,347			44,169			43,469			44,073
INTEREST EXPENSE
Deposits		3,234			3,517			3,939			4,110			4,505
Federal funds purchased		7			38			12			12			3
Securities sold under repurchase agreements		204			211			197			295			363
Federal Home Loan Bank advances		501			492			637			994			1,114
Subordinated debentures, revolving credit lines and term loans		753			1,187			1,331			1,942			1,908
Total Interest Expense		4,699			5,445			6,116			7,353			7,893
NET INTEREST INCOME		38,265			39,902			38,053			36,116			36,180
Provision for loan losses		4,505			4,609			4,545			4,875			5,855
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		33,760			35,293			33,508			31,241			30,325
OTHER INCOME
Service charges on deposit accounts		2,962			2,913			2,893			2,819			3,027
Fiduciary activities		1,984			1,986			1,938			1,983			1,804
Other customer fees		2,757			2,740			3,150			2,586			2,572
Commission income		1,454			1,618			1,485			1,667			1,220
Earnings on cash surrender value of life insurance		693			685			662			1,378			803
Net gains and fees on sales of loans		3,513			2,849			2,314			1,952			2,747
Net realized gains on sales of available for sale securities		255			843			502			789			290
Gain on FDIC modified whole bank transaction											9,124
Other income		588			639			221			360			508
Total Other Income		14,206			14,273			13,165			22,658			12,971
OTHER EXPENSES
Salaries and employee benefits		20,320			20,083			19,641			19,354			19,035
Net occupancy		2,494			2,568			2,473			2,651			2,428
Equipment		1,942			1,798			1,656			1,805			1,672
Marketing		616			536			564			442			650
Outside data processing fees		1,361			1,413			1,506			1,376			1,377
Printing and office supplies		321			287			294			267			340
Core deposit amortization		489			489			480			469			591
FDIC assessments		738			792			862			1,117			775
Other real estate owned and credit-related expenses		1,766			2,104			2,122			2,186			2,569
Other expenses		4,456			4,334			4,582			4,361			3,999
Total Other Expenses		34,503			34,404			34,180			34,028			33,436
INCOME BEFORE INCOME TAX		13,463			15,162			12,493			19,871			9,860
Income tax expense		3,153			3,926			3,288			5,500			2,299
NET INCOME		10,310			11,236			9,205			14,371			7,561
Preferred stock dividends and discount accretion		(1,135	)		(1,134	)		(1,135	)		(1,135	)		(1,135	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	9,175		$	10,102		$	8,070		$	13,236		$	6,426
PER SHARE:
Basic Net Income Available to Common Stockholders	$	0.32		$	0.35		$	0.29		$	0.46		$	0.24
Diluted Net Income Available to Common Stockholders	$	0.32		$	0.35		$	0.28		$	0.46		$	0.24
Cash Dividends Paid	$	0.03		$	0.03		$	0.03		$	0.01		$	0.01
Average Diluted Shares Outstanding (in thousands)		28,930			28,888			28,815			28,755			28,700
FINANCIAL RATIOS:
Return on Average Assets		0.85	%		0.95	%		0.76	%		1.26	%		0.61	%
Return on Average Stockholders' Equity		6.66			7.47			6.07			10.23			5.01
Return on Average Common Stockholders' Equity		7.97			8.98			7.32			12.40			6.08
Average Earning Assets to Average Assets		90.28			90.36			90.30			90.16			89.66
Allowance for Loan Losses as % of Total Loans		2.37			2.43			2.49			2.50			2.60
Net Charge Off's as % of Average Loans (Annualized)		0.65			0.74			0.68			0.78			1.18
Average Stockholders' Equity to Average Assets		12.84			12.77			12.51			12.32			12.22
Tax Equivalent Yield on Earning Assets		4.58			4.89			4.75			4.74			4.83
Cost of Supporting Liabilities		0.48			0.57			0.64			0.78			0.84
Net Interest Margin (FTE) on Earning Assets		4.10			4.32			4.11			3.96			3.99

LOANS
(Dollars In Thousands)	December 31,			September 30,			June 30,			March 31,			December 31,
	2012			2012			2012			2012			2011
Commercial and industrial loans	$	622,579		$	592,517		$	552,353		$	546,304		$	532,523
Agricultural production financing and other loans to farmers		112,527			107,166			106,135			97,165			104,526
Real estate loans:
Construction		98,639			93,610			99,588			92,694			81,780
Commercial and farm land		1,266,682			1,241,054			1,219,114			1,229,195			1,194,230
Residential		473,537			475,272			480,917			498,354			481,493
Home Equity		203,406			204,888			207,250			210,564			191,631
Individuals' loans for household and other personal expenditures		75,748			77,171			83,933			78,711			84,172
Lease financing receivables, net of unearned income		2,590			2,970			2,976			3,112			3,555
Other loans		46,501			41,676			45,368			36,890			39,505
Loans		2,902,209			2,836,324			2,797,634			2,792,989			2,713,415
Allowance for loan losses		(69,366	)		(69,493	)		(70,143	)		(70,369	)		(70,898	)
NET LOANS	$	2,832,843		$	2,766,831		$	2,727,491		$	2,722,620		$	2,642,517
DEPOSITS
(Dollars In Thousands)	December 31,			September 30,			June 30,			March 31,			December 31,
	2012			2012			2012			2012			2011
Demand deposits	$	1,646,756		$	1,455,568		$	1,521,194		$	1,470,938		$	1,438,513
Savings deposits		831,952			837,409			822,299			801,935			757,166
Certificates and other time deposits of $100,000 or more		236,470			256,077			261,156			269,796			264,787
Other certificates and time deposits		502,927			527,304			546,182			566,934			551,247
Brokered deposits		128,278			118,393			138,067			169,975			122,942
TOTAL DEPOSITS	$	3,346,383		$	3,194,751		$	3,288,898		$	3,279,578		$	3,134,655