Good afternoon and welcome to the First Merchants Corporation Fourth Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator instructions) Please note this event is being recorded. We will be using user control slides for our webcast today. Slides maybe viewed by following the URL instructions noted in the First Merchants news release dated Tuesday, January 28, 2014, or by visiting the First Merchants Corporation shareholder relations website and clicking on the webcast URL hyperlink. During the call, management may make forward looking statements about the company's relative business outlook. These forward-looking statements and all other statement made during the call that do not concern historical effects are subject to risk and uncertainties that may materially effect 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. I would now like to turn the conference over to Mr. Michael Rechin, President and CEO. Mr. Rechin, the floor is yours, sir.

Thank you, Mike. Welcome everyone to our earnings conference call and webcast for the fourth quarter ending December 31, 2013. Joining me today as always are Mark Hardwick, our Chief Financial Officer, and John Martin, our Chief Credit Officer. We released our earnings, I hope you have them, in a press release at approximately 10:30 Eastern Daylight Savings Time earlier today. And our presentations speak to the material from that release. The directions that point to the webcast are also contained in the backend of that release and my comments will begin on Page 4 on a page titled First Merchants 2013 Performance. So I thought I would speak to both what I view as our highlights for the full year and then touch on the fourth quarter before I look to my colleagues to provide some of the detail of both the results as it relates to the financials and then some of the credit metrics behind those results. As I said, in the press release, we reported that First Merchants had earned 2013 record net income available to common shareholders of $42.2 million compared to $40.6 million that we earned in 2012. Full year 2013 earnings per share totaled $1.41 identical to 2012. And as you can see in the release, we got to $1.41 in a different way. In 2012, our results included a one-time $9.1 million or $0.21 per share gain associated with the FDIC purchase of Shelby County Bank, whereas in 2013 that same $1.41 total was after recognizing the expenses with bringing in important acquisition into our company by way of Citizens Financial. And the expenses associated with that roughly $5.4 million of one-time expenses are included in those earnings which were heavy in the fourth quarter as we got to a close. We're…

Thanks, Mike. My comments will begin on Slide 6. The investment portfolio on line 1 increased by $222 million as deposits acquired in our CFS merger exceeded net loans by $359 million creating excess liquidity to invest. Portfolio loans on line 3 increased year-over-year by $730 million and now totaled $3.633 billion. Pre-merger balances increased by $133 million or 4.6%, and CFS loans totaled $597 million. The allowance on line 4 totaled $68 million or 1.87% of loans, however, John will detail the fair value adjustments and the allowance coverage of pre-merger loans later in the presentation. Goodwill and CD&I increased by $53 million during the year reflecting the difference between our $136 million purchase price and the net asset acquired. CD&I totaled $7.3 million and will amortize over ten years. Banker owned life insurance increased by $40 million during the year due to the acquisition and improvements in the cash surrender value policy during the year. The nearly $100 million increase in other items includes approximately $22 million of fixed assets, $26 million of our deferred tax asset, $17 million in interest bearing time deposits and $9 million of other real estate. All of the increases are related to CFS merger. The composition of our $3.6 billion loan portfolio on Slide 7 continues to be a reflective of a commercial bank and it continues to produce strong loan yields. The portfolio yield for the fourth quarter totaled 4.55% compared to 4.52% in the third quarter of 2013. Fair value accretion totaled just $638,000 including $164,000 from CFS for 45 days. On Slide 8, our $1.1 billion bond portfolio continues to perform well producing higher than average yields with a moderately longer duration than peer. Our 3.82% yield compares favorably to peer averages of approximately 2.58% and our duration remains…

All right, thanks, Mark. And good afternoon, everyone. I'll be covering the loan portfolio trends in Slide 18, then discuss year-end asset quality before closing with a look at the allowance and fair value coverage that Mark mentioned earlier, before turning the call back over to Mike for his comments. So turning to Slide 18, Slide 18 highlights the impact of the recently acquired CFS portfolio and the combination of balances. We experienced balanced growth in the portfolio resulting from both the inclusion of the CFS portfolio as well as organic growth. On line 1, commercial & industrial loans increased $139 million which includes $57 million of First Merchants growth from 2012 to 2013. Construction lending on line 2 increased $79 million for the year which included $64 million of First Merchants growth and, on line 3, non-owner occupied CRE increased $257 million which included $53.5 million of First Merchants growth. This resulted in an increase of First Merchants originated loan portfolio of $133.5 million or 4.6% and on a combined basis the total portfolio increased $730.2 million or roughly 25%. Before I speak further to the changes in the First Merchants originated portfolio on Slide 19, like to mention the composition of the overall combined CFS and First Merchants portfolio. The combinations of the portfolios while increasing total loans by the 25% I just mentioned on line 11 neither increased nor decreased any one segment of the portfolio by more than 3% on a proportional, as a proportion of total loans with most categories having a percentage change of less than 1%. The similarity in the acquired portfolio should allow us to apply our existing asset quality strategies and tactics as we work through the portfolio. So turning now to Slide 19, during the discussion from the prior slide…

Thanks, John, Martin. On Page 25, I will offer some thoughts on the bullet points there before we take questions. And just start my forward look on 2014 by stating we're going to stick to our plan. We got a multi-year plan that’s really well communicated inside our company for roles and responsibilities; it’s a difficult operating environment, but the plan as served us well, so we are going to stick with it. A signature event is 30 days out. We are spending significant effort at this point in thorough preparation for our integration that's less than 30 days away. Our goal is the second bullet point speaks to is for client retention and implementing growth tactics. Our goal is to peak the interest of the customers, clients, prospects in those new marketplaces thus through the same phases and the same names that those folks have come to trust over time. We are off to a good start with this. We look for that to continue. We are seeing the experience, the management skills and the leadership from the Citizens team that has joined the First Merchants. We look for that to continue. Gives me great confidence as for the extensive change event that’s directly in front of us. In that bullet point, you will see in brackets the term Lakeshore region. My guess is that in future calls you will hear less about Citizens Financial by name and more about our Lakeshore region which has been named inside the First Merchants as the signage change scheduled for the end of February we'll be part of that integration effort. We are on target for the expense savings that we talked about in May, whether its contracts, vendors technology and talent decisions they are all in place. During the second quarter…

Yes, in this quarter, we only had Citizens for 45 days but their core margin was running materially less than outs like what 3.30%. We've made some pretty significant changes in their bond portfolio and increasing those yields from 1.5% to 3.5%, but in the fourth quarter we were still purchasing investments, and I would say we probably because of the time that that sort of left with about $225,000 of earnings on the table as we were transitioning. The other I think key item we had $164,000 of purchase accounting accretion that came in in the fourth quarter just related to CFS and I'm anticipating that that is $500,000 a quarter type of number absent any activity around the non-accretable yield section. So we have a little right around $14 million that is in accretable, the remainder of our marks are in the non-accretable section and it takes a pay off before that comes back in. So in our -- the FDIC transaction from last year at Shelby County we were surprised how fast that that came back but it was a troubled institution and we're not anticipating that these -- that the marks we have today will come in quite as quickly, and they're also there to absorb losses. So I guess on a go forward basis kind of how I'm viewing it without giving you a specific margin number. And then was there a second question? Scott Siefers - Sandler O'Neill & Partners: No, that got the first part of it, so I appreciate that --

Okay. Scott Siefers - Sandler O'Neill & Partners: And I just wanted to switch gears just a little, I apologize if I missed this in your comments on capital, but can you talk a little bit about intangible book and the capital levels? I guess I would have anticipated they come under little pressure given the closure of the deal but they were both up. So how are you thinking about sort of the pro forma level of the earn-back period you had articulated when you originally announced the merger etc?

The best thing about 3% dilution which would have been about three-year earn back based on the accretion that we've layered in which does accelerate after the acquisition and into the second year, and that's mainly because of somewhat balance sheet growth that we're anticipating in the second year. Year One we weren't anticipating growing the balance sheet just as we're working through some of the problem credits. The (inaudible) --

And so it's effectively, Scott, I think I heard your question as well, its effectively a one-year five quarter kind of a recapture versus the 11 or 12 quarters that our initial modeling contained that we shared a few months back. Scott Siefers - Sandler O'Neill & Partners: Okay.

Yes, sorry about that, I lost my train of thought for a moment. The 11.56 where we start in the quarter didn't prove -- the question that you were getting to was the OCI was such a dramatic change in the first quarter that it produces a result at the end of close that looks materially different than we anticipated. With the other half of that and its kind of equally split is because our fair value marks weren't as the on the loan portfolio more like $40 million instead of $52 million and the core deposit in tangible was more like $7 million instead of $11 million. And so we had a couple of nice pickups there that helped strengthen the tangible book value per share post closing. Scott Siefers - Sandler O'Neill & Partners: And then I think just the last question I have is on the tax rate, it buzzed around a bit over the last several quarters, I think its been as high as 28% and as low as 20%. What kind of tax rate should we be using for our models here as we look out over the next year or so?

Well, we've had a couple -- well two quarters in a row with fairly sizable low income housing tax credit type of deals that were finalized and so it created a little bit of, especially last quarter, a sizable loss or negative income in the non-interest income section offset by a big tax adjustment. We had a similar adjustment in the fourth quarter but the effective rate going forward is 27% is more of an effective tax rate that you could expect on a go forward basis. Really 35% applied to everything after you deduct out our tax free income from bank and life insurance and our tax-free munis. That's more of a standard.

The next question we have comes from John Barber of KBW.

My first question was related to the loan mark. In the press release, you talked about $40 million loan mark and I just wanted to make sure I'm comparing it correctly compared to your initial expectations that there would be a $52 million loan mark, I guess what was the difference there and what improved?

Hi John, this is John Martin. When we went into it, we did our due diligence. And one of the things that we do is order appraisals. And as we start to receive those back on both the ORE balances as well as the classified went through an ordered appraisal on virtually every classified assets as well as a number of the accretized assets well to get refreshed and updated appraisals on the values that we had that helped derive the marks on the SOP the non-accretable portion of it, we are better than what we had initially done in the due diligence. We set those marks with a fairly aggressive or conservative stands not knowing what we would see back and as we got it back, we adjusted it.

Okay, thanks for the color. As it relates to the deal, are there any revenue enhancement opportunities that you are seeing that maybe you point that as apparent a couple of months ago?

Well, it's early but the opportunities that we saw two quarter ago at the front end of the announcement and today are the same. It was a very traditional spread dominated banking company absent, at least in our case, a trust business or an insurance business. So introductions of those capabilities have begun. I feel like their competency and talking their clients about them will grow over a time, we don't have a lot of that factored in the 2014 as we get the training in place to bring the capabilities to life. Outside of the those two businesses, John, we have been proficient in using swaps for instance with our commercial clients which is we think a interest rate management technique that their clients would be benefit from, but those the two primary non-banking businesses would be our greatest upside at this point.

All right, thanks, Mike. And the last one I had was just related to deals but this is kind of a two part question, but the first part is you identified capital target ratios. I'm just wondering if there a opportunity came along how your willingness to go below those target levels? And then just a second kind of part of that question, we have seen a couple of deals announced recently it was like pricing for some and not all deals are affirming a little bit, we're talking about one-eight, two times tender book value that level. Does that make that raise sellers expectations or does it make maybe banks look at potentially selling as a more attractive option, they look at that price and say it's pretty good, well maybe think about selling. So any comments to those questions would be great. Thanks.

Well, the first half of your thesis on does it raise seller expectation, I think that's clearly the case. We are not involved in all that many active discussions but anyone that would be looking at that potentially would look at the last handful of transactions that took place. And so that's disappointing a little bit because I haven't seen in our opinion a value on the other side of that price that would make you feel great about the prices going up as much.

And well, our currency is up which does help I mean, obviously creates a higher deal value for the same number of shares. And so I think all the deal values are increasing as banks start to raise but the comment about capital those are not part of minimums. I would imagine that if the right deal came along with the proper tangible book value earn back that we would allow those numbers to drop below 8% modestly and then and quickly return back to levels better than the target.

The next question we have comes from Stephen Geyen of D.A. Davidson

I think I missed this, but I think that was about $5.4 million in acquisition related expenses, $2.5 million in severance, $1.5 million in contract termination, just wondering where the other portion came in on the income statement? What was it?

Yeah, it was $2.5 million if you look just what's it for the year, $2.5 million in salary and benefit, we had a couple of hundred thousand in equipment and over $2.5 million in the other category that was made up of whole set of items.

Investor banker fees, legal fees.

Contract terminations that we mentioned already.

Okay. And for the quarter what was the amount?

It was $4.5 million for the quarter and the same $2.5 million in salaries and benefits, the same $196,000 or $200,000 on equipment, and then a little over $1.7 million in other that was the same type of things just slightly lesser amounts that's happened in the fourth quarter.

And as far as the, you had mentioned the 30% reduction that's going to be fully in the second quarter of 2014?

It will probably into the third quarter for certain. We have a calendar that kind of lays out when we realized those expense savings, some of them have taken place already. The heaviest one relative to FTE really begins to hit in May timeframe because we keep a full team of folks effectively and place through integration and about a month after integration to make sure that it was done well but, yes, by May on a monthly basis it will be in good shape.

We are yet to recognize about $6.5 million of the savings that will happens post integration. Steve Geyen - D.A. Davidson & Co.: I got. Okay. Perfect. And -- I’m sorry.

$6.5 million on an annualized basis. Steve Geyen - D.A. Davidson & Co.: And you talked a bit about the construction pipeline typically those loans are going to stay on the books or maybe a year and then it’s a matter of -- it's a question of where they go? Do they go to the preliminary market or stay on the balance sheet, what do you think the likelihood as being able to retain some of those loans?

I think we got a balance. We underwrite them to the secondary market, and I see the construction pipeline continuing to be stable and maybe trending upwards. But in terms of retaining it in the portfolio really dependent on the -- what the investors objectives are. I would say a percentage of them will stay on the balance sheet but I wouldn’t expect to have a huge jump.

The terms of the permanent market are, this is Mike, again Steve. The terms of the permanent market attractive to our clients. And so we feel like once those projects stabilize which is in my mind more like two years rather than one, they ought to qualify for non-recourse permanent financing at rates that we typically wouldn’t want long-term on our balance sheet. It also gives us more capacity to work with those same clients on additional projects or other clients. So that flow we are kind of pleased with. Steve Geyen - D.A. Davidson & Co.: Okay. Very good. And last question on commercial and industrial, just curious if you have kind of a broad view from your customers as far as what their outlook is for 2014?

I think guarded. We view, I mean I welcome the chance to compete not only in our existing franchise but up north. I think our clients are guarded, I think they all had fairly successful 2013 and much like this time last year, they are trying to digest the change in front of them. I’m pleased I saw Indiana unemployment numbers came down again either yesterday or today let’s got to help people out. I think healthcare needs to be understood on a broad basis but I would hope that this spring is going to be optimistic and replenish our pipelines. Our pipeline is a little bit lower than it was at the beginning of the fourth quarter, but not by a whole heck of a lot. We had a very strong quarter. So sometimes we pick up loan volume on a usage basis that never actually is in your pipeline just on greater utilization.

Next we have Brian Martin of FIG Partners. Please go ahead.

Hey Mike, just kind of follow on the last question. What your expectation be with kind of better momentum in the commercial side, but maybe the overall long growth organically in 2014 a little bit stronger than it was in '13 just economically things getting better?

Well, economically, yes. I would like to think that the fourth quarter would be a favorable look forward. A couple of things ought to offset that. One is that was a 14% plus or minus annualized run rate I don’t expect that in 2014. We have a couple of drags. One of them would be we do have with a $600 million of servicing loans, some asset quality remediation that I think will take place by virtue of a client finding another place to do business. And so I think that will offset a little bit. Having said that, all the horsepower in that Lakeshore region is geared towards getting out and telling the First Merchants story. On a legacy First Merchants, our core business, I think I'm going to give you the same look that I did this time last year, which is at a mid to high single digit number is what I believe we can achieve based on what we see in the market.

And then maybe just two housekeeping questions. Were there any outsized OREO gains in the quarter just kind of looking at that fee income number too a little bit stronger than I thought, but was there anything in there that was unusual this quarter and the people commenting maybe Mark just, maybe I didn't catch what you said about the just kind of accretion that rolls through, I guess it was $600,000 or so this quarter, if you gave some color, I look that it is prospectively higher thinking about it would be perfect?

Yeah, I think, Brian, as for as the OREO number is concerned we did have recovery in the quarter. As you saw the OREO portfolio go down from $12 million to $9 million in the FMB core, it was $2 million or so that we took back in the income.

And the fair value accretion it was $154,000 for CFS just for 45 days, and I would anticipate around $500,000 a quarter absent any pay downs on the non-accretable portion of the portfolio. So, now that assumes of our five-year amortization of the accretable yield and --

Is that -- just upon that maybe this one asking for John, the organic loan growth you guys achieved in '13 from the Indi markets there was how much of the 133, I think in organic was tied to Indi and where the Indi balances stand today?

Well, our balance through the Indianapolis region at year end is $1.1 billion.

Okay.

As it relates to the organic growth in the fourth quarter, I don't have a specific number. Actually I do. I can speak to the closing in the central region which is what our moniker is for Indianapolis, but that doesn't really relate to the net balances.

The next question we have comes from Daniel Cardenas of Raymond James.

Just maybe going back to M&A, maybe we could speak a little bit as to what the chatter is as they're picking up in the state just given the kinds of how fresh you are off of this deal. I mean, how soon do you think you could go back into the market and do a deal if the was the right deal?

Well, pretty quickly. I feel like you know the barbell of work that goes into this integration would be on one hand and that hasn't taken place yet, but the upfront work on getting to know management teams, doing preliminary due diligence, reaching some kind of a general agreement on value, and then understanding that the approval process is six months long, I would tell you that if we had back up from that we would be able to move in the current time period if you have found something suitable.

And then in terms of expectations I may have missed it, you may have said this before, but are seller expectations stabilizing here, are they still -- are they beginning to pick up in terms of what they like --

No, you would have as good a perspective as I do, but I think they have to be moving up between, there was a Fort Wayne transaction announced that was rich, fully priced I would say. Everything I've seen would suggest that the kind of price or value we are able to find for our billion-dollar bank in Citizens would be hard to come by again coupled with town in that bank and the quality of the marketplace.

And then if you think about potential expansion, I mean is that would it be primarily in the Indiana marketplace or would you be willing to maybe build up your presence in Illinois and Ohio or perhaps enter it to another market all together?

I would answer consistent with that question in time past, which is any of the states contiguous to Indiana, Kentucky, Ohio, Illinois would all have interest to it, perhaps even Michigan although we haven't spent a lot of time looking in that but the other three in addition to which rounding up is still significant amount of market attractiveness in my opinion in Indiana, but clearly downstate Illinois, Central Ohio, Southern Ohio would be very attractive.

At this time, we have no further questions. We will go ahead and conclude our question-and-answer session. I will now turn the conference back over to management for the closing remarks. Gentlemen?

It's Mike. Michael, I appreciate you hosting the call. I'm thankful for the long term interest in our performance and look forward to talking to you again on a couple of months when we have a little bit more clarity as to how all of our integration efforts come together in first part of 2014. Thank you all.

And we thank you, sir, for the rest of the management team for your time today. The conference call is now concluded. We thank you all for attending today's presentation. And this time you may disconnect your lines. Thank you and take care.