Good afternoon and welcome to the First Merchants Corporation Third Quarter 2014 Earnings Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) Please note this event is being recorded. We will be using user controlled slides for our webcast today. Slides maybe viewed by following the URL instructions noted in the First Merchants news release dated Thursday, October 23, 2014 or by visiting the First Merchants Corporation shareholder relations website and clicking on the webcast URL hyperlink. This presentation contains forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements can often, but not always, be identified by the use of words like believe, continue, pattern, estimate, project, intend, anticipate, expect and similar expressions or future or conditional verbs such as will, would, should, could, might, can, may, or similar expressions. These 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, statements relating to the expected timing and benefits of the proposed merger between First Merchants Corporation and Community Bancshares, Inc. including future financial and operating results, cost savings, enhanced revenues, and accretion/dilution to reported earnings that may be realized from the Merger, as well as other statements of expectations regarding the Merger, and other statements of First Merchants’ goals, intentions and expectations; statements regarding the First Merchants’ business plan and growth strategies; statements regarding the asset quality of First Merchants’ loan and investment portfolios; and estimates of First Merchants’ risks and future costs and benefits, whether with respect to the Merger or otherwise. These forward-looking statements are subject to significant risks, assumptions and uncertainties that may cause results to differ materially from those set forth in…

Thank you Gary I appreciate your peripheral treatment of the forward-looking statement commentary particularly important as we embark on this closure of an acquisition opportunity in the near terms I appreciate your thoroughness there. I welcome everyone to our earnings conference call and webcast for the third quarter ending September 30, 2014. Joining me today as has been our practice are Mark Hardwick, our Chief Financial Officer, and John Martin, our Chief Credit Officer. Our earnings we released in a press release approximately 10 AM this morning Eastern Day Light savings time. And the presentation that Gary eluded too and that we intend to use speaks to material from that release. The directions that point back to the webcast were also contained in the back end of that release and my comments I’m going to begin on the page four on a slide titled Third Quarter 2014 Highlights. Well, we feel like we completed a successful quarter in terms of bottom line results earnings per share of $0.45 a 29% increase over the third quarter of 2013 with net income from net period of $16.1 million a 60% increase over the $10 million that we earned in the third quarter of last year. Overall over year-to-date earnings per share up 16% from the prior period, prior year. And then on the bottom section of that earnings portion of the slide four, a couple of key ratios that describe our performance B2B the industry with what we considered to be great progress and consistent with our plan to deliver high performance results with a return on average assets of 1.16%, return on tangible equity 13.64 and efficiency ratio under 60% at 58.52. Really strong core performance in there in Mark’s comments and John’s comments which will follow you’ll hear some of…

Thanks Mike. My comments will begin on slide six. Loans in line three increased on link basis by $50 million or 5.4% annualize and through the first nine months of 2014 we are on a 5.1% annualized pace of growth. The investment portfolio in line one declined modestly from the second quarter of 2014 but remains by $94 million since year end. The allowance in line four totaled $66 million or 1.74% of allowance and 134% non-accruals. Net charge-offs totaled $4.4 million during the quarter and just $3.9 million year-to-date due to increase and net charge offs and continued loan growth during the quarter we recorded a provision of $1.6 million for the first time this year and you’ll see that in more detail when we go to the full income statement at the back of my presentation. The composition of our loan portfolio on slide 7 is reflective of a commercial bank balance sheet as the commercial loan categories comprised 74.2% of our portfolio. The portfolio yield for the third quarter of 2014 totaled 4.62% equaling the year-to-date yield. On slide 8, our $1.2 billion bond portfolio continues to perform well, producing higher than average yield for the moderately longer duration than our peer group. Our 3.87% yield compares favorably to the peer group of approximately 2.57%. And our duration totals 4.3 years which is about a year longer than the peer group. The net gain in the portfolio totals 34.3 million as of quarter end and on maturities for the remainder of the year totaled just $42 million with a rollout yield of 3.45 and in 2015 we have maturities of $142 million with the yield of 3.17. On slide 9, our non-maturity deposits are down $47 million from yearend that continue to represent 75% of total deposits.…

All right, thanks Mark and good afternoon. My remarks will begin on slide 18 I’ll be updating trends in the loan portfolio then review the third quarter asset quality before closing to look at where we stand on the allowance in the fair value coverage. So turning to slide 18, in the highlighted column Q3, 2014 I’ll focus your attention on lines one to three where we get strong C&I growth as Mike and Mark mentioned before and we’re successfully executing our CRE strategy of construct stabilize and transition. Speaking to C&I specifically on line on the market is where employing as well as general improvement in the regional economic continues to drive C&I demand in the portfolio. Lines two and three highlight our construction program which is seeing strong multifamily activity the portfolio as I’ve mentioned on previous calls ebbs and flows on lines two, growth during construction of line three includes the stabilization many term prior to moving to the secondary market. And while there is choppy improvement on a macro basis being reported in various markets in the single-family housing we continues to see a strong demand and at least operates in our markets department senior and junior housing. I would then draw your attention to lines eight and 10 where increases in home equity and direct lending show incremental growth, gain some regional employment coupled with improving home prices and a focus on increase from equity lending are helping to drive demand. Turning to asset quality, on slide 19 on lines one to five NPAs decline for the quarter to 1.7% resulting from a $2.2 million reduction in non-accrual loans, and a $4.1 million reduction in other real estate loan. Dropping to line six to ten you can see the improvement in asset quality with reductions…

Thanks John. I’ll start with a couple of remarks on slide 24, speaking specifically to the Community Bank acquisition that John referenced. So yesterday we filed a 8-K but some of the detail around the couple of bullet points on here specifically laying out the fact that we receive the regulatory approvals that are necessary for closing and that our closing is not just targeted for the fourth quarter but we really anticipated to take place on November 07, subject to a successful shareholder vote with the Community folks and everything is on track for that so we feel pretty good about the detail provided in yesterday’s 8-K. As I think about the fourth quarter then we would have an incur a recognized the remainder of the expenses associated with the transaction which we guesstimate between $1.5 million and $2 million and then about 50 days of revenue if we would have close on the 7th we will have that company as part of our fourth quarter income statement for about 50 days. So we’re excited about that we’re excited about the leadership that’s joining our company from Community Bank and if you think about configuration of our company Community on the North side of Hamilton County fits into our Central region or our Indianapolis business and so our market President there looks forward to adding a cadre of folks including 2 very senior people on a day-to-day basis that will be joining us for the future. Excited about that and as I drop down into the next section and talk about increasing our intensity on revenue generating activity for the benefit of our clients my hope would be is that Community has the same kind of a first year as Citizens Financial rebranded as the Lakeshore Region does for…

We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Scott Siefers with Sandler O’Neill. Please go ahead. Scott Siefers - Sandler O’Neill : Mark I think first question just on rate sensitivity in the margin outlook. You have mentioned in your prep remarks that you’re modeling to guess and I would be stable in coming quarters. Now is that static balance sheet or does that incorporate the kind of loan growth that you guys have seen? And I guess kind of a crux to that question is what’s your best guess for what happens with core margin from here and out?

I think the core margin will have a little pressure but we’ve been working pretty diligently through our net interest income stimulations believe in our all of the forecasting and budgeting process for 2015 in. And I know last quarter when we went from 3.83 in the 3.71 I didn’t think that we will see further deterioration at least not at that pace and so I’m going to see that it stabilize 3.71. And I think that’s a really good number for us. We’ll some modest compression from this point but I think it’s small I don’t think we see the type of quarters like we had over the last 12 basis points in the given quarter to expect to see one or two basis points I think it likely. Scott Siefers - Sandler O’Neill : Okay. That's perfect. Thank you. Then wanted to jump down to just the book to fees and expenses, you'd called out a few of those items in the release, but just curious as we look forward and try to kind of base off of expectations in the fourth quarter and beyond, how much of kind of the elevated items, both income and expense, that went through fees and expenses, do you think is going to repeat? In other words, what's kind of the best base to go off of going forward for fees and expenses?

We just have strong fee income quarter, they have $800,000 almost $900,000 in bank on life \insurance, for us to have a couple of claims in those policies is something that you wouldn’t expect obviously will occur but that something that you can expect or predict on any given quarterly basis. So that one I would say kind of normalize back to given run rate. The gains in the bond portfolio we just look the other day and our gains that improved over $45 million in the bond portfolio. And so we’re continuing to look for the ways just to strengthen the credit quality and potentially take some gains. I would expect some again in the fourth quarter as we move forward for this more about repositioning and it is gain taking. The derivative income is just part of our core business, it’s something that it is relatively unpredictable quarter-by-quarter and this was a strong quarter but I wouldn’t think that the entire amount, check amount in this rate environment or selling that product pretty effectively. So enthusiastic about what we can do into the future from that category. So when I think of write downs in the expense category of some facility some one-time increases in incentive and benefit areas, when you net all of that out what my thought is that there was a couple of share and before I continue to press forward when you get fee income at that level you can’t help of buy it and we were looking for opportunities to make sure we put some expenses behind us.

Hi Scott its Mike. Just to add Mark’s comment, the derivative activity is absolutely customer related so more is better and we would hope that we advise our clients about how they take advantage of rates being where they are and when you get the - that have taken place kind of throughout 2014 those ideas begin to take hold with our clients and we’ve been fortunate. As it relates to OREO both on gains and expenses I know the John’s team I think he highlighted in his comment OREO was a good size part of any bank special asset effort but that was a big portion of the assets that needed remediation of the Citizens and then again a little bit as we look forward into Community Bank joining us and so John’s team has just been trying to work through that category knowing that it has each of those components to a typically that cross associated with it and sometimes gains based on the quality and marks that - also refreshes the phrase of work that we get.

The next question comes from Damon DelMonte with KBW. Please go ahead.

I just want to start up with the commentary regarding the large Ag credit that went into a non-accrual; could you guys just go over those details again like the size of it and how much really it was charged off?

Sure, there was $3.5 million charge off 3.7; it increased the overall non-accruals for the quarter by $11 million.

Okay, great. Thank you very much. And then you guys had alluded to your kind of evaluating your branches and getting updated appraisals on the properties and whatnot. Could we expect you guys to announce some sort of branch optimization strategy as you go into 2015 or maybe you look to scale back some of your properties?

I don’t anticipate a blanket program for that we’re trying to doing at Community statement and 2012 we went into a couple of our existing legacy communities where we had great retail coverage trying to assess where the FDIC statistics we’re talking about for market potential and where we stood and made the decision in that particular year to consolidate a couple of banking centers and then put some fresh investment dollars into whatever bank presence we though optimized our opportunity we’re doing the same thing we’re just looking at a couple of communities, in this case the only difference would be is that in a greater Indianapolis area where Community joins us it’s a very robust market environment and so when you overlay the 11 banking centers that come to us out of Community on top of our physical presence as it stands today I think there is a chance to maybe add one or two sides in substitution for some locations that no longer give us the best market presence.

Got it, okay.

And in that Dan if you think about it you’re just swapping in and out and when you’re moving out of something to perhaps a newer cleaner location we exit often times causes you to look at the book balance of the existing banking center and that’s what we’re doing.

And then with regard to the provision kind of going forward, obviously this quarter was driven in part from that credit we just spoke about. Can you give a little guidance as to what you might be looking at for provision as we head into 2015?

As we have looked to our credit statistics we expect non-performers to continue to come down. We expect to have asset growth and when you way those two out, I think we are likely to continue to provide something each quarter versus zero where we were for the first few quarters of this year but there hasn’t been a scenario where we thought the provision needs to grow from its current level to this quarter.

The next question comes from Daniel Cardenas with Raymond James. Please go ahead.

On the Ag credit, don't want to beat a dead horse here, but on the Ag credit, what was the underlying collateral for this, was it land or was it equipment?

Yes, Daniel, the underlying collateral is kind of a mix it has some real estate land, it has some production grain is collateral it has I should say and some equipment machinery so it’s Ag and Ag related.

Okay. And then was the charge-off of that related to any weakness in land values or equipment values?

Yes, I think it was well, Daniel, it’s related to both land value and the ultimate liquidation value of underlying grain.

Okay. And then how does the rest of your portfolio -- your Ag portfolio look? Did this cause you to take a harder look at the Ag portion of your portfolio?

It really doesn’t because when I evaluate this particular instance, I would say it’s kind of isolate contained of this borrower specifically the situation around this particular borrower it also included and implement dealership with that and as a result it has different components to it so it’s not just purely what you would typically think for land growing it had back in point but it also had other components to it and the underlying issues again were specific to this.

Okay, right, good. And then just jumping over to the deposit side, right now are you seeing any pickup in competitive pressures for deposits?

Well, I think we’re watching we’ve had a strategy over the last several years that in a loan growth beneath the level of 2014 are commercial activity driving demand deposit has been satisfactory to fund our loan growth. And the only change there that I guess you could construe as competitive is that as other banks they’re having some pick up in their loan growth as we are. The need to revisit your CD strategy comes about and that’s where going as we speak until now we’ve been comfortable with the idea that they’re going to held firm on market leadership positions in terms of setting CD rates along with other transaction account. And as we look forward a little bit we’re just going to be a little bit more add on it that we want to retain as much as that is possible especially for multi product households. So we have a CD strategy that I don’t think dramatically drives up our funding cost and that is intended to create a little bit more stickiness for some of the CD activity. We kind of look at that as we’re talking about earlier as relative to branch locations on a market-by-market basis and wouldn’t expect a dramatic rise at all in our funding cost.

The next question comes from Brian Martin with FIG Partners. Please go ahead.

Maybe a question for Mark. If you can just talk a little bit about I mean the bump up in the accretion income this quarter and just kind of how it relates with the Community Bank and just kind of the outlook on that component going forward? Do you expect a lot more volatility or more normalization, if you will [indiscernible]?

Yes I think I heard your question. We adding our plan about 5.4 million of accretion through the citizen acquisition and year-to-date we’re 7.5 million. So it has been one of the factors that has allowed us to really feel good about the performance of the acquisition from a financial perspective, there are lot of reasons we feel good about it culturally. We also pull that transaction I think we had $13 million Mark that we didn’t end up using on day one that went to capital and as we look at that Community we think that the mark that we have identified and communicated will clearly be adequate, day one look at that so far so just that a little of it may comeback in the capital. And then I think we’re likely to see a little volatility next year with that acquisition like we did on this one. As the dollar amounts are higher and we have workout of individual credit to go a little volatility early on in the process. I would think that our accretion from our current acquisitions, our current transactions that are on the books start to settle back in 1.8 million range we have 35 million on the books and if we settle back into 1.8 million that makes them sense in the near quarter, per quarter and then you add in whatever we end up with Community Bank which we’ll be able to talk about in much more detail in the next quarter.

Okay. That’s helpful. In the systems integration, core conversion for Community, when does that occur? Is that April? Is that what Mike said?

Yes, April 24th is the day that we have scheduled.

Okay.

And so that would be the actual time period of the integration itself Brian and I made a comment about expenses associated with Community Bank as being fourth quarter and that is our desire is to deal with breakage cost of existing contracts that relate to the technology and ultimately the integration early as we’ve done in the past. And so I would expect that the brunt of one-time expenses would be this current quarter.

As we have a fourth quarter with one-time expenses, a first quarter where they maintain their current run rate and then post integration we have the improved run rate of the company on a go forward basis.

Okay, perfect. That’s helpful. And then Mark you talked about extending them on the borrowings and just kind of maybe just give me color on what you're doing there and I guess you continue to do things there?

We probably were a little more aggressive than we needed to be this last round we specially took some broker CDs and we had maturities of even 2019, 2021. So we were pretty aggressive in our extension there, we actually extended some federal home loan bank advances out into ‘16, ‘17, ‘18 and ‘19 those rates are clearly higher than our core cost of 34 basis points and that’s why the increase and some of the interest expense so the cost of our supporting liability is across the company or a little higher based on these kind of [indiscernible] plays more than they were the core portfolio. So, those are range anywhere from 68 basis points to around 2% where we were really extending out on the curve.

Okay. And do you expect to do much of that at this point or is it kind of mostly done?

No, it wouldn’t surprise me if we did a few more brokers moving forward but we’re not going to go thus far we’ve actually kind of built a ladder and we want to make sure for all kinds of safety and found those reasons that we don’t have too much maturing in a given period. So, actually I think we have the capacity to fill in that ladder a little shorter term now that won’t be as expected.

The next question comes from Stephen Geyen with D.A. Davidson. Please go ahead.

Hey, good afternoon. Hey, Mark, could you give us some thoughts on Community and I'm just curious how much of a presence do they have in mortgage banking and the footprint that they're currently existing in and where you see opportunities there as well as if you have some additional thoughts on commercial lending?

Mortgage banking activity is are really low it’s not core focus of what they do and if you look at the structure of their balance sheet it’s a more of a kind of consumer and commercial oriented, commercial real estate orientation. Does that answer your question?

In mortgage just curious, can you kind of service area with what you already have in the kind of --?

There we feel like we have great coverage and just the additional locations the additional kind of presence that we’ll have in the noble market we think that will help but we’re not adding individuals to go after their loans.

We have from a backside processing fee Stephen. Two fulfillment locations one of them towards Monsanto and one that’s in Indianapolis and so we do view the on balance sheet and non-interest income upside of having a more robust mortgage origination platform throughout their franchise to be kind of a quick hitting opportunity I mean the spring is typically a seasonal upside to that business and we will be in position to take full advantage of that in the spring of ’15 without adding any fixed cost to the fulfillment side.

This concludes our question-and-answer session. I would like to turn the conference back over to Mike Rechin for any closing remarks.

I just want to thank everyone on the call for their attention and quality of their questions and Gary, thanking you for getting through that lengthy forward-looking comment. We look forward to talking to you after a completion of not only the Community Bank acquisition but our fourth quarter when we speak again in late January. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.