Slide 1: First Merchants Corporation 3rd Quarter 2010 Earnings Call
First Merchants Corporation 3rd Quarter 2010 Earnings Call October 28, 2010
Slide 2: Michael C. Rechin, President and Chief Executive Officer
Michael C. Rechin President and Chief Executive Officer
Slide 3: Forward-Looking Statement
Forward-Looking Statement The Corporation may make forward-looking statements about its relative business outlook. These forward-looking statements and all other statements made during this meeting that do not concern historical facts are subject to risks and uncertainties that may materially affect
Slide 4: 3rd Quarter 2010 Highlights
3rd Quarter 2010 Highlights § Third quarter earnings of $765,000, or $.02 per common share § Year-to-date earnings of $9.2M, or $.38 per common share § Quarterly normalized pre-tax, pre-provision earnings remains strong at $17.0M § Quarterly operating expense levels declined by $3.9M from last year
Slide 5: Mark K. Hardwick, Executive Vice President and Chief Financial Officer
Mark K. Hardwick Executive Vice President and Chief Financial Officer
Slide 6: Total Assets
2008 2009 Q1-’10 Q2-’10 Q3-’10 1. Investments $ 482 $ 563 $ 639 $ 6 46 $ 702 2. Loans 3,722 3,278 3,138 3,059 2,929 3. Allowance (50) (92) (89) (87) (84) 4. CD&I & Goodwill 166 159 158 156 155 5. BOLI 93 95 95 96 96 6. Other 371 478 435 313 382 7. Total Assets $4,784 $4,481 $4,376 $4,183 $4,180 ($ i
Slide 7: Loan Composition (as of 9/30/10)
Loan Composition (as of 9/30/10) YTD Yield = 5.69% Total = $2.9B LOAN AND CREDIT DETAIL
Slide 8: Investment Portfolio
INVESTMENT PORTFOLIO (as of 9/30/10) § $702 Million Balance § Average duration of 4.1 years § Tax equivalent yield of 4.38% § No private label MBS exposure § Trust Preferred Pools with book balance of $5.7 million and a market value of $1.0 million § Net unrealized gain of the entire portfolio total
Slide 9: Total Liabilities and Capital
2008 2009 Q1-’10 Q2-’10 Q3-’10 1. Customer Non-Maturity Deposits $1,858 $2,042 $2,000 $1,976 $2,050 2. Customer Time Deposits 1,384 1,220 1,167 1,090 1,036 3. Brokered Deposits 477 275 231 195 168 4. Borrowings 507 339 320 292 288 5. Other Liabilities 51 30 58 31 34 6. Hybrid Capital 111 111 111 142
Slide 10: YTD Cost = 1.49%
YTD Cost = 1.49% 40% 23% 21% 11%
Slide 11: Capital Ratios
2008 2009 Q1-’10 Q2-’10 Q3-’10 1. Total Risk-Based Capital Ratio 10.24% 13.04% 14.44% 14.72% 15.52% 2. Tier 1 Risk-Based Capital Ratio 7.71% 10.32% 11.65% 11.88% 12.63% 3. Leverage Ratio 8.16% 8.20% 9.13% 9.21% 9.66% 4. TCE/TCA 5.01% 4.54% 5.27% 5.88% 6.02% CAPITAL RATIOS
Slide 12: Net Interest Margin
$3,463 $4,245 $3,956 $3,869 ― Net Interest Margin 3.82% 3.90% 3.84% 3.74% $3,791 3.93% NET INTEREST MARGIN
Slide 13: Non-Interest Income
2008 2009 Q1-’10 Q2-’10 Q3-’10 1. Service Charges on Deposit Accounts $13.0 $15.1 $ 3.3 $ 3.5 $ 3.4 2. Trust Fees 8.0 7.4 2.1 2.0 1.8 3. Insurance Commission Income 5.8 6.4 2.0 1.5 1.5 4. Cash Surrender Value of Life Ins (0.3) 1.6 0.5 0.5 0.5 5. Gains on Sales Mortgage Loans 2.5 6.8 1.1 1.2 2.1 6. S
Slide 14: Non-Interest Expense
NON-INTEREST EXPENSE 2008 2009 Q1-’10 Q2-’10 Q3-’10 1. Salary & Benefits $63.0 $76.3 $17.6 $17.9 $18.1 2. Premises & Equipment 14.4 17.9 4.7 3.9 4.4 3. Core Deposit Intangible 3.2 5.1 1.2 1.2 1.2 4. Professional Services 2.6 4.4 1.5 1.3 0.4 1 5. OREO/Credit-Related Expense 2.8 9.8 2.7 1.5 3.0 1 6. F
Slide 15: Earnings
2008 2009 Q1-’10 Q2-’10 Q3-’10 1. Net Interest Income-FTE $133.1 $159.1 $37.8 $37.7 $37.2 2. Non Interest Income 1 38.5 46.5 11.7 11.0 11.7 3. Non Interest Expense 2 106.0 134.7 31.0 31.9 31.9 4. Pre-Tax Pre-Provision Earnings $ 65.6 $ 70.9 $18.5 $16.8 $17.0 5. Provision (28.2) (122.2) (13.9) (15.0)
Slide 16: John J. Martin, Senior Vice President and Chief Credit Officer
John J. Martin Senior Vice President and Chief Credit Officer
Slide 17: 3rd Quarter Highlights: Portfolio Overview
3rd Quarter Highlights PORTFOLIO OVERVIEW § Non-accrual loans declined 18% from $120.2 to $98.6 million at 9/30/10. § Allowance for Loan and Lease Losses held at 2.86% of total loans. Allowance coverage to Non-Accrual Loans increased to 85%. § 30-89 day delinquent loans down to $23.8 million from $3
Slide 18: Non-Accrual Loans
($ in millions) NON-ACCRUAL LOANS
Slide 19: Non-Accrual Loans by Type
‘% of Period End Total Loans Plus Loans Held For Sale NON-ACCRUAL LOANS 09/30/09 12/31/09 03/31/10 06/30/10 09/30/10 Commercial & industrial 3.37% 5.16% 3.68% 3.55% 3.19% Land and Lot 16.73% 12.60% 10.25% 8.91% 6.25% Commercial Mortgage 3.99% 3.18% 4.65% 4.74% 4.22% Agriculture Production 0.41% 0.28
Slide 20: Largest New Non-Accrual Loans
($ in millions) Industry: § Wholesale Food Processor and Distributor § Residential Land Development § Commercial Office § Self Storage § Lessor of Residential Real Estate § Rehabilitation and Lessor of Residential Real Estate Total New Non-Accrual Greater than $500,000 $3.774 .675 .665 .647 .550 .52
Slide 21: Other Real Estate Owned
Commercial Land and ($in millions) Mortgage Construction 1-4 Family Total Book Balance $3.3 $14.1 $4.1 $21.5 % of ORE 21.0% 66.0% 19.0% 100% & of Loan Type 0.3% 15.4% 0.5% Gin millions) $25.0 4 al _— $20.0 ee 2 —~— on ee $16.9 * $22.1 $20.2 oa ina $20.1 $21.5 sso | * _ $185 Nv ai8.s $0. $14.9 $10.0
Slide 22: Loan Delinquency
90+ Day Delinquency (as a % of period end total loans) 0.30% 0.25% * 0.18% 0.15% 4008 1009 2009 3Q09 4009 1010 2010 3010 30+ Day Delinquency (as a % of period end total loans) 2.00% 1.80% 1.60% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% = x 1.71% FATA 1.48% > — : 1.31% 1.34% 3008 4Q08 1009 2009
Slide 23: Non-Performing Asset Reconciliation
($ in millions) Beginning Period: Beginning Balance NPAs & 90+Days Past Due Non-Accrual Add: New NPLs Less: To Accrual/Payoff/Restructured Less: To ORE Less: Charge-offs (includes write downs fro transfer to ORE Non-Accrual Loans Other Real Estate Owned (ORE) Add: New ORE Properties Less: ORE Sold L
Slide 24: Net Charge-Offs (annualized)
Commercial Commercial Land and Total Residential Home Other Total (Sinmillions) & Industrial Mortgage Lot Agriculture Commercial Mortgage Equity Consumer Consumer Total Loan Balances $584.9 $1,2298 $917 $99.1 $2,005.5 $579.7 $215.2 $128.4 $923.3 $2,928.8 % of total 20.0% 42.0% 3.1% 3.4% 68.5% 19.8%
Slide 25: Allowance Coverage to Non-Accrual Loans
ALLOWANCE COVERAGE TO NON-ACCRUAL LOANS
Slide 26: Net Charge-offs, Provision and Allowance for Loan Losses
2008 2009 Q1-'10 Q2-'10 Q3-'10 @ Net Charge-offs 0 Provison @ Allowance for Loan Losses
Slide 27: Michael C. Rechin, President and Chief Executive Officer
Michael C. Rechin President and Chief Executive Officer
Slide 28: Overview of Operating Strategy and Tactics
Overview of Operating Strategy and Tactics “Strengthen and Grow” § Solidify brand position as community bank competing primarily in consumer, small business, and middle market § Continue to improve asset quality, reduce credit costs, and maximize resolutions § Preserve margin while intensifying reve
Slide 29: Contact Information
Contact Information First Merchants Corporation common stock is traded on the NASDAQ Global Select Market under the symbol FRME. Additional information can be found at www.firstmerchants.com Investor inquiries: David L. Ortega Investor Relations Telephone: 765.378.8937 dortega@firstmerchants.com