Slide 1: 2nd Quarter 2010 Earnings Call
2nd Quarter 2010 Earnings Call July 28, 2010
Slide 2: Michael C. Rechin, President and CEO
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: 2nd Quarter 2010 Highlights
2nd Quarter 2010 Highlights § Second quarter earnings of $.35 per common share § Successful exchange of CPP Preferred Stock to Trust Preferred Securities contributing to a Tangible Common Equity Ratio of 5.88% § Quarterly normalized pre-tax, pre-provision earnings remains strong at $16.8M § Quarterl
Slide 5: Mark K. Hardwick, EVP and CFO
Mark K. Hardwick Executive Vice President and Chief Financial Officer
Slide 6: Total Assets
2008 2009 Q1-’10 Q2-’10 1. Investments $ 482 $ 563 $ 639 $ 6 2. Loans 3,722 3,278 3,138 3,059 3. Allowance (50) (92) (89) (87) 4. CD&I & Goodwill 166 159 158 156 5. BOLI 93 95 95 96 6. Other 371 478 435 313 7. Total Assets $4,784 $4,481 $4,376 $4,183 ($ in Millions) TOTAL ASSETS
Slide 7: Loan Composition (as of 6/30/10)
Loan Composition (as of 6/30/10) YTD Yield = 5.71% 19.9% 41.5% 19.8% LOAN AND CREDIT DETAIL
Slide 8: Investment Portfolio
INVESTMENT PORTFOLIO (as of 6/30/10) § $646 Million Balance § Average duration - 3.9 years § Tax equivalent yield of 4.51% § No private label MBS exposure § Trust Preferred Pools with book balance of $6.3 million and a market value of $1.4 million § Net unrealized gain of the entire portfolio totals
Slide 9: Total Liabilities and Capital
2008 2009 Q1-’10 Q2-’10 1. Customer Non-Maturity Deposits $1,858 $2,042 $2,000 $1,976 2. Customer Time Deposits 1,384 1,220 1,167 1,090 3. Brokered Deposits 477 275 231 195 4. Borrowings 507 339 320 292 5. Other Liabilities 51 30 58 31 6. Hybrid Capital 111 111 111 142 7. Preferred Stock (CPP) - 112
Slide 10: Deposits (as of 6/30/10)
YTD Yield = 1.55% 39% 22% 22% 11% DEPOSITS (as of 6/30/10)
Slide 11: Capital Ratios
2008 2009 Q1-’10 Q2-’10 1. Total Risk-Based Capital Ratio 10.24% 13.04% 14.44% 14.72% 2. Tier 1 Risk-Based Capital Ratio 7.71% 10.32% 11.65% 11.88% 3. Leverage Ratio 8.16% 8.20% 9.13% 9.21% 4. TCE/TCA 5.01% 4.54% 5.27% 5.88% 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% NET INTEREST MARGIN
Slide 13: Non-Interest Income
2008 2009 Q1-’10 Q2-’10 1. Service Charges on Deposit Accounts $13.0 $15.1 $ 3.3 $ 3.5 2. Trust Fees 8.0 7.4 2.1 2.0 3. Insurance Commission Income 5.8 6.4 2.0 1.5 4. Cash Surrender Value of Life Ins (0.3) 1.6 0.5 0.5 5. Gains on Sales Mortgage Loans 2.5 6.8 1.1 1.2 6. Securities Gains/Losses (2.1)
Slide 14: Non-Interest Expense
NON-INTEREST EXPENSE 2008 2009 Q1-’10 Q2-’10 1. Salary & Benefits $63.0 $76.3 $17.6 $17.9 2. Premises & Equipment 14.4 17.9 4.7 3.9 3. Core Deposit Intangible 3.2 5.1 1.2 1.2 4. Professional Services 2.6 4.4 1.5 1.3 5. OREO/Credit-Related Expense 2.8 9.8 2.7 1.5 6. FDIC Expense 1.7 10.4 1.7 2.3 7. F
Slide 15: Earnings
2008 2009 Q1-’10 Q2-’10 1. Net Interest Income-FTE $133.1 $159.1 $37.8 $37.7 2. Non Interest Income 1 38.5 46.5 11.7 11.0 3. Non Interest Expense 2 106.0 134.7 31.0 31.9 4. Pre-Tax Pre-Provision Earnings $ 65.6 $ 70.9 $18.5 $16.8 5. Provision (28.2) (122.2) (13.9) (15.0) 6. Adjustments (5.0) (12.1)
Slide 16: John J. Martin, SVP and Chief Credit Officer
John J. Martin Senior Vice President and Chief Credit Officer
Slide 17: 2nd Quarter Highlights: Portfolio Overview
2nd Quarter Highlights PORTFOLIO OVERVIEW § Non-accrual loans declined to $120 million from $122.9 million at 3/31/2010, third consecutive quarterly decline in Non-Performing Loans § Allowance for Loan and Lease Losses increased to 2.84% of total assets with Allowance coverage to Non-Accrual Loans u
Slide 18: Non-Accrual Loans Trend
(S in millions) $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0 $118.4 $123.3 $122.9 $120.2 $108.5 $112.2 = $37.9 $27.5 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10
Slide 19: Non-Accrual Loans
% of Period End Loans Plus Loans Held For Sale NON-ACCRUAL LOANS |Commercial & Industrial Land and Lot [Commercial Mortgage Agriculture Total Commercial Residential Mortgage Home Equity Other Consumer: Total Consumer Total Consumer and Commercial 09/30/09 3.37% 16.73% 3.99% 0.41% 4.38% 2.82% 0.58% 0
Slide 20: Largest New Non-Accrual Loans
($ in millions) LARGEST NEW NON-ACCRUAL LOANS Balance Type Description $4.2 CL Commercial Investment Real Estate 3.1 CL Utility Company 3.1 CL Multi-Family Housing Tax Credit 2.8 CL Commercial Real Estate Development 2.2 CL Commercial Investment Real Estate 1.2 CL Commercial Business Park 1.2 CL Com
Slide 21: Other Real Estate Owned
($ in millions) OTHER REAL ESTATE OWNED
Slide 22: Loan Delinquency Trends
($ in millions) LOAN DELINQUENCY TRENDS
Slide 23: Non-Performing Asset Reconciliation
($ in millions) NON-PERFORMING ASSET RECONCILIATION Beginning NPAs & 90+ Days Past Due (3/31/2010) $144.6 Non-Accrual Add: New NPLs $ 27.3 Less: To Accrual/Payoff/Restructured ( 8.3) Less: To OREO and Charge-off ( 5.4) Less: Charge-offs (includes write-downs for transfer to OREO) ( 16.3) ^ in Non-Ac
Slide 24: Net Charge-Offs (annualized)
Commercial] Commercial] Land and| Total [Residential Other | Total (Sinmilions) | & industrial] Mortgage | Lot _| Agriculture | Commercial | Mortgage Consumer| Consumer} Coan Balances | $6101 342605 | Sita | Si0e4 $2,088.1 $6050 31354 | s0508 [% of total 20.0% 41.5% 36% 3.5% 68.6% 19.8% 4a% 31.4% %
Slide 25: Allowance Coverage to Non-Accrual Loans
ALLOWANCE COVERAGE TO NON-ACCRUAL LOANS
Slide 26: Net Charge-offs, Provision, Allowance for Loan Losses
2008 2009 Q1-'10 Q2-10 @ Net Charge-offs D) Provison @ Allowance for Loan Losses
Slide 27: Michael C. Rechin, President and CEO
Michael C. Rechin President and Chief Executive Officer
Slide 28: Financial Reform
Financial Reform § 90% Reg E opt-in rate for heavy users of our overdraft protection services; don’t expect much downward pressure on overdraft protection fees § Trust Preferred Securities grandfathered as Tier 1 Capital; protects existing sources of hybrid capital § Expect increased compliance burd
Slide 29: Overview of 2010 Strategy and Tactics
Overview of 2010 Strategy and Tactics “Protect and Strengthen” § Manage asset yields and deposit costs to preserve margin, while intensifying revenue activity using market coverage tactics § Continue to improve asset quality and reduce all-in credit costs § Solidify brand position as community bank
Slide 30: 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