First Merchants (FRME) 8-K 2nd Quarter 2010 - Earnings Call

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First Merchants Corporation

2nd Quarter 2010
Earnings Call

July 28, 2010

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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Michael C. Rechin

President

and Chief Executive Officer

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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Forward-Looking StatementThe 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 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.

Please refer to our press releases, Form 10-Qs and 10-Ks concerning
factors that could cause actual results to differ materially from any
forward-looking statements.

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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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

§Quarterly operating expense levels declined by $3.8M
from last year to $34.3M

§Loan loss reserve ample for projected future losses at
2.84% of total loans

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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Mark K. Hardwick

Executive Vice President

and Chief Financial Officer

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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20082009Q1-’10Q2-’10

1.Investments $482$563$639$6 46

2.Loans3,7223,2783,1383,059

3.Allowance(50)(92)(89)(87)

4.CD&I & Goodwill166159158156

5.BOLI93 959596

6.Other371478435313

7.Total Assets$4,784 $4,481$4,376$4,183

($ in Millions)

TOTAL ASSETS

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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Loan Composition (as of 6/30/10)

YTD Yield = 5.71%

19.9%

41.5%

19.8%

LOAN AND CREDIT DETAIL

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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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 $19.4 million

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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20082009Q1-’10Q2-’10

1.Customer Non-Maturity

Deposits$1,858$2,042$2,000$1,976

2.Customer Time Deposits1,3841,2201,1671,090

3.Brokered Deposits477275231195

4.Borrowings507339320292

5.Other Liabilities51 305831

6.Hybrid Capital111111111142

7.Preferred Stock (CPP)- 11211368

8.Common Equity396352376389

9.Total Liabilities and Capital$4,784 $4,481$4,376$4,183

($ in Millions)

TOTAL LIABILITIES AND CAPITAL

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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YTD Yield = 1.55%

39%

22%

22%

11%

DEPOSITS (as of 6/30/10)

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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20082009Q1-’10Q2-’10

1.Total Risk-Based

Capital Ratio10.24% 13.04% 14.44%14.72%

2.Tier 1 Risk-Based

Capital Ratio7.71%10.32%11.65%11.88%

3.Leverage Ratio8.16%8.20%9.13%9.21%

4.TCE/TCA 5.01%4.54%5.27%5.88%

CAPITAL RATIOS

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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$3,463

$4,245

$3,956

$3,869

―Net Interest Margin

3.82%

3.90%

3.84%

3.74%

NET INTEREST MARGIN

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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20082009Q1-’10Q2-’10

1.Service Charges on Deposit

Accounts $13.0$15.1$ 3.3$ 3.5

2.Trust Fees 8.07.42.12.0

3.Insurance Commission Income5.86.42.01.5

4.Cash Surrender Value of Life Ins(0.3) 1.60.50.5

5.Gains on Sales Mortgage Loans2.5 6.81.11.2

6.Securities Gains/Losses(2.1)4.41.3(0.1)

7.Other9.59.52.72.3

8.Total$36.4$51.2$13.0$10.9

9.Adjusted Non-Interest Income1$38.5$46.5$11.7$11.0

1Adjusted for Bond Gains & Losses and one-time mortgage sale

($ in Millions)

NON-INTEREST INCOME

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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NON-INTEREST EXPENSE

20082009Q1-’10Q2-’10

1.Salary & Benefits$63.0 $76.3$17.6$17.9

2.Premises & Equipment14.4 17.94.73.9

3.Core Deposit Intangible3.2 5.11.21.2

4.Professional Services2.64.41.51.3

5.OREO/Credit-Related Expense 2.89.82.71.5

6.FDIC Expense1.710.41.72.3

7.FHLB Prepayment Penalties-1.9--

8.Outside Data Processing4.16.21.31.3

9.Marketing2.32.10.40.5

10.Other14.717.53.64.4

11.Total$108.8 $151.6$34.7$34.3

12.Adjust Non-Interest Expense2$106.0$134.7$31.0$31.9

2Adjusted for the FDIC Special Assessment, FHLB Prepayment Penalties & OREO
Expense & Credit-Related Professional Services

($ in Millions)

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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20082009Q1-’10Q2-’10

1.Net Interest Income-FTE $133.1$159.1$37.8$37.7

2.Non Interest Income138.546.511.711.0

3.Non Interest Expense2106.0134.731.031.9

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)(2.3)(2.6)

7.Taxes - FTE(11.8)22.7(0.7)0.4

8.Gain on Exchange of Preferred Stock

for Trust Preferred Debt---10.1

9.CPP Dividend- (5.0)(1.5)(1.4)

10.Net Income Avail. for Common Stockholders$20.6($45.7)$.1$ 8.3

11.EPS$1.14($2.17)$.01$ .35

1Adjusted for Bond Gains & Losses and one-time mortgage sale

2Adjusted for the FDIC Special Assessment, FHLB Prepayment Penalties & OREO

Expense & Credit-Related Professional Services

($ in Millions)

EARNINGS

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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John J. Martin

Senior Vice President

and Chief Credit Officer

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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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 unchanged at 72%

§30-89 day delinquent loans were $32 million in line with $31.6 million at
3/31/2010, down from high of $54.1 million at 09/30/2009

§90+ day delinquent loans increased to $4.5 million from $2.6 million,
working with customers as loans mature to address changes in market
conditions

§Non-performing assets plus 90+ day delinquency increased to $146.5
million from 3/31/2010 of $144.6 million, in line with first quarter and down
from peak of $156.1 million at 09/30/2009

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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NON-ACCRUAL LOANS

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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NON-ACCRUAL TREND

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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($ in millions)

LARGEST NEW NON-ACCRUAL LOANS

BalanceTypeDescription

$4.2CLCommercial Investment Real Estate

3.1CLUtility Company

3.1CLMulti-Family Housing Tax Credit

2.8CLCommercial Real Estate Development

2.2CLCommercial Investment Real Estate

1.2CLCommercial Business Park

1.2CLCommercial Construction Contractor

1.2CLHome Builder

0.8CLDairy Farm

0.5CLReal Estate Developer

$20.3

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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($ in millions)

OTHER REAL ESTATE OWNED

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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($ in millions)

LOAN DELINQUENCY TRENDS

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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($ 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-Accrual Loans($ 2.7)

Other Real Estate Owned (ORE)

Add: New ORE Properties$4.0

Less: ORE Sold(0.2)

Less: ORE Losses (write-downs)(    1.9)

^ in ORE$1.9

^ 90 Days Past Due$1.9

^ Restructured/Renegotiated Loans                                                                       $  0.8

Total NPA Change$1.9

Ending NPAs & 90+ Days Past Due (06/30/2010)$146.5

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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CHARGE-OFF TREND

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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ALLOWANCE COVERAGE TO NON-ACCRUAL LOANS

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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CREDIT COSTS OVER TIME

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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Michael C. Rechin

President

and Chief Executive Officer

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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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 burden in our product
areas, primarily mortgage

§Expected passage of the Small Business Lending
Fund Act seen as beneficial to the delivery of small
business banking services in our primary markets

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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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 competing
primarily in consumer, small business, and middle market

§Complete implementation of opt-in Reg E strategy around
education and choice

§Continue to harvest expense savings from conversion to
single platform and database

First Merchants Corporation

2nd Quarter 2010 - Earnings Call

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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