![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20101.jpg)
1
First Merchants Corporation
2nd Quarter 2010
Earnings Call
July 28, 2010
2nd Quarter 2010
Earnings Call
July 28, 2010
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20102.jpg)
2
Michael C. Rechin
President
and Chief Executive Officer
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20103.jpg)
3
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 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.
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 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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20104.jpg)
4
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%
Preferred Securities contributing to a Tangible Common
Equity Ratio of 5.88%
§ Quarterly normalized pre-tax, pre-provision earnings
remains strong at $16.8M
remains strong at $16.8M
§ Quarterly operating expense levels declined by $3.8M
from last year to $34.3M
from last year to $34.3M
§ Loan loss reserve ample for projected future losses at
2.84% of total loans
2.84% of total loans
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20105.jpg)
5
Mark K. Hardwick
Executive Vice President
and Chief Financial Officer
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20106.jpg)
6
2008 2009 Q1-’10 Q2-’10
1. Investments $ 482 $ 563 $ 639 $ 6 46
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
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20107.jpg)
7
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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20108.jpg)
8
INVESTMENT PORTFOLIO
(as of 6/30/10)
(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
$6.3 million and a market value of $1.4
million
§ Net unrealized gain of the entire portfolio
totals $19.4 million
totals $19.4 million
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr20109.jpg)
9
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) - 112 113 68
8. Common Equity 396 352 376 389
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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201010.jpg)
10
YTD Yield = 1.55%
39%
22%
22%
11%
DEPOSITS (as of 6/30/10)
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201011.jpg)
11
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
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201012.jpg)
12
$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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201013.jpg)
13
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) 4.4 1.3 (0.1)
7. Other 9.5 9.5 2.7 2.3
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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201014.jpg)
14
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. FHLB Prepayment Penalties - 1.9 - -
8. Outside Data Processing 4.1 6.2 1.3 1.3
9. Marketing 2.3 2.1 0.4 0.5
10. Other 14.7 17.5 3.6 4.4
11. Total $108.8 $151.6 $34.7 $34.3
12. Adjust Non-Interest Expense2 $106.0 $134.7 $31.0 $31.9
2Adjusted for the FDIC Special Assessment, FHLB Prepayment Penalties & OREO
Expense & Credit-Related Professional Services
Expense & Credit-Related Professional Services
($ in Millions)
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201015.jpg)
15
2008 2009 Q1-’10 Q2-’10
1. Net Interest Income-FTE $133.1 $159.1 $37.8 $37.7
2. Non Interest Income1 38.5 46.5 11.7 11.0
3. Non Interest Expense2 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) (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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201016.jpg)
16
John J. Martin
Senior Vice President
and Chief Credit Officer
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201017.jpg)
17
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
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%
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
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
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
million from 3/31/2010 of $144.6 million, in line with first quarter and down
from peak of $156.1 million at 09/30/2009
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201018.jpg)
18
NON-ACCRUAL LOANS
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201019.jpg)
19
NON-ACCRUAL TREND
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201020.jpg)
20
($ 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 Commercial Construction Contractor
1.2 CL Home Builder
0.8 CL Dairy Farm
0.5 CL Real Estate Developer
$20.3
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201021.jpg)
21
($ in millions)
OTHER REAL ESTATE OWNED
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201022.jpg)
22
($ in millions)
LOAN DELINQUENCY TRENDS
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201023.jpg)
23
($ 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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201024.jpg)
24
CHARGE-OFF TREND
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201025.jpg)
25
ALLOWANCE COVERAGE TO NON-ACCRUAL LOANS
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201026.jpg)
26
CREDIT COSTS OVER TIME
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201027.jpg)
27
Michael C. Rechin
President
and Chief Executive Officer
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201028.jpg)
28
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
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
Capital; protects existing sources of hybrid capital
§ Expect increased compliance burden in our product
areas, primarily mortgage
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
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
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201029.jpg)
29
Overview of 2010 Strategy and Tactics
“Protect and Strengthen”
“Protect and Strengthen”
§ Manage asset yields and deposit costs to preserve margin,
while intensifying revenue activity using market coverage
tactics
while intensifying revenue activity using market coverage
tactics
§ Continue to improve asset quality and reduce all-in credit
costs
costs
§ Solidify brand position as community bank competing
primarily in consumer, small business, and middle market
primarily in consumer, small business, and middle market
§ Complete implementation of opt-in Reg E strategy around
education and choice
education and choice
§ Continue to harvest expense savings from conversion to
single platform and database
single platform and database
First Merchants Corporation
2nd Quarter 2010 - Earnings Call
![](https://capedge.com/proxy/8-K/0000712534-10-000129/earningslides2ndqtr201030.jpg)
30
Contact Information
First Merchants Corporation common stock is
traded on the NASDAQ Global Select Market
under the symbol FRME.
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