First Merchants 8K Results of Operations and Financial Condition | FRME 28 Oct 10

First Merchants Corporation

3rd Quarter 2010
Earnings Call

October 28, 2010

Michael C. Rechin

President

and Chief Executive Officer

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.

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 to $35.1M

§ Loan loss reserve ample for projected future
losses at 2.86% of total loans

Mark K. Hardwick

Executive Vice President

and Chief Financial Officer

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

($ in Millions)

TOTAL ASSETS

Loan Composition (as of 9/30/10)

YTD Yield = 5.69%

Total = $2.9B

LOAN AND CREDIT DETAIL

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
totals $27.3 million

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 111 111 111 142 142

7. Preferred Stock (CPP) - 112 113 68 68

8. Common Equity 396 352 376 389 394

9. Total Liabilities and Capital $4,784 $4,481 $4,376 $4,183 $4,180

($ in Millions)

TOTAL LIABILITIES AND CAPITAL

YTD Cost = 1.49%

40%

23%

21%

11%

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

$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

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. Securities Gains/Losses (2.1) 4.4 1.3 (0.1) (0.7)

7. Other 9.5 9.5 2.7 2.3 2.4

8. Total $36.4 $51.2 $13.0 $10.9 $11.0

9. Adjusted Non-Interest Income1 $38.5 $46.5 $11.7 $11.0 $11. 7

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

($ in Millions)

NON-INTEREST INCOME

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. FDIC Expense 1.7 10.4 1.7 2.3 2.1

7. FHLB Prepayment Penalties - 1.9 - - -

8. Outside Data Processing 4.1 6.2 1.3 1.3 1.3

9. Marketing 2.3 2.1 0.4 0.5 0.5

10. Other 14.7 17.5 3.6 4.4 4.1

11. Total $108.8 $151.6 $34.7 $34.3 $35.1

12. Adjust Non-Interest Expense2 $106.0 $134.7 $31.0 $31.9 $3 1.9

1Credit-Related Professional Services are now included in OREO/Credit-Related Expenses

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

($ in Millions)

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 Income1 38.5 46.5 11.7 11.0 11.7

3. Non Interest Expense2 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) (10.5)

6. Adjustments (5.0) (12.1) (2.3) (2.6) (3.9)

7. Taxes - FTE (11.8) 22.7 (0.7) 0.4 (0.9)

8. Gain on Exchange of Preferred

Stock for Trust Preferred Debt - - - 10.1 -

9. CPP Dividend - (5.0) (1.5) (1.4) (0.9)

10. Net Income Avail. for Common

Stockholders $20.6 ($45.7) $ .1 $ 8.3 $ .8

11. EPS $1.14 ($2.17) $.01 $ .35 $.02

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 except in per share data)

EARNINGS

John J. Martin

Senior Vice President

and Chief Credit Officer

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 $32 million at
6/30/10. Continued improvement from high of $54.1 million at
09/30/09.

§ 90+ day delinquent loans increased to $5.3 million from $4.5 million.

§ Restructured loans increased from $1.7 million to $5.3 million.

§ Total Non-performing assets plus 90+ day delinquent loans decreased
to $130.8 million from $146.5 million at 06/30/10. Down from peak of
$156.1 million at 09/30/09.

($ in millions)

NON-ACCRUAL LOANS

NON-ACCRUAL TREND

($ 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

.524

$6.835

LARGEST NEW NON-ACCRUAL LOANS

OTHER REAL ESTATE OWNED

LOAN DELINQUENCY TRENDS

($ 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

Less: ORE Losses (write-downs)

ORE

90 Days Past Due

Restructured/Renegotiated Loans

Total NPA Change

Ending Balance NPAs & 90+ Days Past Due

Ending Period

Q2 Q3

3/31/2010 6/30/2010

$ 144.6 $ 146.5

$ 27.3 $ 15.5

( 8.3) (18.6)

( 4.0) ( 6.7)

( 17.7) (11.8)

($ 2.7) ($ 21.6)

$ 4.0 $ 6.6

( 0.2) ( 3.8)

( 1.9) ( 1.4)

$ 1.9 $ 1.4

$ 0.8 $ 3.7

$ 1.9 ($ 15.7)

$ 146.5 $ 130.8

6/30/2010 9/30/2010

NON-PERFORMING ASSET RECONCILIATION

CHARGE-OFF TREND

ALLOWANCE COVERAGE TO NON-ACCRUAL LOANS

CREDIT COSTS OVER TIME

Michael C. Rechin

President

and Chief Executive Officer

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 revenue activity
using market coverage tactics

§ Implement systems to standardize and accelerate
small business opportunities

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

First Merchants (FRME) 8-KResults of Operations and Financial Condition