First Merchants 8K 4th Quarter 2011 Earnings Call | FRME 26 Jan 12

January 26, 2012

4th Quarter 2011
Earnings Call

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.

4th Quarter and
Fiscal Year-End 2011 Highlights

§ The company continued its trend of improving core earnings
resulting in quarter-to-date earnings per share of $.24 per fully
diluted common share.

§ Pre-tax pre-provision earnings improved by $2.6M over 2010 to
$70.9M through non-interest income improvements and non-
interest expense reduction.

§ Year-over-year improvement in asset quality continues with a
27.4% reduction in Classified Assets, an 18.8% improvement in
Criticized Assets, and a 23.2% reduction in Non-Accrual Loans.

§ Loan growth, led by strong C&I lending, contributed to positive
revenue increases.

Mark K. Hardwick

Executive Vice President

and Chief Financial Officer

2009 2010 2011

1. Investments $ 563 $ 827 $ 946

2. Loans 3,278 2,857 2,731

3. Allowance (92) (83) (71)

4. CD&I & Goodwill 159 154 150

5. BOLI 95 97 124

6. Other 478 319 293

7. Total Assets $4,481 $4,171 $4,173

($ in Millions)

TOTAL ASSETS

(as of 12/31/2011)

YTD Yield = 5.41%

Total = $2.7B

LOAN PORTFOLIO

§ $946 Million Balance

§ Average duration - 3.8 years

§ Tax equivalent yield of 3.91%

§ Net unrealized gain of $29.6
million

2009 2010 2011

1. Customer Non-Maturity

Deposits $2,042 $2,127 $2,196

2. Customer Time Deposits 1,220 996 816

3. Brokered Deposits 275 146 123

4. Borrowings 339 277 378

5. Other Liabilities 30 28 34

6. Hybrid Capital 111 142 111

7. Preferred Stock (CPP) 112 68 ―

8. Preferred Stock (SBLF) ― ― 91

9. Common Equity 352 387 424

10. Total Liabilities and Capital $4,481 $4,171 $4,173

($ in Millions)

TOTAL LIABILITIES AND CAPITAL

YTD Cost = .87%

Total = $3.1B

2009 2010 2011

1. Total Risk-Based

Capital Ratio 13.04% 15.74% 16.54%

2. Tier 1 Risk-Based

Capital Ratio 10.32% 12.82% 13.92%

3. Leverage Ratio 8.20% 9.50% 10.17%

4. Tier 1 Common Risk-

Based Capital Ratio 5.40% 7.64% 8.83%

5. TCE/TCA 4.54% 5.86% 6.84%

CAPITAL RATIOS

NET INTEREST MARGIN

2009 2010 2011

1. Service Charges on Deposit Accounts $15.1 $13.3 $12.0

2. Trust Fees 7.4 7.7 7.7

3. Insurance Commission Income 6.4 6.2 5.7

4. Electronic Card Fees 4.9 6.1 6.5

5. Cash Surrender Value of Life Ins 1.6 2.1 2.6

6. Gains on Sales Mortgage Loans 6.8 6.8 7.4

7. Securities Gains/Losses 4.4 1.9 2.0

8. Other 4.6 4.4 5.2

9. Total $51.2 $48.5 $49.1

10. Adjusted Non-Interest Income1 $46.5 $46.6 $47.1

1Adjusted for gains and losses in bond portfolio and one-time mortgage sale

($ in Millions)

NON-INTEREST INCOME

NON-INTEREST EXPENSE

2009 2010 2011

1. Salary & Benefits $ 76.3 $ 73.3 $74.7

2. Premises & Equipment 17.9 17.2 16.9

3. Core Deposit Intangible 5.1 4.7 3.5

4. Professional Services 1.3 1.4 2.2

5. OREO/Credit-Related Expense 12.9 14.6 10.6

6. FDIC Expense 10.4 8.1 5.5

7. FHLB Prepayment Penalties 1.9 ― ―

8. Outside Data Processing 6.2 5.1 5.7

9. Marketing 2.1 2.0 2.0

10. Other 17.5 15.9 14.8

11. Total $151.6 $142.3 $135.9

12. Adjusted Non-Interest Expense 2 $134.7 $127.7 $125.3

1Credit-related professional services are reclassed to OREO/credit-related expenses

2Adjusted for the FDIC special assessment, FHLB prepayment penalties & OREO

expense & credit-related professional services

($ in Millions)

2009 2010 2011

1. Net Interest Income-FTE $159.1 $149.4 $149.1

2. Non Interest Income1 46.5 46.6 47.1

3. Non Interest Expense2 ( 134.7) ( 127.7) ( 125.3)

4. Pre-Tax Pre-Provision Earnings $ 70.9 $ 68.3 $ 70.9

5. Provision ( 122.2) ( 46.5) ( 22.6)

6. Adjustments ( 12.1) ( 12.7) ( 8.6)

7. Taxes - FTE 22.7 ( 2.3) ( 14.4)

8. Gain /(Loss) on CPP/Trust Preferred — 10.1 ( 12.3)

9. Preferred Stock Dividend ( 5.0) ( 5.2) ( 4.0)

10. Net Income Avail. for Distribution ($ 45.7) $ 11.7 $ 9.0

11. EPS ($ 2.17) $ 0.48 $0.34

1Adjusted for gains and losses in bond portfolio and one-time mortgage sale

2Adjusted for the FDIC special assessment, FHLB prepayment penalties & OREO

expense & credit-related professional services

($ in Millions)

EARNINGS

EARNINGS PER SHARE

2010 Q1 Q2 Q3 Q4 Total

1. Actual $ .01 $ .35 $ .02 $ .10 $ .48

2. Adjusted $ .01 ($.05) $ .02 $ .10 $ .08

2011 Q1 Q2 Q3 Q4 Total

3. Actual $ .17 $ .18 ($.25) $ .24 $ .34

4. Adjusted $ .17 $ .18 $ .21 $ .24 $ .80

*Adjusted for gains and losses on CPP/Trust Preferred refinance and repayment

net of taxes (Line 8 on slide 15)

John J. Martin

Senior Vice President

and Chief Credit Officer

($ in Millions)

ASSET QUALITY SUMMARY

2009 2010 2011

1. Non-Accrual Loans $118.4 $ 90.6 $ 69.6

2. Other Real Estate 14.9 20.9 16.3

3. Restructured Loans 8.8 7.1 14.3

4. 90-Day Delinquent Loans 4.0 1.3 .6

5. Impaired Loans 178.8 116.2 79.8

6. Specific Reserves 26.3 13.9 7.6

7. Allowance for Loan and

Lease Losses 92.1 83.0 70.9

8. ALLL % of Non-Accrual

Loans 77.8% 91.6% 101.9%

9. Classified Assets $375.7 $313.0 $227.2

10. Criticized Assets

(includes Classified) $509.9 $393.0 $319.2

Criticized Assets down 18.8% YOY
and 8.3% linked quarter

Classified Assets down 27.4% YOY
and 8.4% linked quarter

Non-Accrual Loans down 23.2% YOY
and 11.8% linked quarter

Allowance for Loan and
Lease Losses as a % of
Nonaccrual Loans
exceeds 100%

($ in Millions)

IMPROVEMENT IN CREDIT METRICS AND ALLL COVERAGE

NON-PERFORMING ASSET RECONCILIATION

($ in millions)	Q3-’10	Q4-’10	Q1-’11	Q2-’11	Q3-’11	Q4-’11
1. Beginning Balance NPAs & 90+ Days Delinquent	$ 146.5	$ 130.8	$ 120.0	$ 107.6	$ 109.5	$ 106.7
Non-Accrual
2. Add: New Non-Accruals	15.5	27.4	11.7	26.7	21.4	10.2
3. Less: To Accrual/Payoff/Restructured	( 18.6)	( 14.5)	( 3.2)	( 8.3)	( 8.7)	( 7.6)
4. Less: To OREO	( 6.7)	( 7.0)	( 2.0)	( 1.6)	( 9.7)	( 1.2)
5. Less: Charge-offs	( 11.8)	( 13.9)	( 9.4)	(16.9)	(11.6)	(10.7)
6. Increase /(Decrease): Non-Accrual Loans	(21.6)	(8.0)	( 2.9)	( .1)	(8.6)	(9.3)
Other Real Estate Owned (ORE)
7. Add: New ORE Properties	6.6	7.2	2.2	1.6	9.7	1.2
8. Less: ORE Sold	(3.8)	(4.2)	( 3.6)	( 1.6)	( 5.0)	( 3.3)
9. Less: ORE Losses (write-downs)	( 1.4)	( 3.6)	( 2.5)	( 1.6)	( 0.7)	( 1.1)
10. Increase /(Decrease): ORE	1.4	( .6)	( 3.9)	( 1.6)	4.0	(3.2)
11. Increase /(Decrease): 90 Days Delinquent	.8	( 4.0)	( 0.6)	( 0.5)	1.4	(1.0)
12. Increase /(Decrease): Restructured Loans	3.7	1.8	( 5.0)	4.1	.4	7.6
13. Total NPA Change	(15.7)	(10.8)	(12.4)	1.9	(2.8)	(5.9)
14. Ending Balance NPAs & 90+ Days Delinquent	$ 130.8	$ 120.0	$ 107.6	$ 109.5	$ 106.7	$ 100.8

31.2%

($ in Millions)

Credit Summary

§ Asset Quality continues to show improvement.

§ Lower OREO and other related credit expenses
associated with fewer properties and improved
credit metrics.

§ Increase in Restructured Loans resulting from
“A/B” restructures until performance demonstrated.

§ Charge-offs and provision expense lower and in
line with improvement in credit quality.

Michael C. Rechin

President

and Chief Executive Officer

2011 Review

§ Capital strategy executed successfully

§ Tangible Common Equity ratio improved by 98 basis points in
2011 to 6.84% through:

§ Core earnings improvement

§ $21.2M Direct Private Placement

§ $90.8M SBLF investment

§ $116M TARP CPP redemption

§ Solidified our brand position as a community bank - competing
primarily in consumer, mortgage, small business and middle market

§ Beginnings of organic balance sheet growth

2012 Strategy and Tactics
“Growth and Top Tier Performance”

§ Grow revenue by intensifying revenue-generating activity:

§ market coverage tactics

§ accelerate commercial banking opportunities

§ additional investment in business banking professionals in key
markets

§ retail CRM and sales management system

§ Implement systems and processes to improve efficiency:

§ banking center rationalization

§ enhance systems in consumer collections, human resources,
and finance

§ leverage back-office infrastructure

§ Seek non-organic growth 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-K4th Quarter 2011 Earnings Call