First Merchants (FRME) 8-K FIRST MERCHANTS CORPORATION ANNOUNCES 3rd QUARTER RESULTS

N / E / W / S     R / E / L / E / A / S / E

October 28, 2010

FOR IMMEDIATE RELEASE

For more information, contact:

David L. Ortega, First Vice President/Director of Investor Relations

765-378-8937

http://www.firstmerchants.com/

SOURCE: First Merchants Corporation, Muncie, Indiana

FIRST MERCHANTS CORPORATION ANNOUNCES 3rd QUARTER RESULTS

First Merchants Corporation (NASDAQ – FRME) has reported third quarter earnings totaling $.02 per fully diluted common share and net income available to common stockholders of $765,000.  Year-to-date earnings per fully diluted common share and net income available to common stockholders totaled $.38 and $9.2 million, respectively.

Michael C. Rechin, President and Chief Executive Officer, stated, “Our results for the third quarter reflect a continuation of core earnings and tangible capital improvement, as well as, an acceleration of non-accrual loan resolutions. The migration we are seeing in credit quality provides evidence of recovery in our portfolio and our local economies.” Rechin also stated, “The improvement in the tangible common equity ratio to over 6 percent is a milestone in our capital plan and improving our coverage ratio of non-accrual loans to 85% is very satisfying.  Our highest priority continues to be meeting the needs of the communities and customers we serve.”

Total assets were $4.180 billion as of quarter end and total loans, including loans held for sale, were $2.929 billion as loan demand from our commercial and consumer customers remains soft.  The added liquidity produced from growth in the Corporation’s demand deposits of $48 million and loan maturities, throughout the twelve month period, resulted in strategic reductions of higher paying deposit liabilities and borrowings and increases in the Corporation’s bond portfolio.  The Corporation’s loan to deposit ratio is now 90 percent and its loan to asset ratio totals 70.1 percent.

Net-Interest margin expanded by 10 basis points, compared to the same three month period last year, and remained strong totaling 3.93 percent for the quarter as net interest income totaled $35.7 million, reflecting the strength of our asset yields and funding costs.

Non-interest income totaled $11.7 million for the quarter, after adjusting for bond gains and other-than-temporary impairment (OTTI) charges of $656,000.  The third quarter of 2009 totaled $11.7 million on a comparative basis.

Total non-interest expense for the third quarter of 2010 totaled $35.1 million, a decrease of $3.9 million compared to the third quarter 2009 results.  Other expenses declined by $3.0 million, or 29 percent, as OREO and credit related professional expenses declined by $1.2 million. Prepayment penalties of $1.9 million were recognized in the third quarter of 2009.

The Corporation’s pre-tax, pre-provision earnings totaled $11.6 million for the quarter.  When normalized for a fully taxable equivalent net interest income and various adjustments, the pre-tax, pre-provision earnings totaled $17.0 million for the third quarter of 2010.

As of September 30, 2010, the Corporation’s total risk-based capital measured 15.52 percent, Tier 1 risk-based capital totaled 12.63 percent, Tier 1 leverage ratio totaled 9.66 percent, and the tangible common equity ratio totaled 6.02 percent.  All regulatory capital ratios significantly exceed the regulatory definitions of “well capitalized”.

CONFERENCE CALL

First Merchants Corporation will conduct a third quarter earnings conference call and web cast at 2:30 p.m. (ET) on Thursday, October 28, 2010.

To participate, dial (Toll Free) 877-317-6789 and reference First Merchants Corporation’s third quarter earnings release. International callers please call +1 412-317-6789. A replay of the call will be available until November 12, 2010 at 9:00 a.m. (ET). To access a replay of the call, US/Canada participants should dial (Toll Free) 877-344-7529 or for International participants, dial +1 412-317-0088. The replay passcode is 444956.

In order to view the web cast and presentation slides, please go to http://www.talkpoint.com/viewer/starthere.asp?Pres=132612during the time of the call.

During the call, Forward-Looking Statements about the relative business outlook may be made. These Forward-Looking Statements and all other statements made during the call 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.

Detailed financial results are reported on the attached pages.

About First Merchants Corporation

First Merchants Corporation is a financial holding company headquartered in Muncie, Indiana. The Corporation is comprised of First Merchants Bank, N.A., which also operates as Lafayette Bank & Trust, Commerce National Bank, and First Merchants Trust Company as divisions of First Merchants Bank, N.A.  First Merchants Corporation also operates First Merchants Insurance Group, a full-service property casualty, personal lines, and healthcare insurance agency.

First Merchants Corporation’s common stock is traded on the NASDAQ Global Select Market System under the symbol FRME. Quotations are carried in daily newspapers and can be found on the company’s Internet web page (http://www.firstmerchants.com).

* * * *

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)	September 30,
	2010			2009
ASSETS
Cash and due from banks	$	54,736		$	66,887
Federal funds sold		6,392			52,828
Cash and cash equivalents		61,128			119,715
Interest-bearing time deposits		114,401			44,312
Investment securities		701,852			489,010
Mortgage loans held for sale		15,390			25,173
Loans		2,913,364			3,398,722
Less: Allowance for loan losses		(83,660	)		(86,918	)
Net loans		2,829,704			3,311,804
Premises and equipment		52,774			58,482
Federal Reserve and Federal Home Loan Bank stock		36,271			38,576
Interest receivable		20,310			22,359
Core deposit intangibles and goodwill		155,180			160,017
Cash surrender value of life insurance		96,206			94,267
Other real estate owned		21,546			21,778
Tax asset, deferred and receivable		50,972			59,244
Other assets		24,586			31,747
TOTAL ASSETS	$	4,180,320		$	4,476,484
LIABILITIES
Deposits:
Noninterest-bearing	$	525,463		$	477,040
Interest-bearing		2,728,888			3,035,455
Total Deposits		3,254,351			3,512,495
Borrowings:
Securities sold under repurchase agreements		109,647			125,045
Federal Home Loan Bank advances		92,628			130,024
Subordinated debentures, revolving credit lines and term loans		227,514			194,787
Total Borrowings		429,789			449,856
Interest payable		4,011			5,722
Other liabilities		29,704			32,511
Total Liabilities		3,717,855			4,000,584
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value:
Authorized -- 500,000 shares
Series A, Issued and outstanding - 69,600 and 116,000 shares		67,764			112,190
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:
Authorized -- 600 shares
Issued and outstanding - 125 shares		125			125
Common Stock, $.125 stated value:
Authorized -- 50,000,000 shares
Issued and outstanding - 25,553,601 and 21,185,851 shares		3,194			2,648
Additional paid-in capital		231,979			205,759
Retained earnings		158,074			164,419
Accumulated other comprehensive income (loss)		1,329			(9,241	)
Total Stockholders' Equity		462,465			475,900
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,180,320		$	4,476,484

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
INTEREST INCOME
Loans receivable:
Taxable	$	43,148		$	50,683		$	132,573		$	157,319
Tax exempt		236			280			765			742
Investment securities:
Taxable		3,100			2,963			9,277			9,987
Tax exempt		2,610			2,788			7,804			6,919
Federal funds sold		3			27			23			81
Deposits with financial institutions		84			73			239			291
Federal Reserve and Federal Home Loan Bank stock		250			359			940			1,031
Total Interest Income		49,431			57,173			151,621			176,370
INTEREST EXPENSE
Deposits		9,434			13,666			31,449			45,946
Federal funds purchased		1			6			5			28
Securities sold under repurchase agreements		401			512			1,329			1,486
Federal Home Loan Bank advances		1,218			2,209			4,222			7,605
Subordinated debentures, revolving credit lines and term loans		2,695			1,932			6,540			5,524
Total Interest Expense		13,749			18,325			43,545			60,589
NET INTEREST INCOME		35,682			38,848			108,076			115,781
Provision for loan losses		10,521			24,240			39,405			96,156
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		25,161			14,608			68,671			19,625
OTHER INCOME
Service charges on deposit accounts		3,404			3,963			10,172			11,393
Fiduciary activities		1,773			1,844			5,811			5,583
Other customer fees		2,080			2,004			6,773			5,953
Commission income		1,482			1,459			4,958			5,216
Earnings on cash surrender value of life insurance		540			391			1,574			1,045
Net gains and fees on sales of loans		2,088			1,997			4,422			5,105
Net realized gains on sales of available for sale securities		2			5,211			2,101			9,157
Other-than-temporary impairment on available for sale securities		(656	)		(1,227	)		(1,544	)		(3,750	)
Other income		332			41			684			1,942
Total Other Income		11,045			15,683			34,951			41,644
OTHER EXPENSES
Salaries and employee benefits		18,094			17,945			53,598			57,645
Net occupancy		2,574			2,422			7,483			7,434
Equipment		1,797			1,875			5,511			5,660
Marketing		519			508			1,443			1,621
Outside data processing fees		1,348			1,360			3,939			4,698
Printing and office supplies		303			300			942			1,060
Core deposit amortization		1,161			1,277			3,560			3,832
FDIC assessments		2,112			3,121			6,077			7,191
Other expenses		7,227			10,187			21,565			22,760
Total Other Expenses		35,135			38,995			104,118			111,901
INCOME (LOSS) BEFORE INCOME TAX		1,071			(8,704	)		(496	)		(50,632	)
Income tax benefit		(564	)		(3,774	)		(3,374	)		(20,090	)
NET INCOME (LOSS)		1,635			(4,930	)		2,878			(30,542	)
Gain on exchange of preferred stock for trust preferred debt								10,052
Preferred stock dividends and discount accretion		(870	)		(1,450	)		(3,763	)		(3,528	)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$	765		$	(6,380	)	$	9,167		$	(34,070	)
Per Share Data:
Basic Net Income (Loss) Available to Common Stockholders	$	0.02		$	(0.30	)	$	0.38		$	(1.62	)
Diluted Net Income (Loss) Available to Common Stockholders	$	0.02		$	(0.30	)	$	0.38		$	(1.62	)
Cash Dividends Paid	$	0.01		$	0.08		$	0.03		$	0.39
Average Diluted Shares Outstanding (in thousands)		25,686			21,170			24,273			21,085

FINANCIAL HIGHLIGHTS
(Dollars in thousands)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
NET CHARGE OFF'S	$	13,831		$	14,441		$	47,876		$	60,821
AVERAGE BALANCES:
Total Assets	$	4,193,717		$	4,664,010		$	4,279,305		$	4,732,389
Total Loans		3,009,529			3,512,101			3,103,823			3,614,129
Total Earning Assets		3,790,904			4,235,718			3,871,484			4,305,739
Total Deposits		3,264,983			3,564,502			3,342,646			3,623,485
Total Stockholders' Equity		459,263			477,196			472,445			478,542
FINANCIAL RATIOS:
Return on Average Assets		0.07	%		-0.55	%		0.29	%		-0.96	%
Return on Average Stockholders' Equity		0.67			(5.35	)		2.59			(9.49	)
Average Earning Assets to Average Assets		90.39			90.82			90.47			90.98
Allowance for Loan Losses as % of Total Loans		2.86			2.54			2.86			2.54
Net Charge Off's as % of Average Loans (Annualized)		1.84			1.64			2.06			2.24
Average Stockholders' Equity to Average Assets		10.95			10.23			11.04			10.11
Tax Equivalent Yield on Earning Assets		5.38			5.56			5.38			5.59
Cost of Supporting Liabilities		1.45			1.73			1.50			1.88
Net Interest Margin (FTE) on Earning Assets		3.93			3.83			3.88			3.71

NON-PERFORMING ASSETS
(Dollars in thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2010			2010			2010			2009			2009
Non-Accrual Loans	$	98,597		$	120,205		$	122,891		$	118,409		$	123,290
Renegotiated Loans		5,320			1,657			859			8,833			5,595
Non-Performing Loans (NPL)		103,917			121,862			123,750			127,242			128,885
Real Estate Owned and Repossessed Assets		21,546			20,124			18,268			14,879			21,778
Non-Performing Assets (NPA)		125,463			141,986			142,018			142,121			150,663
90+ Days Delinquent		5,320			4,537			2,600			3,967			5,422
NPAS & 90 Day Delinquent	$	130,783		$	146,523		$	144,618		$	146,088		$	156,085
Loan Loss Reserve	$	83,660		$	86,970		$	88,568		$	92,131		$	86,918
YTD Charge-offs		47,876			34,045			17,432			81,628			60,821
NPAs / Actual Assets %		3.00	%		3.39	%		3.25	%		3.17	%		3.37	%
NPAs & 90 Day / Actual Assets %		3.13	%		3.50	%		3.30	%		3.26	%		3.49	%
NPAs / Actual Loans and REO %		4.25	%		4.61	%		4.50	%		4.32	%		4.37	%
Loan Loss Reserves / Actual Loans (%)		2.86	%		2.84	%		2.82	%		2.81	%		2.54	%
NCOs / YTD Average Loans (%)		1.54	%		1.08	%		0.54	%		2.30	%		1.68	%

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2010			2010			2010			2009			2009
ASSETS
Cash and due from banks	$	54,736		$	60,223		$	52,679		$	76,801		$	66,887
Federal funds sold		6,392			4,101			7,044			102,346			52,828
Cash and cash equivalents		61,128			64,324			59,723			179,147			119,715
Interest-bearing time deposits		114,401			40,823			157,735			74,025			44,312
Investment securities		701,852			646,185			639,081			563,117			489,010
Mortgage loans held for sale		15,390			7,600			3,646			8,036			25,173
Loans		2,913,364			3,051,346			3,134,540			3,269,788			3,398,722
Less: Allowance for loan losses		(83,660	)		(86,970	)		(88,568	)		(92,131	)		(86,918	)
Net loans		2,829,704			2,964,376			3,045,972			3,177,657			3,311,804
Premises and equipment		52,774			53,437			54,431			55,804			58,482
Federal Reserve and Federal Home Loan Bank stock		36,271			36,218			36,721			38,576			38,576
Interest receivable		20,310			18,894			19,532			20,818			22,359
Core deposit intangibles and goodwill		155,180			156,340			157,532			158,740			160,017
Cash surrender value of life insurance		96,206			95,666			95,146			94,636			94,267
Other real estate owned		21,546			20,124			18,268			14,879			21,778
Tax asset, deferred and refundable		50,972			52,839			59,190			64,394			59,244
Other assets		24,586			26,422			28,889			31,123			31,747
TOTAL ASSETS	$	4,180,320		$	4,183,248		$	4,375,866		$	4,480,952		$	4,476,484
LIABILITIES
Deposits:
Noninterest-bearing	$	525,463		$	516,769		$	520,551		$	516,487		$	477,040
Interest-bearing		2,728,888			2,744,194			2,877,235			3,020,049			3,035,455
Total Deposits		3,254,351			3,260,963			3,397,786			3,536,536			3,512,495
Borrowings:
Federal funds purchased
Securities sold under repurchase agreements		109,647			107,505			112,826			125,687			125,045
Federal Home Loan Bank advances		92,628			100,540			123,261			129,749			130,024
Subordinated debentures, revolving credit lines and term loans		227,514			225,867			194,794			194,790			194,787
Total Borrowings		429,789			433,912			430,881			450,226			449,856
Interest payable		4,011			4,911			4,812			5,711			5,722
Other liabilities		29,704			25,933			53,446			24,694			32,511
Total Liabilities		3,717,855			3,725,719			3,886,925			4,017,167			4,000,584
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value:
Authorized -- 500,000 shares
Series A, Issued and outstanding - 69,600 and 116,000 shares		67,764			67,649			112,559			112,373			112,190
Cumulative Preferred Stock, $1,000 par value, $1,000 liquidation value:
Authorized -- 600 shares															��
Issued and outstanding - 125 shares		125			125			125			125			125
Common Stock, $.125 stated value:
Authorized -- 50,000,000 shares
Issued and outstanding - 25,553,601 and 21,185,851 shares		3,194			3,191			3,187			2,653			2,648
Additional paid-in capital		231,979			231,372			230,764			206,600			205,759
Retained earnings		158,074			158,118			150,595			150,860			164,419
Accumulated other comprehensive income (loss)		1,329			(2,926	)		(8,289	)		(8,826	)		(9,241	)
Total Stockholders' Equity		462,465			457,529			488,941			463,785			475,900
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,180,320		$	4,183,248		$	4,375,866		$	4,480,952		$	4,476,484

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)	September 30,			June 30,			March 31,			December 31,			September 30,
	2010			2010			2010			2009			2009
INTEREST INCOME
Loans receivable:
Taxable	$	43,148		$	43,977		$	45,448		$	48,297		$	50,683
Tax exempt		236			252			277			296			280
Investment securities:
Taxable		3,100			3,286			2,891			2,348			2,963
Tax exempt		2,610			2,548			2,646			2,668			2,788
Federal funds sold		3			3			17			37			27
Deposits with financial institutions		84			95			60			75			73
Federal Reserve and Federal Home Loan Bank stock		250			330			360			348			359
Total Interest Income		49,431			50,491			51,699			54,069			57,173
INTEREST EXPENSE
Deposits		9,434			10,520			11,495			12,445			13,666
Federal funds purchased		1			4									6
Securities sold under repurchase agreements		401			429			499			511			512
Federal Home Loan Bank advances		1,218			1,440			1,564			1,627			2,209
Subordinated debentures, revolving credit lines and term loans		2,695			1,919			1,926			1,921			1,932
Total Interest Expense		13,749			14,312			15,484			16,504			18,325
NET INTEREST INCOME		35,682			36,179			36,215			37,565			38,848
Provision for loan losses		10,521			15,015			13,869			26,020			24,240
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		25,161			21,164			22,346			11,545			14,608
OTHER INCOME
Service charges on deposit accounts		3,404			3,506			3,262			3,735			3,963
Fiduciary activities		1,773			1,978			2,060			1,826			1,844
Other customer fees		2,080			2,195			2,498			1,969			2,004
Commission income		1,482			1,487			1,989			1,181			1,459
Earnings on cash surrender value of life insurance		540			526			508			569			391
Net gains and fees on sales of loans		2,088			1,185			1,149			1,744			1,997
Net realized and unrealized gains on sales of available for sale securities		2			257			1,842			1,984			5,211
Other-than-temporary impairment on available for sale securities		(656	)		(400	)		(488	)		(2,979	)		(1,227	)
Other income		332			208			144			(472	)		41
Total Other Income		11,045			10,942			12,964			9,557			15,683
OTHER EXPENSES
Salaries and employee benefits		18,094			17,942			17,562			18,680			17,945
Net occupancy		2,574			2,058			2,851			2,816			2,422
Equipment		1,797			1,861			1,853			1,935			1,875
Marketing		519			495			429			513			508
Outside data processing fees		1,348			1,311			1,280			1,488			1,360
Printing and office supplies		303			321			318			359			300
Core deposit amortization		1,161			1,192			1,207			1,277			1,277
FDIC assessments		2,112			2,243			1,722			3,203			3,121
Other expenses		7,227			6,920			7,418			9,386			10,187
Total Other Expenses		35,135			34,343			34,640			39,657			38,995
INCOME (LOSS) BEFORE INCOME TAX		1,071			(2,237	)		670			(18,555	)		(8,704	)
Income tax benefit		(564	)		(1,894	)		(916	)		(8,334	)		(3,774	)
NET INCOME (LOSS)		1,635			(343	)		1,586			(10,221	)		(4,930	)
Gain on exchange of preferred stock for trust preferred debt					10,052
Preferred stock dividends and discount accretion		(870	)		(1,443	)		(1,450	)		(1,451	)		(1,450	)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$	765		$	8,266		$	136		$	(11,672	)	$	(6,380	)
PER SHARE:
Basic Net Income (Loss) Available to Common Stockholders	$	0.02		$	0.35		$	0.01		$	(0.55	)	$	(0.30	)
Diluted Net Income (Loss) Available to Common Stockholders	$	0.02		$	0.35		$	0.01		$	(0.55	)	$	(0.30	)
Cash Dividends Paid	$	0.01		$	0.01		$	0.01		$	0.08		$	0.08
Average Diluted Shares Outstanding (in thousands)		25,686			25,633			21,462			21,211			21,170
FINANCIAL RATIOS:
Return on Average Assets		0.07	%		0.77	%		0.01	%		-1.04	%		-0.55	%
Return on Average Stockholders' Equity		0.67			6.73			0.12			(9.87	)		(5.35	)
Average Earning Assets to Average Assets		90.39			90.34			90.64			90.28			90.82
Allowance for Loan Losses as % of Total Loans		2.86			2.84			2.82			2.81			2.54
Net Charge Off's as % of Average Loans (Annualized)		1.84			2.14			2.18			2.49			1.64
Average Stockholders' Equity to Average Assets		10.95			11.47			10.70			10.50			10.23
Tax Equivalent Yield on Earning Assets		5.38			5.38			5.39			5.48			5.56
Cost of Supporting Liabilities		1.45			1.48			1.57			1.62			1.73
Net Interest Margin (FTE) on Earning Assets		3.93			3.90			3.82			3.86			3.83

LOANS
(Dollars in thousands)	September 30,			June 30,			March 31,			December 31,			September 30,
	2010			2010			2010			2009			2009
Commercial and industrial loans	$	550,310		$	589,157		$	621,591		$	675,860		$	806,289
Agricultural production financing and other loans to farmers		99,087			108,439			109,457			121,031			124,601
Real estate loans:
Construction		91,705			111,070			131,548			158,725			147,343
Commercial and farmland		1,207,528			1,251,430			1,259,588			1,254,115			1,228,983
Residential		779,483			816,823			821,014			841,584			855,931
Individuals' loans for household and other personal expenditures		128,400			129,724			142,108			154,132			177,338
Tax exempt loans		22,308			18,025			23,047			22,049			23,846
Lease financing receivables, net of unearned income		5,763			6,143			6,396			7,135			7,797
Other loans		28,780			20,535			19,791			35,157			26,594
Loans		2,913,364			3,051,346			3,134,540			3,269,788			3,398,722
Allowance for loan losses		(83,660	)		(86,970	)		(88,568	)		(92,131	)		(86,918	)
NET LOANS	$	2,829,704		$	2,964,376		$	3,045,972		$	3,177,657		$	3,311,804

DEPOSITS
(Dollars in thousands)	September 30,		June 30,		March 31,		December 31,		September 30,
	2010		2010		2010		2009		2009
Demand deposits	$	1,288,975	$	1,246,006	$	1,261,305	$	1,308,741	$	1,178,372
Savings deposits		761,181		730,105		738,742		733,142		726,894
Certificates and other time deposits of $100,000 or more		350,623		374,016		416,113		438,264		492,875
Other certificates and time deposits		685,917		715,941		750,382		781,509		803,173
Brokered deposits		167,655		194,895		231,244		274,880		311,181
TOTAL DEPOSITS	$	3,254,351	$	3,260,963	$	3,397,786	$	3,536,536	$	3,512,495