First Merchants (FRME) 8-K First Merchants Corporation Announces 1ST Quarter Earnings Per Share of $.17

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

April 28, 2011

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 1ST QUARTER EARNINGS PER SHARE OF $.17

First Merchants Corporation (NASDAQ – FRME) has reported a first quarter 2011 earnings per share totaling $.17 per fully diluted common share, a $.16 improvement from the first quarter of 2010.  Net income totaled $4,473,000 for the quarter, a $4.3 million improvement over the first quarter of 2010.

Michael C. Rechin, President and Chief Executive Officer, stated, “The fundamentals of our financial results, highlighted by strong net interest margin and expense management, generate solid core profitability.”  Rechin also stated, “The improvement in all credit related metrics and costs were meaningful in fueling the increased profits. Our Midwestern marketplace is participating in the broader recovery but has yet to exhibit strong overall loan demand. We are seeing more activity in small business and mortgage lending but little demand from our retail segment.”

Total assets were $4.1 billion as of quarter end and total loans were $2.8 billion as customer demand remains low.  The Corporation’s excess liquidity continues to create a larger bond portfolio as investment securities increased by $247 million or 39 percent compared to the same period last year.  The Corporation’s loan to deposit ratio is now 88 percent and the loan to asset ratio totals 67 percent.

As of March 31, 2011, the Corporation’s total risk-based capital equaled 15.66 percent, Tier 1 risk-based capital totaled 13.05 percent, Tier 1 leverage ratio totaled 9.80 percent, and tangible common equity ratio totaled 6.16 percent.  All regulatory capital ratios exceed the regulatory definitions of “well capitalized”.

Non-performing assets (NPA) plus 90 days delinquent loans declined for the third quarter in a row totaling $108 million, or 2.61 percent of total assets.  The Corporation’s allowance for loan losses increased to 2.93 percent of total loans and the allowance coverage ratio to non-accrual loans totals 92 percent.  Net charge-offs for the quarter totaled $7.6 million and provision expense totaled $5.6 million.

Net-Interest margin expanded by 13 basis points over the first quarter of 2010, and remains strong at 3.95 percent as net interest income totaled $35.5 million.  Yields on earning assets declined by 28 basis points and the cost of supporting liabilities declined 41 basis points.

Non-interest income totaled $11.9 million for the quarter down from the first quarter of 2010 total of 13.0 million.  The decline can be attributed to a reduction in non-recurring bond portfolio activity totaling $1.3 million.

Total non-interest expense declined during the quarter to its lowest level in nine quarters totaling $33.9 million.  The $759,000 reduction was primarily the result of decreased salary and benefits expense of $386,000 and OREO and credit-related expenses, including related legal fees, of $466,000.

CONFERENCE CALL

First Merchants Corporation will conduct a first quarter earnings conference call and web cast at 2:30 p.m. (ET) on Thursday, April 28, 2011.

To participate, dial (Toll Free) 877-317-6789 and reference First Merchants Corporation’s first quarter earnings release. International callers please call +1 412-317-6789. A replay of the call will be available until May 10, 2011 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 449491.

In order to view the web cast and presentation slides, please go to http://services.choruscall.com/links/frme110428.htmlduring 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)	March 31,
	2011			2010
ASSETS
Cash and due from banks	$	44,283		$	52,679
Federal funds sold		6,092			7,044
Cash and cash equivalents		50,375			59,723
Interest-bearing time deposits		61,843			157,735
Investment securities		886,029			639,081
Mortgage loans held for sale		2,111			3,646
Loans		2,764,128			3,134,540
Less: Allowance for loan losses		(80,936	)		(88,568	)
Net loans		2,683,192			3,045,972
Premises and equipment		51,818			54,431
Federal Reserve and Federal Home Loan Bank stock		33,801			36,721
Interest receivable		17,583			19,532
Core deposit intangibles and goodwill		152,918			157,532
Cash surrender value of life insurance		102,309			95,146
Other real estate owned		17,056			18,268
Tax asset, deferred and receivable		38,224			59,190
Other assets		19,916			28,889
TOTAL ASSETS	$	4,117,175		$	4,375,866
LIABILITIES
Deposits:
Noninterest-bearing	$	586,973		$	520,551
Interest-bearing		2,565,363			2,877,235
Total Deposits		3,152,336			3,397,786
Borrowings:
Securities sold under repurchase agreements		115,684			112,826
Federal Home Loan Bank advances		104,697			123,261
Subordinated debentures, revolving credit lines and term loans		226,400			194,794
Total Borrowings		446,781			430,881
Interest payable		3,117			4,812
Other liabilities		52,419			53,446
Total Liabilities		3,654,653			3,886,925
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value:
Authorized -- 500,000 shares
Series A, Issued and outstanding - 69,600 and 116,000 shares		67,998			112,559
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 - 25,650,057 and 25,495,550 shares		3,206			3,187
Additional paid-in capital		233,032			230,764
Retained earnings		165,075			150,595
Accumulated other comprehensive loss		(6,914	)		(8,289	)
Total Stockholders' Equity		462,522			488,941
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,117,175		$	4,375,866

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)	Three Months Ended
	March 31,
	2011			2010
INTEREST INCOME
Loans receivable:
Taxable	$	38,738		$	45,448
Tax-exempt		102			277
Investment securities:
Taxable		4,547			2,891
Tax-exempt		2,553			2,646
Federal funds sold		2			17
Deposits with financial institutions		83			60
Federal Reserve and Federal Home Loan Bank stock		341			360
Total Interest Income		46,366			51,699
INTEREST EXPENSE
Deposits		6,866			11,495
Federal funds purchased		3
Securities sold under repurchase agreements		378			499
Federal Home Loan Bank advances		1,001			1,564
Subordinated debentures, revolving credit lines and term loans		2,641			1,926
Total Interest Expense		10,889			15,484
NET INTEREST INCOME		35,477			36,215
Provision for loan losses		5,594			13,869
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		29,883			22,346
OTHER INCOME
Service charges on deposit accounts		2,779			3,262
Fiduciary activities		2,036			2,060
Other customer fees		2,235			2,498
Commission income		1,888			1,989
Earnings on cash surrender value of life insurance		578			508
Net gains and fees on sales of loans		1,873			1,149
Net realized gains on sales of available for sale securities		463			1,842
Other-than-temporary impairment on available for sale securities		(400	)		(488	)
Other income		406			144
Total Other Income		11,858			12,964
OTHER EXPENSES
Salaries and employee benefits		17,176			17,562
Net occupancy		2,745			2,851
Equipment		1,783			1,853
Marketing		382			429
Outside data processing fees		1,445			1,280
Printing and office supplies		288			318
Core deposit amortization		1,101			1,207
FDIC assessments		2,104			1,722
Other real estate owned and credit-related expenses		3,195			2,685
Other expenses		3,662			4,733
Total Other Expenses		33,881			34,640
INCOME BEFORE INCOME TAX		7,860			670
Income tax expense (benefit)		2,399			(916	)
NET INCOME		5,461			1,586
Preferred stock dividends and discount accretion		(988	)		(1,450	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	4,473		$	136
Per Share Data:
Basic Net Income Available to Common Stockholders	$	0.17		$	0.01
Diluted Net Income Available to Common Stockholders	$	0.17		$	0.01
Cash Dividends Paid	$	0.01		$	0.01
Average Diluted Shares Outstanding (in thousands)		25,763			21,462

FINANCIAL HIGHLIGHTS
(Dollars in thousands)	Three Months Ended
	March 31,
	2011			2010
NET CHARGE OFF'S	$	7,635		$	17,432
AVERAGE BALANCES:
Total Assets	$	4,122,390		$	4,363,768
Total Loans		2,804,303			3,203,826
Total Earning Assets		3,744,196			3,955,515
Total Deposits		3,218,504			3,431,831
Total Stockholders' Equity		456,189			466,994
FINANCIAL RATIOS:
Return on Average Assets		0.43	%		0.01	%
Return on Average Stockholders' Equity		3.92			0.12
Average Earning Assets to Average Assets		90.83			90.64
Allowance for Loan Losses as % of Total Loans		2.93			2.82
Net Charge Off's as % of Average Loans (Annualized)		1.09			2.18
Average Stockholders' Equity to Average Assets		11.07			10.70
Tax Equivalent Yield on Earning Assets		5.11			5.39
Cost of Supporting Liabilities		1.16			1.57
Net Interest Margin (FTE) on Earning Assets		3.95			3.82

NON-PERFORMING ASSETS
(Dollars in thousands)	March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010
Non-Accrual Loans	$	87,712		$	90,591		$	98,597		$	120,205		$	122,891
Renegotiated Loans		2,125			7,139			5,320			1,657			859
Non-Performing Loans (NPL)		89,837			97,730			103,917			121,862			123,750
Real Estate Owned and Repossessed Assets		17,056			20,927			21,546			20,124			18,268
Non-Performing Assets (NPA)		106,893			118,657			125,463			141,986			142,018
90+ Days Delinquent		752			1,330			5,320			4,537			2,600
NPAS & 90 Day Delinquent	$	107,645		$	119,987		$	130,783		$	146,523		$	144,618
Loan Loss Reserve	$	80,936		$	82,977		$	83,660		$	86,970		$	88,568
YTD Charge-offs		7,635			55,637			47,876			34,045			17,432
NPAs / Actual Assets %		2.60	%		2.84	%		3.00	%		3.39	%		3.25	%
NPAs & 90 Day / Actual Assets %		2.61	%		2.88	%		3.13	%		3.50	%		3.30	%
NPAs / Actual Loans and REO %		3.84	%		4.12	%		4.25	%		4.61	%		4.50	%
Loan Loss Reserves / Actual Loans (%)		2.93	%		2.90	%		2.86	%		2.84	%		2.82	%
NCOs / YTD Average Loans (%)		0.27	%		1.82	%		1.54	%		1.08	%		0.54	%

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)	March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010
ASSETS
Cash and due from banks	$	44,283		$	50,844		$	54,736		$	60,223		$	52,679
Federal funds sold		6,092			7,463			6,392			4,101			7,044
Cash and cash equivalents		50,375			58,307			61,128			64,324			59,723
Interest-bearing time deposits		61,843			65,216			114,401			40,823			157,735
Investment securities		886,029			826,797			701,852			646,185			639,081
Mortgage loans held for sale		2,111			21,469			15,390			7,600			3,646
Loans		2,764,128			2,835,683			2,913,364			3,051,346			3,134,540
Less: Allowance for loan losses		(80,936	)		(82,977	)		(83,660	)		(86,970	)		(88,568	)
Net loans		2,683,192			2,752,706			2,829,704			2,964,376			3,045,972
Premises and equipment		51,818			52,450			52,774			53,437			54,431
Federal Reserve and Federal Home Loan Bank stock		33,801			33,884			36,271			36,218			36,721
Interest receivable		17,583			18,674			20,310			18,894			19,532
Core deposit intangibles and goodwill		152,918			154,019			155,180			156,340			157,532
Cash surrender value of life insurance		102,309			96,731			96,206			95,666			95,146
Other real estate owned		17,056			20,927			21,546			20,124			18,268
Tax asset, deferred and refundable		38,224			45,623			50,972			52,839			59,190
Other assets		19,916			24,045			24,586			26,422			28,889
TOTAL ASSETS	$	4,117,175		$	4,170,848		$	4,180,320		$	4,183,248		$	4,375,866
LIABILITIES
Deposits:
Noninterest-bearing	$	586,973		$	583,696		$	525,463		$	516,769		$	520,551
Interest-bearing		2,565,363			2,685,184			2,728,888			2,744,194			2,877,235
Total Deposits		3,152,336			3,268,880			3,254,351			3,260,963			3,397,786
Borrowings:
Securities sold under repurchase agreements		115,684			109,871			109,647			107,505			112,826
Federal Home Loan Bank advances		104,697			82,684			92,628			100,540			123,261
Subordinated debentures, revolving credit lines and term loans		226,400			226,440			227,514			225,867			194,794
Total Borrowings		446,781			418,995			429,789			433,912			430,881
Interest payable		3,117			4,262			4,011			4,911			4,812
Other liabilities		52,419			24,303			29,704			25,933			53,446
Total Liabilities		3,654,653			3,716,440			3,717,855			3,725,719			3,886,925
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value:
Authorized -- 500,000 shares
Series A, Issued and outstanding - 69,600 and 116,000 shares		67,998			67,880			67,764			67,649			112,559
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 - 25,650,057 and 25,495,550 shares		3,206			3,197			3,194			3,191			3,187
Additional paid-in capital		233,032			232,503			231,979			231,372			230,764
Retained earnings		165,075			160,860			158,074			158,118			150,595
Accumulated other comprehensive income (loss)		(6,914	)		(10,157	)		1,329			(2,926	)		(8,289	)
Total Stockholders' Equity		462,522			454,408			462,465			457,529			488,941
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,117,175		$	4,170,848		$	4,180,320		$	4,183,248		$	4,375,866

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)	March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010
INTEREST INCOME
Loans receivable:
Taxable	$	38,738		$	41,497		$	43,148		$	43,977		$	45,448
Tax exempt		102			(250	)		236			252			277
Investment securities:
Taxable		4,547			3,680			3,100			3,286			2,891
Tax exempt		2,553			2,573			2,610			2,548			2,646
Federal funds sold		2			3			3			3			17
Deposits with financial institutions		83			142			84			95			60
Federal Reserve and Federal Home Loan Bank stock		341			312			250			330			360
Total Interest Income		46,366			47,957			49,431			50,491			51,699
INTEREST EXPENSE
Deposits		6,866			8,427			9,434			10,520			11,495
Federal funds purchased		3						1			4
Securities sold under repurchase agreements		378			383			401			429			499
Federal Home Loan Bank advances		1,001			1,146			1,218			1,440			1,564
Subordinated debentures, revolving credit lines and term loans		2,641			2,508			2,695			1,919			1,926
Total Interest Expense		10,889			12,464			13,749			14,312			15,484
NET INTEREST INCOME		35,477			35,493			35,682			36,179			36,215
Provision for loan losses		5,594			7,078			10,521			15,015			13,869
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		29,883			28,415			25,161			21,164			22,346
OTHER INCOME
Service charges on deposit accounts		2,779			3,111			3,404			3,506			3,262
Fiduciary activities		2,036			1,881			1,773			1,978			2,060
Other customer fees		2,235			2,217			2,080			2,195			2,498
Commission income		1,888			1,267			1,482			1,487			1,989
Earnings on cash surrender value of life insurance		578			524			540			526			508
Net gains and fees on sales of loans		1,873			2,384			2,088			1,185			1,149
Net realized and unrealized gains on sales of available for sale securities		463			1,305			2			257			1,842
Other-than-temporary impairment on available for sale securities		(400	)					(656	)		(400	)		(488	)
Other income		406			904			332			208			144
Total Other Income		11,858			13,593			11,045			10,942			12,964
OTHER EXPENSES
Salaries and employee benefits		17,176			19,655			18,094			17,942			17,562
Net occupancy		2,745			2,452			2,574			2,058			2,851
Equipment		1,783			1,812			1,797			1,861			1,853
Marketing		382			527			519			495			429
Outside data processing fees		1,445			1,154			1,348			1,311			1,280
Printing and office supplies		288			317			303			321			318
Core deposit amortization		1,101			1,161			1,161			1,192			1,207
FDIC assessments		2,104			2,044			2,112			2,243			1,722
Other real estate owned and credit-related expenses		3,195			5,257			2,991			1,503			2,685
Other expenses		3,662			3,814			4,236			5,417			4,733
Total Other Expenses		33,881			38,193			35,135			34,343			34,640
INCOME (LOSS) BEFORE INCOME TAX		7,860			3,815			1,071			(2,237	)		670
Income tax expense (benefit)		2,399			(216	)		(564	)		(1,894	)		(916	)
NET INCOME (LOSS)		5,461			4,031			1,635			(343	)		1,586
Gain on exchange of preferred stock for trust preferred debt											10,052
Preferred stock dividends and discount accretion		(988	)		(1,476	)		(870	)		(1,443	)		(1,450	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	4,473		$	2,555		$	765		$	8,266		$	136
PER SHARE:
Basic Net Income Available to Common Stockholders	$	0.17		$	0.10		$	0.02		$	0.35		$	0.01
Diluted Net Income Available to Common Stockholders	$	0.17		$	0.10		$	0.02		$	0.35		$	0.01
Cash Dividends Paid	$	0.01		$	0.01		$	0.01		$	0.01		$	0.01
Average Diluted Shares Outstanding (in thousands)		25,763			25,737			25,686			25,633			21,462
FINANCIAL RATIOS:
Return on Average Assets		0.43	%		0.24	%		0.07	%		0.77	%		0.01	%
Return on Average Stockholders' Equity		3.92			2.20			0.67			6.73			0.12
Average Earning Assets to Average Assets		90.83			90.27			90.39			90.34			90.64
Allowance for Loan Losses as % of Total Loans		2.93			2.90			2.86			2.84			2.82
Net Charge Off's as % of Average Loans (Annualized)		1.09			1.07			1.84			2.14			2.18
Average Stockholders' Equity to Average Assets		11.07			10.93			10.95			11.47			10.70
Tax Equivalent Yield on Earning Assets		5.11			5.13			5.38			5.38			5.39
Cost of Supporting Liabilities		1.16			1.30			1.45			1.48			1.57
Net Interest Margin (FTE) on Earning Assets		3.95			3.83			3.93			3.90			3.82

LOANS
(Dollars in thousands)	March 31,			December 31,			September 30,			June 30,			March 31,
	2011			2010			2010			2010			2010
Commercial and industrial loans	$	529,110		$	530,322		$	550,310		$	589,157		$	621,591
Agricultural production financing and other loans to farmers		89,032			95,516			99,087			108,439			109,457
Real estate loans:
Construction		103,956			106,615			91,705			111,070			131,548
Commercial and farm land		1,199,078			1,229,037			1,229,836			1,269,455			1,282,635
Residential		699,773			724,020			779,483			816,823			821,014
Individuals' loans for household and other personal expenditures		104,701			115,295			128,400			129,724			142,108
Lease financing receivables, net of unearned income		4,706			5,157			5,763			6,143			6,396
Other loans		33,772			29,721			28,780			20,535			19,791
Loans		2,764,128			2,835,683			2,913,364			3,051,346			3,134,540
Allowance for loan losses		(80,936	)		(82,977	)		(83,660	)		(86,970	)		(88,568	)
NET LOANS	$	2,683,192		$	2,752,706		$	2,829,704		$	2,964,376		$	3,045,972

DEPOSITS
(Dollars in thousands)	March 31,		December 31,		September 30,		June 30,		March 31,
	2011		2010		2010		2010		2010
Demand deposits	$	1,318,188	$	1,362,927	$	1,288,975	$	1,246,006	$	1,261,305
Savings deposits		765,138		763,949		761,181		730,105		738,742
Certificates and other time deposits of $100,000 or more		318,663		334,748		350,623		374,016		416,113
Other certificates and time deposits		624,032		661,569		685,917		715,941		750,382
Brokered deposits		126,315		145,687		167,655		194,895		231,244
TOTAL DEPOSITS	$	3,152,336	$	3,268,880	$	3,254,351	$	3,260,963	$	3,397,786