First Merchants (FRME) 8-K FIRST MERCHANTS CORPORATION ANNOUNCES 2nd QUARTER EARNINGS PER SHARE OF $.18

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

July 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 2nd QUARTER EARNINGS PER SHARE OF $.18

First Merchants Corporation (NASDAQ – FRME) has reported June 30, 2011, year-to-date earnings per share totaling $.35 per fully diluted common share, down from $.36 in 2010.  Year-to-date net income totaled $8,971,000, an increase of $569,000 over the same period in 2010.  Second quarter 2011 earnings per share totaled $.18 per fully diluted common share.  In the second quarter of 2010, First Merchants recorded a $10.1 million after-tax gain or $.40 per fully diluted common shares resulting from favorable accounting treatment attributed to the exchange of designated preferred securities for trust preferred securities as reported on Form 8-K on July 2, 2010.

Michael C. Rechin, President and Chief Executive Officer, stated, “The Corporation’s trends in loan balances, credit metrics and net interest margin continue to drive our consistently improving core earnings.”  Rechin also stated, “The combination of continued margin management and loan balance stabilization allowed for increased net interest income for the first time in seven quarters.”

Total assets were $4.1 billion as of quarter end and total loans were $2.7 billion.  The Corporation’s liquidity is fully deployed in the bond portfolio as investment securities increased to $938 million for the quarter.  The Corporation’s loan to deposit ratio is now 87 percent and the loan to asset ratio totals 67 percent.

As of June 30, 2011, the Corporation’s total risk-based capital equaled 16.05 percent, Tier 1 risk-based capital totaled 13.42 percent, Tier 1 leverage ratio totaled 9.94 percent, and tangible common equity ratio totaled 6.36 percent.  All regulatory capital ratios exceed the regulatory definitions of “well capitalized”.

Non-performing assets (NPA) plus 90 days delinquent loans declined by $37 million from the second quarter of 2010 totaling $110 million, or 2.67 percent of total assets.  The Corporation’s allowance for loan losses totaled $77 million or 2.83 percent of total loans, including loans held for sale, and the allowance coverage ratio to non-accrual loans totals 88 percent.  Net charge-offs for the quarter totaled $9.4 million and provision expense totaled $5.6 million.

Net-interest margin remained strong during the quarter totaling 3.99 percent as net interest income totaled $35.8 million.  Yields on earning assets totaled 5.04 percent and the cost of supporting liabilities totaled 1.05 percent.

Non-interest income totaled $11.1 million for the quarter up from the second quarter of 2010 total of 10.9 million.  The impact from non-recurring bond portfolio activity net of other than temporary impairment charges of $968,000 was the primary reason for the increase. Total quarterly non-interest expense increased year over year by just $56,000 despite higher OREO and credit-related expenses of $1,340,000.

CONFERENCE CALL

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

To participate, dial (Toll Free) 877-317-6789 and reference First Merchants Corporation’s second quarter earnings release. International callers please call +1 412-317-6789. A replay of the call will be available until July 28, 2012. 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 451495.

In order to view the web cast and presentation slides, please go to https://services.choruscall.com/links/frme110728.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)	June 30,
	2011			2010
ASSETS
Cash and due from banks	$	50,874		$	60,223
Federal funds sold					4,101
Cash and cash equivalents		50,874			64,324
Interest-bearing time deposits		15,865			40,823
Investment securities		938,366			646,185
Mortgage loans held for sale		4,846			7,600
Loans		2,724,022			3,051,346
Less: Allowance for loan losses		(77,133	)		(86,970	)
Net loans		2,646,889			2,964,376
Premises and equipment		51,851			53,437
Federal Reserve and Federal Home Loan Bank stock		31,384			36,218
Interest receivable		17,001			18,894
Core deposit intangibles and goodwill		151,817			156,340
Cash surrender value of life insurance		102,880			95,666
Other real estate owned		15,437			20,124
Tax asset, deferred and receivable		36,790			52,839
Other assets		30,218			26,422
TOTAL ASSETS	$	4,094,218		$	4,183,248
LIABILITIES
Deposits:
Noninterest-bearing	$	590,199		$	516,769
Interest-bearing		2,552,334			2,744,194
Total Deposits		3,142,533			3,260,963
Borrowings:
Federal Funds purchased		22,978
Securities sold under repurchase agreements		124,236			107,505
Federal Home Loan Bank advances		74,050			100,540
Subordinated debentures, revolving credit lines and term loans		226,580			225,867
Total Borrowings		447,844			433,912
Interest payable		3,601			4,911
Other liabilities		31,762			25,933
Total Liabilities		3,625,740			3,725,719
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value:
Authorized -- 500,000 shares
Series A, Issued and outstanding - 69,600 shares		68,118			67,649
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 - 25,690,649 and 25,524,948 shares		3,211			3,191
Additional paid-in capital		233,544			231,372
Retained earnings		169,313			158,118
Accumulated other comprehensive loss		(5,833	)		(2,926	)
Total Stockholders' Equity		468,478			457,529
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,094,218		$	4,183,248

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
INTEREST INCOME
Loans receivable:
Taxable	$	37,457		$	43,977		$	76,195		$	89,425
Tax-exempt		247			252			349			529
Investment securities:
Taxable		5,040			3,286			9,587			6,177
Tax-exempt		2,535			2,548			5,088			5,194
Federal funds sold		1			3			3			20
Deposits with financial institutions		100			95			183			155
Federal Reserve and Federal Home Loan Bank stock		341			330			682			690
Total Interest Income		45,721			50,491			92,087			102,190
INTEREST EXPENSE
Deposits		5,864			10,520			12,730			22,015
Federal funds purchased		3			4			6			4
Securities sold under repurchase agreements		386			429			764			928
Federal Home Loan Bank advances		977			1,440			1,978			3,004
Subordinated debentures, revolving credit lines and term loans		2,644			1,919			5,285			3,845
Total Interest Expense		9,874			14,312			20,763			29,796
NET INTEREST INCOME		35,847			36,179			71,324			72,394
Provision for loan losses		5,625			15,015			11,219			28,884
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		30,222			21,164			60,105			43,510
OTHER INCOME
Service charges on deposit accounts		2,997			3,506			5,776			6,768
Fiduciary activities		1,929			1,978			3,965			4,038
Other customer fees		2,634			2,195			4,869			4,693
Commission income		1,024			1,487			2,912			3,476
Earnings on cash surrender value of life insurance		571			526			1,149			1,034
Net gains and fees on sales of loans		1,030			1,185			2,903			2,334
Net realized gains on sales of available for sale securities		825			257			1,288			2,099
Other-than-temporary impairment on available for sale securities					(400	)		(400	)		(888	)
Other income		51			208			457			352
Total Other Income		11,061			10,942			22,919			23,906
OTHER EXPENSES
Salaries and employee benefits		18,560			17,942			35,736			35,504
Net occupancy		2,415			2,058			5,160			4,909
Equipment		1,677			1,861			3,460			3,714
Marketing		436			495			818			924
Outside data processing fees		1,458			1,311			2,903			2,591
Printing and office supplies		313			321			601			639
Core deposit amortization		1,101			1,192			2,202			2,399
FDIC assessments		1,451			2,243			3,555			3,965
Other real estate owned and credit-related expenses		2,843			1,503			6,038			4,188
Other expenses		4,145			5,417			7,807			10,150
Total Other Expenses		34,399			34,343			68,280			68,983
INCOME (LOSS) BEFORE INCOME TAX		6,884			(2,237	)		14,744			(1,567	)
Income tax expense (benefit)		1,396			(1,894	)		3,795			(2,810	)
NET INCOME (LOSS)		5,488			(343	)		10,949			1,243
Gain on exchange of preferred stock for trust preferred debt					10,052						10,052
Preferred stock dividends and discount accretion		(990	)		(1,443	)		(1,978	)		(2,893	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	4,498		$	8,266		$	8,971		$	8,402
Per Share Data:
Basic Net Income Available to Common Stockholders	$	0.18		$	0.35		$	0.35		$	0.36
Diluted Net Income Available to Common Stockholders	$	0.18		$	0.35		$	0.35		$	0.36
Cash Dividends Paid	$	0.01		$	0.01		$	0.02		$	0.02
Average Diluted Shares Outstanding (in thousands)		25,783			25,633			25,773			23,555

FINANCIAL HIGHLIGHTS
(Dollars in thousands)	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
NET CHARGE OFF'S	$	9,428		$	16,613		$	17,063		$	34,045
AVERAGE BALANCES:
Total Assets	$	4,138,484		$	4,282,299		$	4,130,481		$	4,322,808
Total Loans		2,747,021			3,100,249			2,775,504			3,151,751
Total Earning Assets		3,751,241			3,868,749			3,747,738			3,912,442
Total Deposits		3,218,979			3,332,958			3,218,743			3,382,122
Total Stockholders' Equity		464,739			491,162			460,488			479,145
FINANCIAL RATIOS:
Return on Average Assets		0.43	%		0.77	%		0.43	%		0.39	%
Return on Average Stockholders' Equity		3.87			6.73			3.90			3.51
Average Earning Assets to Average Assets		90.64			90.34			90.73			90.51
Allowance for Loan Losses as % of Total Loans		2.83			2.84			2.83			2.84
Net Charge Off's as % of Average Loans (Annualized)		1.37			2.14			1.23			2.16
Average Stockholders' Equity to Average Assets		11.23			11.47			11.15			11.08
Tax Equivalent Yield on Earning Assets		5.04			5.38			5.07			5.38
Cost of Supporting Liabilities		1.05			1.48			1.11			1.52
Net Interest Margin (FTE) on Earning Assets		3.99			3.90			3.96			3.86

NON-PERFORMING ASSETS
(Dollars in thousands)	June 30,			March 31,			December 31,			September 30,			June 30,
	2011			2011			2010			2010			2010
Non-Accrual Loans	$	87,583		$	87,712		$	90,591		$	98,597		$	120,205
Renegotiated Loans		6,269			2,125			7,139			5,320			1,657
Non-Performing Loans (NPL)		93,852			89,837			97,730			103,917			121,862
Real Estate Owned and Repossessed Assets		15,437			17,056			20,927			21,546			20,124
Non-Performing Assets (NPA)		109,289			106,893			118,657			125,463			141,986
90+ Days Delinquent		227			752			1,330			5,320			4,537
NPAS & 90 Day Delinquent	$	109,516		$	107,645		$	119,987		$	130,783		$	146,523
Loan Loss Reserve	$	77,133		$	80,936		$	82,977		$	83,660		$	86,970
YTD Charge-offs		17,063			7,635			55,637			47,876			34,045
NPAs / Actual Assets %		2.67	%		2.60	%		2.84	%		3.00	%		3.39	%
NPAs & 90 Day / Actual Assets %		2.67	%		2.61	%		2.88	%		3.13	%		3.50	%
NPAs / Actual Loans and REO %		3.98	%		3.84	%		4.12	%		4.25	%		4.61	%
Loan Loss Reserves / Actual Loans (%)		2.83	%		2.93	%		2.90	%		2.86	%		2.84	%
NCOs / YTD Average Loans (%)		0.61	%		0.27	%		1.82	%		1.54	%		1.08	%

CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)	June 30,			March 31,			December 31,			September 30,			June 30,
	2011			2011			2010			2010			2010
ASSETS
Cash and due from banks	$	50,874		$	44,283		$	50,844		$	54,736		$	60,223
Federal funds sold					6,092			7,463			6,392			4,101
Cash and cash equivalents		50,874			50,375			58,307			61,128			64,324
Interest-bearing time deposits		15,865			61,843			65,216			114,401			40,823
Investment securities		938,366			886,029			826,797			701,852			646,185
Mortgage loans held for sale		4,846			2,111			21,469			15,390			7,600
Loans		2,724,022			2,764,128			2,835,683			2,913,364			3,051,346
Less: Allowance for loan losses		(77,133	)		(80,936	)		(82,977	)		(83,660	)		(86,970	)
Net loans		2,646,889			2,683,192			2,752,706			2,829,704			2,964,376
Premises and equipment		51,851			51,818			52,450			52,774			53,437
Federal Reserve and Federal Home Loan Bank stock		31,384			33,801			33,884			36,271			36,218
Interest receivable		17,001			17,583			18,674			20,310			18,894
Core deposit intangibles and goodwill		151,817			152,918			154,019			155,180			156,340
Cash surrender value of life insurance		102,880			102,309			96,731			96,206			95,666
Other real estate owned		15,437			17,056			20,927			21,546			20,124
Tax asset, deferred and receivable		36,790			38,224			45,623			50,972			52,839
Other assets		30,218			19,916			24,045			24,586			26,422
TOTAL ASSETS	$	4,094,218		$	4,117,175		$	4,170,848		$	4,180,320		$	4,183,248
LIABILITIES
Deposits:
Noninterest-bearing	$	590,199		$	586,973		$	583,696		$	525,463		$	516,769
Interest-bearing		2,552,334			2,565,363			2,685,184			2,728,888			2,744,194
Total Deposits		3,142,533			3,152,336			3,268,880			3,254,351			3,260,963
Borrowings:
Federal Funds purchased		22,978
Securities sold under repurchase agreements		124,236			115,684			109,871			109,647			107,505
Federal Home Loan Bank advances		74,050			104,697			82,684			92,628			100,540
Subordinated debentures, revolving credit lines and term loans		226,580			226,400			226,440			227,514			225,867
Total Borrowings		447,844			446,781			418,995			429,789			433,912
Interest payable		3,601			3,117			4,262			4,011			4,911
Other liabilities		31,762			52,419			24,303			29,704			25,933
Total Liabilities		3,625,740			3,654,653			3,716,440			3,717,855			3,725,719
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value:
Authorized -- 500,000 shares
Series A, Issued and outstanding - 69,600 shares		68,118			67,998			67,880			67,764			67,649
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 - 25,690,649 and 25,524,948 shares		3,211			3,206			3,197			3,194			3,191
Additional paid-in capital		233,544			233,032			232,503			231,979			231,372
Retained earnings		169,313			165,075			160,860			158,074			158,118
Accumulated other comprehensive income (loss)		(5,833	)		(6,914	)		(10,157	)		1,329			(2,926	)
Total Stockholders' Equity		468,478			462,522			454,408			462,465			457,529
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,094,218		$	4,117,175		$	4,170,848		$	4,180,320		$	4,183,248

CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)	June 30,			March 31,			December 31,			September 30,			June 30,
	2011			2011			2010			2010			2010
INTEREST INCOME
Loans receivable:
Taxable	$	37,457		$	38,738		$	41,497		$	43,148		$	43,977
Tax exempt		247			102			(250	)		236			252
Investment securities:
Taxable		5,040			4,547			3,680			3,100			3,286
Tax exempt		2,535			2,553			2,573			2,610			2,548
Federal funds sold		1			2			3			3			3
Deposits with financial institutions		100			83			142			84			95
Federal Reserve and Federal Home Loan Bank stock		341			341			312			250			330
Total Interest Income		45,721			46,366			47,957			49,431			50,491
INTEREST EXPENSE
Deposits		5,864			6,866			8,427			9,434			10,520
Federal funds purchased		3			3						1			4
Securities sold under repurchase agreements		386			378			383			401			429
Federal Home Loan Bank advances		977			1,001			1,146			1,218			1,440
Subordinated debentures, revolving credit lines and term loans		2,644			2,641			2,508			2,695			1,919
Total Interest Expense		9,874			10,889			12,464			13,749			14,312
NET INTEREST INCOME		35,847			35,477			35,493			35,682			36,179
Provision for loan losses		5,625			5,594			7,078			10,521			15,015
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		30,222			29,883			28,415			25,161			21,164
OTHER INCOME
Service charges on deposit accounts		2,997			2,779			3,111			3,404			3,506
Fiduciary activities		1,929			2,036			1,881			1,773			1,978
Other customer fees		2,634			2,235			2,217			2,080			2,195
Commission income		1,024			1,888			1,267			1,482			1,487
Earnings on cash surrender value of life insurance		571			578			524			540			526
Net gains and fees on sales of loans		1,030			1,873			2,384			2,088			1,185
Net realized and unrealized gains on sales of available for sale securities		825			463			1,305			2			257
Other-than-temporary impairment on available for sale securities					(400	)					(656	)		(400	)
Other income		51			406			904			332			208
Total Other Income		11,061			11,858			13,593			11,045			10,942
OTHER EXPENSES
Salaries and employee benefits		18,560			17,176			19,655			18,094			17,942
Net occupancy		2,415			2,745			2,452			2,574			2,058
Equipment		1,677			1,783			1,812			1,797			1,861
Marketing		436			382			527			519			495
Outside data processing fees		1,458			1,445			1,154			1,348			1,311
Printing and office supplies		313			288			317			303			321
Core deposit amortization		1,101			1,101			1,161			1,161			1,192
FDIC assessments		1,451			2,104			2,044			2,112			2,243
Other real estate owned and credit-related expenses		2,843			3,195			5,257			2,991			1,503
Other expenses		4,145			3,662			3,814			4,236			5,417
Total Other Expenses		34,399			33,881			38,193			35,135			34,343
INCOME (LOSS) BEFORE INCOME TAX		6,884			7,860			3,815			1,071			(2,237	)
Income tax expense (benefit)		1,396			2,399			(216	)		(564	)		(1,894	)
NET INCOME (LOSS)		5,488			5,461			4,031			1,635			(343	)
Gain on exchange of preferred stock for trust preferred debt														10,052
Preferred stock dividends and discount accretion		(990	)		(988	)		(1,476	)		(870	)		(1,443	)
NET INCOME AVAILABLE TO COMMON STOCKHOLDERS	$	4,498		$	4,473		$	2,555		$	765		$	8,266
PER SHARE:
Basic Net Income Available to Common Stockholders	$	0.18		$	0.17		$	0.10		$	0.02		$	0.35
Diluted Net Income Available to Common Stockholders	$	0.18		$	0.17		$	0.10		$	0.02		$	0.35
Cash Dividends Paid	$	0.01		$	0.01		$	0.01		$	0.01		$	0.01
Average Diluted Shares Outstanding (in thousands)		25,783			25,763			25,737			25,686			25,633
FINANCIAL RATIOS:
Return on Average Assets		0.43	%		0.43	%		0.24	%		0.07	%		0.77	%
Return on Average Stockholders' Equity		3.87			3.92			2.20			0.67			6.73
Average Earning Assets to Average Assets		90.64			90.83			90.27			90.39			90.34
Allowance for Loan Losses as % of Total Loans		2.83			2.93			2.90			2.86			2.84
Net Charge Off's as % of Average Loans (Annualized)		1.37			1.09			1.07			1.84			2.14
Average Stockholders' Equity to Average Assets		11.23			11.07			10.93			10.95			11.47
Tax Equivalent Yield on Earning Assets		5.04			5.11			5.13			5.38			5.38
Cost of Supporting Liabilities		1.05			1.16			1.30			1.45			1.48
Net Interest Margin (FTE) on Earning Assets		3.99			3.95			3.83			3.93			3.90

LOANS
(Dollars in thousands)	June 30,			March 31,			December 31,			September 30,			June 30,
	2011			2011			2010			2010			2010
Commercial and industrial loans	$	529,742		$	529,110		$	530,322		$	550,310		$	589,157
Agricultural production financing and other loans to farmers		99,360			89,032			95,516			99,087			108,439
Real estate loans:
Construction		96,308			103,956			106,615			91,705			111,070
Commercial and farm land		1,171,901			1,199,078			1,229,037			1,229,836			1,269,455
Residential		687,095			699,773			724,020			779,483			816,823
Individuals' loans for household and other personal expenditures		94,123			104,701			115,295			128,400			129,724
Lease financing receivables, net of unearned income		4,399			4,706			5,157			5,763			6,143
Other loans		41,094			33,772			29,721			28,780			20,535
Loans		2,724,022			2,764,128			2,835,683			2,913,364			3,051,346
Allowance for loan losses		(77,133	)		(80,936	)		(82,977	)		(83,660	)		(86,970	)
NET LOANS	$	2,646,889		$	2,683,192		$	2,752,706		$	2,829,704		$	2,964,376

DEPOSITS
(Dollars in thousands)	June 30,		March 31,		December 31,		September 30,		June 30,
	2011		2011		2010		2010		2010
Demand deposits	$	1,363,621	$	1,318,188	$	1,362,927	$	1,288,975	$	1,246,006
Savings deposits		750,337		765,138		763,949		761,181		730,105
Certificates and other time deposits of $100,000 or more		292,613		318,663		334,748		350,623		374,016
Other certificates and time deposits		597,330		624,032		661,569		685,917		715,941
Brokered deposits		138,632		126,315		145,687		167,655		194,895
TOTAL DEPOSITS	$	3,142,533	$	3,152,336	$	3,268,880	$	3,254,351	$	3,260,963