10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

___________________

[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _______ to _______

Commission File Number 0-17071

FIRST MERCHANTS CORPORATION

(Exact name of registrant as specified in its charter)

Indiana                                                                            35-1544218

(State or other jurisdiction of                                   (I.R.S. Employer

    incorporation or organization)                               Identification No.)

200 East Jackson Street, Muncie, IN                  47305-2814

(Address of principal executive offices)                   (Zip code)

(Registrant’s telephone number, including area code): (765) 747-1500

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934 during the preceding 12 months (or for such shorter  period that the  registrant was  required  to file such  reports),  and (2) has been  subject to such filing requirements for the past 90 days. Yes [X]   No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]   No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ] (Do not check if smaller reporting company)  Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]   No [X]

As of October 31, 2012, there were 28,672,461 outstanding common shares of the registrant.

INDEX

Part I. Financial Information		Page No.
Item 1.	Financial  Statements:
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed Statements of Income	4
	Consolidated Condensed Statements of Comprehensive Income	5
	Consolidated Condensed Statement of Stockholders' Equity	6
	Consolidated Condensed Statements of Cash Flows	7
	Notes to Consolidated Condensed Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4.	Controls and Procedures	51
Part II. Other Information
Item 1.	Legal Proceedings	52
Item 1.A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 3.	Defaults Upon Senior Securities	52
Item 4.	Mine Safety Disclosures	52
Item 5.	Other Information	52
Item 6.	Exhibits	53
	Signatures	54
	Index to Exhibits	55

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

	September 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Cash and cash equivalents	$	57,027		$	73,312
Interest-bearing time deposits		35,324			52,851
Investment securities available for sale		551,619			518,491
Investment securities held to maturity (fair value of $396,217 and $442,469)		377,097			427,909
Mortgage loans held for sale		27,711			17,864
Loans, net of allowance for loan losses of $69,493 and$70,898		2,766,831			2,642,517
Premises and equipment		51,373			51,013
Federal Reserve and Federal Home Loan Bank stock		32,824			31,270
Interest receivable		17,519			17,723
Core deposit intangibles		8,644			9,114
Goodwill		141,375			141,357
Cash surrender value of life insurance		124,702			124,329
Other real estate owned		13,780			16,289
Tax asset, deferred and receivable		29,344			36,424
Other assets		14,998			12,613
TOTAL ASSETS	$	4,250,168		$	4,173,076
LIABILITIES
Deposits:
Noninterest-bearing	$	679,818		$	646,508
Interest-bearing		2,514,933			2,488,147
Total Deposits		3,194,751			3,134,655
Borrowings:
Federal funds purchased		57,024
Securities sold under repurchase agreements		153,454			156,305
Federal Home Loan Bank advances		145,467			138,095
Subordinated debentures and term loans		112,169			194,974
Total Borrowings		468,114			489,374
Interest payable		1,591			2,925
Other liabilities		38,857			31,655
Total Liabilities		3,703,313			3,658,609
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred Stock, no-par value, $1,000 liquidation value:
Authorized - 500,000 shares
Senior Non-Cumulative Perpetual Preferred Stock, Series B
Issued and outstanding - 90,782.94 shares		90,783			90,783
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 - 28,672,177 and 28,559,707 shares		3,584			3,570
Additional paid-in capital		256,290			254,874
Retained earnings		198,094			168,717
Accumulated other comprehensive loss		(2,021	)		(3,602	)
Total Stockholders' Equity		546,855			514,467
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,250,168		$	4,173,076

See notes to consolidated condensed financial statements.

3

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
INTEREST INCOME
Loans receivable:
Taxable	$	38,160		$	37,024		$	110,660		$	113,219
Tax exempt		118			86			358			435
Investment securities:
Taxable		4,176			5,078			13,218			14,665
Tax exempt		2,532			2,529			7,645			7,617
Federal funds sold											3
Deposits with financial institutions		16			45			69			228
Federal Reserve and Federal Home Loan Bank stock		345			323			1,035			1,005
Total Interest Income		45,347			45,085			132,985			137,172
INTEREST EXPENSE
Deposits		3,517			5,046			11,566			17,776
Federal funds purchased		38			16			62			22
Securities sold under repurchase agreements		211			384			703			1,148
Federal Home Loan Bank advances		492			1,089			2,123			3,067
Subordinated debentures and term loans		1,187			2,699			4,460			7,984
Total Interest Expense		5,445			9,234			18,914			29,997
NET INTEREST INCOME		39,902			35,851			114,071			107,175
Provision for loan losses		4,609			5,556			14,029			16,775
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		35,293			30,295			100,042			90,400
OTHER INCOME
Service charges on deposit accounts		2,913			3,169			8,625			8,945
Fiduciary activities		1,986			1,881			5,907			5,846
Other customer fees		2,740			2,583			8,476			7,452
Commission income		1,618			1,528			4,770			4,440
Earnings on cash surrender value of life insurance		685			644			2,725			1,793
Net gains and fees on sales of loans		2,849			1,768			7,115			4,671
Net realized gains on sales of available for sale securities		843			861			2,134			2,149
Other-than-temporary impairment on available for sale securities											(2,780	)
Portion of loss recognized in other comprehensive income before taxes											2,380
Net impairment losses recognized in earnings											(400	)
Gain on FDIC modified whole bank transaction								9,124
Other income		639			796			1,220			1,253
Total Other Income		14,273			13,230			50,096			36,149
OTHER EXPENSES
Salaries and employee benefits		20,083			19,964			59,078			55,700
Net occupancy		2,568			2,530			7,692			7,690
Equipment		1,798			1,662			5,259			5,122
Marketing		536			534			1,542			1,352
Outside data processing fees		1,413			1,391			4,295			4,294
Printing and office supplies		287			301			848			902
Core deposit amortization		489			755			1,438			2,957
FDIC assessments		792			1,201			2,771			4,756
Other real estate owned and credit-related expenses		2,104			2,007			6,412			8,045
Other expenses		4,334			3,877			13,277			11,684
Total Other Expenses		34,404			34,222			102,612			102,502
INCOME BEFORE INCOME TAX		15,162			9,303			47,526			24,047
Income tax expense		3,926			2,561			12,714			6,356
NET INCOME		11,236			6,742			34,812			17,691
Loss on retirement of CPP preferred stock					(1,401	)					(1,401	)
Loss on extinguishment of trust preferred securities					(10,857	)					(10,857	)
Preferred stock dividends and discount accretion		(1,134	)		(868	)		(3,404	)		(2,846	)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$	10,102		$	(6,384	)	$	31,408		$	2,587
Per Share Data:
Basic Net Income (Loss) Available to Common Stockholders	$	0.35		$	(0.25	)	$	1.09		$	0.10
Diluted Net Income (Loss) Available to Common Stockholders	$	0.35		$	(0.25	)	$	1.09		$	0.10
Cash Dividends Paid	$	0.03		$	0.01		$	0.07		$	0.03
Average Diluted Shares Outstanding (in thousands)		28,888			26,367			28,819			26,019

See notes to consolidated condensed financial statements.

4

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net income	$	11,236		$	6,742		$	34,812		$	17,691
Other comprehensive income net of tax:
Unrealized holding gain on securities available for sale arising during the period,
net of income tax of $1,018, $4,553, $1,670, and $8,212		1,891			8,457			3,102			15,255
Unrealized loss on securities available for sale for which a
portion of an other than temporary impairment has been
recognized in income, net of tax of  $12, $0, $43, and $831		(22	)					(80	)		(1,546	)
Unrealized loss on cash flow hedges arising during the period,
net of income tax of $131, $778, $535, and $949		(244	)		(1,446	)		(994	)		(1,762	)
Amortization of items previously recorded in accumulated other
comprehensive income (loss), net of income tax of $113, $10, $506, and $29		210			(18	)		940			(53	)
Reclassification adjustment for gains included in net income
net of income tax expense of $295, $301, $747, and $612		(549	)		(560	)		(1,387	)		(1,137	)
		1,286			6,433			1,581			10,757
Comprehensive income	$	12,522		$	13,175		$	36,393		$	28,448

The components of accumulated other comprehensive loss, net of tax, included in stockholders’ equity, are as follows:

	September 30, 2012			December 31, 2011
Net unrealized gain on securities available for sale	$	19,959		$	18,244
Net unrealized loss on securities available for sale for which a portion of an other-than-temporary
impairment has been recognized in income		(3,248	)		(3,168	)
Net unrealized loss on cash flow hedges		(2,834	)		(1,841	)
Defined benefit plans		(15,898	)		(16,837	)
	$	(2,021	)	$	(3,602	)

See notes to consolidated condensed financial statements.

5

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

(Dollars in thousands, except per share data)

(Unaudited)

																	Accumulated
	Preferred				Common Stock						Additional						Other
											Paid in			Retained			Comprehensive
	Shares		Amount		Shares			Amount			Capital			Earnings			Income (Loss)			Total
Balances, December 31, 2011		90,908	$	90,908		28,559,707		$	3,570		$	254,874		$	168,717		$	(3,602	)	$	514,467
Comprehensive Income
Net Income															34,812						34,812
Other Comprehensive Income, net of tax																		1,581			1,581
Cash Dividends on Common Stock ($.07 per Share)															(2,031	)					(2,031	)
Cash Dividends on Preferred Stock under Small Business Lending Fund															(3,404	)					(3,404	)
Share-based Compensation						79,385			10			1,091									1,101
Stock Issued Under Employee Benefit Plans						34,352			4			350									354
Stock Issued Under Dividend Reinvestment and Stock Purchase Plan						11,475			1			142									143
Stock options exercised						8,750			1			66									67
Stock Redeemed						(21,492	)		(2	)		(233	)								(235	)
Balances, September 30, 2012		90,908	$	90,908		28,672,177		$	3,584		$	256,290		$	198,094		$	(2,021	)	$	546,855

See notes to consolidated condensed financial statements.

6

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	September 30,
	2012			2011
Cash Flow From Operating Activities:
Net income	$	34,812		$	17,691
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		14,029			16,775
Depreciation and amortization		3,432			3,998
Change in deferred taxes		11,239			7,211
Share-based compensation		1,101			1,009
Mortgage loans originated for sale		(314,240	)		(185,658	)
Proceeds from sales of mortgage loans		304,393			194,870
Gain on acquisition		(9,124	)
Gains on sales of securities available for sale		(2,134	)		(2,149	)
Recognized loss on other-than-temporary-impairment					400
Change in interest receivable		732			904
Change in interest payable		(1,701	)		(2,076	)
Other adjustments		4,650			14,171
Net cash provided by operating activities	$	47,189		$	67,146
Cash Flows from Investing Activities:
Net change in interest-bearing deposits	$	17,527		$	49,101
Purchases of:
Securities available for sale		(129,297	)		(133,526	)
Securities held to maturity		(566	)		(77,678	)
Proceeds from sales of securities available for sale		43,147			54,606
Proceeds from maturities of:
Securities available for sale		77,898			37,894
Securities held to maturity		49,073			28,120
Change in Federal Reserve and Federal Home Loan Bank stock		207			2,503
Purchase of bank owned life insurance					(25,000	)
Net change in loans		(52,442	)		73,520
Net cash received from acquisition		29,113
Proceeds from the sale of other real estate owned		4,295			9,916
Other adjustments		351			6,921
Net cash provided by investing activities	$	39,306		$	26,377
Cash Flows from Financing Activities:
Net change in :
Demand and savings deposits	$	42,994		$	(54,157	)
Certificates of deposit and other time deposits		(108,807	)		(150,473	)
Borrowings		138,127			242,323
Repayment of borrowings		(169,988	)		(168,894	)
Cash dividends on common stock		(2,031	)		(778	)
Cash dividends on preferred stock		(3,404	)		(2,527	)
Stock issued in private equity placement					21,165
Stock issued under employee benefit plans		354			561
Stock issued under dividend reinvestment and stock purchase plans		143			60
Stock options exercised		67
Stock redeemed		(235	)		(127	)
Cumulative preferred stock issued (SBLF)					90,783
Cumulative preferred stock redeemed (CPP)					(69,600	)
Net cash used in financing activities	$	(102,780	)	$	(91,664	)
Net Change in Cash and Cash Equivalents		(16,285	)		1,859
Cash and Cash Equivalents, January 1		73,312			58,307
Cash and Cash Equivalents, September 30	$	57,027		$	60,166
Additional cash flow information:
Interest paid	$	20,248		$	32,073
Income tax paid (refunded)	$	5,988		$	(2,977	)
Loans transferred to other real estate owned	$	4,364		$	12,646
Non-cash investing activities using trade date accounting	$	3,043		$	2,298

See notes to consolidated condensed financial statements.

7

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 1.  General

Financial Statement Preparation

The significant accounting policies followed by First  Merchants Corporation (the “Corporation”) and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments, which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported, have been included in the accompanying consolidated condensed financial statements.

The consolidated condensed balance sheet of the Corporation as of December 31, 2011, has been derived from the audited consolidated balance sheet of the Corporation as of that date. Certain information and note disclosures normally included in the Corporation’s annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Form 10-K annual report filed with the Securities and Exchange Commission. The results of operations for the nine months ended September 30, 2012, are not necessarily indicative of the results to be expected for the year.

NOTE 2.  Purchase and Assumption

Effective February 10, 2012, First Merchants Bank, National Association (the “Bank”) assumed substantially all of the deposits and certain other liabilities and acquired certain assets of SCB Bank, a federal savings bank headquartered in Shelbyville, Indiana, from the Federal Deposit Insurance Corporation (“FDIC”), as receiver for SCB Bank (the “Acquisition”), pursuant to the terms of the Purchase and Assumption Agreement – Modified Whole Bank; All Deposits (the “Agreement”), entered into by the Bank, the FDIC as receiver of SCB Bank and the FDIC.

Under the terms of the Agreement, the Bank acquired $147.7 million in assets, including approximately $11.9 million of cash and cash equivalents, $18.9 million of marketable securities, $1.8 million in Federal Home Loan Bank stock, $113.0 million in loans and $2.1 million of premises and other assets.  The Bank assumed approximately $135.7 million of liabilities, including approximately $125.7 million in customer deposits, $9.6 million of other borrowed money and $402,000 in other liabilities. These balances are book balances and do not reflect the fair value adjustments which are shown on the following table. The acquisition did not include any loss sharing agreement with the FDIC.

The bid accepted by the FDIC included no deposit premium. The assets were acquired at a discount of $29.0 million from book value. The FDIC made a payment of $17.2 million to the Bank upon the final closing date balance sheet for SCB Bank that reflected the difference between the purchase price of the assets acquired and the value of the liabilities assumed.

The Bank engaged in this transaction with the expectation that it would be immediately accretive and add a new market area with a demographic profile consistent with many of the current Indiana markets served by the Bank.

8

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 2.  Purchase and Assumption continued

The transaction was accounted for under the acquisition method of accounting in accordance with the Business Combination topic of the FASB Accounting Standards Codification (“ASC 310-20 and 310-30”). The statement of net assets and liabilities acquired as of February 10, 2012, are presented below. The assets and liabilities of SCB were recorded at the respective acquisition date provisional fair values, and identifiable intangible assets were recorded at provisional fair value.

Assets			Liabilities
Cash and due from banks (1)	$	29,113	Deposits:
Investment securities, available for sale		18,896	Non-interest bearing	$	13,715
Federal Home Loan Bank stock		1,761	NOW accounts		14,746
Loans:			Savings and money market		25,843
Commercial		51,042	Certificate of deposit		71,605
Residential mortgage		11,181	Total Deposits		125,909
Installment		31,570
Total Loans		93,793	Federal Home Loan Bank advances		10,286
			Other liabilities		804
Premises		1,516	Total Liabilities Assumed	$	136,999
Core deposit intangible		484
Other assets		560	Net Gain on Acquisition	$	9,124
Total Assets Purchased	$	146,123

(1)   Includes $17,200,000 cash received from the FDIC.

In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was acquired loans. The Bank acquired the $113.0 million loan portfolio at a fair value discount of $19.2 million. The performing portion of the portfolio, $86.3 million, had an estimated fair value of $76.5 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-20.

Certain loans for which specific credit-related deterioration has occurred since origination are recorded at fair value which is derived from calculating the present value of the amounts expected to be collected. Income recognition on these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Many of the acquired loans deemed impaired and considered collateral dependent, with the timing of a sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.

In accordance with ASC 310-30 (formerly Statement of Position (“SOP”) 03-3 as of February 10, 2012, loans acquired during 2012 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

Preliminary estimate of contractually required principal and interest at acquisition	$	31,143
Preliminary estimate of contractual cash flows not expected to be collected (nonaccretable differences)		9,688
Preliminary estimate of expected cash flows at acquisition		21,455
Preliminary estimate of interest component of expected cash flows (accretable discount)		4,152
Preliminary estimate of fair value of acquired loans accounted for under ASC 310-30	$	17,303

Pro-forma statements were determined to be impracticable due to the nature of the transaction as certain assets were not purchased.

9

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 2.  Purchase and Assumption continued

The carrying amount of these loans is included in the balance sheet amounts of loans receivable at September 30, 2012. The amounts are as follows:

	September 30,
	2012
Commercial and industrial loans	$	12,494
Agricultural production finance and other loans to farmers		1,531
Real estate loans
Construction		92
Commercial and farmland		23,724
Residential		32,936
Individuals' loans for household and other personal expenditures		922
Tax exempt
Lease financing
Other loans		987
Total	$	72,686

Accretable yield, or income expected to be collected, is as follows:

	Three Months ended
	September 30, 2012
Beginning balance, June 30, 2012	$	9,048
Accretions		(2,612	)
Ending balance, September 30, 2012	$	6,436

	Nine Months ended
	September 30, 2012
Beginning balance, February 10, 2012	$	9,774
Accretions		(3,338	)
Ending balance, September 30, 2012	$	6,436

10

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 3.  Investment Securities

The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair values of the investment securities at the dates indicated were:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at September 30, 2012
U.S. Government-sponsored agency securities	$	4,610	$	172			$	4,782
State and municipal		150,281		10,761	$	25		161,017
U.S. Government-sponsored mortgage-backed securities		370,800		13,142		30		383,912
Corporate obligations		6,008				5,806		202
Equity securities		1,706						1,706
Total available for sale		533,405		24,075		5,861		551,619
Held to maturity at September 30, 2012
State and municipal		116,966		5,698				122,664
U.S. Government-sponsored mortgage-backed securities		260,131		13,422				273,553
Total held to maturity		377,097		19,120				396,217
Total Investment Securities	$	910,502	$	43,195	$	5,861	$	947,836

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2011
U.S. Government-sponsored agency securities	$	99	$	18			$	117
State and municipal		136,857		10,496				147,353
U.S. Government-sponsored mortgage-backed securities		358,928		10,086	$	16		368,998
Corporate obligations		5,765				5,572		193
Equity securities		1,830						1,830
Total available for sale		503,479		20,600		5,588		518,491
Held to maturity at December 31, 2011
State and municipal		120,171		3,785				123,956
U.S. Government-sponsored mortgage-backed securities		307,738		10,775				318,513
Total held to maturity		427,909		14,560				442,469
Total Investment Securities	$	931,388	$	35,160	$	5,588	$	960,960

The amortized cost and fair value of available for sale securities and held to maturity securities at September 30, 2012, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at September 30, 2012:
Due in one year or less	$	4,802	$	4,846	$	2,425	$	2,431
Due after one through five years		14,559		15,277		2,208		2,233
Due after five through ten years		48,134		51,156		55,679		57,975
Due after ten years		93,404		94,722		56,654		60,025
		160,899		166,001		116,966		122,664
U.S. Government-sponsored mortgage-backed securities		370,800		383,912		260,131		273,553
Equity securities		1,706		1,706
Total Investment Securities	$	533,405	$	551,619	$	377,097	$	396,217

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $348,748,000 at September 30, 2012, and $299,478,000 at December 31, 2011.

The book value of securities sold under agreements to repurchase amounted to $148,486,000 at September 30, 2012, and $129,311,000 at December 31, 2011.

11

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 3.  Investment Securities continued

Gross gains and losses on the sales and redemptions of available for sale securities, and other-than-temporary impairment (“OTTI”) losses recognized for the three and nine months ended September 30, 2012 and 2011 are shown below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	843	$	861	$	2,134	$	2,149
Gross losses
Other-than-temporary impairment losses							$	400

The Corporation’s management has evaluated all securities with unrealized losses for OTTI as of September 30, 2012.  The evaluations are based on the nature of the securities, the extent and duration of the loss and the intent and ability of the Corporation to hold these securities either to maturity or through the expected recovery period.

The current unrealized losses are primarily concentrated within trust preferred securities held by the Corporation.  Such investments have an amortized cost of $6.0 million and a fair value of $171,000, which is less than 1 percent of the Corporation’s entire investment portfolio.  On all but one small pool investment, the Corporation utilized Moody’s to determine their fair value.

In determining the fair value of the trust preferred securities, the Corporation utilizes a third party for portfolio accounting services, including market value input.  The Corporation has obtained an understanding of what inputs are being used by the vendor in pricing the portfolio and how the vendor was classifying these securities based upon these inputs.  From these discussions, the Corporation’s management is comfortable that the classifications are proper.  The Corporation has gained trust in the data for two reasons:  (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis and (b) actual gains or loss resulting from the sale of certain securities has proven the data to be accurate over time.  

Discount rates used in the OTTI cash flow analysis on these variable rate securities were those margins in effect at the inception of the security added to the appropriate three-month LIBOR spot rate obtained from the forward LIBOR curve used to project future principal and interest payments. These spreads ranged from .85 percent to 1.57 percent spread over LIBOR.

12

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 3.  Investment Securities continued

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2012, and December 31, 2011:

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at September 30, 2012
State and municipal	$	3,868	$	(25	)						$	3,868	$	(25	)
U.S. Government-sponsored mortgage-backed securities		6,463		(30	)							6,463		(30	)
Corporate obligations						$	171	$	(5,806	)		171		(5,806	)
Total Temporarily Impaired Investment Securities	$	10,331	$	(55	)	$	171	$	(5,806	)	$	10,502	$	(5,861	)

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at December 31, 2011
State and municipal
U.S. Government-sponsored mortgage-backed securities	$	6,176	$	(16	)						$	6,176	$	(16	)
Corporate obligations						$	163	$	(5,572	)		163		(5,572	)
Total Temporarily Impaired Investment Securities	$	6,176	$	(16	)	$	163	$	(5,572	)	$	6,339	$	(5,588	)

Certain investments in debt and equity securities are reported in the financial statements at an amount less than their historical cost as indicated in the table below.

	September 30, 2012			December 31, 2011
Investments reported at less than historical cost:
Historical cost	$	16,364		$	11,925
Fair value	$	10,502		$	6,339
Percent of the Corporation's available for sale and held to maturity portfolio		1.1	%		0.7	%

Except as discussed below, management believes the declines in fair value for these securities are temporary.  Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the OTTI is identified.

U.S. Government-Sponsored Mortgage-Backed Securities

The unrealized losses on the Corporation’s investment in U.S. Government-sponsored mortgage-backed securities were a result of changes in interest rates.  The Corporation expects to recover the amortized cost basis over the term of the securities as the decline in market value is attributable to changes in interest rates and not credit quality. The Corporation does not intend to sell the investment and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity.  The Corporation does not consider the investment securities to be other-than-temporarily impaired at September 30, 2012.

13

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 3.  Investment Securities continued

State and Municipal

The unrealized losses on the Corporation’s investments in securities of state and political subdivisions were caused by changes in interest rates.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  The Corporation does not intend to sell the investment and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity.  The Corporation does not consider the investment securities to be other-than-temporarily impaired at September 30, 2012.

Corporate Obligations

The Corporation’s unrealized losses on Corporate Obligations were due to the decline in value related to the pooled trust preferred securities, and is attributable to temporary illiquidity and the financial crisis affecting these markets, coupled with the potential credit loss resulting from the adverse change in expected cash flows. Due to the illiquidity in the market, it is unlikely that the Corporation would be able to recover its investment in these securities if the Corporation sold the securities at this time. Management has analyzed the cash flow characteristics of the securities and this analysis included utilizing the most recent trustee reports and any other relevant market information, including announcements of deferrals or defaults of trust preferred securities.  The Corporation compared expected discounted cash flows, based on performance indicators of the underlying assets in the security, to the carrying value of the investment to determine if OTTI existed.  The Corporation does not consider the remainder of the investment securities, which are classified as Level 3 inputs in the fair value hierarchy, to be other-than-temporarily impaired at September 30, 2012.  The Corporation does not intend to sell the investment, and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity.

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses and other market factors. The following table provides information about debt securities for which only a credit loss was recognized in income and other losses were recorded in other comprehensive income.

	Accumulated Credit Losses in 2012		Accumulated Credit Losses in 2011
Credit losses on debt securities held:
Balance, January 1	$	11,355	$	10,955
Additions related to other-than-temporary losses not previously recognized				400
Balance, September 30	$	11,355	$	11,355

14

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance

The Corporation’s primary lending focus is small business and middle market commercial, residential real estate, auto and small consumer lending, which results in portfolio diversification.  The following tables show the composition in the loan portfolio, loan grades and the allowance for loan losses excluding loans held for sale.  Residential real estate loans held for sale at September 30, 2012, and December 31, 2011, were $27,711,000 and $17,864,000, respectively.

Effective February 10, 2012, the Bank assumed $113.0 million in loans as part of the Purchase and Assumption Agreement discussed in NOTE 2. PURCHASE AND ASSUMPTION included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q. This loan portfolio was acquired at a fair value discount of $19.2 million.

The following table shows the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

	September 30,			December 31,
	2012			2011
Loans:
Commercial and industrial loans	$	592,517		$	532,523
Agricultural production financing and other loans to farmers		107,166			104,526
Real estate loans:
Construction		93,610			81,780
Commercial and farm land		1,241,054			1,194,230
Residential		475,272			481,493
Home Equity		204,888			191,631
Individual's loans for household and other personal expenditures		77,171			84,172
Lease financing receivables, net of unearned income		2,970			3,555
Other loans		41,676			39,505
		2,836,324			2,713,415
Allowance for loan losses		(69,493	)		(70,898	)
Total Loans	$	2,766,831		$	2,642,517

The Corporation maintains an allowance for loan losses to cover probable credit losses identified during its loan review process. The allowance is increased by the provision for loan losses and decreased by charge offs less recoveries. All charge offs are approved by the Bank’s senior loan officers or loan committees, depending on the amount of the charge off. The Bank charges off loans when a determination is made that all or a portion of a loan is uncollectible. The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings.

The amount provided for loan losses in a given period may be greater than or less than net loan losses, and is based on management’s judgment as to the appropriate level of the allowance for loan losses. The determination of the provision amount in a given period is based on management’s continuing review and evaluation of the loan portfolio, including an internally administered loan "watch" list and an independent loan review.  The evaluation takes into consideration identified credit problems, the possibility of losses inherent in the loan portfolio that are not specifically identified and management’s judgment as to the impact of current economic conditions on the portfolio.

Management believes that the allowance for loan losses is adequate to cover probable incurred losses inherent in the loan portfolio at September 30, 2012.  The process for determining the adequacy of the allowance for loan losses is critical to the Corporation’s financial results.  It requires management to make difficult, subjective and complex judgments, to estimate the effect of uncertain matters.  The allowance for loan losses considers current factors, including economic conditions and ongoing internal and external examination processes, and will increase or decrease as deemed necessary to ensure the allowance for loan losses remains adequate.  In addition, the allowance as a percentage of charge offs and nonperforming loans will change at different points in time based on credit performance, loan mix and collateral values.

15

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The historical loss allocation for loans not deemed impaired according to ASC 310 is the product of the volume of loans within the non-impaired criticized and non-criticized risk grade classifications, each segmented by call code, and the historical loss factor for each respective classification and call code segment.  The historical loss factors are based upon actual loss experience within each risk and call code classification.  The historical look back period for non-criticized loans looks to the most recent rolling-four-quarter average and aligns with the look back period for non-impaired criticized loans.  Each of the rolling four quarter periods used to obtain the average, include all charge offs for the previous twelve-month period, therefore the historical look back period includes seven quarters. The resulting allocation is reflective of current conditions.  Criticized loans are grouped based on the risk grade assigned to the loan.  Loans with a special mention grade are assigned a loss factor, and loans with a classified grade but not impaired are assigned a separate loss factor.  The loss factor computation for this allocation includes a segmented historical loss migration analysis of criticized risk grades to charge off.

In addition to the specific reserves and historical loss components of the allowance, consideration is given to various environmental factors to help ensure that losses inherent in the portfolio are reflected in the allowance for loan losses.  The environmental component adjusts the historical loss allocations for commercial and consumer loans to reflect relevant current conditions that, in management’s opinion, have an impact on loss recognition.  Environmental factors that management reviews in the analysis include: national and local economic trends and conditions; trends in growth in the loan portfolio and growth in higher risk areas; levels of, and trends in, delinquencies and non-accruals; experience and depth of lending management and staff; adequacy of, and adherence to, lending policies and procedures including those for underwriting; industry concentrations of credit; and adequacy of risk identification systems and controls through the internal loan review and internal audit processes.

The risk characteristics of the Corporation’s material portfolio segments are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Residential and Consumer

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

16

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2012, and September 30, 2011:

	Three Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases	Total
Allowance for loan losses:
Balances, July 1	$	17,791		$	35,133		$	2,431		$	14,788			$	70,143
Provision for losses		5,431			(879	)		147			(90	)			4,609
Recoveries on loans		526			1,598			219			174				2,517
Loans charged off		(1,424	)		(4,439	)		(168	)		(1,745	)			(7,776	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127			$	69,493

	Nine Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	17,731		$	37,919		$	2,902		$	12,343		$	3		$	70,898
Provision for losses		10,333			149			(14	)		3,565			(4	)		14,029
Recoveries on loans		1,193			3,462			595			968			1			6,219
Loans charged off		(6,933	)		(10,117	)		(854	)		(3,749	)					(21,653	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127					$	69,493

	Three Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, April 1	$	23,715		$	38,668		$	2,859		$	11,877		$	14		$	77,133
Provision for losses		(903	)		3,042			281			3,142			(6	)		5,556
Recoveries on loans		1,176			378			163			237			1			1,955
Loans charged off		(4,344	)		(5,003	)		(266	)		(1,957	)					(11,570	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

	Nine Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	32,508		$	36,341		$	3,622		$	10,408		$	98		$	82,977
Provision for losses		(14,778	)		24,232			(187	)		7,601			(93	)		16,775
Recoveries on loans		8,174			1,244			781			934			4			11,137
Loans charged off		(6,260	)		(24,732	)		(1,179	)		(5,644	)					(37,815	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

17

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following table shows the Corporation’s allowance for credit losses and loan portfolio by loan segment for the periods indicated:

	September 30, 2012
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	1,775	$	4,157			$	319			$	6,251
Collectively evaluated for impairment		20,549		27,256	$	2,629		12,808				63,242
Total Allowance for Loan Losses	$	22,324	$	31,413	$	2,629	$	13,127			$	69,493
Loan Balances:
Individually evaluated for impairment	$	16,286	$	54,773			$	8,906			$	79,965
Collectively evaluated for impairment		725,073		1,279,891	$	77,171		671,254	$	2,970		2,756,359
Total Loans	$	741,359	$	1,334,664	$	77,171	$	680,160	$	2,970	$	2,836,324

	December 31, 2011
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	4,701	$	2,504			$	733			$	7,938
Collectively evaluated for impairment		13,030		35,415	$	2,902		11,610	$	3		62,960
Total Allowance for Loan Losses	$	17,731	$	37,919	$	2,902	$	12,343	$	3	$	70,898
Loan Balances:
Individually evaluated for impairment	$	18,793	$	51,980			$	12,546			$	83,319
Collectively evaluated for impairment		657,760		1,224,031	$	84,172		660,578	$	3,555		2,630,096
Total Loans	$	676,553	$	1,276,011	$	84,172	$	673,124	$	3,555	$	2,713,415

Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. Interest previously recorded, but not deemed collectible, is reversed and charged against current income. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance.  Payments received on impaired accruing or delinquent loans are applied to interest income as accrued.

The following table summarizes the Corporation’s non-accrual loans by loan class for the periods indicated:

	September 30,		December 31,
	2012		2011
Commercial and Industrial	$	12,507	$	12,246
Real Estate Loans:
Construction		5,440		8,990
Commercial and farm land		24,501		31,093
Residential		12,444		14,805
Home Equity		1,761		1,896
Individuals loans for household and other personal expenditures		3		1
Lease financing receivables, net of unearned income		337
Other Loans		6		561
Total	$	56,999	$	69,592

Commercial impaired loans include all non-accrual loans, loans accounted for under SOP-03-3 and renegotiated loans, as well as substandard, doubtful and loss grade loans that were still accruing but deemed impaired according to guidance set forth in ASC 310.  Also included in impaired loans are accruing loans that are contractually past due 90 days or more. A loan is deemed impaired when, based on current information or events, it is probable that all amounts due of principal and interest according to the contractual terms of the loan agreement will not be collected.

18

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

Impaired loans are measured by the present value of expected future cash flows or the fair value of the collateral of the loans, if collateral dependent. The fair value for impaired loans is measured based on the value of the collateral securing those loans and is determined using several methods.  The fair value of real estate is generally based on appraisals by qualified licensed appraisers.  The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach.  If an appraisal is not available, the fair value may be determined by using a cash flow analysis.  Fair value on other collateral, such as business assets, is typically valued by using financial information such as financial statements and aging reports provided by the borrower and is discounted as considered appropriate.

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of September 30, 2012:

							Three Months Ended				Nine Months Ended
	September 30, 2012						September 30, 2012				September 30, 2012
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	27,363	$	10,743			$	9,994	$	26	$	11,615	$	68
Agriculture production financing
and other loans to farmers		300		300				300				300
Real Estate Loans:
Construction		10,743		6,378				6,658		17		7,665		47
Commercial and farm land		52,953		35,606				31,081		250		33,459		706
Residential		9,307		6,716				6,936		20		7,342		54
Home equity		3,901		711				713		3		727		10
Other loans		87		16				17				18		1
Total	$	104,654	$	60,470			$	55,699	$	316	$	61,126	$	886
Impaired loans with related allowance:
Commercial and industrial	$	5,570	$	5,227	$	1,775	$	5,244	$	11	$	5,307	$	32
Real Estate Loans:
Construction		725		480		51		510				541
Commercial and farm land		13,021		12,309		4,106		12,326		32		12,371		95
Residential		1,578		1,479		319		1,485		19		1,485		56
Total	$	20,894	$	19,495	$	6,251	$	19,565	$	62	$	19,704	$	183
Total Impaired Loans	$	125,548	$	79,965	$	6,251	$	75,264	$	378	$	80,830	$	1,069

19

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of December 31, 2011:

	December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	23,364	$	10,116			$	13,399	$	615
Real Estate Loans:
Construction		14,301		7,701				8,836
Commercial and farm land		49,242		34,571				39,032		591
Residential		7,491		6,185				6,539		20
Home equity		4,425		1,241				1,500		15
Other loans		99		21				24
Total	$	98,922	$	59,835			$	69,330	$	1,241
Impaired loans with related allowance:
Commercial and industrial	$	8,691	$	8,104	$	4,142	$	8,196	$	174
Real Estate Loans:
Construction		961		961		321		961
Commercial and farm land		12,115		8,748		2,183		10,028		140
Residential		1,888		1,575		391		1,687		7
Other loans		579		552		559		590
Total	$	24,234	$	19,940	$	7,596	$	21,462	$	321
Total Impaired Loans	$	123,156	$	79,775	$	7,596	$	90,792	$	1,562

As part of the ongoing monitoring of the credit quality of the Corporation’s loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge offs, (iii) non-performing loans and (iv) the general national and local economic conditions.

The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans.  Loans with grades below pass are reviewed more frequently depending on the grade.  A description of the general characteristics of these grades is as follows:

● Pass – Loans that are considered to be of acceptable credit quality.

● Special Mention – Loans which possess some credit deficiency or potential weakness, which deserves close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation’s credit position at some future date.  Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification.  The key distinctions of this category’s classification are that it is indicative of an unwarranted level of risk; and weaknesses are considered “potential”, not “defined”, impairments to the primary source of repayment. Examples include businesses that may be suffering from inadequate management, loss of key personnel or significant customer or litigation.

20

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

● Substandard – A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt.  They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.  Other characteristics may include:

o      the likelihood that a loan will be paid from the primary source of repayment is uncertain or financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss,

o      the primary source of repayment is gone, and the Corporation is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees,

o      loans have a distinct possibility that the Corporation will sustain some loss if deficiencies are not corrected,

o      unusual courses of action are needed to maintain a high probability of repayment,

o      the borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments,

o      the Corporation is forced into a subordinated or unsecured position due to flaws in documentation,

o      loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms,

o      the Corporation is seriously contemplating foreclosure or legal action due to the apparent deterioration of the loan, and

o      there is significant deterioration in market conditions to which the borrower is highly vulnerable.

● Doubtful – Loans that have all of the weaknesses of those classified as Substandard. However, based on currently existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable. Other credit characteristics may include the primary source of repayment is gone or there is considerable doubt as to the quality of the secondary sources of repayment. The possibility of loss is high, but because of certain important pending factors that may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

● Loss – Loans that are considered uncollectible and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical not desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

21

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following table summarizes the credit quality of the Corporation’s loan portfolio, by loan class for the periods indicated.  Consumer Non-Performing loans include accruing consumer loans 90 plus days delinquent and consumer non-accrual loans.  The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified date.

	September 30, 2012
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non-Performing		Total Loans
Commercial and industrial	$	524,180	$	25,143	$	36,564	$	6,630					$	592,517
Agriculture production financing    and other loans		106,775		230		161								107,166
Real Estate Loans:
Construction		78,655		1,639		13,140					$	176		93,610
Commercial and farm land		1,105,407		48,344		86,500		475				328		1,241,054
Residential		142,394		4,909		14,709		1,360	$	304,255		7,645		475,272
Home equity		11,036		1,344		1,021				189,938		1,549		204,888
Individuals loans for household    and other personal expenditures										77,168		3		77,171
Lease financing receivables, net    of unearned income										2,633		337		2,970
Other loans		41,640				36								41,676
Total	$	2,010,087	$	81,609	$	152,131	$	8,465	$	573,994	$	10,038	$	2,836,324

	December 31, 2011
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non Performing		Total Loans
Commercial and industrial	$	478,885	$	22,405	$	28,025	$	3,208					$	532,523
Agriculture production financing    and other loans		101,289		1,582		1,655								104,526
Real Estate Loans:
Construction		47,611		3,672		22,376			$	7,762	$	359		81,780
Commercial and farm land		1,033,397		54,697		103,330		1,724		1,035		47		1,194,230
Residential		139,237		9,175		16,699		500		308,306		7,576		481,493
Home equity		15,912		499		3,317				170,776		1,127		191,631
Individuals loans for household    and other personal expenditures										84,121		51		84,172
Lease financing receivables, net    of unearned income										3,555				3,555
Other loans		38,917		15		21		552						39,505
Total	$	1,855,248	$	92,045	$	175,423	$	5,984	$	575,555	$	9,160	$	2,713,415

22

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following table shows a past due aging of the Corporation’s loan portfolio, by loan class for September 30, 2012, and December 31, 2011:

	September 30, 2012
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	574,730	$	4,800	$	434	$	46	$	12,507	$	17,787	$	592,517
Agriculture production financing and other    loans		106,782		74		10		300				384		107,166
Real Estate Loans:
Construction		87,829		341						5,440		5,781		93,610
Commercial and farm land		1,209,194		6,931		65		363		24,501		31,860		1,241,054
Residential		453,234		5,835		2,788		971		12,444		22,038		475,272
Home equity		200,402		1,532		899		294		1,761		4,486		204,888
Individuals loans for household and other    personal expenditures		76,053		720		395				3		1,118		77,171
Lease financing receivables, net of unearned    income		2,633								337		337		2,970
Other loans		41,670								6		6		41,676
Total	$	2,752,527	$	20,233	$	4,591	$	1,974	$	56,999	$	83,797	$	2,836,324

	December 31, 2011
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	518,764	$	1,332	$	135	$	46	$	12,246	$	13,759	$	532,523
Agriculture production financing and other    loans		104,464		62								62		104,526
Real Estate Loans:
Construction		69,305		328		3,126		31		8,990		12,475		81,780
Commercial and farm land		1,140,897		16,457		5,783				31,093		53,333		1,194,230
Residential		458,925		5,485		2,087		191		14,805		22,568		481,493
Home equity		187,788		1,096		590		261		1,896		3,843		191,631
Individuals loans for household and other    personal expenditures		82,837		1,075		208		51		1		1,335		84,172
Lease financing receivables, net of unearned    income		3,555												3,555
Other loans		38,944								561		561		39,505
Total	$	2,605,479	$	25,835	$	11,929	$	580	$	69,592	$	107,936	$	2,713,415

See the information regarding the analysis of loan loss experience in the Loan Quality/Provision for Loan Losses section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as ITEM 2 of this Form 10-Q.

Given recent economic conditions, borrowers of all types have experienced declines in income and cash flow.  As a result, borrowers are occasionally seeking to reduce contractual cash outlays including debt payments.  Concurrently, in an effort to preserve and protect its earning assets, specifically troubled loans, the Corporation is working to maintain its relationship with certain customers who are experiencing financial difficulty by contractually modifying the borrower’s debt agreement with the Corporation.  In certain loan restructuring situations, the Corporation may grant a concession to a debtor experiencing financial difficulty, resulting in a trouble debt restructuring.  A concession is deemed to be granted when, as a result of the restructuring, the Corporation does not expect to collect all amounts due, including interest accrued at the original contract rate.  If the payment of principal at original maturity is primarily dependent on the value of collateral, the current value of the collateral is considered in determining whether the principal will be paid.

23

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following tables summarize troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012
	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and industrial	$	875	$	1,048		3	$	1,155	$	1,327		6
Real Estate Loans:
Construction		303		303		1		794		653		2
Commercial and farm land		875		875		2		2,967		2,828		7
Residential		239		241		4		2,196		2,063		19
Individuals loans for household and other    personal expenditures		90		117		4		90		117		4
Total	$	2,382	$	2,584		14	$	7,202	$	6,988		38

	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011
	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and Industrial	$	535	$	552		5	$	1,636	$	1,651		10
Real Estate Loans:
Construction		40		41		1		175		184		3
Commercial and farm land		379		379		1		4,357		4,346		6
Residential		1,034		1,407		10		2,690		3,115		30
Home Equity								82		87		8
Total	$	1,988	$	2,379		17	$	8,940	$	9,383		57

24

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following table shows the recorded investment, as of September 30, 2012, of troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended
	September 30, 2012
	Term	Rate				Total
	Modification	Modification		Combination		Modification
Commercial and industrial				$	1,048	$	1,048
Real Estate Loans:
Construction					299		299
Commercial and farm land		$	680		195		875
Residential					167		167
Individuals loans for household and other personal expenditures			7		109		116
Total		$	687	$	1,818	$	2,505

	Nine Months Ended
	September 30, 2012
	Term		Rate				Total
	Modification		Modification		Combination		Modification
Commercial and industrial	$	230			$	1,072	$	1,302
Real Estate Loans:
Construction						639		639
Commercial and farm land		1,693	$	680		385		2,758
Residential		528		252		1,100		1,880
Individuals loans for household and other personal expenditures				7		109		116
Total	$	2,451	$	939	$	3,305	$	6,695

Residential real estate loans account for 29 percent and 48 percent of the troubled debt restructured loans made in the three and nine months ended September 30, 2012, respectively.  Three and eleven troubled debt restructured loans made during the three and nine months ended September 30, 2012, respectively, are in non accrual status.

25

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 4.  Loans and Allowance continued

The following tables summarize troubled debt restructures that occurred during the twelve months ended September 30, 2012, and September 30, 2011, that subsequently defaulted during the period indicated:

	Three Months Ended				Nine Months Ended
	September 30, 2012				September 30, 2012
	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		3	$	1,415		3	$	1,415
Real Estate Loans:
Commercial and farm land		1		23		1		23
Residential		7		371		11		2,494
Total		11	$	1,809		15	$	3,932

	Three Months Ended				Nine Months Ended
	September 30, 2011				September 30, 2011
	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		1	$	66		2	$	553
Real Estate Loans:
Commercial and farm land						1
Residential		3		271		3		657
Home Equity		1		11		1		11
Total		5	$	348		7	$	1,221

For potential consumer loan restructures, impairment evaluation occurs prior to modification.  Any subsequent impairment is typically addressed through the charge off process, or may be addressed through a specific reserve.  Consumer troubled debt restructurings are generally included in the general historical allowance for loan loss at the post modification balance.  Consumer non-accrual and delinquent troubled debt restructurings are also considered in the calculation of the non-accrual and delinquency trend environmental allowance allocation.  Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and loss are individually evaluated for impairment under ASC 310.  Any resulting specific reserves are included in the allowance for loan losses. Commercial 30 – 89 day delinquent troubled debt restructurings are included in the calculation of the delinquency trend environmental allowance allocation. All commercial non-impaired loans, including non-accrual and 90+ day delinquents, are included in the ASC 450 loss migration analysis.

26

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 5.  Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Corporation is exposed to certain risks arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments.  Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash payments principally related to certain variable-rate liabilities.  The Corporation also has derivatives that are a result of a service the Corporation provides to certain qualifying customers, and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities.

Cash Flow Hedges of Interest Rate Risk

The Corporation’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Corporation primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the payment of fixed amounts to a counterparty in exchange for the Corporation receiving variable payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.  As of September 30, 2012, the Corporation had two interest rate swaps with a notional amount of $26.0 million and one interest rate cap with a notional amount of $13.0 million that were designated as cash flow hedges.   As of September 30, 2011, the Corporation had one interest rate swap with a notional amount of $13.0 million and one interest rate cap with a notional amount of $13.0 million that were designated as cash flow hedges.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2012, such derivatives were used to hedge the forecasted LIBOR-based outflows associated with existing trust preferred securities when the outflows converted from a fixed rate to variable rate in September of 2012.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2012, and 2011, the Corporation did not recognize any ineffectiveness.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Corporation’s variable-rate liabilities.  During the next twelve months, the Corporation does not expect to reclassify any amounts from accumulated other comprehensive income to interest expense.

The Corporation does not use derivatives for trading or speculative purposes.  Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers. The Corporation executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Corporation executes with a third party, such that the Corporation minimizes its net risk exposure resulting from such transactions.  As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.  As of September 30, 2012, the notional amount of customer-facing swaps was approximately $152,667,000.  This amount is offset with third party counterparties, as described above.

27

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 5.  Derivative Financial Instruments continued

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Corporation’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2012, and December 31, 2011.

Asset Derivatives

Liability Derivatives

September 30, 2012

December 31, 2011

September 30, 2012

December 31, 2011

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Interest rate contracts

Other Assets

$

206

Other Assets

$

424

Other Liabilities

$

3,617

Other Liabilities

$

2,305

Derivatives not designated as hedging instruments:

Interest rate contracts

Other Assets

$

6,412

Other Assets

$

5,241

Other Liabilities

$

6,789

Other Liabilities

$

5,492

Effect of Derivative Instruments on the Income Statement

The tables below present the effect of the Corporation’s derivative financial instruments on the Income Statement for the three and nine months ended September 30, 2012, and 2011.

Derivatives Not Designated as Hedging Instruments under ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Recognized Income on Derivative			Amount of Gain (Loss) Recognized Income on Derivative
		Three Months Ended September 30, 2012			Nine Months Ended  September 30, 2012
Interest rate contracts	Other income	$	(70	)	$	(125	)
Derivatives Not Designated as Hedging Instruments under ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Recognized Income on Derivative			Amount of Gain (Loss) Recognized Income on Derivative
		Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
Interest rate contracts	Other income	$	(95	)	$	(93	)

The Corporation’s exposure to credit risk occurs because of nonperformance by its counterparties.  The counterparties approved by the Corporation are usually financial institutions, which are well capitalized and have credit ratings through Moody’s and/or Standard & Poor’s, at or above investment grade.  The Corporation’s control of such risk is through quarterly financial reviews, comparing mark-to-mark values with policy limitations, credit ratings and collateral pledging.

Credit-risk-related Contingent Features

The Corporation also has agreements with certain of its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well or adequate capitalized institution, then the Corporation could be required to terminate or fully collateralize all outstanding derivative contracts.

The Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Corporation could also be declared in default on its derivative obligations.

As of September 30, 2012, the termination value of derivatives in a net liability position related to these agreements was $10,567,000. As of September 30, 2012, the Corporation had minimum collateral posting thresholds with certain of its derivative counterparties and had posted collateral of $9,337,000. If the Corporation had breached any of these provisions at September 30, 2012, it could have been required to settle its obligations under the agreements at their termination value.

28

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

Note 6.  Disclosures About Fair Value of Assets and Liabilities

The Corporation has adopted fair value accounting guidance that defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

The following table presents the fair value measurements of assets and liabilities recognized in the Consolidated Condensed Balance Sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

				Fair Value Measurements Using
September 30, 2012	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	4,782			$	4,782
State and municipal		161,017				142,798		$	18,219
U.S. Government-sponsored mortgage-backed securities		383,912				383,912
Corporate obligations		202							202
Equity securities		1,706				1,702			4
Interest rate swap asset		6,412				6,412
Interest rate cap		206				206
Interest rate swap liability		(10,406	)			(10,406	)

				Fair Value Measurements Using
December 31, 2011	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	117			$	117
State and municipal		147,353				126,712	$	20,641
U.S. Government-sponsored mortgage-backed securities		368,998				368,998
Corporate obligations		193						193
Equity securities		1,830				1,826		4
Interest rate swap asset		5,241						5,241
Interest rate cap		424						424
Interest rate swap liability		(7,797	)					(7,797	)

29

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

Note 6.  Disclosures About Fair Value of Assets and Liabilities continued

Following is a description of the valuation methodologies and inputs used for instruments measured at fair value on a recurring basis and recognized in the accompanying Consolidated Condensed Balance Sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.  There have been no significant changes in the valuation techniques during the nine months ended September 30, 2012.

Available for Sale Investment Securities

Where quoted, market prices are available in an active market and securities are classified within Level 1 of the valuation hierarchy. There are no securities classified within Level 1 of the hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include agencies, mortgage backs, state and municipal, and equity securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Level 3 fair value, including corporate obligations, state and municipal and equity securities, was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.

Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities classified within Level 2. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3.

Pooled Trust Preferred Securities

Pooled trust preferred securities in the portfolio amount to $6 million in amortized cost, with a fair value of $171,000; all of which are classified as Level 3 inputs in the fair value hierarchy. These securities were rated A or better at inception, but at September 30, 2012, Moody’s ratings on these securities ranged from Ca to C. The issuers in these securities are primarily banks, but some of the pools do include a limited number of insurance companies. On a quarterly basis, the Corporation uses an other-than-temporary impairment (“OTTI”) evaluation process to compare the present value of expected cash flows to determine whether an adverse change in cash flows has occurred. The OTTI evaluation process considers the structure and term of the collateralized debt obligation (“CDO”), interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes.  The current estimate of expectedcash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the evaluation process include expected future default rates and prepayments as well as recovery assumptions on defaults and deferrals. In addition, the process is used to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Corporation’s note class. Upon completion of the September 30, 2012, quarterly evaluation process, the conclusion was no additional OTTI impairment for the three and nine months ending September 30, 2012. The Corporation did not recognize any OTTI impairment for the three months ended September 30, 2011, but did recognize $400,000 of OTTI impairment for the nine months ended September 30, 2011.

30

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 6.  Disclosures About Fair Value of Assets and Liabilities continued

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the Consolidated Condensed Balance Sheets using significant unobservable (Level 3) inputs for the three and nine months ended September 30, 2012, and 2011.

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	Available for Sale Securities			Interest Rate Swap Asset	Interest Rate Cap	Interest Rate Swap Liability	Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability
Balance at beginning of the period	$	19,740					$	20,838		$	5,241		$	424		$	(7,797	)
Total realized and unrealized gains and losses:
Included in net income (loss)											(860	)					863
Included in other comprehensive income		(183	)					(944	)		481			(15	)
Purchases, issuances and settlements
Transfers in/(out) of Level 3											(4,862	)		(409	)		6,934
Principal payments/additions		(1,132	)					(1,469	)
Ending balance at September 30, 2012	$	18,425					$	18,425

	Three Months Ended September 30, 2011												Nine Months Ended September 30, 2011
	Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability			Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability
Balance at beginning of the period	$	180		$	3,783		$	954		$	(3,986	)	$	186		$	4,002		$	1,109		$	(3,876	)
Total realized and unrealized gains and losses:
Included in net income (loss)					3,251						(3,345	)		(400	)		3,363						(3,455	)
Included in other comprehensive income		(45	)		(1,726	)		(498	)					195			(2,057	)		(653	)
Purchases, issuances and settlements
Transfers in/(out) of Level 3		18,711												18,711
Principal payments		65												219
Ending balance at September 30, 2011	$	18,911		$	5,308		$	456		$	(7,331	)	$	18,911		$	5,308		$	456		$	(7,331	)

There were no gains or losses for the period included in earnings that were attributable to the changes in unrealized gains or losses related to assets or liabilities held at September 30, 2012 or December 31, 2011.

Transfers Between Levels

Transfer between Levels 1, 2 and 3 and the reasons for those transfers are as follows:

	Quoted Prices in Active Markets for Identical Assets  (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Reason for Transfer
Transfers from Level:
Interest rate swap asset				$	4,862	The interest rate swap and cap instruments were transferred from Level 3 to Level 2 as of March 31, 2012 due to the Corporation's additional analysis of valuation methodologies.  These instruments are valued using widely accepted valuation techniques including discounted cash flow analysis using observable inputs such as contractual terms and Libor-based rate curves.
Interest rate cap					409
Interest rate swap liability					6,934
Total Transfers from Level				$	12,205
Transfers to Level:
Interest rate swap asset		$	4,862			The interest rate swap and cap instruments were transferred from Level 3 to Level 2 as of March 31, 2012 due to the Corporation's additional analysis of valuation methodologies.  These instruments are valued using widely accepted valuation techniques including discounted cash flow analysis using observable inputs such as contractual terms and Libor-based rate curves.
Interest rate cap			409
Interest rate swap liability			6,934
Total Transfers to Level		$	12,205

31

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 6.  Disclosures About Fair Value of Assets and Liabilities continued

Nonrecurring Measurements

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

			Fair Value Measurements Using
September 30, 2012	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$	25,853			$	25,853
Other real estate owned (collateral dependent)	$	5,132			$	5,132

			Fair Value Measurements Using
December 31, 2011	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable  Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$	22,885			$	22,885
Other real estate owned (collateral dependent)	$	7,882			$	7,882

Following is a description of valuation methodologies used for instruments measured at fair value on a nonrecurring basis and recognized in the Consolidated Condensed Balance Sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired Loans (collateral dependent) and Other Real Estate Owned

Loan impairment is reported when substantial doubt about the collectability of scheduled payments exists. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectability of the loan is confirmed. During the first nine months of 2012, certain impaired loans were partially charged-off or re-evaluated. The valuation would be considered Level 3, consisting of appraisals of underlying collateral and discounted cash flow analysis.

The fair value for impaired loans and other real estate owned is measured based on the value of the collateral securing those loans or real estate and is determined using several methods. The fair value of real estate is generally determined based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically calculated by using financial information such as financial statements and aging reports provided by the borrower and is discounted as considered appropriate.

32

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 6.  Disclosures About Fair Value of Assets and Liabilities continued

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2012.

	Fair Value		Valuation Technique	Unobservable Inputs	Range
State and municipal securities	$	18,219	Discounted cash flow	Maturity/Call date	1 month to 11 yrs
				Blend of US Muni BQ curve	A- to BBB-
				Discount rate		1% - 4	%
Corporate obligations/Equity securities	$	206	Discounted cash flow	Risk free rate	3 month libor
				plus Premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	25,853	Collateral based	Discount to reflect current market		0% - 50	%
			measurements	conditions and ultimate collectability
Other real estate owned	$	5,132	Appraisals	Discount to reflect current market		0% - 20	%
				conditions

Sensitivity of Significant Unobservable Inputs

The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and of how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

State and Municipal Securities

The significant unobservable inputs used in the fair value measurement of the Corporation’s state and municipal securities are premiums for unrated securities and marketability discounts.  Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement.  Generally, changes in either of those inputs will not affect the other input.

Corporate Obligations/Equity Securities

The significant unobservable inputs used in the fair value measurement of the Corporation’s corporate obligations/equity securities are premiums for unrated securities and marketability discounts.  Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement.  Generally, changes in either of those inputs will not affect the other input.

33

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 6.  Disclosures About Fair Value of Assets and Liabilities continued

Fair Value of Financial Instruments

The following table presents estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

	September 30, 2012
	(unaudited)
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	57,027	$	57,027
Interest-bearing time deposits		35,324		35,324
Investment securities available for sale		551,619			$	533,194	$	18,425
Investment securities held to maturity		377,097				385,155		11,062
Mortgage loans held for sale		27,711				27,711
Loans		2,766,831						2,793,212
Federal Reserve Bank and Federal Home Loan Bank stock		32,824				32,824
Interest rate swap asset		6,618				6,618
Interest receivable		17,519				17,519
Liabilities:
Deposits	$	3,194,751	$	2,292,977	$	902,678
Borrowings:
Federal funds purchased		57,024				57,024
Securities sold under repurchase agreements		153,454				154,017
Federal Home Loan Bank advances		145,467				148,985
Subordinated debentures, revolving credit lines and term loans		112,169				67,837
Interest rate swap liability		10,406				10,405
Interest payable		1,591				1,591

	December 31, 2011
	(unaudited)
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	73,312	$	73,312
Interest-bearing time deposits		52,851		52,851
Investment securities available for sale		518,491			$	497,653	$	20,838
Investment securities held to maturity		427,909				428,737		13,732
Mortgage loans held for sale		17,864				17,864
Loans		2,642,517						2,658,227
Federal Reserve Bank and Federal Home Loan Bank stock		31,270				31,270
Interest rate swap asset		5,665						5,665
Interest receivable		17,723				17,723
Liabilities:
Deposits	$	3,134,655	$	2,195,679	$	944,078
Borrowings:
Securities sold under repurchase agreements		156,305				157,342
Federal Home Loan Bank advances		138,095				141,693
Subordinated debentures, revolving credit lines and term loans		194,974				142,632
Interest rate swap liability		7,797					$	7,797
Interest payable		2,925				2,925

The following methods were used to estimate the fair value of all other financial instruments recognized in the Consolidated Condensed Balance Sheets at amounts other than fair value.

Cash and due from banks:  The fair value of cash and cash equivalents approximates carrying value.

Interest-bearing time deposits:  The fair value of interest-bearing time deposits approximates carrying value.

Investment securities:  Fair value is based on quoted market prices, if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Mortgage Loans Held For Sale:  The carrying amount approximates fair value due to the insignificant time between origination and date of sale.

34

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 6.  Disclosures About Fair Value of Assets and Liabilities continued

Loans:  The fair value for loans is estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  See Impaired Loans above.

Federal Reserve and Federal Home Loan Bank stock:  The fair value of Federal Reserve Bank and Federal Home Loan Bank stock is based on the price which it may be resold to the Federal Reserve and Federal Home Loan Bank.

Derivative instruments:  The fair value of the derivatives reflects the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.  Interest rate caps are valued using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rose above the strike rate of the caps.  The projected cash receipts on the caps are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.

Interest Receivable and Interest Payable:  The carrying amount approximates fair value.

Deposits:  The fair values of noninterest-bearing and interest-bearing demand accounts and savings deposits are equal to the amount payable on demand at the balance sheet date. The carrying amounts for variable rate, fixed-term certificates of deposit approximate their fair values at the balance sheet date. Fair values for fixed-rate certificates of deposit and other time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly maturities on such time deposits.

Federal funds purchased:  The carrying amount approximates fair value.

Borrowings:  The fair value of borrowings is estimated using a discounted cash flow calculation, based on current rates for similar debt.

NOTE 7.  Share-Based Compensation

Stock options and restricted stock awards ("RSAs") have been issued to directors, officers and other management employees under the Corporation's 1999 Long-term Equity Incentive Plan and the 2009 Long-term Equity Incentive Plan.  The stock options, which have a ten-year life, become 100 percent vested ranging from six months to two years and are fully exercisable when vested. Option exercise prices equal the Corporation's common stock closing price on NASDAQ on the date of grant.  RSAs provide for the issuance of shares of the Corporation's common stock at no cost to the holder and generally vest after three years.  The RSAs vest only if the employee is actively employed by the Corporation on the vesting date and, therefore, any unvested shares are forfeited.  Deferred stock units ("DSUs") can be credited to non-employee directors who have elected to defer payment of compensation under the Corporation's 2008 Equity Compensation Plan for Non-employee Directors.  DSUs credited are equal to the restricted shares that the non-employee director would have received under the plan.  As of September 30, 2012, there were no outstanding DSUs.

The Corporation’s 2009 Employee Stock Purchase Plan (“ESPP”) provides eligible employees of the Corporation and its subsidiaries an opportunity to purchase shares of common stock of the Corporation through quarterly offerings financed by payroll deductions. The price of the stock to be paid by the employees shall be equal to 85 percent of the average of the closing price of the Corporation’s common stock on each trading day during the offering period. However, in no event shall such purchase price be less than the lesser of an amount equal to 85 percent of the market price of the Corporation’s stock on the offering date or an amount equal to 85 percent of the market value on the date of purchase. Common stock purchases are made quarterly and are paid through advance payroll deductions up to a calendar year maximum of $25,000.

35

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

NOTE 7.  Share-Based Compensation continued

Compensation expense related to unvested share-based awards is recorded by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards, with no change in historical reported fair values and earnings.Awards are valued at fair value in accordance with provisions of share-based compensation guidance and are recognized on a straight-line basis over the service periods of each award. To complete the exercise of vested stock options, RSA’s and ESPP options, the Corporation generally issues new shares from its authorized but unissued share pool. Share-based compensation for the three months and nine months ended September 30, 2012, was $415,000 and $1,101,000, respectively compared to $290,000 and $1,009,000 for the three months and nine months ended September 30, 2011. Share-based compensation has been recognized as a component of salaries and benefits expense in the accompanying CONSOLIDATED CONDENSED STATEMENTS OF INCOME.

The estimated fair value of the stock options granted during 2012 and in prior years was calculated using a Black Scholes option pricing model.  The following summarizes the assumptions used in the 2012 Black Scholes model:

Risk-free interest rate	1.36	%
Expected price volatility	46.22	%
Dividend yield	3.29	%
Forfeiture rate	4.77	%
Weighted-average expected life, until exercise	7.2	years

The Black Scholes model incorporates assumptions to value share-based awards. The risk-free rate of interest, for periods equal to the expected life of the option, is based on a U.S. government instrument over a similar contractual term of the equity instrument. Expected price volatility is based on historical volatility of the Corporation’s common stock.  In addition, the Corporation generally uses historical information to determine the dividend yield and weighted-average expected life of the options until exercise. Separate groups of employees that have similar historical exercise behavior with regard to option exercise timing and forfeiture rates are considered separately for valuation and attribution purposes.

Share-based compensation expense recognized in the CONSOLIDATED CONDENSED STATEMENTS OF INCOME is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Share-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Pre-vesting forfeitures were estimated to be approximately 4.8 percent for the nine months ended September 30, 2012, based on historical experience.

The following table summarizes the components of the Corporation's share-based compensation awards recorded as expense:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Stock and ESPP Options
Pre-tax compensation expense	$	71		$	56		$	197		$	165
Income tax benefit		(11	)		(7	)		(13	)		(8	)
Stock and ESPP option expense, net of income taxes	$	60		$	49		$	184		$	157
Restricted Stock Awards
Pre-tax compensation expense	$	344		$	234		$	904		$	844
Income tax benefit		(104	)		(76	)		(322	)		(289	)
Restricted stock awards expense, net of income taxes	$	240		$	158		$	582		$	555
Total Share-Based Compensation:
Pre-tax compensation expense	$	415		$	290		$	1,101		$	1,009
Income tax benefit		(115	)		(83	)		(335	)		(297	)
Total share-based compensation expense, net of income taxes	$	300		$	207		$	766		$	712

36

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands, except per share amounts)

(Unaudited)

NOTE 7.  Share-Based Compensation continued

As of September 30, 2012, unrecognized compensation expense related to stock options and RSAs totaling $132,000 and $2,053,000, respectively, is expected to be recognized over weighted-average periods of .84 and 1.52 years, respectively.

Stock option activity under the Corporation's stock option plans as of September 30, 2012 and changes during the nine months ended September 30, 2012, were as follows:

	Number of Shares			Weighted-Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2012		1,035,871		$	22.57
Granted/ Converted		46,801		$	11.69
Exercised		(8,750	)	$	7.69
Cancelled		(165,536	)	$	25.87
Outstanding September 30, 2012		908,386		$	21.55		4.33		1,097,884
Vested and Expected to Vest at September 30, 2012		908,386		$	21.55		4.33		1,097,884
Exercisable at September 30, 2012		830,336		$	22.58		3.89		760,073

The weighted-average grant date fair value was $3.97 for stock options granted during the nine months ended September 30, 2012.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Corporation's closing stock price on the last trading day of the first nine months of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their stock options on September 30, 2012.  The amount of aggregate intrinsic value will change based on the fair market value of the Corporation's common stock.    The aggregate intrinsic value of stock options exercised during the first nine months of 2012 was $46,000. Cash receipts of stock options exercised during this same period were $67,000.

The following table summarizes information on unvested RSAs outstanding as of September 30, 2012:

	Number of Shares			Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2012		338,087		$	8.65
Granted		156,473		$	11.79
Forfeited		(8,800	)	$	9.63
Vested		(79,386	)	$	11.90
Unvested RSAs at September 30, 2012		406,374		$	9.18

The grant date fair value of ESPP options was estimated at the beginning of the July 1, 2012 quarterly offering period of approximately $22,000. The ESPP options vested during the three months ending September 30, 2012, leaving no unrecognized compensation expense related to unvested ESPP options at September 30, 2012.

37

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands, except per share amounts)

(Unaudited)

NOTE 8.  Income Tax

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Income Tax Expense :
Currently Payable:
Federal	$	139		$	47		$	1,475		$	(855	)
State
Deferred:
Federal		3,787			2,514			11,239			7,211
State
Total Income Tax Expense	$	3,926		$	2,561		$	12,714		$	6,356
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 35%	$	5,307		$	3,256		$	16,634		$	8,416
Tax-exempt interest income		(927	)		(916	)		(2,788	)		(2,793	)
Non-deductible interest expense					230						649
Stock compensation		14			19			56			56
Earnings on life insurance		(240	)		(208	)		(954	)		(610	)
Tax credits		(19	)		(29	)		(55	)		(55	)
Other		(209	)		209			(179	)		693
Actual Tax Expense	$	3,926		$	2,561		$	12,714		$	6,356

NOTE 9.  Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average shares outstanding during the reporting period. Diluted net income per share is computed by dividing net income by the combination of all dilutive common share equivalents, comprised of shares issuable under the Corporation’s share-based compensation plans, and the weighted-average shares outstanding during the reporting period.

Dilutive common share equivalents include the dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of share-based awards, the amount of compensation expense, if any, for future service that the Corporation has not yet recognized, and the amount of estimated tax benefits that would be recorded in additional paid-in capital when share-based awards are exercised, are assumed to be used to repurchase common stock in the current period.

	Three Months Ended September 30,
	2012							2011
	Net Income			Weighted-Average Shares		Per Share Amount		Net Income (Loss)			Weighted-Average Shares		Per Share Amount
Basic net income (loss) per share:	$	11,236						$	6,742
Loss on extinguishment of trust preferred securities									(10,857	)
Loss on CPP unamortized discount									(1,401	)
Less: Preferred Stock dividends and discount accretion		(1,134	)						(868	)
Net income (loss) available to common stockholders		10,102			28,649,996	$	0.35		(6,384	)		26,367,067	$	(0.25	)
Effect of dilutive stock options and warrants					238,080
Diluted net income (loss) per share:
Net income (loss) available to common stockholders	$	10,102			28,888,076	$	0.35	$	(6,384	)		26,367,067	$	(0.25	)

38

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands, except per share amounts)

(Unaudited)

NOTE 9.  Net Income Per Share continued

Stock options to purchase 770,001 and 1,008,957 shares for the three months ended September 30, 2012, and 2011, respectively, were not included in the earnings per share calculation because the exercise price exceeded the average market price.

	Nine Months Ended September 30,
	2012							2011
	Net Income			Weighted-Average Shares		Per Share Amount		Net Income			Weighted-Average Shares		Per Share Amount
Basic net income per share:	$	34,812						$	17,691
Loss on extinguishment of trust preferred securities									(10,857	)
Loss on CPP unamortized discount									(1,401	)
Less: Preferred Stock dividends and discount accretion		(3,404	)						(2,846	)
Net income available to common stockholders		31,408			28,619,186	$	1.09		2,587			25,879,277	$	0.10
Effect of dilutive stock options and warrants					200,097							139,659
Diluted net income (loss) per share:
Net income available to common stockholders	$	31,408			28,819,283	$	1.09	$	2,587			26,018,936	$	0.10

Stock options to purchase 846,499 and 1,024,775 shares for the nine months ended September 30, 2012, and 2011, respectively, were not included in the earnings per share calculation because the exercise price exceeded the average market price.

NOTE 10.  Impact of Accounting Changes

ASU 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”  In December 2011 the FASB issued Accounting Standards Update 2011-12, Comprehensive Income (Topic 220):  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  This ASU defers the changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. This ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011.  For nonpublic entities this ASU is effective for fiscal years ending after December 15, 2012. ASU 2011-12 became effective for the Corporation on January 1, 2012 and did not have a significant impact on the Corporation’s financial statements.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350).”  In July 2012, the FASB issued Accounting Standards Update 2012-02, Intangibles – Goodwill and Other:  Testing Indefinite-Lived Intangible Assets for Impairment.  The amendments in this ASU allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test.  An entity would not be required to calculate the fair value of an indefinite-live intangible asset unless the entity determines, bases on qualitative assessment, that it is more likely than not, the indefinite-lived intangible asset is impaired.  This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and is not expected to have a significant impact on the Corporation’s financial statements.  Early adoption is permitted.

ASU 2012-04, “Technical Corrections and Improvements.”  In October 2012, the FASB issued Accounting Standards Update 2012-04, Technical Corrections and Improvements.  The amendments in this ASU make technical corrections, clarifications and limited-scope improvements to various Topics throughout the Codification.  This ASU is effective for public entities for fiscal periods beginning after December 15, 2012 and is not expected to have a significant impact on the Corporation’s financial statements.

39

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Table dollars in thousands)

(Unaudited)

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

From time to time, we include forward-looking statements in our oral and written communication. We may include forward-looking statements in filings with the Securities and Exchange Commission, such as this Form 10-Q, in other written materials and in oral statements made by senior management to analysts, investors, representatives of the media and others. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of these safe harbor provisions. Forward-looking statements can often be identified by the use of words like “believe”, “continue”, “pattern”, “estimate”, “project”, “intend”, “anticipate”,  “expect” and similar expressions or future or conditional verbs such as “will”, “would”,  “should”,  “could”,  “might”, “can”, “may”, or similar expressions. These forward-looking statements include:

• statements of our goals, intentions and expectations;

• statements regarding our business plan and growth strategies;

• statements regarding the asset quality of our loan and investment portfolios; and

• estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors which could affect the actual outcome of future events:

• fluctuations in market rates of interest and loan and deposit pricing, which could negatively affect our net interest margin, asset valuations and expense expectations;

• adverse changes in the economy, which might affect our business prospects and could cause credit-related losses and expenses;

• adverse developments in our loan and investment portfolios;

• competitive factors in the banking industry, such as the trend towards consolidation in our market;

• changes in the banking legislation or the regulatory requirements of federal and state agencies applicable to bank holding companies and banks like our affiliate banks;

• acquisitions of other businesses by us and integration of such acquired businesses;

• changes in market, economic, operational, liquidity, credit and interest rate risks associated with our business; and

• the continued availability of earnings and excess capital sufficient for the lawful and prudent declaration and payment of cash dividends.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our anticipated future results.

40

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Generally accepted accounting principles are complex and require us to apply significant judgments to various accounting, reporting and disclosure matters. We must use assumptions and estimates to apply these principles where actual measurement is not possible or practical. For a complete discussion of our significant accounting policies, see “Notes to the Consolidated Financial Statements” in our Annual Report on Form 10-K for the year ended December 31, 2011. Certain policies are considered critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such estimates may have a significant impact on the financial statements. We have reviewed the application of these policies with the Audit Committee of our Board of Directors.

We believe there have been no significant changes during the nine months ended September 30, 2012, to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2011.

BUSINESS SUMMARY

First Merchants Corporation (the “Corporation”) is a financial holding company headquartered in Muncie, Indiana and was organized in September 1982. The Corporation’s Common Stock is traded on NASDAQ’s Global Select Market System under the symbol FRME. The Corporation has one full-service bank charter, First Merchants Bank, National Association (the “Bank”), which opened for business in Muncie, Indiana, in March 1893. The Bank also operates Lafayette Bank and Trust, Commerce National Bank and First Merchants Trust Company as divisions of First Merchants Bank, N.A.  The Bank includes seventy-nine banking locations in twenty-four Indiana and two Ohio counties. In addition to its branch network, the Corporation’s delivery channels include ATMs, check cards, remote deposit capture, interactive voice response systems and internet technology. The Corporation’s business activities are currently limited to one significant business segment, which is community banking.

Through the Bank, the Corporation offers a broad range of financial services, including accepting time deposits, savings and demand deposits; making consumer, commercial, agri-business and real estate mortgage loans; renting safe deposit facilities; providing personal and corporate trust services; providing full-service brokerage; and providing other corporate services, letters of credit and repurchase agreements.

The Corporation also operates First Merchants Insurance Services, Inc., operating as First Merchants Insurance Group, a full-service property, casualty, personal lines, and employee benefit insurance agency headquartered in Muncie, Indiana.

41

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Executive Summary

First Merchants Corporation reported net income available to common stockholders of $10.1 million, or $0.35 per fully diluted common share for the quarter ended September 30, 2012, an increase of $16.5 million, compared to a net loss available to common stockholders of $6.4 million, or $(0.25) per common share for the quarter ended September 30, 2011.

Net income available to common stockholders for the nine months ended September 30, 2012 was $31.4 million, or $1.09 per fully diluted common share, compared to net income available to common stockholders of $2.6 million, or $0.10 per fully diluted common share for the nine months ended September 30, 2011.

In the third quarter of 2011, an after-tax loss of $12.3 million, or $.47 per share, was recorded due to the accounting treatment for the extinguishment of trust preferred securities.  The extinguishment of the trust preferred securities was done in conjunction with the redemption of 69,600 shares of the Corporation’s fixed rate cumulative perpetual preferred stock, under the Capital Purchase Program, for $69.6 million, the issuance of 90,783 shares of the Corporation’s senior non-cumulative perpetual preferred stock, through the Small Business Lending Fund, for $90.8 million, and the issuance of 2.8 million of the Corporation’s common stock for $20.8 million.

On February 10, 2012, the Bank assumed substantially all the deposits and certain other liabilities and acquired certain assets of SCB Bank, from the FDIC as the receiver of SCB Bank. This transaction generated a pre-tax gain of $9.1 million, or $0.21 per common share after tax.  Details of this transaction are included in NOTE 2.  PURCHASE AND ASSUMPTION, included within the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.

As of September 30, 2012, total assets equaled $4.3 billion, an increase of $77.1 million from December 31, 2011.  The three most significant assets acquired through the SCB transaction were cash and due from banks of $29.1 million, loans of $93.8 million and securities of approximately $18.9 million.

The Corporation’s allowance for loan losses totaled $69.5 million as of September 30, 2012.  The allowance provides 121.9 percent coverage of all non-accrual loans and 2.43 percent of total loans.  Provision expense totaled $4.6 million for the three months ended September 30, 2012, compared to $5.6 million in the three months ended September 30, 2011.  Net charge-offs totaled $5.3 million for the third quarter of 2012, down from $9.6 million for the third quarter of 2011.  The decline in the provision expense for the three months ended September 30, 2012 compared to the same period in 2011 was directionally consistent with the improvements in non-performing and adversely classified loans.  Additional details are discussed within the “PROVISION/ALLOWANCE FOR LOAN LOSSES” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q.

Taxes, both current and deferred, decreased from December 31, 2011 by $7.1 million, mainly due to the temporary difference related to the $9.1 million gain on the FDIC modified whole bank transaction and a lower deferred tax asset associated with the reduction in the allowance for loan losses.

Deposits increased from December 31, 2011 by $60.1 million.  As part of the SCB transaction, the Bank assumed deposits of $125.9 million.  The Bank also completed repayment of $79.0 million of Senior Notes (the “Notes”) that matured on March 30, 2012.  The Notes were originally issued by the Bank on March 31, 2009 and were guaranteed by the FDIC under its Temporary Liquidity Guarantee Program.  Additionally, on August 22, 2012 the Corporation exercised its option to redeem the $4,124,000 subordinated debenture associated with the CNBC Statutory Trust I.  The redemption price premium was 104.59.  The debenture had carried a fixed interest rate of 10.2 percent.

The Corporation was able to maintain all regulatory capital ratios in excess of the regulatory definition of “well-capitalized” as discussed in the “CAPITAL” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q.

NET INTEREST INCOME

Net interest income is the primary source of the Corporation’s earnings.  Net interest margin is a function of net interest income and the level of average earning assets.Net interest income and net interest margin are presented in the following table on a fully taxable equivalent basis (“FTE”), which adjusts tax-exempt or nontaxable interest income to an amount that would be comparable to interest subject to income taxes using the federal statutory tax rate of 35 percent in effect for all periods.  Net interest margin increased 30 basis points from 4.02 percent in the third quarter of 2011 to 4.32 percent in the third quarter of 2012, while earning assets increased by $114.7 million.

42

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NET INTEREST INCOME continued

The increased net interest income during the three months ended September 30, 2012 compared with the same period in 2011 was driven by two primary factors.  The first factor is a higher level of earning assets and interest income resulting from the assumption of SCB loans and related fair value accretion recognized in interest income.  Additional details can be found in NOTE 2.  PURCHASE AND ASSUMPTION, included within the Notes to Consolidated condensed Financial Statements of this Form 10-Q.  The second factor contributing to the improvement in the net interest margin, expressed as a percentage of earning assets, was largely the result of the Corporation’s ability to lower its cost of funds and in particular its cost of deposits, due to  the growth of the Corporation’s non-interest bearing demand deposits and interest-bearing non-maturity deposits.

During the nine months ended September 30, 2012, asset yields decreased 26 basis points FTE and interest costs decreased 41 basis points, resulting in a 15 basis point FTE increase in net interest income as compared to the same period in 2011.  The following table presents the Corporation’s interest income, interest expense, and net interest income as a percent of average earning assets for the three and nine months ended September 30, 2012, and 2011.

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Thousands)	2012			2011			2012			2011
Annualized net interest income	$	159,611		$	143,402		$	152,095		$	142,900
Annualized FTE adjustment	$	5,707		$	5,633		$	5,746		$	5,781
Annualized net interest income on a fully taxable equivalent basis	$	165,318		$	149,035		$	157,841		$	148,681
Average earning assets	$	3,829,127		$	3,714,401		$	3,818,805		$	3,736,503
Interest income (FTE) as a percent of average earning assets		4.89	%		5.01	%		4.79	%		5.05	%
Interest expense as a percent of average earning assets		0.57	%		0.99	%		0.66	%		1.07	%
Net interest income (FTE) as a percent of average earning assets		4.32	%		4.02	%		4.13	%		3.98	%

Average earning assets include the average balance of securities classified as available for sale, computed based on the average of the historical amortized cost balances without the effects of the fair value adjustment.  Annualized amounts are computed utilizing a 30/360 day basis.

NON-INTEREST INCOME

Non-interest income increased $1.0 million or 7.9 percent in the third quarter of 2012, compared to the third quarter of 2011.  The primary reason for the increase during the third quarter of 2012 was increased mortgage origination volume which resulted in an increase in the gains on the sale of mortgage loans totaling $1.1 million more than the third quarter 2011.

During the first nine months of 2012, non-interest income increased $13.9 million or 38.6 percent over the same period in 2011.  The largest item contributing to the increase was a gross purchase gain of $9.1 million recognized from the purchase of certain assets and assumption of certain liabilities of SCB Bank.  See NOTE 2. PURCHASE AND ASSUMPTION in the Notes to Consolidated Condensed Financial Statements included of this Form 10-Q for additional discussion of this transaction.

Additionally, gains on the sale of mortgage loans increased $2.4 million due to increased mortgage origination volume in 2012 than in the same period of 2011.  In 2012, $576,000 was received in the first nine months of 2012 from a Bank Owned Life Insurance death benefit, while none was received in the first nine months of 2011.

Also, an increase of $740,000 from more interchange income from electronic card transactions was realized in the first nine months of 2012 than the same period of 2011 due to increased customer volumes.

NON-INTEREST EXPENSE

Non-interest expenses increased $182,000 or 0.5 percent in the third quarter of 2012, compared to the third quarter of 2011.  Salaries and employee benefits increased $119,000 over the same period in 2011.  Base salaries were $351,000 less than the same period in 2011, while commissions and incentives increased $1.1 million over the same quarter last year.  Employee health insurance decreased $1.0 million when compared to the third quarter of 2011.  Increases were also noted in equipment and other expenses of $136,000 and $457,000, respectively, mainly due to expenses associated with the integration of the Shelbyville acquisition into our core business platform.  A portion of the increase in other expenses was also due to a prepayment penalty of $184,000 related to the early payoff of $4.1 million in subordinated debentures.  See the “LIQUIDITY” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q for additional information related to this reduction in borrowings.

43

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NON-INTEREST EXPENSE continued

The increases mentioned above were offset by declines in core deposit intangible amortization of $266,000 and FDIC expenses of $409,000, from the third quarter of 2011 to the third quarter of 2012.

During the first nine months of 2012, non-interest expense decreased $110,000 when compared to the first nine months of 2011.  Salaries and employee benefits increased $3.4 million or 6.1 percent over the same period in 2011.  Base salaries were down $7,000, while commissions and incentives increased $2.3 million and temporary employee expenses associated with the Shelbyville acquisition increased $567,000 over the same period last year.  Employee retirement plan expenses also increased $743,000 when compared to the first nine months of 2011.

Additionally, other expenses were $1.6 million higher than the same period in 2011 due to expenses associated with the integration of the Shelbyville acquisition into our core business platform.  A portion of the increase in other expenses was also due to a prepayment penalty of $184,000 related to the early payoff of $4.1 million in subordinated debentures.  See the “LIQUIDITY” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q for additional information related to this reduction in borrowings.

The increase in salaries and benefits and other expenses was offset by declines in core deposit intangible amortization of $1.5 million, FDIC expenses of $2.0 million and credit related expenses of $1.6 million, from the first nine months of 2011 to the first nine months of 2012.

INCOME TAX

The income tax expense for the nine months ended September 30, 2012, was $12,714,000 on pre-tax net income of $47,526,000.  For the same period in 2011, the income tax expense was $6,356,000 on pre-tax net income of $24,047,000.   Additional details are discussed within the “Results of Operations” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q.

CAPITAL

Capital adequacy is an important indicator of financial stability and performance.  The Corporation maintained a strong capital position as tangible common equity to tangible assets was 7.51 percent at September 30, 2012, and 6.84 percent at December 31, 2011.

The Corporation and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies and are assigned to a capital category.  The assigned capital category is largely determined by three ratios that are calculated according to the regulations: total risk-based capital, Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to measure capital relative to assets and credit risk associated with those assets and off-balance sheet exposures of the entity.  The capital category assigned to an entity can also be affected by qualitative judgments made by regulatory agencies about the risk inherent in the entity's activities that are not part of the calculated ratios.  At September 30, 2012, the management of the Corporation believes that it meets all capital adequacy requirements to which it is subject. The most recent notifications from the regulatory agencies categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

There are five capital categories defined in the regulations, ranging from well capitalized to critically undercapitalized. Classification of a bank in any of the undercapitalized categories can result in actions by regulators that could have a material effect on a bank's operations.

To be considered well capitalized, a bank must have a total risk-based capital ratio of at least 10 percent, a Tier I capital ratio of at least 6 percent, a Tier 1 leverage ratio of at least 5 percent, and must not be subject to any order or directive requiring the bank to improve its capital level.  An adequately capitalized bank has a total risk-based capital ratio of a least 8 percent, a Tier I capital ratio of at least 4 percent and a Tier 1 leverage ratio of at least 4 percent.  Banks with lower capital levels are deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized, depending on their actual levels.  The appropriate federal regulatory agency may also downgrade a bank to the next lower capital category upon a determination that the bank is in an unsafe or unsound practice.  Banks are required to monitor closely their capital levels and to notify their appropriate regulatory agency of any basis for a change in capital category.

44

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAPITAL continued

As of September 30, 2012, the Corporation, on a consolidated basis, as well as the Bank, exceeded the minimum capital levels of the well capitalized category.

	September 30, 2012					December 31, 2011
(Dollars in Thousands)	Amount		Ratio			Amount		Ratio
Consolidated
Total risk-based capital (to risk-weighted assets)	$	517,552		16.62	%	$	487,393		16.54	%
Tier 1 capital (to risk-weighted assets)		448,239		14.39	%		410,132		13.92	%
Tier 1 capital (to average assets)		448,239		10.98	%		410,132		10.17	%
First Merchants Bank
Total risk-based capital (to risk-weighted assets)	$	507,609		16.31	%	$	477,805		16.26	%
Tier 1 capital (to risk-weighted assets)		468,311		15.04	%		440,909		15.00	%
Tier 1 capital (to average assets)		468,311		11.49	%		440,909		10.96	%

Tier I regulatory capital consists primarily of total stockholders’ equity and subordinated debentures issued to business trusts categorized as qualifying borrowings, less non-qualifying intangible assets and unrealized net securities gains or losses.

Management believes that all of the above capital ratios are meaningful measurements for evaluating the safety and soundness of the Corporation. Additionally, management believes the following table is also meaningful when considering performance measures of the Corporation. The table details and reconciles tangible earnings per share, return on tangible capital and tangible assets to traditional GAAP measures.

	September 30,			December 31,
(Dollars in Thousands, Except Per Share Amounts)	2012			2011
Average goodwill	$	141,357		$	141,357
Average core deposit intangible (CDI)		8,826			10,655
Average deferred tax on CDI		(2,200	)		(2,458	)
Intangible adjustment	$	147,983		$	149,554
Average stockholders' equity (GAAP capital)	$	530,165		$	478,440
Average cumulative preferred stock		(125	)		(125	)
Average non-cumulative preferred stock issued under the Small Business Lending Fund Program		(90,783	)		(74,181	)
Intangible adjustment		(147,983	)		(149,554	)
Average tangible capital	$	291,274		$	254,580
Average assets	$	4,230,009		$	4,143,850
Intangible adjustment		(147,983	)		(149,554	)
Average tangible assets	$	4,082,026		$	3,994,296
Net income available to common stockholders	$	31,408		$	9,013
CDI amortization, net of tax		809			2,112
Tangible net income available to common stockholders	$	32,217		$	11,125
Per Share Data:
Diluted net income available to common stockholders	$	1.09		$	0.34
Diluted tangible net income available to common stockholders	$	1.12		$	0.42
Ratios:
Return on average GAAP capital (ROE)		7.90	%		1.88	%
Return on average tangible capital		14.75	%		4.37	%
Return on average assets (ROA)		0.99	%		0.22	%
Return on average tangible assets		1.05	%		0.28	%

Return on average tangible capital is tangible net income available to common stockholders (annualized) expressed as a percentage of average tangible capital.  Return on average tangible assets is tangible net income available to common stockholders (annualized) expressed as a percentage of average tangible assets.

45

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LOAN QUALITY/PROVISION FOR LOAN LOSSES

The Corporation’s primary business focus is small business and middle market commercial, residential real estate, auto and small consumer lending, which results in portfolio diversification.  Commercial loans are individually underwritten and judgmentally risk rated.  They are periodically monitored and prompt corrective actions are taken on deteriorating loans.  Retail loans are typically underwritten with statistical decision-making tools and are managed throughout their life cycle on a portfolio basis.

The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings. The amount provided for loan losses and the determination of the adequacy of the allowance are based on a continuous review of the loan portfolio, including an internally administered loan “watch” list and an ongoing loan review. The evaluation takes into consideration identified credit problems, as well as the possibility of losses inherent in the loan portfolio that are not specifically identified.

Non-performing loan balances will change as a result of routine problem loan recognition and resolution through collections, sales or charge offs. The performance of any loan can be affected by external factors such as economic conditions, or factors particular to a borrower, such as actions of a borrower’s management.

Non-accrual loans decreased by $12,593,000 during the nine months ended September 30, 2012, from $69,592,000 at December 31, 2011 to the September 30, 2012, balance of $56,999,000. In addition, other real estate owned declined $2,509,000 during the same period.  For other real estate owned, current appraisals are obtained to determine value as management continues to aggressively market these real estate assets. Accruing loans delinquent 90 or more days were $1,974,000 at September 30, 2012, up from $580,000 at December 31, 2011.

	September 30,		December 31,
(Dollars in Thousands)	2012		2011
Non-Performing Assets:
Non-accrual loans	$	56,999	$	69,592
Renegotiated loans		6,871		14,308
Non-performing loans (NPL)		63,870		83,900
Other real estate owned		13,780		16,289
Non-performing assets (NPA)		77,650		100,189
90+ days delinquent and still accruing		1,974		580
NPAs & 90+ days delinquent	$	79,624	$	100,769
Impaired Loans	$	79,965	$	79,775

Commercial Impaired loans include all non-accrual loans, loans accounted for under SOP-03-3 and renegotiated loans as well as substandard, doubtful and loss grade loans that were still accruing but deemed impaired according to guidance set forth in ASC 310.  Also included in impaired loans are accruing loans that are contractually past due 90 days or more.

A loan is deemed impaired when, based on current information or events, it is probable that all amounts due of principal and interest according to the contractual terms of the loan agreement will not be collected substantially within the contractual terms of the note.  At September 30, 2012, commercial impaired loans totaled $79,965,000, a decrease of $1,276,000 from the June 30, 2012, balance of $81,241,000, and up slightly from the December 31, 2011 balance of $79,775,000 despite the addition of the purchased loans discussed in NOTE 2. PURCHASE AND ASSUMPTION included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q. At September 30, 2012, an allowance for losses was not deemed necessary for commercial impaired loans totaling $60,470,000 as there was no identified loss on these credits. An allowance of $6,251,000 was recorded for the remaining balance of these impaired loans totaling $19,495,000 and is included in the corporation’s allowance for loan losses.

46

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LOAN QUALITY/PROVISION FOR LOAN LOSSES continued

The composition of non-performing assets plus 90-days delinquent is reflected in the following table.

	September 30,		December 31,
(Dollars in Thousands)	2012		2011
Non Performing Assets and 90+ Days Delinquent:
Commercial and industrial loans	$	13,731	$	13,725
Agricultural production financing and other loans to farmers		300
Real estate loans:
Construction		12,377		17,784
Commercial and farm land		31,564		46,985
Residential		18,731		18,398
Home Equity		2,460		3,142
Individual's loans for household and other personal expenditures		119		162
Other loans		342		573
Non performing assets plus 90+ days delinquent	$	79,624	$	100,769

At September 30, 2012, the allowance for loan losses was $69,493,000, a decrease of $650,000 from June 30, 2012. As a percent of loans, the allowance was 2.43 percent at September 30, 2012, 2.49 percent at June 30, 2012, 2.50 percent at March 31, 2012 and 2.60 percent at December 31, 2011. The provision for loan losses for the three months ended September 30, 2012 was $4,609,000, a decrease of $947,000 from $5,556,000 for the same period in 2011. The continued improvement in credit quality, primarily the declines in loans graded substandard, doubtful and loss, contributed to the decrease in provision expense.  Specific reserves, on impaired loans increased $175,000 from $6,076,000 at June 30, 2012, to $6,251,000 at September 30, 2012.

Net charge offs for the three months ended September 30, 2012, were $5,259,000, a decrease of $4,356,000 from the same period in 2011.  Of this amount, a single charge off, totaling 9.8 percent of net charge offs, was greater than $500,000.   The distribution of the net charge offs for the three and nine months ended September 30, 2012 and September 30, 2011 is reflected in the following table:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(Dollars in Thousands)	2012			2011			2012			2011
Net Charge Offs (Recoveries):
Commercial and industrial loans	$	923		$	3,238		$	5,266		$	(1,682	)
Agricultural production financing and other loans to farmers		(3	)		(68	)		(23	)		(224	)
Real estate loans:
Construction		433			640			105			5,830
Commercial and farm land		2,408			3,985			6,550			17,658
Residential		1,571			1,720			2,781			4,710
Individual's loans for household and other personal expenditures		(51	)		103			259			398
Lease financing receivables, net of unearned income					(1	)		(1	)		(4	)
Other Loans		(22	)		(2	)		497			(8	)
Total Net Charge Offs	$	5,259		$	9,615		$	15,434		$	26,678

The declines in the value of commercial and residential real estate in our market over the last couple of years has had a negative impact on the underlying collateral value in our commercial, residential, land development and construction loans. Management continually evaluates commercial borrowers by including consideration of specific borrower cash flow analysis and estimated collateral values, types and amounts on non-performing loans, past and anticipated loan loss experience, changes in the composition of the loan portfolio, and the current condition and amount of loans outstanding. The determination of the provision in any period is based on management’s continuing review and evaluation of the loan portfolio, and its judgment as to the impact of current economic conditions on the portfolio.

47

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY

Liquidity management is the process by which we ensure that adequate liquid funds are available for the holding company and its subsidiaries.  These funds are necessary in order to meet financial commitments on a timely basis.  These commitments include withdrawals by depositors, funding credit obligations to borrowers, paying dividends to stockholders, paying operating expenses, funding capital expenditures, and maintaining deposit reserve requirements.  Liquidity is monitored and closely managed by the asset/liability committee.

The Corporation’s liquidity is dependent upon our receipt of dividends from the Bank, which is subject to certain regulatory limitations and access to other funding sources.  Liquidity of the Bank is derived primarily from core deposit growth, principal payments received on loans, the sale and maturity of investment securities, net cash provided by operating activities, and access to other funding sources.

The most stable source of liability-funded liquidity for both the long-term and short-term is deposit growth and retention in the core deposit base.  In addition, Federal Home Loan Bank (“FHLB”) advances are utilized as funding sources.  At September 30, 2012, total borrowings from the FHLB were $145,467,000.  The Bank has pledged certain mortgage loans and investments to the FHLB.  The total available remaining borrowing capacity from the FHLB at September 30, 2012, was $168,223,000.

On March 30, 2012, the Bank completed repayment of $79,000,000 of Senior Notes (the “Notes”) that had matured.  The Notes, which were originally issued by the Bank on March 31, 2009, were guaranteed by the FDIC under its Temporary Liquidity Guarantee Program (“TLGP”).

On August 22, 2012, the Corporation exercised its option to redeem the $4,124,000 subordinated debenture associated with the CNBC Statutory Trust I.  The redemption price premium was 104.59.  The debenture had carried a fixed interest rate of 10.2 percent.

The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $551,619,000 at September 30, 2012, an increase of $33,128,000, or 6.4 percent, from December 31, 2011.  Securities classified as held to maturity that are maturing within a short period of time can also be a source of liquidity.  Securities classified as held to maturity that are maturing in one year or less, totaled $2,425,000 at September 30, 2012.  In addition, other types of assets such as cash and due from banks, federal funds sold, and securities purchased under agreements to resell, loans and interest-bearing deposits with other banks maturing within one year are sources of liquidity.

The Corporation currently has a $55.0 million credit facility with Bank of America, N.A., comprised of (a) a term loan in the principal amount of $5.0 million (the “Term Loan”) and (b) a subordinated debenture in the principal amount of $50.0 million (the “Subordinated Debt”).  Pursuant to the terms of the underlying Loan Agreement (the “Loan Agreement”), the Term Loan and the Subordinated Debt each mature on February 15, 2015.  The Term Loan is secured by a pledge of all of the issued and outstanding shares of the Bank.

The Loan Agreement contains certain customary representations and warranties and financial and negative covenants.   A breach of any of these covenants could result in a default under the Loan Agreement.   As of September 30, 2012, the Corporation was in compliance with these financial covenants.

As of December 31, 2011, the Corporation failed to meet the minimum return on average total assets covenant of at least 0.75 percent.  The Loan Agreement provides that upon an event of default as the result of the Corporation’s failure to comply with a financial covenant, Bank of America may (a) declare the $5.0 million outstanding principal amount of the Term Loan immediately due and payable, (b) exercise all of its rights and remedies at law, in equity and/or pursuant to any or all collateral documents, including foreclosing on the collateral if payment of the Term Loan is not made in full, and (c) add a default rate of 3 percent per annum to the Term Loan.  Because the Subordinated Debt is treated as Tier 2 capital for regulatory capital purposes, the Loan Agreement does not provide Bank of America with any right of acceleration or other remedies with regard to the Subordinated Debt upon an event of default caused by the Corporation’s breach of a financial covenant. Bank of America chose to apply the default rate through March 31, 2012, but not to accelerate the Term Loan based on the Corporation’s failure to meet these financial covenants.  As of March 31, 2012, the Corporation was no longer in default due to breach of a financial covenant; therefore, the default rate of 3 percent per annum was no longer applied to the Term Loan.

In the normal course of business, the Bank is a party to a number of other off-balance sheet activities that contain credit, market and operational risk that are not reflected in whole or in part in our consolidated financial statements.  Such activities include traditional off-balance sheet credit-related financial instruments, commitments under operating leases and long-term debt.

48

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY continued

The Bank provides customers with off-balance sheet credit support through loan commitments and standby and commercial letters of credit. Summarized credit-related financial instruments at September 30, 2012, are as follows:

	September 30,
(Dollars in Thousands)	2012
Amounts of commitments:
Loan commitments to extend credit	$	883,783
Standby and commercial letters of credit		22,006
	$	905,789

Since many of the commitments are expected to expire unused or be only partially used, the total amount of unused commitments in the preceding table does not necessarily represent future cash requirements.

In addition to owned banking facilities, the Corporation has entered into a number of long-term leasing arrangements to support ongoing activities.  The required payments under such commitments and borrowings at September 30, 2012, are as follows:

(Dollars in Thousands)	Remaining 2012		2013		2014		2015		2016		2017		2018 and after		Total
Operating leases	$	630	$	2,239	$	1,980	$	1,790	$	1,424	$	849	$	1,428	$	10,340
Federal funds purchased		57,024														57,024
Securities sold under repurchase agreements		143,454				10,000										153,454
Federal Home Loan Bank advances		51,124		1,621		26,506		30,993		29,025		2,734		3,464		145,467
Subordinated debentures and term loans		467						55,000						56,702		112,169
Total	$	252,699	$	3,860	$	38,486	$	87,783	$	30,449	$	3,583	$	61,594	$	478,454

INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK

Asset/Liability Management has been an important factor in the Corporation's ability to record consistent earnings growth through periods of interest rate volatility and product deregulation. Management and the Board of Directors monitor the Corporation's liquidity and interest sensitivity positions at regular meetings to review how changes in interest rates may affect earnings.  Decisions regarding investment and the pricing of loan and deposit products are made after analysis of reports designed to measure liquidity, rate sensitivity, the Corporation’s exposure to changes in net interest income given various rate scenarios and the economic and competitive environments.

It is the objective of the Corporation to monitor and manage risk exposure to net interest income caused by changes in interest rates.  It is the goal of the Corporation’s Asset/Liability function to provide optimum and stable net interest income. To accomplish this, management uses two asset liability tools. GAP/Interest Rate Sensitivity Reports and Net Interest Income Simulation Modeling are constructed, presented and monitored quarterly.

Net interest income simulation modeling, or earnings-at-risk, measures the sensitivity of net interest income to various interest rate movements. The Corporation's asset liability process monitors simulated net interest income under three separate interest rate scenarios; base, rising and falling. Estimated net interest income for each scenario is calculated over a 12-month horizon. The immediate and parallel changes to the base case scenario used in the model are presented below. The interest rate scenarios are used for analytical purposes and do not necessarily represent management's view of future market movements. Rather, these are intended to provide a measure of the degree of volatility interest rate movements may introduce into the earnings of the Corporation.

The base scenario is highly dependent on numerous assumptions embedded in the model, including assumptions related to future interest rates. While the base sensitivity analysis incorporates management's best estimate of interest rate and balance sheet dynamics under various market rate movements, the actual behavior and resulting earnings impact will likely differ from that projected. For certain assets, the base simulation model captures the expected prepayment behavior under changing interest rate environments. Assumptions and methodologies regarding the interest rate or balance behavior of indeterminate maturity products, such as savings, money market, NOW and demand deposits, reflect management's best estimate of expected future behavior.

49

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK continued

The comparative rising 200 basis points and falling 100 basis points scenarios below, as of  September 30, 2012, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario. In the current rate environment, many driver rates are at or near historical lows, thus total rate movements (beginning point minus ending point) to each of the various driver rates utilized by management have the following results:

	At September 30, 2012
	RISING	FALLING
Driver Rates	(200 Basis Points)	(100 Basis Points)
Prime	200	0
Federal funds	200	0
One-year CMT	200	(8)
Three-year CMT	200	(1)
Five-year CMT	200	(2)
CD's	200	(27)
FHLB advances	200	(2)

Results for the base, rising 200 basis points, and falling 100 basis points interest rate scenarios are listed below based upon the Corporation’s rate sensitive assets and liabilities at September 30, 2012. The net interest income shown represents cumulative net interest income over a 12-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.

	At September 30, 2012
			RISING			FALLING
Driver Rates	Base		(200 Basis Points)			(100 Basis Points)
Net interest income	$	144,718	$	149,758		$	143,203
Variance from base			$	5,040		$	(1,515	)
Percent of change from base				3.48	%		-1.05	%

The comparative rising 200 basis points and falling 100 basis points scenarios below, as of December 31, 2011, assume further interest rate changes in addition to the base simulation discussed above. These changes are immediate and parallel changes to the base case scenario. In addition, total rate movements (beginning point minus ending point) to each of the various driver rates utilized by management in the base simulation are as follows:

	At December 31, 2011
	RISING	FALLING
Driver Rates	(200 Basis Points)	(100 Basis Points)
Prime	200	0
Federal funds	200	0
One-year CMT	200	(2)
Three-year CMT	200	(6)
Five-year CMT	200	0
CD's	200	(42)
FHLB advances	200	0

Results for the base, rising 200 basis points, and falling 100 basis points interest rate scenarios are listed below. The net interest income shown represents cumulative net interest income over a 12-month time horizon. Balance sheet assumptions used for the base scenario are the same for the rising and falling simulations.

	At December 31, 2011
			RISING			FALLING
Driver Rates	Base		(200 Basis Points)			(100 Basis Points)
Net interest income	$	142,706	$	146,352		$	140,332
Variance from base			$	3,646		$	(2,374	)
Percent of change from base				2.55	%		-1.66	%

50

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EARNING ASSETS

The following table presents the earning asset mix as of September 30, 2012, and December 31, 2011. Earning assets increased by $99,099,000 in the nine months ended September 30, 2012.  Interest-bearing time deposits decreased $17,527,000.  Investments decreased by approximately $17,684,000, while loans and loans held for sale increased by $132,756,000.   The four largest loan classes that increased from December 31, 2011 were commercial and industrial, commercial and farm land, construction and home equity.

Effective February 10, 2012, the Bank assumed substantially all the deposits and certain other liabilities and acquired certain assets of SCB Bank, from the FDIC as the receiver of SCB Bank.  The two most significant earning assets acquired were loans of $93,800,000 and securities of approximately $18,900,000.  Details of this transaction are included in NOTE 2.  PURCHASE AND ASSUMPTION, included within the Notes to Consolidated Condensed Financial Statements of this Form 10-Q.

	September 30,		December 31,
(Dollars in Thousands)	2012		2011
Interest-bearing time deposits	$	35,324	$	52,851
Investment securities available for sale		551,619		518,491
Investment securities held to maturity		377,097		427,909
Mortgage loans held for sale		27,711		17,864
Loans		2,836,324		2,713,415
Federal Reserve and Federal Home Loan Bank stock		32,824		31,270
Total	$	3,860,899	$	3,761,800

OTHER

The Securities and Exchange Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including us, and that address is (http://www.sec.gov).

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required under this item is included as part of Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the headings “LIQUIDITY” and “INTEREST SENSITIVITY AND DISCLOSURE ABOUT MARKET RISK”.

ITEM 4.  CONTROLS AND PROCEDURES

At the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 are recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no changes in the Corporation’s internal control over financial reporting identified in connection with the evaluation discussed above that occurred during the Corporation’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

51

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

          None

ITEM 1.A.  RISK FACTORS

There have been no material changes to the risk factors previously disclosed in the Corporation’s December 31, 2011, Annual Report on Form 10-K.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

          a. None

          b. None

          c. Issuer Purchases of Equity Securities

The following table presents information relating to our purchases of equity securities during the quarter ended September 30, 2012, as follows:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly announced Plans or Programs		Maximum Number of Shares that may yet be Purchased Under the Plans or Programs
July, 2012		460	$	12.79		0		0
August, 2012						0		0
September, 2012						0		0

The shares were purchased in connection with the exercise of certain outstanding stock options or restricted stock.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

ITEM 4.  MINE SAFETY DISCLOSURES

         Not Applicable

ITEM 5.  OTHER INFORMATION

         a. None

         b. None

52

ITEM 6.  EXHIBITS

Exhibit No:	Description of Exhibits:
3.1	First Merchants Corporation Articles of Incorporation, as amended (Incorporated by reference to registrant’s Form 10-Q filed on November 9, 2011)
3.2	Bylaws of First Merchants Corporation dated October 28, 2009 (Incorporated by reference to registrant’s Form 10-Q filed on November 9, 2009)
4.1	First Merchants Corporation Amended and Restated Declaration of Trust of First Merchants Capital Trust II dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.2	Indenture dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.3	Guarantee Agreement dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.4	Form of Capital Securities Certification of First Merchants Capital Trust II (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.5	First Merchants Corporation Dividend Reinvestment and Stock Purchase Plan (Incorporated by reference to registrant’s Post-Effective Amendment No. 1 to Form S-3 filed on August 21, 2009)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)
32	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101.INS	XBRL Instance Document (2)
101.SCH	XBRL Taxonomy Extension Schema Document (2)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (2)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (2)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (2)
101.PRE	XBRL Taxonomy Extension Presentation Linkebase Document (2)
	(1) Filed herewith.
	(2) Furnished herewith.

53

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	First Merchants Corporation
	(Registrant)
Date: November 9, 2012	by /s/ Michael C. Rechin
	Michael C. Rechin
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 9, 2012	by /s/ Mark K. Hardwick
	Mark K. Hardwick
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

54

INDEX TO EXHIBITS

Exhibit No:	Description of Exhibits:
3.1	First Merchants Corporation Articles of Incorporation, as amended (Incorporated by reference to registrant’s Form 10-Q filed on November 9, 2011)
3.2	Bylaws of First Merchants Corporation dated October 28, 2009 (Incorporated by reference to registrant’s Form 10-Q filed on November 9, 2009)
4.1	First Merchants Corporation Amended and Restated Declaration of Trust of First Merchants Capital Trust II dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.2	Indenture dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.3	Guarantee Agreement dated as of July 2, 2007 (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.4	Form of Capital Securities Certification of First Merchants Capital Trust II (Incorporated by reference to registrant's Form 8-K filed on July 3, 2007)
4.5	First Merchants Corporation Dividend Reinvestment and Stock Purchase Plan (Incorporated by reference to registrant’s Post-Effective Amendment No. 1 to Form S-3 filed on August 21, 2009)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 (1)
32	Certifications Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
101.INS	XBRL Instance Document (2)
101.SCH	XBRL Taxonomy Extension Schema Document (2)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document (2)
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document (2)
101.LAB	XBRL Taxonomy Extension Label Linkbase Document (2)
101.PRE	XBRL Taxonomy Extension Presentation Linkebase Document (2)
	(1) Filed herewith.
	(2) Furnished herewith.

55

EX-31.1

EXHIBIT-31.1

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Michael C. Rechin, President and Chief Executive Officer of First Merchants Corporation, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Merchants Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2012	by: /s/ Michael C. Rechin
	Michael C. Rechin
	President and Chief Executive Officer
	(Principal Executive Officer)

56

EX-31.2

EXHIBIT-31.2

CERTIFICATIONS PURSUANT TO

SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Mark K. Hardwick, Executive Vice President and Chief Financial Officer of First Merchants Corporation, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of First Merchants Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2012	by: /s/ Mark K. Hardwick
	Mark K. Hardwick
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

57

EX-32

EXHIBIT-32

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of First Merchants Corporation (the “Corporation”) on Form 10-Q for the period ending September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael C. Rechin, President and Chief Executive Officer of the Corporation, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

        (1) The Report fully complies with the requirements of  section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and

        (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Date: November 9, 2012	by: /s/ Michael C. Rechin
	Michael C. Rechin
	President and
	Chief Executive Officer
	(Principal Executive Officer)

A signed copy of this written statement required by Section 906 has been provided to First Merchants Corporation and will be retained by First Merchants Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

_____________________________________________________

In connection with the quarterly report of First Merchants Corporation (the “Corporation”) on Form 10-Q for the period ending September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark K. Hardwick, Executive Vice President and Chief Financial Officer of the Corporation, do hereby certify, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

        (1) The Report fully  complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o (d)); and

        (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Date: November 9, 2012	by: /s/ Mark K. Hardwick
	Mark K. Hardwick
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

A signed copy of this written statement required by Section 906 has been provided to First Merchants Corporation and will be retained by First Merchants Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

58

XML

Investments' Gross Unrealized Losses and Fair Value Aggregated by Investment Category and Length of Time in Continuous Unrealized Loss Position (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Investments, Unrealized Loss Position [Line Items]
Less than 12 Months Fair Value	$ 10,331	$ 6,176
Less than 12 Months Gross Unrealized Losses	(55)	(16)
12 Months or Longer Fair Value	171	163
12 Months or Longer Gross Unrealized Losses	(5,806)	(5,572)
Total Fair Value	10,502	6,339
Total Gross Unrealized Losses	(5,861)	(5,588)
State and municipal
Investments, Unrealized Loss Position [Line Items]
Less than 12 Months Fair Value	3,868
Less than 12 Months Gross Unrealized Losses	(25)
Total Fair Value	3,868
Total Gross Unrealized Losses	(25)
U.S. Government-sponsored mortgage-backed securities
Investments, Unrealized Loss Position [Line Items]
Less than 12 Months Fair Value	6,463	6,176
Less than 12 Months Gross Unrealized Losses	(30)	(16)
Total Fair Value	6,463	6,176
Total Gross Unrealized Losses	(30)	(16)
Corporate obligations
Investments, Unrealized Loss Position [Line Items]
12 Months or Longer Fair Value	171	163
12 Months or Longer Gross Unrealized Losses	(5,806)	(5,572)
Total Fair Value	171	163
Total Gross Unrealized Losses	$ (5,806)	$ (5,572)

XML

Fair Value of Derivative Financial Instruments and Their Classification on Balance Sheet (Detail) (Interest Rate Contract, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Designated as Hedging Instrument | Other Assets
Derivatives, Fair Value [Line Items]
Asset derivatives	$ 206	$ 424
Designated as Hedging Instrument | Other Liabilities
Derivatives, Fair Value [Line Items]
Liability derivatives	3,617	2,305
Not Designated as Hedging Instrument | Other Assets
Derivatives, Fair Value [Line Items]
Asset derivatives	6,412	5,241
Not Designated as Hedging Instrument | Other Liabilities
Derivatives, Fair Value [Line Items]
Liability derivatives	$ 6,789	$ 5,492

XML

Credit Quality of Loan Portfolio by Loan Class (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 2,836,324	$ 2,713,415
Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans	592,517	532,523
Agriculture production financing and other loans
Financing Receivable, Recorded Investment [Line Items]
Loans	107,166	104,526
Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	93,610	81,780
Commercial and farm land
Financing Receivable, Recorded Investment [Line Items]
Loans	1,241,054	1,194,230
Residential
Financing Receivable, Recorded Investment [Line Items]
Loans	475,272	481,493
Home Equity
Financing Receivable, Recorded Investment [Line Items]
Loans	204,888	191,631
Consumer
Financing Receivable, Recorded Investment [Line Items]
Loans	77,171	84,172
Finance Lease
Financing Receivable, Recorded Investment [Line Items]
Loans	2,970	3,555
Other Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	41,676	39,505
Commercial Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	2,010,087	1,855,248
Commercial Pass | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans	524,180	478,885
Commercial Pass | Agriculture production financing and other loans
Financing Receivable, Recorded Investment [Line Items]
Loans	106,775	101,289
Commercial Pass | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	78,655	47,611
Commercial Pass | Commercial and farm land
Financing Receivable, Recorded Investment [Line Items]
Loans	1,105,407	1,033,397
Commercial Pass | Residential
Financing Receivable, Recorded Investment [Line Items]
Loans	142,394	139,237
Commercial Pass | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Loans	11,036	15,912
Commercial Pass | Other Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	41,640	38,917
Commercial Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	81,609	92,045
Commercial Special Mention | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans	25,143	22,405
Commercial Special Mention | Agriculture production financing and other loans
Financing Receivable, Recorded Investment [Line Items]
Loans	230	1,582
Commercial Special Mention | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	1,639	3,672
Commercial Special Mention | Commercial and farm land
Financing Receivable, Recorded Investment [Line Items]
Loans	48,344	54,697
Commercial Special Mention | Residential
Financing Receivable, Recorded Investment [Line Items]
Loans	4,909	9,175
Commercial Special Mention | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Loans	1,344	499
Commercial Special Mention | Other Loans
Financing Receivable, Recorded Investment [Line Items]
Loans		15
Commercial Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	152,131	175,423
Commercial Substandard | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans	36,564	28,025
Commercial Substandard | Agriculture production financing and other loans
Financing Receivable, Recorded Investment [Line Items]
Loans	161	1,655
Commercial Substandard | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	13,140	22,376
Commercial Substandard | Commercial and farm land
Financing Receivable, Recorded Investment [Line Items]
Loans	86,500	103,330
Commercial Substandard | Residential
Financing Receivable, Recorded Investment [Line Items]
Loans	14,709	16,699
Commercial Substandard | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Loans	1,021	3,317
Commercial Substandard | Other Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	36	21
Commercial Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	8,465	5,984
Commercial Doubtful | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Loans	6,630	3,208
Commercial Doubtful | Commercial and farm land
Financing Receivable, Recorded Investment [Line Items]
Loans	475	1,724
Commercial Doubtful | Residential
Financing Receivable, Recorded Investment [Line Items]
Loans	1,360	500
Commercial Doubtful | Other Loans
Financing Receivable, Recorded Investment [Line Items]
Loans		552
Consumer Performing
Financing Receivable, Recorded Investment [Line Items]
Loans	573,994	575,555
Consumer Performing | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans		7,762
Consumer Performing | Commercial and farm land
Financing Receivable, Recorded Investment [Line Items]
Loans		1,035
Consumer Performing | Residential
Financing Receivable, Recorded Investment [Line Items]
Loans	304,255	308,306
Consumer Performing | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Loans	189,938	170,776
Consumer Performing | Consumer
Financing Receivable, Recorded Investment [Line Items]
Loans	77,168	84,121
Consumer Performing | Finance Lease
Financing Receivable, Recorded Investment [Line Items]
Loans	2,633	3,555
Consumer Non-Performing
Financing Receivable, Recorded Investment [Line Items]
Loans	10,038	9,160
Consumer Non-Performing | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	176	359
Consumer Non-Performing | Commercial and farm land
Financing Receivable, Recorded Investment [Line Items]
Loans	328	47
Consumer Non-Performing | Residential
Financing Receivable, Recorded Investment [Line Items]
Loans	7,645	7,576
Consumer Non-Performing | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Loans	1,549	1,127
Consumer Non-Performing | Consumer
Financing Receivable, Recorded Investment [Line Items]
Loans	3	51
Consumer Non-Performing | Finance Lease
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 337

XML

Net Income Per Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share Disclosure [Line Items]
Basic net income (loss) per share:	$ 11,236	$ 6,742	$ 34,812	$ 17,691
Loss on extinguishment of trust preferred securities		(10,857)		(10,857)
Loss on CPP unamortized discount		(1,401)		(1,401)
Less: Preferred Stock dividends and discount accretion	(1,134)	(868)	(3,404)	(2,846)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	10,102	(6,384)	31,408	2,587
Effect of dilutive stock options and warrants
Net income (loss) available to common stockholders	$ 10,102	$ (6,384)	$ 31,408	$ 2,587
Net income (loss) available to common stockholders	28,649,996	26,367,067	28,619,186	25,879,277
Effect of dilutive stock options and warrants	238,080		200,097	139,659
Net income (loss) available to common stockholders	28,888,076	26,367,067	28,819,283	26,018,936
Net income (loss) available to common stockholders	$ 0.35	$ (0.25)	$ 1.09	$ 0.10
Diluted net income (loss) per share:
Net income (loss) available to common stockholders	$ 0.35	$ (0.25)	$ 1.09	$ 0.10

XML

Effect of Derivative Financial Instruments on Income Statement (Detail) (Not Designated as Hedging Instrument, Interest Rate Contract, Other Income, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Not Designated as Hedging Instrument | Interest Rate Contract | Other Income
Derivative [Line Items]
Amount of Gain (Loss) Recognized Income on Derivative	$ (70)	$ (95)	$ (125)	$ (93)

XML

Summary of Non-Accrual Loans by Loan Class (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 56,999	$ 69,592
Commercial and industrial
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	12,507	12,246
Construction
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	5,440	8,990
Commercial and farm land
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	24,501	31,093
Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	12,444	14,805
Home Equity
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	1,761	1,896
Consumer
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	3	1
Finance Lease
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	337
Other Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual loans	$ 6	$ 561

XML

Carrying Amount of Loans Included in Balance Sheet Amounts of Loans Receivable (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Business Acquisition [Line Items]
Carrying amount of loans acquired	$ 72,686
Commercial and industrial
Business Acquisition [Line Items]
Carrying amount of loans acquired	12,494
Agriculture production financing and other loans
Business Acquisition [Line Items]
Carrying amount of loans acquired	1,531
Construction
Business Acquisition [Line Items]
Carrying amount of loans acquired	92
Commercial and farm land
Business Acquisition [Line Items]
Carrying amount of loans acquired	23,724
Residential
Business Acquisition [Line Items]
Carrying amount of loans acquired	32,936
Consumer
Business Acquisition [Line Items]
Carrying amount of loans acquired	922
Other Loans
Business Acquisition [Line Items]
Carrying amount of loans acquired	$ 987

XML

Disclosures About Fair Value of Assets and Liabilities - Additional Information (Detail) (USD $)	9 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2012 Significant Unobservable Inputs (Level 3)	Sep. 30, 2012 Moody's ratings at Inception	Sep. 30, 2012 Moody's, Ca Rating	Sep. 30, 2012 Moody's, C Rating
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trust preferred securities, carrying value		$ 6,000,000
Trust preferred securities, fair value		171,000
Other-than-temporary impairment ("OTTI") loss	$ 400,000
Securities rating			A or better	Ca	C

XML

Net Income Per Share - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share Disclosure [Line Items]
Stock options not included in the earnings per share calculation	770,001	1,008,957	846,499	1,024,775

XML

Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2012

Assumptions Used In 2012 Black Scholes Model

The estimated fair value of the stock options granted during 2012 and in prior years was calculated using a Black Scholes option pricing model.  The following summarizes the assumptions used in the 2012 Black Scholes model:

Risk-free interest rate	1.36	%
Expected price volatility	46.22	%
Dividend yield	3.29	%
Forfeiture rate	4.77	%
Weighted-average expected life, until exercise	7.2	years

Components of Share Based Compensation Awards

The following table summarizes the components of the Corporation's share-based compensation awards recorded as expense:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Stock and ESPP Options
Pre-tax compensation expense	$	71		$	56		$	197		$	165
Income tax benefit		(11	)		(7	)		(13	)		(8	)
Stock and ESPP option expense, net of income taxes	$	60		$	49		$	184		$	157
Restricted Stock Awards
Pre-tax compensation expense	$	344		$	234		$	904		$	844
Income tax benefit		(104	)		(76	)		(322	)		(289	)
Restricted stock awards expense, net of income taxes	$	240		$	158		$	582		$	555
Total Share-Based Compensation:
Pre-tax compensation expense	$	415		$	290		$	1,101		$	1,009
Income tax benefit		(115	)		(83	)		(335	)		(297	)
Total share-based compensation expense, net of income taxes	$	300		$	207		$	766		$	712

Stock Option Activity Under Stock Option Plans

Stock option activity under the Corporation's stock option plans as of September 30, 2012 and changes during the nine months ended September 30, 2012, were as follows:

	Number of Shares			Weighted-Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2012		1,035,871		$	22.57
Granted/ Converted		46,801		$	11.69
Exercised		(8,750	)	$	7.69
Cancelled		(165,536	)	$	25.87
Outstanding September 30, 2012		908,386		$	21.55		4.33		1,097,884
Vested and Expected to Vest at September 30, 2012		908,386		$	21.55		4.33		1,097,884
Exercisable at September 30, 2012		830,336		$	22.58		3.89		760,073

Unvested RSAs Outstanding

The following table summarizes information on unvested RSAs outstanding as of September 30, 2012:

	Number of Shares			Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2012		338,087		$	8.65
Granted		156,473		$	11.79
Forfeited		(8,800	)	$	9.63
Vested		(79,386	)	$	11.90
Unvested RSAs at September 30, 2012		406,374		$	9.18

XML

Summary of Troubled Debt Restructurings (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan
Financing Receivable, Modifications [Line Items]
Pre-Modification Recorded Balance	$ 2,382	$ 1,988	$ 7,202	$ 8,940
Post-Modification Recorded Balance	2,584	2,379	6,988	9,383
Number of Loans	14	17	38	57
Commercial and industrial
Financing Receivable, Modifications [Line Items]
Pre-Modification Recorded Balance	875	535	1,155	1,636
Post-Modification Recorded Balance	1,048	552	1,327	1,651
Number of Loans	3	5	6	10
Construction
Financing Receivable, Modifications [Line Items]
Pre-Modification Recorded Balance	303	40	794	175
Post-Modification Recorded Balance	303	41	653	184
Number of Loans	1	1	2	3
Commercial and farm land
Financing Receivable, Modifications [Line Items]
Pre-Modification Recorded Balance	875	379	2,967	4,357
Post-Modification Recorded Balance	875	379	2,828	4,346
Number of Loans	2	1	7	6
Residential
Financing Receivable, Modifications [Line Items]
Pre-Modification Recorded Balance	239	1,034	2,196	2,690
Post-Modification Recorded Balance	241	1,407	2,063	3,115
Number of Loans	4	10	19	30
Home Equity
Financing Receivable, Modifications [Line Items]
Pre-Modification Recorded Balance				82
Post-Modification Recorded Balance				87
Number of Loans				8
Consumer
Financing Receivable, Modifications [Line Items]
Pre-Modification Recorded Balance	90		90
Post-Modification Recorded Balance	$ 117		$ 117
Number of Loans	4		4

XML

Loans and Allowance - Additional Information (Detail) (USD $)			3 Months Ended	9 Months Ended
	Sep. 30, 2012	Feb. 10, 2012	Sep. 30, 2012 Residential Loan	Sep. 30, 2012 Residential Loan	Dec. 31, 2011 Residential
Accounts, Notes, Loans and Financing Receivable [Line Items]
Residential real estate loans held for sale			$ 27,711,000	$ 27,711,000	$ 17,864,000
Loan Acquired during acquisition	113,000,000	113,000,000
Fair Value Discount	$ 19,200,000
Percentage of troubled debt restructured loans			29.00%	48.00%
Number of troubled debt restructured loans			3	11

XML

Investment Securities - Additional Information (Detail) (USD $)			9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 Maximum	Sep. 30, 2012 Minimum	Sep. 30, 2012 Trust Preferred Securities	Sep. 30, 2012 Trust Preferred Securities Maximum
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Carrying value of securities pledged as collateral	$ 348,748,000	$ 299,478,000
Book value of securities sold under agreements to repurchase	148,486,000	129,311,000
Investment amortized cost	910,502,000	931,388,000			6,000,000
Fair Value of Investments					$ 171,000
Percentage of fair value of investments						1.00%
Spread over LIBOR			1.57%	0.85%

XML

Commercial Non-Impaired Loans Included in ASC 450 Loss Migration Analysis (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan	Sep. 30, 2012 Loan	Sep. 30, 2011 Loan
Financing Receivable, Impaired [Line Items]
Recorded Balance	$ 2,505		$ 6,695
Commercial and industrial
Financing Receivable, Impaired [Line Items]
Recorded Balance	1,048		1,302
Commercial and farm land
Financing Receivable, Impaired [Line Items]
Recorded Balance	875		2,758
Residential
Financing Receivable, Impaired [Line Items]
Number of Loans	3		11
Recorded Balance	167		1,880
Nonimpaired Loans
Financing Receivable, Impaired [Line Items]
Number of Loans	11	5	15	7
Recorded Balance	1,809	348	3,932	1,221
Nonimpaired Loans | Commercial and industrial
Financing Receivable, Impaired [Line Items]
Number of Loans	3	1	3	2
Recorded Balance	1,415	66	1,415	553
Nonimpaired Loans | Commercial and farm land
Financing Receivable, Impaired [Line Items]
Number of Loans	1		1	1
Recorded Balance	23		23
Nonimpaired Loans | Residential
Financing Receivable, Impaired [Line Items]
Number of Loans	7	3	11	3
Recorded Balance	371	271	2,494	657
Nonimpaired Loans | Home Equity
Financing Receivable, Impaired [Line Items]
Number of Loans		1		1
Recorded Balance		$ 11		$ 11

XML

Unvested RSAs Outstanding (Detail) (Restricted Stock, USD $)	9 Months Ended
	Sep. 30, 2012
Restricted Stock
Number of Shares
Unvested RSAs at January 1, 2012	338,087
Granted	156,473
Forfeited	(8,800)
Vested	(79,386)
Unvested RSAs at September 30, 2012	406,374
Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2012	$ 8.65
Granted	$ 11.79
Forfeited	$ 9.63
Vested	$ 11.90
Unvested RSAs at September 30, 2012	$ 9.18

XML

Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements Other Than Goodwill (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012 M
Discounted Cash Flow | State and municipal
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	18,219
Discounted Cash Flow | State and municipal | Minimum
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Maturity/Call date	1
Blend of US Muni BQ curve	A-
Discount rate	1.00%
Discounted Cash Flow | State and municipal | Maximum
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Maturity/Call date	11
Blend of US Muni BQ curve	BBB-
Discount rate	4.00%
Discounted Cash Flow | Corporate obligations
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	206
Discounted Cash Flow | 3 month libor | Corporate obligations
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Premium for illiquidity	2.00%
Collateral Based Measurements | Impaired Loans
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	25,853
Collateral Based Measurements | Impaired Loans | Minimum
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Discount to reflect current market conditions and ultimate collectability	0.00%
Collateral Based Measurements | Impaired Loans | Maximum
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Discount to reflect current market conditions and ultimate collectability	50.00%
Appraisals | Other Real Estate Owned
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	5,132
Appraisals | Other Real Estate Owned | Minimum
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Discount to reflect current market conditions	0.00%
Appraisals | Other Real Estate Owned | Maximum
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Discount to reflect current market conditions	20.00%

XML

Composition of Impaired Loans by Loan Class (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2012	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	$ 104,654	$ 104,654	$ 98,922
Unpaid Principal Balance	125,548	125,548	123,156
Recorded Investment	60,470	60,470	59,835
Recorded Investment	79,965	79,965	79,775
Related Allowance
Average Recorded Investment	55,699	61,126	69,330
Interest Income Recognized	316	886	1,241
Unpaid Principal Balance	20,894	20,894	24,234
Recorded Investment	19,495	19,495	19,940
Related Allowance	6,251	6,251	7,596
Average Recorded Investment	19,565	19,704	21,462
Average Recorded Investment	75,264	80,830	90,792
Interest Income Recognized	62	183	321
Interest Income Recognized	378	1,069	1,562
Commercial and industrial
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	27,363	27,363	23,364
Recorded Investment	10,743	10,743	10,116
Related Allowance
Average Recorded Investment	9,994	11,615	13,399
Interest Income Recognized	26	68	615
Unpaid Principal Balance	5,570	5,570	8,691
Recorded Investment	5,227	5,227	8,104
Related Allowance	1,775	1,775	4,142
Average Recorded Investment	5,244	5,307	8,196
Interest Income Recognized	11	32	174
Agriculture production financing and other loans
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	300	300
Recorded Investment	300	300
Related Allowance
Average Recorded Investment	300	300
Construction
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	10,743	10,743	14,301
Recorded Investment	6,378	6,378	7,701
Related Allowance
Average Recorded Investment	6,658	7,665	8,836
Interest Income Recognized	17	47
Unpaid Principal Balance	725	725	961
Recorded Investment	480	480	961
Related Allowance	51	51	321
Average Recorded Investment	510	541	961
Commercial and farm land
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	52,953	52,953	49,242
Recorded Investment	35,606	35,606	34,571
Related Allowance
Average Recorded Investment	31,081	33,459	39,032
Interest Income Recognized	250	706	591
Unpaid Principal Balance	13,021	13,021	12,115
Recorded Investment	12,309	12,309	8,748
Related Allowance	4,106	4,106	2,183
Average Recorded Investment	12,326	12,371	10,028
Interest Income Recognized	32	95	140
Residential
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	9,307	9,307	7,491
Recorded Investment	6,716	6,716	6,185
Related Allowance
Average Recorded Investment	6,936	7,342	6,539
Interest Income Recognized	20	54	20
Unpaid Principal Balance	1,578	1,578	1,888
Recorded Investment	1,479	1,479	1,575
Related Allowance	319	319	391
Average Recorded Investment	1,485	1,485	1,687
Interest Income Recognized	19	56	7
Home Equity
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	3,901	3,901	4,425
Recorded Investment	711	711	1,241
Related Allowance
Average Recorded Investment	713	727	1,500
Interest Income Recognized	3	10	15
Other Loans
Financing Receivable, Impaired [Line Items]
Unpaid Principal Balance	87	87	99
Recorded Investment	16	16	21
Related Allowance
Average Recorded Investment	17	18	24
Interest Income Recognized		1
Unpaid Principal Balance			579
Recorded Investment			552
Related Allowance			559
Average Recorded Investment			$ 590

XML

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Cash Flow From Operating Activities:
Net Income	$ 34,812	$ 17,691
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	14,029	16,775
Depreciation and amortization	3,432	3,998
Change in deferred taxes	11,239	7,211
Share-based compensation	1,101	1,009
Mortgage loans originated for sale	(314,240)	(185,658)
Proceeds from sales of mortgage loans	304,393	194,870
Gain on acquisition	(9,124)
Gains on sales of securities available for sale	(2,134)	(2,149)
Recognized loss on other-than-temporary-impairment		400
Change in interest receivable	732	904
Change in interest payable	(1,701)	(2,076)
Other adjustments	4,650	14,171
Net cash provided by operating activities	47,189	67,146
Cash Flows from Investing Activities:
Net change in interest-bearing deposits	17,527	49,101
Purchases of:
Securities available for sale	(129,297)	(133,526)
Securities held to maturity	(566)	(77,678)
Proceeds from sales of securities available for sale	43,147	54,606
Proceeds from maturities of:
Securities available for sale	77,898	37,894
Securities held to maturity	49,073	28,120
Change in Federal Reserve and Federal Home Loan Bank stock	207	2,503
Purchase of bank owned life insurance		(25,000)
Net change in loans	(52,442)	73,520
Net cash received from acquisition	29,113
Proceeds from the sale of other real estate owned	4,295	9,916
Other adjustments	351	6,921
Net cash provided by investing activities	39,306	26,377
Net change in :
Demand and savings deposits	42,994	(54,157)
Certificates of deposit and other time deposits	(108,807)	(150,473)
Borrowings	138,127	242,323
Repayment of borrowings	(169,988)	(168,894)
Cash dividends on common stock	(2,031)	(778)
Cash dividends on preferred stock	(3,404)	(2,527)
Stock issued in private equity placement		21,165
Stock issued under employee benefit plans	354	561
Stock issued under dividend reinvestment and stock purchase plans	143	60
Stock options exercised	67
Stock redeemed	(235)	(127)
Cumulative preferred stock issued (SBLF)		90,783
Cumulative preferred stock redeemed (CPP)		(69,600)
Net cash used in financing activities	(102,780)	(91,664)
Net Change in Cash and Cash Equivalents	(16,285)	1,859
Cash and Cash Equivalents, January 1	73,312	58,307
Cash and Cash Equivalents, September 30	57,027	60,166
Additional cash flow information:
Interest paid	20,248	32,073
Income tax paid (refunded)	5,988	(2,977)
Loans transferred to other real estate owned	4,364	12,646
Non-cash investing activities using trade date accounting	$ 3,043	$ 2,298

XML

Estimated Fair Values of Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Carrying (Reported) Amount
Assets:
Cash and due from banks	$ 57,027	$ 73,312
Interest-bearing time deposits	35,324	52,851
Investment securities available for sale	551,619	518,491
Investment securities held to maturity	377,097	427,909
Mortgage loans held for sale	27,711	17,864
Loans	2,766,831	2,642,517
Federal Reserve Bank and Federal Home Loan Bank stock	32,824	31,270
Interest rate swap asset	6,618	5,665
Interest receivable	17,519	17,723
Liabilities:
Deposits	3,194,751	3,134,655
Borrowings:
Federal funds purchased	57,024
Securities sold under repurchase agreements	153,454	156,305
Federal Home Loan Bank advances	145,467	138,095
Subordinated debentures, revolving credit lines and term loans	112,169	194,974
Interest rate swap liability	10,406	7,797
Interest payable	1,591	2,925
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Cash and due from banks	57,027	73,312
Interest-bearing time deposits	35,324	52,851
Liabilities:
Deposits	2,292,977	2,195,679
Significant Other Observable Inputs (Level 2)
Assets:
Investment securities available for sale	533,194	497,653
Investment securities held to maturity	385,155	428,737
Mortgage loans held for sale	27,711	17,864
Federal Reserve Bank and Federal Home Loan Bank stock	32,824	31,270
Interest rate swap asset	6,618
Interest receivable	17,519	17,723
Liabilities:
Deposits	902,678	944,078
Borrowings:
Federal funds purchased	57,024
Securities sold under repurchase agreements	154,017	157,342
Federal Home Loan Bank advances	148,985	141,693
Subordinated debentures, revolving credit lines and term loans	67,837	142,632
Interest rate swap liability	10,405
Interest payable	1,591	2,925
Significant Unobservable Inputs (Level 3)
Assets:
Investment securities available for sale	18,425	20,838
Investment securities held to maturity	11,062	13,732
Loans	2,793,212	2,658,227
Interest rate swap asset		5,665
Borrowings:
Interest rate swap liability		$ 7,797

XML

Composition of Loan Portfolio by Loan Class (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Loans:
Loans	$ 2,836,324		$ 2,713,415
Allowance for loan losses	(69,493)	(70,143)	(70,898)	(73,074)	(77,133)	(82,977)
Total Loans	2,766,831		2,642,517
Commercial and industrial
Loans:
Loans	592,517		532,523
Agriculture production financing and other loans
Loans:
Loans	107,166		104,526
Construction
Loans:
Loans	93,610		81,780
Commercial and farm land
Loans:
Loans	1,241,054		1,194,230
Residential
Loans:
Loans	475,272		481,493
Allowance for loan losses	(13,127)	(14,788)	(12,343)	(13,299)	(11,877)	(10,408)
Home Equity
Loans:
Loans	204,888		191,631
Consumer
Loans:
Loans	77,171		84,172
Allowance for loan losses	(2,629)	(2,431)	(2,902)	(3,037)	(2,859)	(3,622)
Finance Lease
Loans:
Loans	2,970		3,555
Allowance for loan losses			(3)	(9)	(14)	(98)
Other Loans
Loans:
Loans	$ 41,676		$ 39,505

XML

Purchase and Assumption - Additional Information (Detail) (USD $)	Sep. 30, 2012	Feb. 10, 2012
Business Acquisition [Line Items]
Assets Acquired		$ 147,700,000
Cash and cash equivalents		11,900,000
Marketable securities		18,896,000
Federal Home Loan Bank stock		1,800,000
Loans	113,000,000	113,000,000
Premises and other assets		2,100,000
Liabilities absorbed		135,700,000
Customer deposits		125,700,000
Other Borrowed money		9,600,000
Other Liabilities		402,000
Assets acquired, discount		29,000,000
Difference between the purchase price of the assets acquired and the value of the liabilities assumed		17,200,000
Loan portfolio acquired, fair value discount	19,200,000
Performing portion of loan portfolio, fair value		93,793,000
Loans Receivable
Business Acquisition [Line Items]
Loans		86,300,000
Loan portfolio acquired, fair value discount		19,200,000
Performing portion of loan portfolio, fair value		$ 76,500,000

XML

Components of Accumulated Other Comprehensive Income (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Net unrealized gain on securities available for sale	$ 19,959	$ 18,244
Net unrealized loss on securities available for sale for which a portion of an other-than-temporary impairment has been recognized in income	(3,248)	(3,168)
Net unrealized loss on cash flow hedges	(2,834)	(1,841)
Defined benefit plans	(15,898)	(16,837)
Accumulated other comprehensive loss	$ (2,021)	$ (3,602)

XML

Fair Value Measurements of Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) (Fair Value, Measurements, Recurring, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Interest Rate Swap Liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Liability derivatives	$ (10,406)	$ (7,797)
U.S. Government-sponsored agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	4,782	117
State and municipal
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	161,017	147,353
U.S. Government-sponsored mortgage-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	383,912	368,998
Corporate obligations
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	202	193
Equity Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	1,706	1,830
Interest Rate Swap Assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Asset derivatives	6,412	5,241
Interest Rate Cap
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Asset derivatives	206	424
Significant Other Observable Inputs (Level 2) | Interest Rate Swap Liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Liability derivatives	(10,406)
Significant Other Observable Inputs (Level 2) | U.S. Government-sponsored agency securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	4,782	117
Significant Other Observable Inputs (Level 2) | State and municipal
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	142,798	126,712
Significant Other Observable Inputs (Level 2) | U.S. Government-sponsored mortgage-backed securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	383,912	368,998
Significant Other Observable Inputs (Level 2) | Equity Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	1,702	1,826
Significant Other Observable Inputs (Level 2) | Interest Rate Swap Assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Asset derivatives	6,412
Significant Other Observable Inputs (Level 2) | Interest Rate Cap
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Asset derivatives	206
Significant Unobservable Inputs (Level 3) | Interest Rate Swap Liabilities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Liability derivatives		(7,797)
Significant Unobservable Inputs (Level 3) | State and municipal
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	18,219	20,641
Significant Unobservable Inputs (Level 3) | Corporate obligations
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	202	193
Significant Unobservable Inputs (Level 3) | Equity Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available for sale securities	4	4
Significant Unobservable Inputs (Level 3) | Interest Rate Swap Assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Asset derivatives		5,241
Significant Unobservable Inputs (Level 3) | Interest Rate Cap
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Asset derivatives		$ 424

XML

Changes in Allowance for Loan Losses by Loan Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Allowance for loan losses:
Beginning balance	$ 70,143	$ 77,133	$ 70,898	$ 82,977
Provision for losses	4,609	5,556	14,029	16,775
Recoveries on loans	2,517	1,955	6,219	11,137
Loans charged off	(7,776)	(11,570)	(21,653)	(37,815)
Ending balance	69,493	73,074	69,493	73,074
Commercial
Allowance for loan losses:
Beginning balance	17,791	23,715	17,731	32,508
Provision for losses	5,431	(903)	10,333	(14,778)
Recoveries on loans	526	1,176	1,193	8,174
Loans charged off	(1,424)	(4,344)	(6,933)	(6,260)
Ending balance	22,324	19,644	22,324	19,644
Commercial Real Estate
Allowance for loan losses:
Beginning balance	35,133	38,668	37,919	36,341
Provision for losses	(879)	3,042	149	24,232
Recoveries on loans	1,598	378	3,462	1,244
Loans charged off	(4,439)	(5,003)	(10,117)	(24,732)
Ending balance	31,413	37,085	31,413	37,085
Consumer
Allowance for loan losses:
Beginning balance	2,431	2,859	2,902	3,622
Provision for losses	147	281	(14)	(187)
Recoveries on loans	219	163	595	781
Loans charged off	(168)	(266)	(854)	(1,179)
Ending balance	2,629	3,037	2,629	3,037
Residential
Allowance for loan losses:
Beginning balance	14,788	11,877	12,343	10,408
Provision for losses	(90)	3,142	3,565	7,601
Recoveries on loans	174	237	968	934
Loans charged off	(1,745)	(1,957)	(3,749)	(5,644)
Ending balance	13,127	13,299	13,127	13,299
Finance Lease
Allowance for loan losses:
Beginning balance		14	3	98
Provision for losses		(6)	(4)	(93)
Recoveries on loans		1	1	4
Ending balance		$ 9		$ 9

XML

Assets and Liabilities of SCB Recorded at Provisional Fair Value (Detail) (USD $) In Thousands, unless otherwise specified	1 Months Ended		9 Months Ended
	Feb. 10, 2012		Sep. 30, 2012
Business Acquisition [Line Items]
Cash and due from banks	$ 29,113	[1]
Investment securities, available for sale	18,896
Federal Home Loan Bank stock	1,761
Loans	93,793
Premises	1,516
Core deposit intangible	484
Other assets	560
Total Assets Purchased	146,123
Deposits	125,909
Federal Home Loan Bank advances	10,286
Other liabilities	804
Total Liabilities Assumed	136,999
Net Gain on Acquisition	9,124		9,124
Commercial
Business Acquisition [Line Items]
Loans	51,042
Residential Mortgage
Business Acquisition [Line Items]
Loans	11,181
Installment Loans
Business Acquisition [Line Items]
Loans	31,570
Non Interest Bearing Deposits
Business Acquisition [Line Items]
Deposits	13,715
Negotiable Order of Withdrawal Accounts
Business Acquisition [Line Items]
Deposits	14,746
Money Market Funds
Business Acquisition [Line Items]
Deposits	25,843
Certificates of Deposit
Business Acquisition [Line Items]
Deposits	$ 71,605

[1] Includes $17,200,000 cash received from the FDIC.

XML

Assets and Liabilities of SCB Recorded at Provisional Fair Value (Parenthetical) (Detail) (USD $)	Feb. 10, 2012
Business Acquisition [Line Items]
Cash received from FDIC	$ 17,200,000

XML

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (Parenthetical) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Cash Dividends on Common Stock, per share	$ 0.03	$ 0.01	$ 0.07	$ 0.03

XML

Acquired Loans Accounted With ASC 310 30 (Detail) (USD $) In Thousands, unless otherwise specified	Feb. 10, 2012
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Preliminary estimate of contractually required principal and interest at acquisition	$ 31,143
Preliminary estimate of contractual cash flows not expected to be collected (nonaccretable differences)	9,688
Preliminary estimate of expected cash flows at acquisition	21,455
Preliminary estimate of interest component of expected cash flows (accretable discount)	4,152
Preliminary estimate of fair value of acquired loans accounted for under ASC 310-30	$ 17,303

XML

Investments in Debt and Equity Securities Reported Less than Historical Cost (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Schedule of Investments [Line Items]
Fair value	$ 10,502	$ 6,339
Investments in Debt and Equity Securities, Reported at Less than Historical Cost
Schedule of Investments [Line Items]
Historical cost	16,364	11,925
Fair value	$ 10,502	$ 6,339
Percent of the Corporation's available for sale and held to maturity portfolio	1.10%	0.70%

XML

Derivative Financial Instruments - Additional Information (Detail) (USD $)	Sep. 30, 2012 Contract	Sep. 30, 2011 Contract
Derivative [Line Items]
Termination value of derivatives in a net liability position	$ 10,567,000
Derivative collateral posted	9,337,000
Cash Flow Hedging | Interest Rate Swap
Derivative [Line Items]
Number of interest rate derivatives held	2	1
Notional amount of interest rate derivatives	26,000,000	13,000,000
Cash Flow Hedging | Interest Rate Cap
Derivative [Line Items]
Number of interest rate derivatives held	1	1
Notional amount of interest rate derivatives	13,000,000	13,000,000
Not Designated as Hedging Instrument | Interest Rate Swap
Derivative [Line Items]
Notional amount of interest rate derivatives	$ 152,667,000

XML

CONSOLIDATED CONDENSED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 57,027	$ 73,312
Interest-bearing time deposits	35,324	52,851
Investment securities available for sale	551,619	518,491
Investment securities held to maturity (fair value of $396,217 and $442,469)	377,097	427,909
Mortgage loans held for sale	27,711	17,864
Loans, net of allowance for loan losses of $69,493 and $70,898	2,766,831	2,642,517
Premises and equipment	51,373	51,013
Federal Reserve and Federal Home Loan Bank stock	32,824	31,270
Interest receivable	17,519	17,723
Core deposit intangibles	8,644	9,114
Goodwill	141,375	141,357
Cash surrender value of life insurance	124,702	124,329
Other real estate owned	13,780	16,289
Tax asset, deferred and receivable	29,344	36,424
Other assets	14,998	12,613
TOTAL ASSETS	4,250,168	4,173,076
Deposits:
Noninterest-bearing	679,818	646,508
Interest-bearing	2,514,933	2,488,147
Total Deposits	3,194,751	3,134,655
Borrowings:
Federal funds purchased	57,024
Securities sold under repurchase agreements	153,454	156,305
Federal Home Loan Bank advances	145,467	138,095
Subordinated debentures and term loans	112,169	194,974
Total Borrowings	468,114	489,374
Interest payable	1,591	2,925
Other liabilities	38,857	31,655
Total Liabilities	3,703,313	3,658,609
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Common Stock, $.125 stated value: Authorized - 50,000,000 shares Issued and outstanding - 28,672,177 and 28,559,707 shares	3,584	3,570
Additional paid-in capital	256,290	254,874
Retained earnings	198,094	168,717
Accumulated other comprehensive loss	(2,021)	(3,602)
Total Stockholders' Equity	546,855	514,467
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	4,250,168	4,173,076
Preferred stock, Series B
STOCKHOLDERS' EQUITY
Preferred Stock	90,783	90,783
Cumulative Preferred Stock
STOCKHOLDERS' EQUITY
Preferred Stock	$ 125	$ 125

XML

Allowance for Credit Losses and Loan Portfolio by Loan Segment (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Jun. 30, 2012	Dec. 31, 2011	Sep. 30, 2011	Jun. 30, 2011	Dec. 31, 2010
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	$ 6,251		$ 7,938
Collectively evaluated for impairment	63,242		62,960
Total Allowance for Loan Losses	69,493	70,143	70,898	73,074	77,133	82,977
Individually evaluated for impairment	79,965		83,319
Collectively evaluated for impairment	2,756,359		2,630,096
Loans	2,836,324		2,713,415
Commercial
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	1,775		4,701
Collectively evaluated for impairment	20,549		13,030
Total Allowance for Loan Losses	22,324	17,791	17,731	19,644	23,715	32,508
Individually evaluated for impairment	16,286		18,793
Collectively evaluated for impairment	725,073		657,760
Loans	741,359		676,553
Commercial Real Estate
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	4,157		2,504
Collectively evaluated for impairment	27,256		35,415
Total Allowance for Loan Losses	31,413	35,133	37,919	37,085	38,668	36,341
Individually evaluated for impairment	54,773		51,980
Collectively evaluated for impairment	1,279,891		1,224,031
Loans	1,334,664		1,276,011
Consumer
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment	2,629		2,902
Total Allowance for Loan Losses	2,629	2,431	2,902	3,037	2,859	3,622
Collectively evaluated for impairment	77,171		84,172
Loans	77,171		84,172
Residential
Financing Receivable, Allowance for Credit Losses [Line Items]
Individually evaluated for impairment	319		733
Collectively evaluated for impairment	12,808		11,610
Total Allowance for Loan Losses	13,127	14,788	12,343	13,299	11,877	10,408
Individually evaluated for impairment	8,906		12,546
Collectively evaluated for impairment	671,254		660,578
Loans	680,160		673,124
Finance Lease
Financing Receivable, Allowance for Credit Losses [Line Items]
Collectively evaluated for impairment			3
Total Allowance for Loan Losses			3	9	14	98
Collectively evaluated for impairment	2,970		3,555
Loans	$ 2,970		$ 3,555

XML

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Unrealized holding gain on securities available for sale arising during the period, income tax	$ 1,018	$ 4,553	$ 1,670	$ 8,212
Unrealized loss on securities available for sale for which a portion of an other than temporary impairment has been recognized in income, tax	12	0	43	831
Unrealized loss on cash flow hedges arising during the period, income tax	131	778	535	949
Amortization of items previously recorded in accumulated other comprehensive income (losses), income tax	113	10	506	29
Reclassification adjustment for gains included in net income, income tax expense	$ 295	$ 301	$ 747	$ 612

XML

Transfer Between Levels 1, 2 and 3 and Reasons For Those Transfers (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Significant Other Observable Inputs (Level 2)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	$ 12,205
Reason for Transfer	The interest rate swap and cap instruments were transferred from Level 3 to Level 2 as of March 31, 2012 due to the Corporation's additional analysis of valuation methodologies. These instruments are valued using widely accepted valuation techniques including discounted cash flow analysis using observable inputs such as contractual terms and Libor-based rate curves.
Significant Other Observable Inputs (Level 2) | Interest Rate Swap Assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	4,862
Significant Other Observable Inputs (Level 2) | Interest Rate Cap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	409
Significant Other Observable Inputs (Level 2) | Interest Rate Swap Liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	6,934
Significant Unobservable Inputs (Level 3)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	12,205
Significant Unobservable Inputs (Level 3) | Interest Rate Swap Assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	4,862
Significant Unobservable Inputs (Level 3) | Interest Rate Cap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	409
Significant Unobservable Inputs (Level 3) | Interest Rate Swap Liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Transfer between Levels 1, 2 and 3	$ 6,934

XML

Amortized Cost and Approximate Fair Values of Securities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Gain (Loss) on Investments [Line Items]
Amortized Cost	$ 533,405	$ 503,479
Gross Unrealized Gains	24,075	20,600
Gross Unrealized Losses	5,861	5,588
Fair Value	551,619	518,491
Amortized Cost	377,097	427,909
Gross Unrealized Gains	19,120	14,560
Gross Unrealized Losses
Fair Value	396,217	442,469
Amortized Cost	910,502	931,388
Gross Unrealized Gains	43,195	35,160
Gross Unrealized Losses	5,861	5,588
Fair Value	947,836	960,960
U.S. Government-sponsored agency securities
Gain (Loss) on Investments [Line Items]
Amortized Cost	4,610	99
Gross Unrealized Gains	172	18
Fair Value	4,782	117
State and municipal
Gain (Loss) on Investments [Line Items]
Amortized Cost	150,281	136,857
Gross Unrealized Gains	10,761	10,496
Gross Unrealized Losses	25
Fair Value	161,017	147,353
Amortized Cost	116,966	120,171
Gross Unrealized Gains	5,698	3,785
Gross Unrealized Losses
Fair Value	122,664	123,956
U.S. Government-sponsored mortgage-backed securities
Gain (Loss) on Investments [Line Items]
Amortized Cost	370,800	358,928
Gross Unrealized Gains	13,142	10,086
Gross Unrealized Losses	30	16
Fair Value	383,912	368,998
Amortized Cost	260,131	307,738
Gross Unrealized Gains	13,422	10,775
Gross Unrealized Losses
Fair Value	273,553	318,513
Corporate obligations
Gain (Loss) on Investments [Line Items]
Amortized Cost	6,008	5,765
Gross Unrealized Losses	5,806	5,572
Fair Value	202	193
Equity Securities
Gain (Loss) on Investments [Line Items]
Amortized Cost	1,706	1,830
Fair Value	$ 1,706	$ 1,830

XML

Components of Share Based Compensation Awards (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Pre-tax compensation expense	$ 415,000	$ 290,000	$ 1,101,000	$ 1,009,000
Income tax benefit	(115,000)	(83,000)	(335,000)	(297,000)
Share-based compensation expense, net of income taxes	300,000	207,000	766,000	712,000
Stock and ESPP Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Pre-tax compensation expense	71,000	56,000	197,000	165,000
Income tax benefit	(11,000)	(7,000)	(13,000)	(8,000)
Share-based compensation expense, net of income taxes	60,000	49,000	184,000	157,000
Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Pre-tax compensation expense	344,000	234,000	904,000	844,000
Income tax benefit	(104,000)	(76,000)	(322,000)	(289,000)
Share-based compensation expense, net of income taxes	$ 240,000	$ 158,000	$ 582,000	$ 555,000

XML

Loans and Allowance (Tables)

9 Months Ended

Sep. 30, 2012

Composition of Loan Portfolio by Loan Class

The following table shows the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

	September 30,			December 31,
	2012			2011
Loans:
Commercial and industrial loans	$	592,517		$	532,523
Agricultural production financing and other loans to farmers		107,166			104,526
Real estate loans:
Construction		93,610			81,780
Commercial and farm land		1,241,054			1,194,230
Residential		475,272			481,493
Home Equity		204,888			191,631
Individual's loans for household and other personal expenditures		77,171			84,172
Lease financing receivables, net of unearned income		2,970			3,555
Other loans		41,676			39,505
		2,836,324			2,713,415
Allowance for loan losses		(69,493	)		(70,898	)
Total Loans	$	2,766,831		$	2,642,517

Changes in Allowance for Loan Losses

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2012, and September 30, 2011:

	Three Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases	Total
Allowance for loan losses:
Balances, July 1	$	17,791		$	35,133		$	2,431		$	14,788			$	70,143
Provision for losses		5,431			(879	)		147			(90	)			4,609
Recoveries on loans		526			1,598			219			174				2,517
Loans charged off		(1,424	)		(4,439	)		(168	)		(1,745	)			(7,776	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127			$	69,493

	Nine Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	17,731		$	37,919		$	2,902		$	12,343		$	3		$	70,898
Provision for losses		10,333			149			(14	)		3,565			(4	)		14,029
Recoveries on loans		1,193			3,462			595			968			1			6,219
Loans charged off		(6,933	)		(10,117	)		(854	)		(3,749	)					(21,653	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127					$	69,493

	Three Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, April 1	$	23,715		$	38,668		$	2,859		$	11,877		$	14		$	77,133
Provision for losses		(903	)		3,042			281			3,142			(6	)		5,556
Recoveries on loans		1,176			378			163			237			1			1,955
Loans charged off		(4,344	)		(5,003	)		(266	)		(1,957	)					(11,570	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

	Nine Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	32,508		$	36,341		$	3,622		$	10,408		$	98		$	82,977
Provision for losses		(14,778	)		24,232			(187	)		7,601			(93	)		16,775
Recoveries on loans		8,174			1,244			781			934			4			11,137
Loans charged off		(6,260	)		(24,732	)		(1,179	)		(5,644	)					(37,815	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

Allowance for Credit Losses and Loan Portfolio by Loan Segment

The following table shows the Corporation’s allowance for credit losses and loan portfolio by loan segment for the periods indicated:

	September 30, 2012
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	1,775	$	4,157			$	319			$	6,251
Collectively evaluated for impairment		20,549		27,256	$	2,629		12,808				63,242
Total Allowance for Loan Losses	$	22,324	$	31,413	$	2,629	$	13,127			$	69,493
Loan Balances:
Individually evaluated for impairment	$	16,286	$	54,773			$	8,906			$	79,965
Collectively evaluated for impairment		725,073		1,279,891	$	77,171		671,254	$	2,970		2,756,359
Total Loans	$	741,359	$	1,334,664	$	77,171	$	680,160	$	2,970	$	2,836,324

	December 31, 2011
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	4,701	$	2,504			$	733			$	7,938
Collectively evaluated for impairment		13,030		35,415	$	2,902		11,610	$	3		62,960
Total Allowance for Loan Losses	$	17,731	$	37,919	$	2,902	$	12,343	$	3	$	70,898
Loan Balances:
Individually evaluated for impairment	$	18,793	$	51,980			$	12,546			$	83,319
Collectively evaluated for impairment		657,760		1,224,031	$	84,172		660,578	$	3,555		2,630,096
Total Loans	$	676,553	$	1,276,011	$	84,172	$	673,124	$	3,555	$	2,713,415

Summary of Non-Accrual Loans by Loan class

The following table summarizes the Corporation’s non-accrual loans by loan class for the periods indicated:

	September 30,		December 31,
	2012		2011
Commercial and Industrial	$	12,507	$	12,246
Real Estate Loans:
Construction		5,440		8,990
Commercial and farm land		24,501		31,093
Residential		12,444		14,805
Home Equity		1,761		1,896
Individuals loans for household and other personal expenditures		3		1
Lease financing receivables, net of unearned income		337
Other Loans		6		561
Total	$	56,999	$	69,592

Composition of Impaired Loans by Loan Class

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of September 30, 2012:

							Three Months Ended				Nine Months Ended
	September 30, 2012						September 30, 2012				September 30, 2012
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	27,363	$	10,743			$	9,994	$	26	$	11,615	$	68
Agriculture production financing
and other loans to farmers		300		300				300				300
Real Estate Loans:
Construction		10,743		6,378				6,658		17		7,665		47
Commercial and farm land		52,953		35,606				31,081		250		33,459		706
Residential		9,307		6,716				6,936		20		7,342		54
Home equity		3,901		711				713		3		727		10
Other loans		87		16				17				18		1
Total	$	104,654	$	60,470			$	55,699	$	316	$	61,126	$	886
Impaired loans with related allowance:
Commercial and industrial	$	5,570	$	5,227	$	1,775	$	5,244	$	11	$	5,307	$	32
Real Estate Loans:
Construction		725		480		51		510				541
Commercial and farm land		13,021		12,309		4,106		12,326		32		12,371		95
Residential		1,578		1,479		319		1,485		19		1,485		56
Total	$	20,894	$	19,495	$	6,251	$	19,565	$	62	$	19,704	$	183
Total Impaired Loans	$	125,548	$	79,965	$	6,251	$	75,264	$	378	$	80,830	$	1,069

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of December 31, 2011:

	December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	23,364	$	10,116			$	13,399	$	615
Real Estate Loans:
Construction		14,301		7,701				8,836
Commercial and farm land		49,242		34,571				39,032		591
Residential		7,491		6,185				6,539		20
Home equity		4,425		1,241				1,500		15
Other loans		99		21				24
Total	$	98,922	$	59,835			$	69,330	$	1,241
Impaired loans with related allowance:
Commercial and industrial	$	8,691	$	8,104	$	4,142	$	8,196	$	174
Real Estate Loans:
Construction		961		961		321		961
Commercial and farm land		12,115		8,748		2,183		10,028		140
Residential		1,888		1,575		391		1,687		7
Other loans		579		552		559		590
Total	$	24,234	$	19,940	$	7,596	$	21,462	$	321
Total Impaired Loans	$	123,156	$	79,775	$	7,596	$	90,792	$	1,562

Credit Quality of Loan Portfolio by Loan Class

The following table summarizes the credit quality of the Corporation’s loan portfolio, by loan class for the periods indicated.  Consumer Non-Performing loans include accruing consumer loans 90 plus days delinquent and consumer non-accrual loans.  The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified date.

	September 30, 2012
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non-Performing		Total Loans
Commercial and industrial	$	524,180	$	25,143	$	36,564	$	6,630					$	592,517
Agriculture production financing    and other loans		106,775		230		161								107,166
Real Estate Loans:
Construction		78,655		1,639		13,140					$	176		93,610
Commercial and farm land		1,105,407		48,344		86,500		475				328		1,241,054
Residential		142,394		4,909		14,709		1,360	$	304,255		7,645		475,272
Home equity		11,036		1,344		1,021				189,938		1,549		204,888
Individuals loans for household    and other personal expenditures										77,168		3		77,171
Lease financing receivables, net    of unearned income										2,633		337		2,970
Other loans		41,640				36								41,676
Total	$	2,010,087	$	81,609	$	152,131	$	8,465	$	573,994	$	10,038	$	2,836,324

	December 31, 2011
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non Performing		Total Loans
Commercial and industrial	$	478,885	$	22,405	$	28,025	$	3,208					$	532,523
Agriculture production financing    and other loans		101,289		1,582		1,655								104,526
Real Estate Loans:
Construction		47,611		3,672		22,376			$	7,762	$	359		81,780
Commercial and farm land		1,033,397		54,697		103,330		1,724		1,035		47		1,194,230
Residential		139,237		9,175		16,699		500		308,306		7,576		481,493
Home equity		15,912		499		3,317				170,776		1,127		191,631
Individuals loans for household    and other personal expenditures										84,121		51		84,172
Lease financing receivables, net    of unearned income										3,555				3,555
Other loans		38,917		15		21		552						39,505
Total	$	1,855,248	$	92,045	$	175,423	$	5,984	$	575,555	$	9,160	$	2,713,415

Past Due Aging of Loan Portfolio by Loan Class

The following table shows a past due aging of the Corporation’s loan portfolio, by loan class for September 30, 2012, and December 31, 2011:

	September 30, 2012
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	574,730	$	4,800	$	434	$	46	$	12,507	$	17,787	$	592,517
Agriculture production financing and other    loans		106,782		74		10		300				384		107,166
Real Estate Loans:
Construction		87,829		341						5,440		5,781		93,610
Commercial and farm land		1,209,194		6,931		65		363		24,501		31,860		1,241,054
Residential		453,234		5,835		2,788		971		12,444		22,038		475,272
Home equity		200,402		1,532		899		294		1,761		4,486		204,888
Individuals loans for household and other    personal expenditures		76,053		720		395				3		1,118		77,171
Lease financing receivables, net of unearned    income		2,633								337		337		2,970
Other loans		41,670								6		6		41,676
Total	$	2,752,527	$	20,233	$	4,591	$	1,974	$	56,999	$	83,797	$	2,836,324

	December 31, 2011
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	518,764	$	1,332	$	135	$	46	$	12,246	$	13,759	$	532,523
Agriculture production financing and other    loans		104,464		62								62		104,526
Real Estate Loans:
Construction		69,305		328		3,126		31		8,990		12,475		81,780
Commercial and farm land		1,140,897		16,457		5,783				31,093		53,333		1,194,230
Residential		458,925		5,485		2,087		191		14,805		22,568		481,493
Home equity		187,788		1,096		590		261		1,896		3,843		191,631
Individuals loans for household and other    personal expenditures		82,837		1,075		208		51		1		1,335		84,172
Lease financing receivables, net of unearned    income		3,555												3,555
Other loans		38,944								561		561		39,505
Total	$	2,605,479	$	25,835	$	11,929	$	580	$	69,592	$	107,936	$	2,713,415

Summary of Troubled Debt Restructurings

The following tables summarize troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012
	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and industrial	$	875	$	1,048		3	$	1,155	$	1,327		6
Real Estate Loans:
Construction		303		303		1		794		653		2
Commercial and farm land		875		875		2		2,967		2,828		7
Residential		239		241		4		2,196		2,063		19
Individuals loans for household and other    personal expenditures		90		117		4		90		117		4
Total	$	2,382	$	2,584		14	$	7,202	$	6,988		38

	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011
	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and Industrial	$	535	$	552		5	$	1,636	$	1,651		10
Real Estate Loans:
Construction		40		41		1		175		184		3
Commercial and farm land		379		379		1		4,357		4,346		6
Residential		1,034		1,407		10		2,690		3,115		30
Home Equity								82		87		8
Total	$	1,988	$	2,379		17	$	8,940	$	9,383		57

Summary of Troubled Debt Restructurings and Subsequent Defaults

The following table shows the recorded investment, as of September 30, 2012, of troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended
	September 30, 2012
	Term	Rate				Total
	Modification	Modification		Combination		Modification
Commercial and industrial				$	1,048	$	1,048
Real Estate Loans:
Construction					299		299
Commercial and farm land		$	680		195		875
Residential					167		167
Individuals loans for household and other personal expenditures			7		109		116
Total		$	687	$	1,818	$	2,505

	Nine Months Ended
	September 30, 2012
	Term		Rate				Total
	Modification		Modification		Combination		Modification
Commercial and industrial	$	230			$	1,072	$	1,302
Real Estate Loans:
Construction						639		639
Commercial and farm land		1,693	$	680		385		2,758
Residential		528		252		1,100		1,880
Individuals loans for household and other personal expenditures				7		109		116
Total	$	2,451	$	939	$	3,305	$	6,695

Commercial Non-Impaired Loans Included in ASC 450 Loss Migration Analysis

The following tables summarize troubled debt restructures that occurred during the twelve months ended September 30, 2012, and September 30, 2011, that subsequently defaulted during the period indicated:

	Three Months Ended				Nine Months Ended
	September 30, 2012				September 30, 2012
	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		3	$	1,415		3	$	1,415
Real Estate Loans:
Commercial and farm land		1		23		1		23
Residential		7		371		11		2,494
Total		11	$	1,809		15	$	3,932

	Three Months Ended				Nine Months Ended
	September 30, 2011				September 30, 2011
	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		1	$	66		2	$	553
Real Estate Loans:
Commercial and farm land						1
Residential		3		271		3		657
Home Equity		1		11		1		11
Total		5	$	348		7	$	1,221

XML

Amortized Cost and Fair Value of Available for Sale Securities and Held to Maturity Securities by Contractual Maturity (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Due in one year or less	$ 4,802
Due after one through five years	14,559
Due after five through ten years	48,134
Due after ten years	93,404
Available-For-Sale Securities, Debt Maturity, with Single Maturity Date, Amortized Cost, Total	160,899
Total Investment Securities	533,405
Due in one year or less	4,846
Due after one through five years	15,277
Due after five through ten years	51,156
Due after ten years	94,722
Available-For-Sale Securities, Debt Maturity, with Single Maturity Date, Fair Value, Total	166,001
Total Investment Securities	551,619
Due in one year or less	2,425
Due after one through five years	2,208
Due after five through ten years	55,679
Due after ten years	56,654
Held-To-Maturity Securities, Debt Maturities, with Single Maturity Date, Net Carrying Amount, Total	116,966
Total Investment Securities	377,097
Due in one year or less	2,431
Due after one through five years	2,233
Due after five through ten years	57,975
Due after ten years	60,025
Held-To-Maturity Securities, Debt Maturity, with Single Maturity Date, Fair Value, Total	122,664
Total Investment Securities	396,217
U.S. Government-sponsored mortgage-backed securities
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Without single maturity date	370,800
Without single maturity date	383,912
Without single maturity date	260,131
Without single maturity date	273,553
Equity Securities
Schedule of Available for sale Securities and Held to maturity Securities [Line Items]
Without single maturity date	1,706
Without single maturity date	$ 1,706

XML

Disclosures About Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements of Assets and Liabilities Recognized in Consolidated Condensed Balance Sheets Measured at Fair Value

The following table presents the fair value measurements of assets and liabilities recognized in the Consolidated Condensed Balance Sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

				Fair Value Measurements Using
September 30, 2012	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	4,782			$	4,782
State and municipal		161,017				142,798		$	18,219
U.S. Government-sponsored mortgage-backed securities		383,912				383,912
Corporate obligations		202							202
Equity securities		1,706				1,702			4
Interest rate swap asset		6,412				6,412
Interest rate cap		206				206
Interest rate swap liability		(10,406	)			(10,406	)

				Fair Value Measurements Using
December 31, 2011	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	117			$	117
State and municipal		147,353				126,712	$	20,641
U.S. Government-sponsored mortgage-backed securities		368,998				368,998
Corporate obligations		193						193
Equity securities		1,830				1,826		4
Interest rate swap asset		5,241						5,241
Interest rate cap		424						424
Interest rate swap liability		(7,797	)					(7,797	)

Reconciliation of Beginning and Ending Balances of Recurring Fair Value Measurements Recognized in Consolidated Condensed Balance Sheets using Significant Unobservable Level 3 Inputs

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the Consolidated Condensed Balance Sheets using significant unobservable (Level 3) inputs for the three and nine months ended September 30, 2012, and 2011.

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	Available for Sale Securities			Interest Rate Swap Asset	Interest Rate Cap	Interest Rate Swap Liability	Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability
Balance at beginning of the period	$	19,740					$	20,838		$	5,241		$	424		$	(7,797	)
Total realized and unrealized gains and losses:
Included in net income (loss)											(860	)					863
Included in other comprehensive income		(183	)					(944	)		481			(15	)
Purchases, issuances and settlements
Transfers in/(out) of Level 3											(4,862	)		(409	)		6,934
Principal payments/additions		(1,132	)					(1,469	)
Ending balance at September 30, 2012	$	18,425					$	18,425

	Three Months Ended September 30, 2011												Nine Months Ended September 30, 2011
	Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability			Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability
Balance at beginning of the period	$	180		$	3,783		$	954		$	(3,986	)	$	186		$	4,002		$	1,109		$	(3,876	)
Total realized and unrealized gains and losses:
Included in net income (loss)					3,251						(3,345	)		(400	)		3,363						(3,455	)
Included in other comprehensive income		(45	)		(1,726	)		(498	)					195			(2,057	)		(653	)
Purchases, issuances and settlements
Transfers in/(out) of Level 3		18,711												18,711
Principal payments		65												219
Ending balance at September 30, 2011	$	18,911		$	5,308		$	456		$	(7,331	)	$	18,911		$	5,308		$	456		$	(7,331	)

Transfer Between Levels 1, 2 and 3 and Reasons For Transfers

Transfer between Levels 1, 2 and 3 and the reasons for those transfers are as follows:

	Quoted Prices in Active Markets for Identical Assets  (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Reason for Transfer
Transfers from Level:
Interest rate swap asset				$	4,862	The interest rate swap and cap instruments were transferred from Level 3 to Level 2 as of March 31, 2012 due to the Corporation's additional analysis of valuation methodologies.  These instruments are valued using widely accepted valuation techniques including discounted cash flow analysis using observable inputs such as contractual terms and Libor-based rate curves.
Interest rate cap					409
Interest rate swap liability					6,934
Total Transfers from Level				$	12,205
Transfers to Level:
Interest rate swap asset		$	4,862			The interest rate swap and cap instruments were transferred from Level 3 to Level 2 as of March 31, 2012 due to the Corporation's additional analysis of valuation methodologies.  These instruments are valued using widely accepted valuation techniques including discounted cash flow analysis using observable inputs such as contractual terms and Libor-based rate curves.
Interest rate cap			409
Interest rate swap liability			6,934
Total Transfers to Level		$	12,205

Description of Valuation Methodologies Used for Instruments Measured at Fair Value on a Non-Recurring Basis and Recognized in Consolidated Condensed Balance Sheets

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

			Fair Value Measurements Using
September 30, 2012	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$	25,853			$	25,853
Other real estate owned (collateral dependent)	$	5,132			$	5,132

			Fair Value Measurements Using
December 31, 2011	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable  Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$	22,885			$	22,885
Other real estate owned (collateral dependent)	$	7,882			$	7,882

Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements Other Than Goodwill

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2012.

	Fair Value		Valuation Technique	Unobservable Inputs	Range
State and municipal securities	$	18,219	Discounted cash flow	Maturity/Call date	1 month to 11 yrs
				Blend of US Muni BQ curve	A- to BBB-
				Discount rate		1% - 4	%
Corporate obligations/Equity securities	$	206	Discounted cash flow	Risk free rate	3 month libor
				plus Premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	25,853	Collateral based	Discount to reflect current market		0% - 50	%
			measurements	conditions and ultimate collectability
Other real estate owned	$	5,132	Appraisals	Discount to reflect current market		0% - 20	%
				conditions

Estimated Fair Values of Financial Instruments

The following table presents estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

	September 30, 2012
	(unaudited)
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	57,027	$	57,027
Interest-bearing time deposits		35,324		35,324
Investment securities available for sale		551,619			$	533,194	$	18,425
Investment securities held to maturity		377,097				385,155		11,062
Mortgage loans held for sale		27,711				27,711
Loans		2,766,831						2,793,212
Federal Reserve Bank and Federal Home Loan Bank stock		32,824				32,824
Interest rate swap asset		6,618				6,618
Interest receivable		17,519				17,519
Liabilities:
Deposits	$	3,194,751	$	2,292,977	$	902,678
Borrowings:
Federal funds purchased		57,024				57,024
Securities sold under repurchase agreements		153,454				154,017
Federal Home Loan Bank advances		145,467				148,985
Subordinated debentures, revolving credit lines and term loans		112,169				67,837
Interest rate swap liability		10,406				10,405
Interest payable		1,591				1,591

	December 31, 2011
	(unaudited)
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	73,312	$	73,312
Interest-bearing time deposits		52,851		52,851
Investment securities available for sale		518,491			$	497,653	$	20,838
Investment securities held to maturity		427,909				428,737		13,732
Mortgage loans held for sale		17,864				17,864
Loans		2,642,517						2,658,227
Federal Reserve Bank and Federal Home Loan Bank stock		31,270				31,270
Interest rate swap asset		5,665						5,665
Interest receivable		17,723				17,723
Liabilities:
Deposits	$	3,134,655	$	2,195,679	$	944,078
Borrowings:
Securities sold under repurchase agreements		156,305				157,342
Federal Home Loan Bank advances		138,095				141,693
Subordinated debentures, revolving credit lines and term loans		194,974				142,632
Interest rate swap liability		7,797					$	7,797
Interest payable		2,925				2,925

XML

Income Tax (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Currently Payable:
Federal	$ 139	$ 47	$ 1,475	$ (855)
State
Deferred:
Federal	3,787	2,514	11,239	7,211
State
Total Income Tax Expense	3,926	2,561	12,714	6,356
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 35%	5,307	3,256	16,634	8,416
Tax-exempt interest income	(927)	(916)	(2,788)	(2,793)
Non-deductible interest expense		230		649
Stock compensation	14	19	56	56
Earnings on life insurance	(240)	(208)	(954)	(610)
Tax credits	(19)	(29)	(55)	(55)
Other	(209)	209	(179)	693
Total Income Tax Expense	$ 3,926	$ 2,561	$ 12,714	$ 6,356

XML

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (USD $) In Thousands, except Share data, unless otherwise specified	Total	Preferred	Common Stock	Additional Paid in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Beginning Balance at Dec. 31, 2011	$ 514,467	$ 90,908	$ 3,570	$ 254,874	$ 168,717	$ (3,602)
Beginning Balance (in shares) at Dec. 31, 2011		90,908	28,559,707
Comprehensive Income
Net Income	34,812				34,812
Other Comprehensive Income, net of tax	1,581					1,581
Cash Dividends on Common Stock ($.07 per Share)	(2,031)				(2,031)
Cash Dividends on Preferred Stock under Small Business Lending Fund	(3,404)				(3,404)
Share-based Compensation (in shares)			79,385
Share-based Compensation	1,101		10	1,091
Stock Issued Under Employee Benefit Plans (in shares)			34,352
Stock Issued Under Employee Benefit Plans	354		4	350
Stock Issued Under Dividend Reinvestment and Stock Purchase Plan (in shares)			11,475
Stock Issued Under Dividend Reinvestment and Stock Purchase Plan	143		1	142
Stock options exercised (in shares)	8,750		8,750
Stock options exercised	67		1	66
Stock Redeemed (in shares)			(21,492)
Stock Redeemed	(235)		(2)	(233)
Ending Balance at Sep. 30, 2012	$ 546,855	$ 90,908	$ 3,584	$ 256,290	$ 198,094	$ (2,021)
Ending Balance (in shares) at Sep. 30, 2012		90,908	28,672,177

XML

CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair value of investment securities	$ 396,217	$ 442,469
Loans, allowance for loan losses	$ 69,493	$ 70,898
Common Stock, stated value	$ 0.125	$ 0.125
Common Stock, Authorized	50,000,000	50,000,000
Common Stock, shares Issued	28,672,177	28,559,707
Common Stock, shares outstanding	28,672,177	28,559,707
Preferred stock, Series B
Preferred Stock, no-par value	$ 0	$ 0
Preferred Stock, liquidation value	$ 1,000	$ 1,000
Preferred Stock, Authorized	500,000	500,000
Preferred Stock, Issued	90,783	90,783
Preferred Stock, outstanding	90,783	90,783
Cumulative Preferred Stock
Preferred Stock, par value	$ 1,000	$ 1,000
Preferred Stock, liquidation value	$ 1,000	$ 1,000
Preferred Stock, Authorized	600	600
Preferred Stock, Issued	125	125
Preferred Stock, outstanding	125	125

XML

Income Tax

9 Months Ended

Sep. 30, 2012

Income Tax

NOTE 8.  Income Tax

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Income Tax Expense :
Currently Payable:
Federal	$	139		$	47		$	1,475		$	(855	)
State
Deferred:
Federal		3,787			2,514			11,239			7,211
State
Total Income Tax Expense	$	3,926		$	2,561		$	12,714		$	6,356
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 35%	$	5,307		$	3,256		$	16,634		$	8,416
Tax-exempt interest income		(927	)		(916	)		(2,788	)		(2,793	)
Non-deductible interest expense					230						649
Stock compensation		14			19			56			56
Earnings on life insurance		(240	)		(208	)		(954	)		(610	)
Tax credits		(19	)		(29	)		(55	)		(55	)
Other		(209	)		209			(179	)		693
Actual Tax Expense	$	3,926		$	2,561		$	12,714		$	6,356

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Trading Symbol	FRME
Entity Registrant Name	FIRST MERCHANTS CORP
Entity Central Index Key	0000712534
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		28,672,461

XML

Net Income Per Share

9 Months Ended

Sep. 30, 2012

Net Income Per Share

NOTE 9.  Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted-average shares outstanding during the reporting period. Diluted net income per share is computed by dividing net income by the combination of all dilutive common share equivalents, comprised of shares issuable under the Corporation’s share-based compensation plans, and the weighted-average shares outstanding during the reporting period.

Dilutive common share equivalents include the dilutive effect of in-the-money share-based awards, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of share-based awards, the amount of compensation expense, if any, for future service that the Corporation has not yet recognized, and the amount of estimated tax benefits that would be recorded in additional paid-in capital when share-based awards are exercised, are assumed to be used to repurchase common stock in the current period.

	Three Months Ended September 30,
	2012							2011
	Net Income			Weighted-Average Shares		Per Share Amount		Net Income (Loss)			Weighted-Average Shares		Per Share Amount
Basic net income (loss) per share:	$	11,236						$	6,742
Loss on extinguishment of trust preferred securities									(10,857	)
Loss on CPP unamortized discount									(1,401	)
Less: Preferred Stock dividends and discount accretion		(1,134	)						(868	)
Net income (loss) available to common stockholders		10,102			28,649,996	$	0.35		(6,384	)		26,367,067	$	(0.25	)
Effect of dilutive stock options and warrants					238,080
Diluted net income (loss) per share:
Net income (loss) available to common stockholders	$	10,102			28,888,076	$	0.35	$	(6,384	)		26,367,067	$	(0.25	)

Stock options to purchase 770,001 and 1,008,957 shares for the three months ended September 30, 2012, and 2011, respectively, were not included in the earnings per share calculation because the exercise price exceeded the average market price.

	Nine Months Ended September 30,
	2012							2011
	Net Income			Weighted-Average Shares		Per Share Amount		Net Income			Weighted-Average Shares		Per Share Amount
Basic net income per share:	$	34,812						$	17,691
Loss on extinguishment of trust preferred securities									(10,857	)
Loss on CPP unamortized discount									(1,401	)
Less: Preferred Stock dividends and discount accretion		(3,404	)						(2,846	)
Net income available to common stockholders		31,408			28,619,186	$	1.09		2,587			25,879,277	$	0.10
Effect of dilutive stock options and warrants					200,097							139,659
Diluted net income (loss) per share:
Net income available to common stockholders	$	31,408			28,819,283	$	1.09	$	2,587			26,018,936	$	0.10

Stock options to purchase 846,499 and 1,024,775 shares for the nine months ended September 30, 2012, and 2011, respectively, were not included in the earnings per share calculation because the exercise price exceeded the average market price.

XML

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Loans receivable:
Taxable	$ 38,160	$ 37,024	$ 110,660	$ 113,219
Tax exempt	118	86	358	435
Investment securities:
Taxable	4,176	5,078	13,218	14,665
Tax exempt	2,532	2,529	7,645	7,617
Federal funds sold				3
Deposits with financial institutions	16	45	69	228
Federal Reserve and Federal Home Loan Bank stock	345	323	1,035	1,005
Total Interest Income	45,347	45,085	132,985	137,172
INTEREST EXPENSE
Deposits	3,517	5,046	11,566	17,776
Federal funds purchased	38	16	62	22
Securities sold under repurchase agreements	211	384	703	1,148
Federal Home Loan Bank advances	492	1,089	2,123	3,067
Subordinated debentures and term loans	1,187	2,699	4,460	7,984
Total Interest Expense	5,445	9,234	18,914	29,997
NET INTEREST INCOME	39,902	35,851	114,071	107,175
Provision for loan losses	4,609	5,556	14,029	16,775
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	35,293	30,295	100,042	90,400
OTHER INCOME
Service charges on deposit accounts	2,913	3,169	8,625	8,945
Fiduciary activities	1,986	1,881	5,907	5,846
Other customer fees	2,740	2,583	8,476	7,452
Commission income	1,618	1,528	4,770	4,440
Earnings on cash surrender value of life insurance	685	644	2,725	1,793
Net gains and fees on sales of loans	2,849	1,768	7,115	4,671
Net realized gains on sales of available for sale securities	843	861	2,134	2,149
Other-than-temporary impairment on available for sale securities				(2,780)
Portion of loss recognized in other comprehensive income before taxes				2,380
Net impairment losses recognized in earnings				(400)
Gain on FDIC modified whole bank transaction			9,124
Other income	639	796	1,220	1,253
Total Other Income	14,273	13,230	50,096	36,149
OTHER EXPENSES
Salaries and employee benefits	20,083	19,964	59,078	55,700
Net occupancy	2,568	2,530	7,692	7,690
Equipment	1,798	1,662	5,259	5,122
Marketing	536	534	1,542	1,352
Outside data processing fees	1,413	1,391	4,295	4,294
Printing and office supplies	287	301	848	902
Core deposit amortization	489	755	1,438	2,957
FDIC assessments	792	1,201	2,771	4,756
Other real estate owned and credit-related expenses	2,104	2,007	6,412	8,045
Other expenses	4,334	3,877	13,277	11,684
Total Other Expenses	34,404	34,222	102,612	102,502
INCOME BEFORE INCOME TAX	15,162	9,303	47,526	24,047
Income tax expense	3,926	2,561	12,714	6,356
NET INCOME	11,236	6,742	34,812	17,691
Loss on retirement of CPP preferred stock		(1,401)		(1,401)
Loss on extinguishment of trust preferred securities		(10,857)		(10,857)
Preferred stock dividends and discount accretion	(1,134)	(868)	(3,404)	(2,846)
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS	$ 10,102	$ (6,384)	$ 31,408	$ 2,587
Per Share Data:
Basic Net Income (Loss) Available to Common Stockholders	$ 0.35	$ (0.25)	$ 1.09	$ 0.10
Diluted Net Income (Loss) Available to Common Stockholders	$ 0.35	$ (0.25)	$ 1.09	$ 0.10
Cash Dividends Paid	$ 0.03	$ 0.01	$ 0.07	$ 0.03
Average Diluted Shares Outstanding	28,888,076	26,367,067	28,819,283	26,018,936

XML

Investment Securities

9 Months Ended

Sep. 30, 2012

Investment Securities

NOTE 3.  Investment Securities

The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair values of the investment securities at the dates indicated were:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at September 30, 2012
U.S. Government-sponsored agency securities	$	4,610	$	172			$	4,782
State and municipal		150,281		10,761	$	25		161,017
U.S. Government-sponsored mortgage-backed securities		370,800		13,142		30		383,912
Corporate obligations		6,008				5,806		202
Equity securities		1,706						1,706
Total available for sale		533,405		24,075		5,861		551,619
Held to maturity at September 30, 2012
State and municipal		116,966		5,698				122,664
U.S. Government-sponsored mortgage-backed securities		260,131		13,422				273,553
Total held to maturity		377,097		19,120				396,217
Total Investment Securities	$	910,502	$	43,195	$	5,861	$	947,836

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2011
U.S. Government-sponsored agency securities	$	99	$	18			$	117
State and municipal		136,857		10,496				147,353
U.S. Government-sponsored mortgage-backed securities		358,928		10,086	$	16		368,998
Corporate obligations		5,765				5,572		193
Equity securities		1,830						1,830
Total available for sale		503,479		20,600		5,588		518,491
Held to maturity at December 31, 2011
State and municipal		120,171		3,785				123,956
U.S. Government-sponsored mortgage-backed securities		307,738		10,775				318,513
Total held to maturity		427,909		14,560				442,469
Total Investment Securities	$	931,388	$	35,160	$	5,588	$	960,960

The amortized cost and fair value of available for sale securities and held to maturity securities at September 30, 2012, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at September 30, 2012:
Due in one year or less	$	4,802	$	4,846	$	2,425	$	2,431
Due after one through five years		14,559		15,277		2,208		2,233
Due after five through ten years		48,134		51,156		55,679		57,975
Due after ten years		93,404		94,722		56,654		60,025
		160,899		166,001		116,966		122,664
U.S. Government-sponsored mortgage-backed securities		370,800		383,912		260,131		273,553
Equity securities		1,706		1,706
Total Investment Securities	$	533,405	$	551,619	$	377,097	$	396,217

The carrying value of securities pledged as collateral, to secure public deposits and for other purposes, was $348,748,000 at September 30, 2012, and $299,478,000 at December 31, 2011.

The book value of securities sold under agreements to repurchase amounted to $148,486,000 at September 30, 2012, and $129,311,000 at December 31, 2011.

Gross gains and losses on the sales and redemptions of available for sale securities, and other-than-temporary impairment (“OTTI”) losses recognized for the three and nine months ended September 30, 2012 and 2011 are shown below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	843	$	861	$	2,134	$	2,149
Gross losses
Other-than-temporary impairment losses							$	400

The Corporation’s management has evaluated all securities with unrealized losses for OTTI as of September 30, 2012.  The evaluations are based on the nature of the securities, the extent and duration of the loss and the intent and ability of the Corporation to hold these securities either to maturity or through the expected recovery period.

The current unrealized losses are primarily concentrated within trust preferred securities held by the Corporation.  Such investments have an amortized cost of $6.0 million and a fair value of $171,000, which is less than 1 percent of the Corporation’s entire investment portfolio.  On all but one small pool investment, the Corporation utilized Moody’s to determine their fair value.

In determining the fair value of the trust preferred securities, the Corporation utilizes a third party for portfolio accounting services, including market value input.  The Corporation has obtained an understanding of what inputs are being used by the vendor in pricing the portfolio and how the vendor was classifying these securities based upon these inputs.  From these discussions, the Corporation’s management is comfortable that the classifications are proper.  The Corporation has gained trust in the data for two reasons:  (a) independent spot testing of the data is conducted by the Corporation through obtaining market quotes from various brokers on a periodic basis and (b) actual gains or loss resulting from the sale of certain securities has proven the data to be accurate over time.  

Discount rates used in the OTTI cash flow analysis on these variable rate securities were those margins in effect at the inception of the security added to the appropriate three-month LIBOR spot rate obtained from the forward LIBOR curve used to project future principal and interest payments. These spreads ranged from .85 percent to 1.57 percent spread over LIBOR.

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2012, and December 31, 2011:

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at September 30, 2012
State and municipal	$	3,868	$	(25	)						$	3,868	$	(25	)
U.S. Government-sponsored mortgage-backed securities		6,463		(30	)							6,463		(30	)
Corporate obligations						$	171	$	(5,806	)		171		(5,806	)
Total Temporarily Impaired Investment Securities	$	10,331	$	(55	)	$	171	$	(5,806	)	$	10,502	$	(5,861	)

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at December 31, 2011
State and municipal
U.S. Government-sponsored mortgage-backed securities	$	6,176	$	(16	)						$	6,176	$	(16	)
Corporate obligations						$	163	$	(5,572	)		163		(5,572	)
Total Temporarily Impaired Investment Securities	$	6,176	$	(16	)	$	163	$	(5,572	)	$	6,339	$	(5,588	)

Certain investments in debt and equity securities are reported in the financial statements at an amount less than their historical cost as indicated in the table below.

	September 30, 2012			December 31, 2011
Investments reported at less than historical cost:
Historical cost	$	16,364		$	11,925
Fair value	$	10,502		$	6,339
Percent of the Corporation's available for sale and held to maturity portfolio		1.1	%		0.7	%

Except as discussed below, management believes the declines in fair value for these securities are temporary.  Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the OTTI is identified.

U.S. Government-Sponsored Mortgage-Backed Securities

The unrealized losses on the Corporation’s investment in U.S. Government-sponsored mortgage-backed securities were a result of changes in interest rates.  The Corporation expects to recover the amortized cost basis over the term of the securities as the decline in market value is attributable to changes in interest rates and not credit quality. The Corporation does not intend to sell the investment and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity.  The Corporation does not consider the investment securities to be other-than-temporarily impaired at September 30, 2012.

State and Municipal

The unrealized losses on the Corporation’s investments in securities of state and political subdivisions were caused by changes in interest rates.  The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.  The Corporation does not intend to sell the investment and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity.  The Corporation does not consider the investment securities to be other-than-temporarily impaired at September 30, 2012.

Corporate Obligations

The Corporation’s unrealized losses on Corporate Obligations were due to the decline in value related to the pooled trust preferred securities, and is attributable to temporary illiquidity and the financial crisis affecting these markets, coupled with the potential credit loss resulting from the adverse change in expected cash flows. Due to the illiquidity in the market, it is unlikely that the Corporation would be able to recover its investment in these securities if the Corporation sold the securities at this time. Management has analyzed the cash flow characteristics of the securities and this analysis included utilizing the most recent trustee reports and any other relevant market information, including announcements of deferrals or defaults of trust preferred securities.  The Corporation compared expected discounted cash flows, based on performance indicators of the underlying assets in the security, to the carrying value of the investment to determine if OTTI existed.  The Corporation does not consider the remainder of the investment securities, which are classified as Level 3 inputs in the fair value hierarchy, to be other-than-temporarily impaired at September 30, 2012.  The Corporation does not intend to sell the investment, and it is not more likely than not that the Corporation will be required to sell the investment before recovery of its new, lower amortized cost basis, which may be maturity.

Credit Losses Recognized on Investments

Certain debt securities have experienced fair value deterioration due to credit losses and other market factors. The following table provides information about debt securities for which only a credit loss was recognized in income and other losses were recorded in other comprehensive income.

	Accumulated Credit Losses in 2012		Accumulated Credit Losses in 2011
Credit losses on debt securities held:
Balance, January 1	$	11,355	$	10,955
Additions related to other-than-temporary losses not previously recognized				400
Balance, September 30	$	11,355	$	11,355

XML

Purchase and Assumption

9 Months Ended

Sep. 30, 2012

Purchase and Assumption

NOTE 2.  Purchase and Assumption

Effective February 10, 2012, First Merchants Bank, National Association (the “Bank”) assumed substantially all of the deposits and certain other liabilities and acquired certain assets of SCB Bank, a federal savings bank headquartered in Shelbyville, Indiana, from the Federal Deposit Insurance Corporation (“FDIC”), as receiver for SCB Bank (the “Acquisition”), pursuant to the terms of the Purchase and Assumption Agreement – Modified Whole Bank; All Deposits (the “Agreement”), entered into by the Bank, the FDIC as receiver of SCB Bank and the FDIC.

Under the terms of the Agreement, the Bank acquired $147.7 million in assets, including approximately $11.9 million of cash and cash equivalents, $18.9 million of marketable securities, $1.8 million in Federal Home Loan Bank stock, $113.0 million in loans and $2.1 million of premises and other assets.  The Bank assumed approximately $135.7 million of liabilities, including approximately $125.7 million in customer deposits, $9.6 million of other borrowed money and $402,000 in other liabilities. These balances are book balances and do not reflect the fair value adjustments which are shown on the following table. The acquisition did not include any loss sharing agreement with the FDIC.

The bid accepted by the FDIC included no deposit premium. The assets were acquired at a discount of $29.0 million from book value. The FDIC made a payment of $17.2 million to the Bank upon the final closing date balance sheet for SCB Bank that reflected the difference between the purchase price of the assets acquired and the value of the liabilities assumed.

The Bank engaged in this transaction with the expectation that it would be immediately accretive and add a new market area with a demographic profile consistent with many of the current Indiana markets served by the Bank.

The transaction was accounted for under the acquisition method of accounting in accordance with the Business Combination topic of the FASB Accounting Standards Codification (“ASC 310-20 and 310-30”). The statement of net assets and liabilities acquired as of February 10, 2012, are presented below. The assets and liabilities of SCB were recorded at the respective acquisition date provisional fair values, and identifiable intangible assets were recorded at provisional fair value.

Assets			Liabilities
Cash and due from banks (1)	$	29,113	Deposits:
Investment securities, available for sale		18,896	Non-interest bearing	$	13,715
Federal Home Loan Bank stock		1,761	NOW accounts		14,746
Loans:			Savings and money market		25,843
Commercial		51,042	Certificate of deposit		71,605
Residential mortgage		11,181	Total Deposits		125,909
Installment		31,570
Total Loans		93,793	Federal Home Loan Bank advances		10,286
			Other liabilities		804
Premises		1,516	Total Liabilities Assumed	$	136,999
Core deposit intangible		484
Other assets		560	Net Gain on Acquisition	$	9,124
Total Assets Purchased	$	146,123

(1)   Includes $17,200,000 cash received from the FDIC.

In many cases, the fair values of assets acquired and liabilities assumed were determined by estimating cash flows expected to result from those assets and liabilities and discounting them at appropriate market rates. The most significant category of assets for which this procedure was used was acquired loans. The Bank acquired the $113.0 million loan portfolio at a fair value discount of $19.2 million. The performing portion of the portfolio, $86.3 million, had an estimated fair value of $76.5 million. The excess of expected cash flows above the fair value of the performing portion of loans will be accreted to interest income over the remaining lives of the loans in accordance with ASC 310-20.

Certain loans for which specific credit-related deterioration has occurred since origination are recorded at fair value which is derived from calculating the present value of the amounts expected to be collected. Income recognition on these loans is based on reasonable expectation about the timing and amount of cash flows to be collected. Many of the acquired loans deemed impaired and considered collateral dependent, with the timing of a sale of loan collateral indeterminate, remain on non-accrual status and have no accretable yield.

In accordance with ASC 310-30 (formerly Statement of Position (“SOP”) 03-3 as of February 10, 2012, loans acquired during 2012 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

Preliminary estimate of contractually required principal and interest at acquisition	$	31,143
Preliminary estimate of contractual cash flows not expected to be collected (nonaccretable differences)		9,688
Preliminary estimate of expected cash flows at acquisition		21,455
Preliminary estimate of interest component of expected cash flows (accretable discount)		4,152
Preliminary estimate of fair value of acquired loans accounted for under ASC 310-30	$	17,303

Pro-forma statements were determined to be impracticable due to the nature of the transaction as certain assets were not purchased.

The carrying amount of these loans is included in the balance sheet amounts of loans receivable at September 30, 2012. The amounts are as follows:

	September 30,
	2012
Commercial and industrial loans	$	12,494
Agricultural production finance and other loans to farmers		1,531
Real estate loans
Construction		92
Commercial and farmland		23,724
Residential		32,936
Individuals' loans for household and other personal expenditures		922
Tax exempt
Lease financing
Other loans		987
Total	$	72,686

Accretable yield, or income expected to be collected, is as follows:

	Three Months ended
	September 30, 2012
Beginning balance, June 30, 2012	$	9,048
Accretions		(2,612	)
Ending balance, September 30, 2012	$	6,436

	Nine Months ended
	September 30, 2012
Beginning balance, February 10, 2012	$	9,774
Accretions		(3,338	)
Ending balance, September 30, 2012	$	6,436

XML

Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Effect of Derivative Financial Instruments on Income Statement

The table below presents the fair value of the Corporation’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2012, and December 31, 2011.

Asset Derivatives

Liability Derivatives

September 30, 2012

December 31, 2011

September 30, 2012

December 31, 2011

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Interest rate contracts

Other Assets

$

206

Other Assets

$

424

Other Liabilities

$

3,617

Other Liabilities

$

2,305

Derivatives not designated as hedging instruments:

Interest rate contracts

Other Assets

$

6,412

Other Assets

$

5,241

Other Liabilities

$

6,789

Other Liabilities

$

5,492

Fair Value of Derivative Financial Instruments and Their Classification on Balance Sheet

The tables below present the effect of the Corporation’s derivative financial instruments on the Income Statement for the three and nine months ended September 30, 2012, and 2011.

Derivatives Not Designated as Hedging Instruments under ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Recognized Income on Derivative			Amount of Gain (Loss) Recognized Income on Derivative
		Three Months Ended September 30, 2012			Nine Months Ended  September 30, 2012
Interest rate contracts	Other income	$	(70	)	$	(125	)
Derivatives Not Designated as Hedging Instruments under ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Recognized Income on Derivative			Amount of Gain (Loss) Recognized Income on Derivative
		Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
Interest rate contracts	Other income	$	(95	)	$	(93	)

XML

Impact of Accounting Changes

9 Months Ended

Sep. 30, 2012

Impact of Accounting Changes

NOTE 10.  Impact of Accounting Changes

ASU 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.”  In December 2011 the FASB issued Accounting Standards Update 2011-12, Comprehensive Income (Topic 220):  Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.  This ASU defers the changes in Update 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. This ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011.  For nonpublic entities this ASU is effective for fiscal years ending after December 15, 2012. ASU 2011-12 became effective for the Corporation on January 1, 2012 and did not have a significant impact on the Corporation’s financial statements.

ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350).”  In July 2012, the FASB issued Accounting Standards Update 2012-02, Intangibles – Goodwill and Other:  Testing Indefinite-Lived Intangible Assets for Impairment.  The amendments in this ASU allow an entity to first assess qualitative factors to determine whether it is necessary to perform a quantitative impairment test.  An entity would not be required to calculate the fair value of an indefinite-live intangible asset unless the entity determines, bases on qualitative assessment, that it is more likely than not, the indefinite-lived intangible asset is impaired.  This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and is not expected to have a significant impact on the Corporation’s financial statements.  Early adoption is permitted.

ASU 2012-04, “Technical Corrections and Improvements.”  In October 2012, the FASB issued Accounting Standards Update 2012-04, Technical Corrections and Improvements.  The amendments in this ASU make technical corrections, clarifications and limited-scope improvements to various Topics throughout the Codification.  This ASU is effective for public entities for fiscal periods beginning after December 15, 2012 and is not expected to have a significant impact on the Corporation’s financial statements.

XML

Disclosures About Fair Value of Assets and Liabilities

9 Months Ended

Sep. 30, 2012

Disclosures About Fair Value of Assets and Liabilities

Note 6.  Disclosures About Fair Value of Assets and Liabilities

The Corporation has adopted fair value accounting guidance that defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 Quoted prices in active markets for identical assets or liabilities

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in active markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

Recurring Measurements

The following table presents the fair value measurements of assets and liabilities recognized in the Consolidated Condensed Balance Sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

				Fair Value Measurements Using
September 30, 2012	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	4,782			$	4,782
State and municipal		161,017				142,798		$	18,219
U.S. Government-sponsored mortgage-backed securities		383,912				383,912
Corporate obligations		202							202
Equity securities		1,706				1,702			4
Interest rate swap asset		6,412				6,412
Interest rate cap		206				206
Interest rate swap liability		(10,406	)			(10,406	)

				Fair Value Measurements Using
December 31, 2011	Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities:
U.S. Government-sponsored agency securities	$	117			$	117
State and municipal		147,353				126,712	$	20,641
U.S. Government-sponsored mortgage-backed securities		368,998				368,998
Corporate obligations		193						193
Equity securities		1,830				1,826		4
Interest rate swap asset		5,241						5,241
Interest rate cap		424						424
Interest rate swap liability		(7,797	)					(7,797	)

Following is a description of the valuation methodologies and inputs used for instruments measured at fair value on a recurring basis and recognized in the accompanying Consolidated Condensed Balance Sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.  There have been no significant changes in the valuation techniques during the nine months ended September 30, 2012.

Available for Sale Investment Securities

Where quoted, market prices are available in an active market and securities are classified within Level 1 of the valuation hierarchy. There are no securities classified within Level 1 of the hierarchy. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include agencies, mortgage backs, state and municipal, and equity securities. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Level 3 fair value, including corporate obligations, state and municipal and equity securities, was determined using a discounted cash flow model that incorporated market estimates of interest rates and volatility in markets that have not been active.

Third party vendors compile prices from various sources and may apply such techniques as matrix pricing to determine the value of identical or similar investment securities classified within Level 2. Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather relying on the investment securities’ relationship to other benchmark quoted investment securities. Any investment security not valued based upon the methods above are considered Level 3.

Pooled Trust Preferred Securities

Pooled trust preferred securities in the portfolio amount to $6 million in amortized cost, with a fair value of $171,000; all of which are classified as Level 3 inputs in the fair value hierarchy. These securities were rated A or better at inception, but at September 30, 2012, Moody’s ratings on these securities ranged from Ca to C. The issuers in these securities are primarily banks, but some of the pools do include a limited number of insurance companies. On a quarterly basis, the Corporation uses an other-than-temporary impairment (“OTTI”) evaluation process to compare the present value of expected cash flows to determine whether an adverse change in cash flows has occurred. The OTTI evaluation process considers the structure and term of the collateralized debt obligation (“CDO”), interest rates, principal balances of note classes and underlying issuers, the timing and amount of interest and principal payments of the underlying issuers, and the allocation of the payments to the note classes.  The current estimate of expectedcash flows is based on the most recent trustee reports and any other relevant market information including announcements of interest payment deferrals or defaults of underlying trust preferred securities. Assumptions used in the evaluation process include expected future default rates and prepayments as well as recovery assumptions on defaults and deferrals. In addition, the process is used to “stress” each CDO, or make assumptions more severe than expected activity, to determine the degree to which assumptions could deteriorate before the CDO could no longer fully support repayment of the Corporation’s note class. Upon completion of the September 30, 2012, quarterly evaluation process, the conclusion was no additional OTTI impairment for the three and nine months ending September 30, 2012. The Corporation did not recognize any OTTI impairment for the three months ended September 30, 2011, but did recognize $400,000 of OTTI impairment for the nine months ended September 30, 2011.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the Consolidated Condensed Balance Sheets using significant unobservable (Level 3) inputs for the three and nine months ended September 30, 2012, and 2011.

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	Available for Sale Securities			Interest Rate Swap Asset	Interest Rate Cap	Interest Rate Swap Liability	Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability
Balance at beginning of the period	$	19,740					$	20,838		$	5,241		$	424		$	(7,797	)
Total realized and unrealized gains and losses:
Included in net income (loss)											(860	)					863
Included in other comprehensive income		(183	)					(944	)		481			(15	)
Purchases, issuances and settlements
Transfers in/(out) of Level 3											(4,862	)		(409	)		6,934
Principal payments/additions		(1,132	)					(1,469	)
Ending balance at September 30, 2012	$	18,425					$	18,425

	Three Months Ended September 30, 2011												Nine Months Ended September 30, 2011
	Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability			Available for Sale Securities			Interest Rate Swap Asset			Interest Rate Cap			Interest Rate Swap Liability
Balance at beginning of the period	$	180		$	3,783		$	954		$	(3,986	)	$	186		$	4,002		$	1,109		$	(3,876	)
Total realized and unrealized gains and losses:
Included in net income (loss)					3,251						(3,345	)		(400	)		3,363						(3,455	)
Included in other comprehensive income		(45	)		(1,726	)		(498	)					195			(2,057	)		(653	)
Purchases, issuances and settlements
Transfers in/(out) of Level 3		18,711												18,711
Principal payments		65												219
Ending balance at September 30, 2011	$	18,911		$	5,308		$	456		$	(7,331	)	$	18,911		$	5,308		$	456		$	(7,331	)

There were no gains or losses for the period included in earnings that were attributable to the changes in unrealized gains or losses related to assets or liabilities held at September 30, 2012 or December 31, 2011.

Transfers Between Levels

Transfer between Levels 1, 2 and 3 and the reasons for those transfers are as follows:

	Quoted Prices in Active Markets for Identical Assets  (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)		Reason for Transfer
Transfers from Level:
Interest rate swap asset				$	4,862	The interest rate swap and cap instruments were transferred from Level 3 to Level 2 as of March 31, 2012 due to the Corporation's additional analysis of valuation methodologies.  These instruments are valued using widely accepted valuation techniques including discounted cash flow analysis using observable inputs such as contractual terms and Libor-based rate curves.
Interest rate cap					409
Interest rate swap liability					6,934
Total Transfers from Level				$	12,205
Transfers to Level:
Interest rate swap asset		$	4,862			The interest rate swap and cap instruments were transferred from Level 3 to Level 2 as of March 31, 2012 due to the Corporation's additional analysis of valuation methodologies.  These instruments are valued using widely accepted valuation techniques including discounted cash flow analysis using observable inputs such as contractual terms and Libor-based rate curves.
Interest rate cap			409
Interest rate swap liability			6,934
Total Transfers to Level		$	12,205

Nonrecurring Measurements

The following table presents the fair value measurement of assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

			Fair Value Measurements Using
September 30, 2012	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$	25,853			$	25,853
Other real estate owned (collateral dependent)	$	5,132			$	5,132

			Fair Value Measurements Using
December 31, 2011	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable  Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Impaired loans	$	22,885			$	22,885
Other real estate owned (collateral dependent)	$	7,882			$	7,882

Following is a description of valuation methodologies used for instruments measured at fair value on a nonrecurring basis and recognized in the Consolidated Condensed Balance Sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Impaired Loans (collateral dependent) and Other Real Estate Owned

Loan impairment is reported when substantial doubt about the collectability of scheduled payments exists. Impaired loans are carried at the present value of estimated future cash flows using the loan’s existing rate, or the fair value of collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan losses to increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance when management believes the uncollectability of the loan is confirmed. During the first nine months of 2012, certain impaired loans were partially charged-off or re-evaluated. The valuation would be considered Level 3, consisting of appraisals of underlying collateral and discounted cash flow analysis.

The fair value for impaired loans and other real estate owned is measured based on the value of the collateral securing those loans or real estate and is determined using several methods. The fair value of real estate is generally determined based on appraisals by qualified licensed appraisers. The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach. If an appraisal is not available, the fair value may be determined by using a cash flow analysis. Fair value on other collateral such as business assets is typically calculated by using financial information such as financial statements and aging reports provided by the borrower and is discounted as considered appropriate.

Unobservable (Level 3) Inputs

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements, other than goodwill, at September 30, 2012.

	Fair Value		Valuation Technique	Unobservable Inputs	Range
State and municipal securities	$	18,219	Discounted cash flow	Maturity/Call date	1 month to 11 yrs
				Blend of US Muni BQ curve	A- to BBB-
				Discount rate		1% - 4	%
Corporate obligations/Equity securities	$	206	Discounted cash flow	Risk free rate	3 month libor
				plus Premium for illiquidity	plus 200bps
Impaired loans (collateral dependent)	$	25,853	Collateral based	Discount to reflect current market		0% - 50	%
			measurements	conditions and ultimate collectability
Other real estate owned	$	5,132	Appraisals	Discount to reflect current market		0% - 20	%
				conditions

Sensitivity of Significant Unobservable Inputs

The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and of how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

State and Municipal Securities

The significant unobservable inputs used in the fair value measurement of the Corporation’s state and municipal securities are premiums for unrated securities and marketability discounts.  Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement.  Generally, changes in either of those inputs will not affect the other input.

Corporate Obligations/Equity Securities

The significant unobservable inputs used in the fair value measurement of the Corporation’s corporate obligations/equity securities are premiums for unrated securities and marketability discounts.  Significant increases or decreases in either of those inputs in isolation would result in a significantly lower or higher fair value measurement.  Generally, changes in either of those inputs will not affect the other input.

Fair Value of Financial Instruments

The following table presents estimated fair values of the Corporation’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at September 30, 2012, and December 31, 2011.

	September 30, 2012
	(unaudited)
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	57,027	$	57,027
Interest-bearing time deposits		35,324		35,324
Investment securities available for sale		551,619			$	533,194	$	18,425
Investment securities held to maturity		377,097				385,155		11,062
Mortgage loans held for sale		27,711				27,711
Loans		2,766,831						2,793,212
Federal Reserve Bank and Federal Home Loan Bank stock		32,824				32,824
Interest rate swap asset		6,618				6,618
Interest receivable		17,519				17,519
Liabilities:
Deposits	$	3,194,751	$	2,292,977	$	902,678
Borrowings:
Federal funds purchased		57,024				57,024
Securities sold under repurchase agreements		153,454				154,017
Federal Home Loan Bank advances		145,467				148,985
Subordinated debentures, revolving credit lines and term loans		112,169				67,837
Interest rate swap liability		10,406				10,405
Interest payable		1,591				1,591

	December 31, 2011
	(unaudited)
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
			(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and due from banks	$	73,312	$	73,312
Interest-bearing time deposits		52,851		52,851
Investment securities available for sale		518,491			$	497,653	$	20,838
Investment securities held to maturity		427,909				428,737		13,732
Mortgage loans held for sale		17,864				17,864
Loans		2,642,517						2,658,227
Federal Reserve Bank and Federal Home Loan Bank stock		31,270				31,270
Interest rate swap asset		5,665						5,665
Interest receivable		17,723				17,723
Liabilities:
Deposits	$	3,134,655	$	2,195,679	$	944,078
Borrowings:
Securities sold under repurchase agreements		156,305				157,342
Federal Home Loan Bank advances		138,095				141,693
Subordinated debentures, revolving credit lines and term loans		194,974				142,632
Interest rate swap liability		7,797					$	7,797
Interest payable		2,925				2,925

The following methods were used to estimate the fair value of all other financial instruments recognized in the Consolidated Condensed Balance Sheets at amounts other than fair value.

Cash and due from banks:  The fair value of cash and cash equivalents approximates carrying value.

Interest-bearing time deposits:  The fair value of interest-bearing time deposits approximates carrying value.

Investment securities:  Fair value is based on quoted market prices, if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Mortgage Loans Held For Sale:  The carrying amount approximates fair value due to the insignificant time between origination and date of sale.

Loans:  The fair value for loans is estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.  See Impaired Loans above.

Federal Reserve and Federal Home Loan Bank stock:  The fair value of Federal Reserve Bank and Federal Home Loan Bank stock is based on the price which it may be resold to the Federal Reserve and Federal Home Loan Bank.

Derivative instruments:  The fair value of the derivatives reflects the estimated amounts that would have been received to terminate these contracts at the reporting date based upon pricing or valuation models applied to current market information.  Interest rate caps are valued using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rose above the strike rate of the caps.  The projected cash receipts on the caps are based on an expectation of future interest rates derived from observed market interest rate curves and volatilities.

Interest Receivable and Interest Payable:  The carrying amount approximates fair value.

Deposits:  The fair values of noninterest-bearing and interest-bearing demand accounts and savings deposits are equal to the amount payable on demand at the balance sheet date. The carrying amounts for variable rate, fixed-term certificates of deposit approximate their fair values at the balance sheet date. Fair values for fixed-rate certificates of deposit and other time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to a schedule of aggregated expected monthly maturities on such time deposits.

Federal funds purchased:  The carrying amount approximates fair value.

Borrowings:  The fair value of borrowings is estimated using a discounted cash flow calculation, based on current rates for similar debt.

XML

Valuation Methodologies Used for Instruments Measured at Fair Value on Non-Recurring Basis (Detail) (Fair Value, Measurements, Nonrecurring, USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Impaired Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset fair value	$ 25,853	$ 22,885
Other Real Estate Owned
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset fair value	5,132	7,882
Significant Unobservable Inputs (Level 3) | Impaired Loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset fair value	25,853	22,885
Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Asset fair value	$ 5,132	$ 7,882

XML

Loans and Allowance

9 Months Ended

Sep. 30, 2012

Loans and Allowance

NOTE 4.  Loans and Allowance

The Corporation’s primary lending focus is small business and middle market commercial, residential real estate, auto and small consumer lending, which results in portfolio diversification.  The following tables show the composition in the loan portfolio, loan grades and the allowance for loan losses excluding loans held for sale.  Residential real estate loans held for sale at September 30, 2012, and December 31, 2011, were $27,711,000 and $17,864,000, respectively.

Effective February 10, 2012, the Bank assumed $113.0 million in loans as part of the Purchase and Assumption Agreement discussed in NOTE 2. PURCHASE AND ASSUMPTION included in the Notes to Consolidated Condensed Financial Statements of this Form 10-Q. This loan portfolio was acquired at a fair value discount of $19.2 million.

The following table shows the composition of the Corporation’s loan portfolio by loan class for the periods indicated:

	September 30,			December 31,
	2012			2011
Loans:
Commercial and industrial loans	$	592,517		$	532,523
Agricultural production financing and other loans to farmers		107,166			104,526
Real estate loans:
Construction		93,610			81,780
Commercial and farm land		1,241,054			1,194,230
Residential		475,272			481,493
Home Equity		204,888			191,631
Individual's loans for household and other personal expenditures		77,171			84,172
Lease financing receivables, net of unearned income		2,970			3,555
Other loans		41,676			39,505
		2,836,324			2,713,415
Allowance for loan losses		(69,493	)		(70,898	)
Total Loans	$	2,766,831		$	2,642,517

The Corporation maintains an allowance for loan losses to cover probable credit losses identified during its loan review process. The allowance is increased by the provision for loan losses and decreased by charge offs less recoveries. All charge offs are approved by the Bank’s senior loan officers or loan committees, depending on the amount of the charge off. The Bank charges off loans when a determination is made that all or a portion of a loan is uncollectible. The allowance for loan losses is maintained through the provision for loan losses, which is a charge against earnings.

The amount provided for loan losses in a given period may be greater than or less than net loan losses, and is based on management’s judgment as to the appropriate level of the allowance for loan losses. The determination of the provision amount in a given period is based on management’s continuing review and evaluation of the loan portfolio, including an internally administered loan "watch" list and an independent loan review.  The evaluation takes into consideration identified credit problems, the possibility of losses inherent in the loan portfolio that are not specifically identified and management’s judgment as to the impact of current economic conditions on the portfolio.

Management believes that the allowance for loan losses is adequate to cover probable incurred losses inherent in the loan portfolio at September 30, 2012.  The process for determining the adequacy of the allowance for loan losses is critical to the Corporation’s financial results.  It requires management to make difficult, subjective and complex judgments, to estimate the effect of uncertain matters.  The allowance for loan losses considers current factors, including economic conditions and ongoing internal and external examination processes, and will increase or decrease as deemed necessary to ensure the allowance for loan losses remains adequate.  In addition, the allowance as a percentage of charge offs and nonperforming loans will change at different points in time based on credit performance, loan mix and collateral values.

The historical loss allocation for loans not deemed impaired according to ASC 310 is the product of the volume of loans within the non-impaired criticized and non-criticized risk grade classifications, each segmented by call code, and the historical loss factor for each respective classification and call code segment.  The historical loss factors are based upon actual loss experience within each risk and call code classification.  The historical look back period for non-criticized loans looks to the most recent rolling-four-quarter average and aligns with the look back period for non-impaired criticized loans.  Each of the rolling four quarter periods used to obtain the average, include all charge offs for the previous twelve-month period, therefore the historical look back period includes seven quarters. The resulting allocation is reflective of current conditions.  Criticized loans are grouped based on the risk grade assigned to the loan.  Loans with a special mention grade are assigned a loss factor, and loans with a classified grade but not impaired are assigned a separate loss factor.  The loss factor computation for this allocation includes a segmented historical loss migration analysis of criticized risk grades to charge off.

In addition to the specific reserves and historical loss components of the allowance, consideration is given to various environmental factors to help ensure that losses inherent in the portfolio are reflected in the allowance for loan losses.  The environmental component adjusts the historical loss allocations for commercial and consumer loans to reflect relevant current conditions that, in management’s opinion, have an impact on loss recognition.  Environmental factors that management reviews in the analysis include: national and local economic trends and conditions; trends in growth in the loan portfolio and growth in higher risk areas; levels of, and trends in, delinquencies and non-accruals; experience and depth of lending management and staff; adequacy of, and adherence to, lending policies and procedures including those for underwriting; industry concentrations of credit; and adequacy of risk identification systems and controls through the internal loan review and internal audit processes.

The risk characteristics of the Corporation’s material portfolio segments are as follows:

Commercial

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Management monitors and evaluates commercial real estate loans based on collateral and risk grade criteria. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

Residential and Consumer

With respect to residential loans that are secured by 1-4 family residences and are generally owner occupied, the Corporation generally establishes a maximum loan-to-value ratio and requires private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in 1-4 family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income and credit rating of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

The following tables summarize changes in the allowance for loan losses by loan segment for the three and nine months ended September 30, 2012, and September 30, 2011:

	Three Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases	Total
Allowance for loan losses:
Balances, July 1	$	17,791		$	35,133		$	2,431		$	14,788			$	70,143
Provision for losses		5,431			(879	)		147			(90	)			4,609
Recoveries on loans		526			1,598			219			174				2,517
Loans charged off		(1,424	)		(4,439	)		(168	)		(1,745	)			(7,776	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127			$	69,493

	Nine Months Ended September 30, 2012
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	17,731		$	37,919		$	2,902		$	12,343		$	3		$	70,898
Provision for losses		10,333			149			(14	)		3,565			(4	)		14,029
Recoveries on loans		1,193			3,462			595			968			1			6,219
Loans charged off		(6,933	)		(10,117	)		(854	)		(3,749	)					(21,653	)
Balances, September 30, 2012	$	22,324		$	31,413		$	2,629		$	13,127					$	69,493

	Three Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, April 1	$	23,715		$	38,668		$	2,859		$	11,877		$	14		$	77,133
Provision for losses		(903	)		3,042			281			3,142			(6	)		5,556
Recoveries on loans		1,176			378			163			237			1			1,955
Loans charged off		(4,344	)		(5,003	)		(266	)		(1,957	)					(11,570	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

	Nine Months Ended September 30, 2011
	Commercial			Real Estate Commercial			Consumer			Residential			Finance Leases			Total
Allowance for loan losses:
Balances, January 1	$	32,508		$	36,341		$	3,622		$	10,408		$	98		$	82,977
Provision for losses		(14,778	)		24,232			(187	)		7,601			(93	)		16,775
Recoveries on loans		8,174			1,244			781			934			4			11,137
Loans charged off		(6,260	)		(24,732	)		(1,179	)		(5,644	)					(37,815	)
Balances, September 30, 2011	$	19,644		$	37,085		$	3,037		$	13,299		$	9		$	73,074

The following table shows the Corporation’s allowance for credit losses and loan portfolio by loan segment for the periods indicated:

	September 30, 2012
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	1,775	$	4,157			$	319			$	6,251
Collectively evaluated for impairment		20,549		27,256	$	2,629		12,808				63,242
Total Allowance for Loan Losses	$	22,324	$	31,413	$	2,629	$	13,127			$	69,493
Loan Balances:
Individually evaluated for impairment	$	16,286	$	54,773			$	8,906			$	79,965
Collectively evaluated for impairment		725,073		1,279,891	$	77,171		671,254	$	2,970		2,756,359
Total Loans	$	741,359	$	1,334,664	$	77,171	$	680,160	$	2,970	$	2,836,324

	December 31, 2011
	Commercial		Commercial Real Estate		Consumer		Residential		Finance Leases		Total
Allowance Balances:
Individually evaluated for impairment	$	4,701	$	2,504			$	733			$	7,938
Collectively evaluated for impairment		13,030		35,415	$	2,902		11,610	$	3		62,960
Total Allowance for Loan Losses	$	17,731	$	37,919	$	2,902	$	12,343	$	3	$	70,898
Loan Balances:
Individually evaluated for impairment	$	18,793	$	51,980			$	12,546			$	83,319
Collectively evaluated for impairment		657,760		1,224,031	$	84,172		660,578	$	3,555		2,630,096
Total Loans	$	676,553	$	1,276,011	$	84,172	$	673,124	$	3,555	$	2,713,415

Loans are reclassified to a non-accruing status when, in management’s judgment, the collateral value and financial condition of the borrower do not justify accruing interest. Interest previously recorded, but not deemed collectible, is reversed and charged against current income. Payments subsequently received on nonaccrual loans are applied to principal. A loan is returned to accrual status when principal and interest are no longer past due and collectability is probable, typically after a minimum of six consecutive months of performance.  Payments received on impaired accruing or delinquent loans are applied to interest income as accrued.

The following table summarizes the Corporation’s non-accrual loans by loan class for the periods indicated:

	September 30,		December 31,
	2012		2011
Commercial and Industrial	$	12,507	$	12,246
Real Estate Loans:
Construction		5,440		8,990
Commercial and farm land		24,501		31,093
Residential		12,444		14,805
Home Equity		1,761		1,896
Individuals loans for household and other personal expenditures		3		1
Lease financing receivables, net of unearned income		337
Other Loans		6		561
Total	$	56,999	$	69,592

Commercial impaired loans include all non-accrual loans, loans accounted for under SOP-03-3 and renegotiated loans, as well as substandard, doubtful and loss grade loans that were still accruing but deemed impaired according to guidance set forth in ASC 310.  Also included in impaired loans are accruing loans that are contractually past due 90 days or more. A loan is deemed impaired when, based on current information or events, it is probable that all amounts due of principal and interest according to the contractual terms of the loan agreement will not be collected.

Impaired loans are measured by the present value of expected future cash flows or the fair value of the collateral of the loans, if collateral dependent. The fair value for impaired loans is measured based on the value of the collateral securing those loans and is determined using several methods.  The fair value of real estate is generally based on appraisals by qualified licensed appraisers.  The appraisers typically determine the value of the real estate by utilizing an income or market valuation approach.  If an appraisal is not available, the fair value may be determined by using a cash flow analysis.  Fair value on other collateral, such as business assets, is typically valued by using financial information such as financial statements and aging reports provided by the borrower and is discounted as considered appropriate.

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of September 30, 2012:

							Three Months Ended				Nine Months Ended
	September 30, 2012						September 30, 2012				September 30, 2012
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	27,363	$	10,743			$	9,994	$	26	$	11,615	$	68
Agriculture production financing
and other loans to farmers		300		300				300				300
Real Estate Loans:
Construction		10,743		6,378				6,658		17		7,665		47
Commercial and farm land		52,953		35,606				31,081		250		33,459		706
Residential		9,307		6,716				6,936		20		7,342		54
Home equity		3,901		711				713		3		727		10
Other loans		87		16				17				18		1
Total	$	104,654	$	60,470			$	55,699	$	316	$	61,126	$	886
Impaired loans with related allowance:
Commercial and industrial	$	5,570	$	5,227	$	1,775	$	5,244	$	11	$	5,307	$	32
Real Estate Loans:
Construction		725		480		51		510				541
Commercial and farm land		13,021		12,309		4,106		12,326		32		12,371		95
Residential		1,578		1,479		319		1,485		19		1,485		56
Total	$	20,894	$	19,495	$	6,251	$	19,565	$	62	$	19,704	$	183
Total Impaired Loans	$	125,548	$	79,965	$	6,251	$	75,264	$	378	$	80,830	$	1,069

The following table shows the composition of the Corporation’s commercial impaired loans by loan class as of December 31, 2011:

	December 31, 2011
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance:
Commercial and industrial	$	23,364	$	10,116			$	13,399	$	615
Real Estate Loans:
Construction		14,301		7,701				8,836
Commercial and farm land		49,242		34,571				39,032		591
Residential		7,491		6,185				6,539		20
Home equity		4,425		1,241				1,500		15
Other loans		99		21				24
Total	$	98,922	$	59,835			$	69,330	$	1,241
Impaired loans with related allowance:
Commercial and industrial	$	8,691	$	8,104	$	4,142	$	8,196	$	174
Real Estate Loans:
Construction		961		961		321		961
Commercial and farm land		12,115		8,748		2,183		10,028		140
Residential		1,888		1,575		391		1,687		7
Other loans		579		552		559		590
Total	$	24,234	$	19,940	$	7,596	$	21,462	$	321
Total Impaired Loans	$	123,156	$	79,775	$	7,596	$	90,792	$	1,562

As part of the ongoing monitoring of the credit quality of the Corporation’s loan portfolio, management tracks certain credit quality indicators including trends related to: (i) the level of criticized commercial loans, (ii) net charge offs, (iii) non-performing loans and (iv) the general national and local economic conditions.

The Corporation utilizes a risk grading of pass, special mention, substandard, doubtful and loss to assess the overall credit quality of large commercial loans. All large commercial credit grades are reviewed at a minimum of once a year for pass grade loans.  Loans with grades below pass are reviewed more frequently depending on the grade.  A description of the general characteristics of these grades is as follows:

● Pass – Loans that are considered to be of acceptable credit quality.

● Special Mention – Loans which possess some credit deficiency or potential weakness, which deserves close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Corporation’s credit position at some future date.  Special mention assets are not adversely classified and do not expose the Corporation to sufficient risk to warrant adverse classification.  The key distinctions of this category’s classification are that it is indicative of an unwarranted level of risk; and weaknesses are considered “potential”, not “defined”, impairments to the primary source of repayment. Examples include businesses that may be suffering from inadequate management, loss of key personnel or significant customer or litigation.

● Substandard – A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Assets so classified have a well-defined weakness that jeopardizes the liquidation of the debt.  They are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected.  Other characteristics may include:

o      the likelihood that a loan will be paid from the primary source of repayment is uncertain or financial deterioration is underway and very close attention is warranted to ensure that the loan is collected without loss,

o      the primary source of repayment is gone, and the Corporation is forced to rely on a secondary source of repayment, such as collateral liquidation or guarantees,

o      loans have a distinct possibility that the Corporation will sustain some loss if deficiencies are not corrected,

o      unusual courses of action are needed to maintain a high probability of repayment,

o      the borrower is not generating enough cash flow to repay loan principal; however, it continues to make interest payments,

o      the Corporation is forced into a subordinated or unsecured position due to flaws in documentation,

o      loans have been restructured so that payment schedules, terms and collateral represent concessions to the borrower when compared to the normal loan terms,

o      the Corporation is seriously contemplating foreclosure or legal action due to the apparent deterioration of the loan, and

o      there is significant deterioration in market conditions to which the borrower is highly vulnerable.

● Doubtful – Loans that have all of the weaknesses of those classified as Substandard. However, based on currently existing facts, conditions and values, these weaknesses make full collection of principal highly questionable and improbable. Other credit characteristics may include the primary source of repayment is gone or there is considerable doubt as to the quality of the secondary sources of repayment. The possibility of loss is high, but because of certain important pending factors that may strengthen the loan, loss classification is deferred until the exact status of repayment is known.

● Loss – Loans that are considered uncollectible and of such little value that continuing to carry them as an asset is not warranted. Loans will be classified as Loss when it is neither practical not desirable to defer writing off or reserving all or a portion of a basically worthless asset, even though partial recovery may be possible at some time in the future.

The following table summarizes the credit quality of the Corporation’s loan portfolio, by loan class for the periods indicated.  Consumer Non-Performing loans include accruing consumer loans 90 plus days delinquent and consumer non-accrual loans.  The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified date.

	September 30, 2012
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non-Performing		Total Loans
Commercial and industrial	$	524,180	$	25,143	$	36,564	$	6,630					$	592,517
Agriculture production financing    and other loans		106,775		230		161								107,166
Real Estate Loans:
Construction		78,655		1,639		13,140					$	176		93,610
Commercial and farm land		1,105,407		48,344		86,500		475				328		1,241,054
Residential		142,394		4,909		14,709		1,360	$	304,255		7,645		475,272
Home equity		11,036		1,344		1,021				189,938		1,549		204,888
Individuals loans for household    and other personal expenditures										77,168		3		77,171
Lease financing receivables, net    of unearned income										2,633		337		2,970
Other loans		41,640				36								41,676
Total	$	2,010,087	$	81,609	$	152,131	$	8,465	$	573,994	$	10,038	$	2,836,324

	December 31, 2011
	Commercial Pass		Commercial Special Mention		Commercial Substandard		Commercial Doubtful		Consumer Performing		Consumer Non Performing		Total Loans
Commercial and industrial	$	478,885	$	22,405	$	28,025	$	3,208					$	532,523
Agriculture production financing    and other loans		101,289		1,582		1,655								104,526
Real Estate Loans:
Construction		47,611		3,672		22,376			$	7,762	$	359		81,780
Commercial and farm land		1,033,397		54,697		103,330		1,724		1,035		47		1,194,230
Residential		139,237		9,175		16,699		500		308,306		7,576		481,493
Home equity		15,912		499		3,317				170,776		1,127		191,631
Individuals loans for household    and other personal expenditures										84,121		51		84,172
Lease financing receivables, net    of unearned income										3,555				3,555
Other loans		38,917		15		21		552						39,505
Total	$	1,855,248	$	92,045	$	175,423	$	5,984	$	575,555	$	9,160	$	2,713,415

The following table shows a past due aging of the Corporation’s loan portfolio, by loan class for September 30, 2012, and December 31, 2011:

	September 30, 2012
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	574,730	$	4,800	$	434	$	46	$	12,507	$	17,787	$	592,517
Agriculture production financing and other    loans		106,782		74		10		300				384		107,166
Real Estate Loans:
Construction		87,829		341						5,440		5,781		93,610
Commercial and farm land		1,209,194		6,931		65		363		24,501		31,860		1,241,054
Residential		453,234		5,835		2,788		971		12,444		22,038		475,272
Home equity		200,402		1,532		899		294		1,761		4,486		204,888
Individuals loans for household and other    personal expenditures		76,053		720		395				3		1,118		77,171
Lease financing receivables, net of unearned    income		2,633								337		337		2,970
Other loans		41,670								6		6		41,676
Total	$	2,752,527	$	20,233	$	4,591	$	1,974	$	56,999	$	83,797	$	2,836,324

	December 31, 2011
	Current		30-59 Days Past Due		60-89 Days Past Due		Loans > 90 Days And Accruing		Non-Accrual		Total Past Due & Non-Accrual		Total Loans
Commercial and industrial	$	518,764	$	1,332	$	135	$	46	$	12,246	$	13,759	$	532,523
Agriculture production financing and other    loans		104,464		62								62		104,526
Real Estate Loans:
Construction		69,305		328		3,126		31		8,990		12,475		81,780
Commercial and farm land		1,140,897		16,457		5,783				31,093		53,333		1,194,230
Residential		458,925		5,485		2,087		191		14,805		22,568		481,493
Home equity		187,788		1,096		590		261		1,896		3,843		191,631
Individuals loans for household and other    personal expenditures		82,837		1,075		208		51		1		1,335		84,172
Lease financing receivables, net of unearned    income		3,555												3,555
Other loans		38,944								561		561		39,505
Total	$	2,605,479	$	25,835	$	11,929	$	580	$	69,592	$	107,936	$	2,713,415

See the information regarding the analysis of loan loss experience in the Loan Quality/Provision for Loan Losses section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included as ITEM 2 of this Form 10-Q.

Given recent economic conditions, borrowers of all types have experienced declines in income and cash flow.  As a result, borrowers are occasionally seeking to reduce contractual cash outlays including debt payments.  Concurrently, in an effort to preserve and protect its earning assets, specifically troubled loans, the Corporation is working to maintain its relationship with certain customers who are experiencing financial difficulty by contractually modifying the borrower’s debt agreement with the Corporation.  In certain loan restructuring situations, the Corporation may grant a concession to a debtor experiencing financial difficulty, resulting in a trouble debt restructuring.  A concession is deemed to be granted when, as a result of the restructuring, the Corporation does not expect to collect all amounts due, including interest accrued at the original contract rate.  If the payment of principal at original maturity is primarily dependent on the value of collateral, the current value of the collateral is considered in determining whether the principal will be paid.

The following tables summarize troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended						Nine Months Ended
	September 30, 2012						September 30, 2012
	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and industrial	$	875	$	1,048		3	$	1,155	$	1,327		6
Real Estate Loans:
Construction		303		303		1		794		653		2
Commercial and farm land		875		875		2		2,967		2,828		7
Residential		239		241		4		2,196		2,063		19
Individuals loans for household and other    personal expenditures		90		117		4		90		117		4
Total	$	2,382	$	2,584		14	$	7,202	$	6,988		38

	Three Months Ended						Nine Months Ended
	September 30, 2011						September 30, 2011
	Pre-Modification		Post-Modification		Number		Pre-Modification		Post-Modification		Number
	Recorded Balance		Recorded Balance		of Loans		Recorded Balance		Recorded Balance		of Loans
Commercial and Industrial	$	535	$	552		5	$	1,636	$	1,651		10
Real Estate Loans:
Construction		40		41		1		175		184		3
Commercial and farm land		379		379		1		4,357		4,346		6
Residential		1,034		1,407		10		2,690		3,115		30
Home Equity								82		87		8
Total	$	1,988	$	2,379		17	$	8,940	$	9,383		57

The following table shows the recorded investment, as of September 30, 2012, of troubled debt restructurings that occurred during the periods indicated:

	Three Months Ended
	September 30, 2012
	Term	Rate				Total
	Modification	Modification		Combination		Modification
Commercial and industrial				$	1,048	$	1,048
Real Estate Loans:
Construction					299		299
Commercial and farm land		$	680		195		875
Residential					167		167
Individuals loans for household and other personal expenditures			7		109		116
Total		$	687	$	1,818	$	2,505

	Nine Months Ended
	September 30, 2012
	Term		Rate				Total
	Modification		Modification		Combination		Modification
Commercial and industrial	$	230			$	1,072	$	1,302
Real Estate Loans:
Construction						639		639
Commercial and farm land		1,693	$	680		385		2,758
Residential		528		252		1,100		1,880
Individuals loans for household and other personal expenditures				7		109		116
Total	$	2,451	$	939	$	3,305	$	6,695

Residential real estate loans account for 29 percent and 48 percent of the troubled debt restructured loans made in the three and nine months ended September 30, 2012, respectively.  Three and eleven troubled debt restructured loans made during the three and nine months ended September 30, 2012, respectively, are in non accrual status.

The following tables summarize troubled debt restructures that occurred during the twelve months ended September 30, 2012, and September 30, 2011, that subsequently defaulted during the period indicated:

	Three Months Ended				Nine Months Ended
	September 30, 2012				September 30, 2012
	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		3	$	1,415		3	$	1,415
Real Estate Loans:
Commercial and farm land		1		23		1		23
Residential		7		371		11		2,494
Total		11	$	1,809		15	$	3,932

	Three Months Ended				Nine Months Ended
	September 30, 2011				September 30, 2011
	Number of Loans		Recorded Balance		Number of Loans		Recorded Balance
Commercial and Industrial		1	$	66		2	$	553
Real Estate Loans:
Commercial and farm land						1
Residential		3		271		3		657
Home Equity		1		11		1		11
Total		5	$	348		7	$	1,221

For potential consumer loan restructures, impairment evaluation occurs prior to modification.  Any subsequent impairment is typically addressed through the charge off process, or may be addressed through a specific reserve.  Consumer troubled debt restructurings are generally included in the general historical allowance for loan loss at the post modification balance.  Consumer non-accrual and delinquent troubled debt restructurings are also considered in the calculation of the non-accrual and delinquency trend environmental allowance allocation.  Commercial troubled debt restructured loans risk graded special mention, substandard, doubtful and loss are individually evaluated for impairment under ASC 310.  Any resulting specific reserves are included in the allowance for loan losses. Commercial 30 – 89 day delinquent troubled debt restructurings are included in the calculation of the delinquency trend environmental allowance allocation. All commercial non-impaired loans, including non-accrual and 90+ day delinquents, are included in the ASC 450 loss migration analysis.

XML

Derivative Financial Instruments

9 Months Ended

Sep. 30, 2012

Derivative Financial Instruments

NOTE 5.  Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Corporation is exposed to certain risks arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments.  Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash payments principally related to certain variable-rate liabilities.  The Corporation also has derivatives that are a result of a service the Corporation provides to certain qualifying customers, and, therefore, are not used to manage interest rate risk in the Corporation’s assets or liabilities.

Cash Flow Hedges of Interest Rate Risk

The Corporation’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Corporation primarily uses interest rate swaps and interest rate caps as part of its interest rate risk management strategy.  Interest rate swaps designated as cash flow hedges involve the payment of fixed amounts to a counterparty in exchange for the Corporation receiving variable payments over the life of the agreements without exchange of the underlying notional amount. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.  As of September 30, 2012, the Corporation had two interest rate swaps with a notional amount of $26.0 million and one interest rate cap with a notional amount of $13.0 million that were designated as cash flow hedges.   As of September 30, 2011, the Corporation had one interest rate swap with a notional amount of $13.0 million and one interest rate cap with a notional amount of $13.0 million that were designated as cash flow hedges.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2012, such derivatives were used to hedge the forecasted LIBOR-based outflows associated with existing trust preferred securities when the outflows converted from a fixed rate to variable rate in September of 2012.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three and nine months ended September 30, 2012, and 2011, the Corporation did not recognize any ineffectiveness.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Corporation’s variable-rate liabilities.  During the next twelve months, the Corporation does not expect to reclassify any amounts from accumulated other comprehensive income to interest expense.

The Corporation does not use derivatives for trading or speculative purposes.  Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers. The Corporation executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Corporation executes with a third party, such that the Corporation minimizes its net risk exposure resulting from such transactions.  As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.  As of September 30, 2012, the notional amount of customer-facing swaps was approximately $152,667,000.  This amount is offset with third party counterparties, as described above.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Corporation’s derivative financial instruments, as well as their classification on the Balance Sheet, as of September 30, 2012, and December 31, 2011.

Asset Derivatives

Liability Derivatives

September 30, 2012

December 31, 2011

September 30, 2012

December 31, 2011

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

Interest rate contracts

Other Assets

$

206

Other Assets

$

424

Other Liabilities

$

3,617

Other Liabilities

$

2,305

Derivatives not designated as hedging instruments:

Interest rate contracts

Other Assets

$

6,412

Other Assets

$

5,241

Other Liabilities

$

6,789

Other Liabilities

$

5,492

Effect of Derivative Instruments on the Income Statement

The tables below present the effect of the Corporation’s derivative financial instruments on the Income Statement for the three and nine months ended September 30, 2012, and 2011.

Derivatives Not Designated as Hedging Instruments under ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Recognized Income on Derivative			Amount of Gain (Loss) Recognized Income on Derivative
		Three Months Ended September 30, 2012			Nine Months Ended  September 30, 2012
Interest rate contracts	Other income	$	(70	)	$	(125	)
Derivatives Not Designated as Hedging Instruments under ASC 815-10	Location of Gain (Loss) Recognized Income on Derivative	Amount of Gain (Loss) Recognized Income on Derivative			Amount of Gain (Loss) Recognized Income on Derivative
		Three Months Ended September 30, 2011			Nine Months Ended September 30, 2011
Interest rate contracts	Other income	$	(95	)	$	(93	)

The Corporation’s exposure to credit risk occurs because of nonperformance by its counterparties.  The counterparties approved by the Corporation are usually financial institutions, which are well capitalized and have credit ratings through Moody’s and/or Standard & Poor’s, at or above investment grade.  The Corporation’s control of such risk is through quarterly financial reviews, comparing mark-to-mark values with policy limitations, credit ratings and collateral pledging.

Credit-risk-related Contingent Features

The Corporation also has agreements with certain of its derivative counterparties that contain a provision where if the Corporation fails to maintain its status as a well or adequate capitalized institution, then the Corporation could be required to terminate or fully collateralize all outstanding derivative contracts.

The Corporation has agreements with certain of its derivative counterparties that contain a provision where if the Corporation defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, the Corporation could also be declared in default on its derivative obligations.

As of September 30, 2012, the termination value of derivatives in a net liability position related to these agreements was $10,567,000. As of September 30, 2012, the Corporation had minimum collateral posting thresholds with certain of its derivative counterparties and had posted collateral of $9,337,000. If the Corporation had breached any of these provisions at September 30, 2012, it could have been required to settle its obligations under the agreements at their termination value.

XML

Share-Based Compensation

9 Months Ended

Sep. 30, 2012

Share-Based Compensation

NOTE 7.  Share-Based Compensation

Stock options and restricted stock awards ("RSAs") have been issued to directors, officers and other management employees under the Corporation's 1999 Long-term Equity Incentive Plan and the 2009 Long-term Equity Incentive Plan.  The stock options, which have a ten-year life, become 100 percent vested ranging from six months to two years and are fully exercisable when vested. Option exercise prices equal the Corporation's common stock closing price on NASDAQ on the date of grant.  RSAs provide for the issuance of shares of the Corporation's common stock at no cost to the holder and generally vest after three years.  The RSAs vest only if the employee is actively employed by the Corporation on the vesting date and, therefore, any unvested shares are forfeited.  Deferred stock units ("DSUs") can be credited to non-employee directors who have elected to defer payment of compensation under the Corporation's 2008 Equity Compensation Plan for Non-employee Directors.  DSUs credited are equal to the restricted shares that the non-employee director would have received under the plan.  As of September 30, 2012, there were no outstanding DSUs.

The Corporation’s 2009 Employee Stock Purchase Plan (“ESPP”) provides eligible employees of the Corporation and its subsidiaries an opportunity to purchase shares of common stock of the Corporation through quarterly offerings financed by payroll deductions. The price of the stock to be paid by the employees shall be equal to 85 percent of the average of the closing price of the Corporation’s common stock on each trading day during the offering period. However, in no event shall such purchase price be less than the lesser of an amount equal to 85 percent of the market price of the Corporation’s stock on the offering date or an amount equal to 85 percent of the market value on the date of purchase. Common stock purchases are made quarterly and are paid through advance payroll deductions up to a calendar year maximum of $25,000.

Compensation expense related to unvested share-based awards is recorded by recognizing the unamortized grant date fair value of these awards over the remaining service periods of those awards, with no change in historical reported fair values and earnings.Awards are valued at fair value in accordance with provisions of share-based compensation guidance and are recognized on a straight-line basis over the service periods of each award. To complete the exercise of vested stock options, RSA’s and ESPP options, the Corporation generally issues new shares from its authorized but unissued share pool. Share-based compensation for the three months and nine months ended September 30, 2012, was $415,000 and $1,101,000, respectively compared to $290,000 and $1,009,000 for the three months and nine months ended September 30, 2011. Share-based compensation has been recognized as a component of salaries and benefits expense in the accompanying CONSOLIDATED CONDENSED STATEMENTS OF INCOME.

The estimated fair value of the stock options granted during 2012 and in prior years was calculated using a Black Scholes option pricing model.  The following summarizes the assumptions used in the 2012 Black Scholes model:

Risk-free interest rate	1.36	%
Expected price volatility	46.22	%
Dividend yield	3.29	%
Forfeiture rate	4.77	%
Weighted-average expected life, until exercise	7.2	years

The Black Scholes model incorporates assumptions to value share-based awards. The risk-free rate of interest, for periods equal to the expected life of the option, is based on a U.S. government instrument over a similar contractual term of the equity instrument. Expected price volatility is based on historical volatility of the Corporation’s common stock.  In addition, the Corporation generally uses historical information to determine the dividend yield and weighted-average expected life of the options until exercise. Separate groups of employees that have similar historical exercise behavior with regard to option exercise timing and forfeiture rates are considered separately for valuation and attribution purposes.

Share-based compensation expense recognized in the CONSOLIDATED CONDENSED STATEMENTS OF INCOME is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Share-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. Pre-vesting forfeitures were estimated to be approximately 4.8 percent for the nine months ended September 30, 2012, based on historical experience.

The following table summarizes the components of the Corporation's share-based compensation awards recorded as expense:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Stock and ESPP Options
Pre-tax compensation expense	$	71		$	56		$	197		$	165
Income tax benefit		(11	)		(7	)		(13	)		(8	)
Stock and ESPP option expense, net of income taxes	$	60		$	49		$	184		$	157
Restricted Stock Awards
Pre-tax compensation expense	$	344		$	234		$	904		$	844
Income tax benefit		(104	)		(76	)		(322	)		(289	)
Restricted stock awards expense, net of income taxes	$	240		$	158		$	582		$	555
Total Share-Based Compensation:
Pre-tax compensation expense	$	415		$	290		$	1,101		$	1,009
Income tax benefit		(115	)		(83	)		(335	)		(297	)
Total share-based compensation expense, net of income taxes	$	300		$	207		$	766		$	712

As of September 30, 2012, unrecognized compensation expense related to stock options and RSAs totaling $132,000 and $2,053,000, respectively, is expected to be recognized over weighted-average periods of .84 and 1.52 years, respectively.

Stock option activity under the Corporation's stock option plans as of September 30, 2012 and changes during the nine months ended September 30, 2012, were as follows:

	Number of Shares			Weighted-Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value
Outstanding at January 1, 2012		1,035,871		$	22.57
Granted/ Converted		46,801		$	11.69
Exercised		(8,750	)	$	7.69
Cancelled		(165,536	)	$	25.87
Outstanding September 30, 2012		908,386		$	21.55		4.33		1,097,884
Vested and Expected to Vest at September 30, 2012		908,386		$	21.55		4.33		1,097,884
Exercisable at September 30, 2012		830,336		$	22.58		3.89		760,073

The weighted-average grant date fair value was $3.97 for stock options granted during the nine months ended September 30, 2012.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Corporation's closing stock price on the last trading day of the first nine months of 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their stock options on September 30, 2012.  The amount of aggregate intrinsic value will change based on the fair market value of the Corporation's common stock.    The aggregate intrinsic value of stock options exercised during the first nine months of 2012 was $46,000. Cash receipts of stock options exercised during this same period were $67,000.

The following table summarizes information on unvested RSAs outstanding as of September 30, 2012:

	Number of Shares			Weighted-Average Grant Date Fair Value
Unvested RSAs at January 1, 2012		338,087		$	8.65
Granted		156,473		$	11.79
Forfeited		(8,800	)	$	9.63
Vested		(79,386	)	$	11.90
Unvested RSAs at September 30, 2012		406,374		$	9.18

The grant date fair value of ESPP options was estimated at the beginning of the July 1, 2012 quarterly offering period of approximately $22,000. The ESPP options vested during the three months ending September 30, 2012, leaving no unrecognized compensation expense related to unvested ESPP options at September 30, 2012.

XML

Assumptions Used in Black Scholes Model (Detail)	9 Months Ended
	Sep. 30, 2012
Share based Compensation Arrangement by Share based Payment Award, Fair Value Assumptions, Method Used [Line Items]
Risk-free interest rate	1.36%
Expected price volatility	46.22%
Dividend yield	3.29%
Forfeiture rate	4.77%
Weighted-average expected life, until exercise	7 years 2 months 12 days

XML

Stock Option Activity under Stock Option Plans (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Number of Shares
Beginning balance	1,035,871
Granted	46,801
Exercised	(8,750)
Cancelled	(165,536)
Ending balance	908,386
Vested and Expected to Vest at September 30, 2012	908,386
Exercisable at September 30, 2012	830,336
Weighted-Average Exercise Price
Beginning balance	$ 22.57
Granted	$ 11.69
Exercised	$ 7.69
Cancelled	$ 25.87
Ending balance	$ 21.55
Vested and Expected to Vest at September 30, 2012	$ 21.55
Exercisable at September 30, 2012	$ 22.58
Weighted Average Remaining Contractual Term
Outstanding September 30, 2012	4 years 3 months 29 days
Vested and Expected to Vest at September 30, 2012	4 years 3 months 29 days
Exercisable at September 30, 2012	3 years 10 months 21 days
Aggregate Intrinsic Value
Outstanding September 30, 2012	$ 1,097,884
Vested and Expected to Vest at September 30, 2012	1,097,884
Exercisable at September 30, 2012	$ 760,073

XML

Share-Based Compensation - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of average closing price to be paid by employees			85.00%
Share-based compensation	$ 415,000	$ 290,000	$ 1,101,000	$ 1,009,000
Estimated pre-vesting forfeiture rate			4.77%
Weighted-average grant date fair value for stock options			$ 3.97
Aggregate intrinsic value of stock options exercised			46,000
Cash receipts of stock options exercised			67,000
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock purchases through advance payroll deductions in a calendar year			25,000
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option term			10 years
Stock options vesting percentage			100.00%
Unrecognized compensation expense	132,000		132,000
Unrecognized compensation expense expected recognition period			10 months 2 days
Stock Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested period			6 months
Stock Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested period			2 years
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vested period			3 years
Unrecognized compensation expense	2,053,000		2,053,000
Unrecognized compensation expense expected recognition period			1 year 6 months 7 days
Employee Stock Purchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value of ESPP options	$ 22,000

XML

Accretable Yield, or Income Expected to be Collected (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities Acquired During Period [Line Items]
Beginning balance	$ 9,048	$ 9,774
Accretions	(2,612)	(3,338)
Ending balance	$ 6,436	$ 6,436

XML

Summary of Troubled Debt Restructurings and Subsequent Defaults (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012
Financing Receivable, Modifications [Line Items]
Modification	$ 2,505	$ 6,695
Troubled Debt Restructurings, Term Modifications
Financing Receivable, Modifications [Line Items]
Modification		2,451
Troubled Debt Restructurings, Rate Modifications
Financing Receivable, Modifications [Line Items]
Modification	687	939
Troubled Debt Restructurings, Rate and Term Modifications
Financing Receivable, Modifications [Line Items]
Modification	1,818	3,305
Commercial and industrial
Financing Receivable, Modifications [Line Items]
Modification	1,048	1,302
Commercial and industrial | Troubled Debt Restructurings, Term Modifications
Financing Receivable, Modifications [Line Items]
Modification		230
Commercial and industrial | Troubled Debt Restructurings, Rate and Term Modifications
Financing Receivable, Modifications [Line Items]
Modification	1,048	1,072
Construction
Financing Receivable, Modifications [Line Items]
Modification	299	639
Construction | Troubled Debt Restructurings, Rate and Term Modifications
Financing Receivable, Modifications [Line Items]
Modification	299	639
Commercial and farm land
Financing Receivable, Modifications [Line Items]
Modification	875	2,758
Commercial and farm land | Troubled Debt Restructurings, Term Modifications
Financing Receivable, Modifications [Line Items]
Modification		1,693
Commercial and farm land | Troubled Debt Restructurings, Rate Modifications
Financing Receivable, Modifications [Line Items]
Modification	680	680
Commercial and farm land | Troubled Debt Restructurings, Rate and Term Modifications
Financing Receivable, Modifications [Line Items]
Modification	195	385
Residential
Financing Receivable, Modifications [Line Items]
Modification	167	1,880
Residential | Troubled Debt Restructurings, Term Modifications
Financing Receivable, Modifications [Line Items]
Modification		528
Residential | Troubled Debt Restructurings, Rate Modifications
Financing Receivable, Modifications [Line Items]
Modification		252
Residential | Troubled Debt Restructurings, Rate and Term Modifications
Financing Receivable, Modifications [Line Items]
Modification	167	1,100
Consumer
Financing Receivable, Modifications [Line Items]
Modification	116	116
Consumer | Troubled Debt Restructurings, Rate Modifications
Financing Receivable, Modifications [Line Items]
Modification	7	7
Consumer | Troubled Debt Restructurings, Rate and Term Modifications
Financing Receivable, Modifications [Line Items]
Modification	$ 109	$ 109

XML

Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Amortized Cost and Approximate Fair Values of Securities

The amortized cost, gross unrealized gains, gross unrealized losses and approximate fair values of the investment securities at the dates indicated were:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at September 30, 2012
U.S. Government-sponsored agency securities	$	4,610	$	172			$	4,782
State and municipal		150,281		10,761	$	25		161,017
U.S. Government-sponsored mortgage-backed securities		370,800		13,142		30		383,912
Corporate obligations		6,008				5,806		202
Equity securities		1,706						1,706
Total available for sale		533,405		24,075		5,861		551,619
Held to maturity at September 30, 2012
State and municipal		116,966		5,698				122,664
U.S. Government-sponsored mortgage-backed securities		260,131		13,422				273,553
Total held to maturity		377,097		19,120				396,217
Total Investment Securities	$	910,502	$	43,195	$	5,861	$	947,836

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Available for sale at December 31, 2011
U.S. Government-sponsored agency securities	$	99	$	18			$	117
State and municipal		136,857		10,496				147,353
U.S. Government-sponsored mortgage-backed securities		358,928		10,086	$	16		368,998
Corporate obligations		5,765				5,572		193
Equity securities		1,830						1,830
Total available for sale		503,479		20,600		5,588		518,491
Held to maturity at December 31, 2011
State and municipal		120,171		3,785				123,956
U.S. Government-sponsored mortgage-backed securities		307,738		10,775				318,513
Total held to maturity		427,909		14,560				442,469
Total Investment Securities	$	931,388	$	35,160	$	5,588	$	960,960

Amortized Cost and Fair Value of Available for Sale Securities and Held to Maturity Securities by Contractual Maturity

The amortized cost and fair value of available for sale securities and held to maturity securities at September 30, 2012, by contractual maturity, are shown below.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Maturity Distribution at September 30, 2012:
Due in one year or less	$	4,802	$	4,846	$	2,425	$	2,431
Due after one through five years		14,559		15,277		2,208		2,233
Due after five through ten years		48,134		51,156		55,679		57,975
Due after ten years		93,404		94,722		56,654		60,025
		160,899		166,001		116,966		122,664
U.S. Government-sponsored mortgage-backed securities		370,800		383,912		260,131		273,553
Equity securities		1,706		1,706
Total Investment Securities	$	533,405	$	551,619	$	377,097	$	396,217

Gross Gains and Losses on Sales and Redemptions of Available for Sale Securities and Other Than Temporary Impairment Losses Recognized

Gross gains and losses on the sales and redemptions of available for sale securities, and other-than-temporary impairment (“OTTI”) losses recognized for the three and nine months ended September 30, 2012 and 2011 are shown below.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
Sales and Redemptions of Available for Sale Securities:
Gross gains	$	843	$	861	$	2,134	$	2,149
Gross losses
Other-than-temporary impairment losses							$	400

Investments' Gross Unrealized Losses and Fair Value Aggregated by Investment Category and Length of Time in Continuous Unrealized Loss Position

The following table shows the Corporation’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2012, and December 31, 2011:

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at September 30, 2012
State and municipal	$	3,868	$	(25	)						$	3,868	$	(25	)
U.S. Government-sponsored mortgage-backed securities		6,463		(30	)							6,463		(30	)
Corporate obligations						$	171	$	(5,806	)		171		(5,806	)
Total Temporarily Impaired Investment Securities	$	10,331	$	(55	)	$	171	$	(5,806	)	$	10,502	$	(5,861	)

	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Temporarily Impaired Investment
Securities at December 31, 2011
State and municipal
U.S. Government-sponsored mortgage-backed securities	$	6,176	$	(16	)						$	6,176	$	(16	)
Corporate obligations						$	163	$	(5,572	)		163		(5,572	)
Total Temporarily Impaired Investment Securities	$	6,176	$	(16	)	$	163	$	(5,572	)	$	6,339	$	(5,588	)

Investments in Debt and Equity Securities Reported Less than Historical Cost

Certain investments in debt and equity securities are reported in the financial statements at an amount less than their historical cost as indicated in the table below.

	September 30, 2012			December 31, 2011
Investments reported at less than historical cost:
Historical cost	$	16,364		$	11,925
Fair value	$	10,502		$	6,339
Percent of the Corporation's available for sale and held to maturity portfolio		1.1	%		0.7	%

Debt Securities Credit Loss Recognized in Income, and Other Losses Recorded in Other Comprehensive Income

The following table provides information about debt securities for which only a credit loss was recognized in income and other losses were recorded in other comprehensive income.

	Accumulated Credit Losses in 2012		Accumulated Credit Losses in 2011
Credit losses on debt securities held:
Balance, January 1	$	11,355	$	10,955
Additions related to other-than-temporary losses not previously recognized				400
Balance, September 30	$	11,355	$	11,355

XML

Income Tax (Tables)

9 Months Ended

Sep. 30, 2012

Income tax

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Income Tax Expense :
Currently Payable:
Federal	$	139		$	47		$	1,475		$	(855	)
State
Deferred:
Federal		3,787			2,514			11,239			7,211
State
Total Income Tax Expense	$	3,926		$	2,561		$	12,714		$	6,356
Reconciliation of Federal Statutory to Actual Tax Expense:
Federal statutory income tax at 35%	$	5,307		$	3,256		$	16,634		$	8,416
Tax-exempt interest income		(927	)		(916	)		(2,788	)		(2,793	)
Non-deductible interest expense					230						649
Stock compensation		14			19			56			56
Earnings on life insurance		(240	)		(208	)		(954	)		(610	)
Tax credits		(19	)		(29	)		(55	)		(55	)
Other		(209	)		209			(179	)		693
Actual Tax Expense	$	3,926		$	2,561		$	12,714		$	6,356

XML

Past Due Aging of Loan Portfolio by Loan Class (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 2,752,527	$ 2,605,479
30-59 Days Past Due	20,233	25,835
60-89 Days Past Due	4,591	11,929
Loans > 90 Days And Accruing	1,974	580
Non- Accrual	56,999	69,592
Total Past Due & Non- Accrual	83,797	107,936
Total Loans	2,836,324	2,713,415
Commercial and industrial
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	574,730	518,764
30-59 Days Past Due	4,800	1,332
60-89 Days Past Due	434	135
Loans > 90 Days And Accruing	46	46
Non- Accrual	12,507	12,246
Total Past Due & Non- Accrual	17,787	13,759
Total Loans	592,517	532,523
Agriculture production financing and other loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	106,782	104,464
30-59 Days Past Due	74	62
60-89 Days Past Due	10
Loans > 90 Days And Accruing	300
Total Past Due & Non- Accrual	384	62
Total Loans	107,166	104,526
Construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	87,829	69,305
30-59 Days Past Due	341	328
60-89 Days Past Due		3,126
Loans > 90 Days And Accruing		31
Non- Accrual	5,440	8,990
Total Past Due & Non- Accrual	5,781	12,475
Total Loans	93,610	81,780
Commercial and farm land
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	1,209,194	1,140,897
30-59 Days Past Due	6,931	16,457
60-89 Days Past Due	65	5,783
Loans > 90 Days And Accruing	363
Non- Accrual	24,501	31,093
Total Past Due & Non- Accrual	31,860	53,333
Total Loans	1,241,054	1,194,230
Residential
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	453,234	458,925
30-59 Days Past Due	5,835	5,485
60-89 Days Past Due	2,788	2,087
Loans > 90 Days And Accruing	971	191
Non- Accrual	12,444	14,805
Total Past Due & Non- Accrual	22,038	22,568
Total Loans	475,272	481,493
Home Equity
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	200,402	187,788
30-59 Days Past Due	1,532	1,096
60-89 Days Past Due	899	590
Loans > 90 Days And Accruing	294	261
Non- Accrual	1,761	1,896
Total Past Due & Non- Accrual	4,486	3,843
Total Loans	204,888	191,631
Consumer
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	76,053	82,837
30-59 Days Past Due	720	1,075
60-89 Days Past Due	395	208
Loans > 90 Days And Accruing		51
Non- Accrual	3	1
Total Past Due & Non- Accrual	1,118	1,335
Total Loans	77,171	84,172
Finance Lease
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	2,633	3,555
Non- Accrual	337
Total Past Due & Non- Accrual	337
Total Loans	2,970	3,555
Other Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	41,670	38,944
Non- Accrual	6	561
Total Past Due & Non- Accrual	6	561
Total Loans	$ 41,676	$ 39,505

XML

Debt Securities Credit Loss Recognized in Income, and Other Losses Recorded in Other Comprehensive Income (Detail) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2011	Sep. 30, 2012
Credit losses on debt securities held:
Balance, January 1	$ 10,955	$ 11,355
Additions related to other-than-temporary losses not previously recognized	400
Balance, September 30	$ 11,355	$ 11,355

XML

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Net Income	$ 11,236	$ 6,742	$ 34,812	$ 17,691
Other comprehensive income net of tax:
Unrealized holding gain on securities available for sale arising during the period, net of income tax of $1,018, $4,553, $1,670, and $8,212	1,891	8,457	3,102	15,255
Unrealized loss on securities available for sale for which a portion of an other than temporary impairment has been recognized in income, net of tax of $12, $0, $43, and $831	(22)		(80)	(1,546)
Unrealized loss on cash flow hedges arising during the period, net of income tax of $131, $778, $535, and $949	(244)	(1,446)	(994)	(1,762)
Amortization of items previously recorded in accumulated other comprehensive income (loss), net of income tax of $113, $10, $506, and $29	210	(18)	940	(53)
Reclassification adjustment for gains included in net income net of income tax expense of $295, $301, $747, and $612	(549)	(560)	(1,387)	(1,137)
Other Comprehensive Income, net of tax	1,286	6,433	1,581	10,757
Comprehensive income	$ 12,522	$ 13,175	$ 36,393	$ 28,448

XML

General

9 Months Ended

Sep. 30, 2012

General

NOTE 1.  General

Financial Statement Preparation

The significant accounting policies followed by First  Merchants Corporation (the “Corporation”) and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments, which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported, have been included in the accompanying consolidated condensed financial statements.

The consolidated condensed balance sheet of the Corporation as of December 31, 2011, has been derived from the audited consolidated balance sheet of the Corporation as of that date. Certain information and note disclosures normally included in the Corporation’s annual financial statements, prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Form 10-K annual report filed with the Securities and Exchange Commission. The results of operations for the nine months ended September 30, 2012, are not necessarily indicative of the results to be expected for the year.

XML

Reconciliation of Beginning and Ending Balances of Recurring Fair Value Measurements using Significant Unobservable Level 3 Inputs (Detail) (Fair Value, Measurements, Recurring, USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Available-for-sale Securities
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Balance at beginning of the period	$ 19,740	$ 180	$ 20,838	$ 186
Total realized and unrealized gains and losses:
Included in net income (loss)				(400)
Included in other comprehensive income	(183)	(45)	(944)	195
Purchases, issuances and settlements
Transfers in/(out) of Level 3		18,711		18,711
Principal payments/additions	(1,132)	65	(1,469)	219
Balance at end of the period	18,425	18,911	18,425	18,911
Interest Rate Swap Assets
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Balance at beginning of the period		3,783	5,241	4,002
Total realized and unrealized gains and losses:
Included in net income (loss)		3,251	(860)	3,363
Included in other comprehensive income		(1,726)	481	(2,057)
Purchases, issuances and settlements
Transfers in/(out) of Level 3			(4,862)
Balance at end of the period		5,308		5,308
Interest Rate Cap
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Balance at beginning of the period		954	424	1,109
Total realized and unrealized gains and losses:
Included in other comprehensive income		(498)	(15)	(653)
Purchases, issuances and settlements
Transfers in/(out) of Level 3			(409)
Balance at end of the period		456		456
Interest Rate Swap Liabilities
Total realized and unrealized gains and losses:
Balance at beginning of the period		(3,986)	(7,797)	(3,876)
Total realized and unrealized gains and losses:
Included in net income (loss)		(3,345)	863	(3,455)
Included in other comprehensive income
Purchases, issuances and settlements
Transfers in/(out) of Level 3			6,934
Principal payments/additions
Balance at end of the period		$ (7,331)		$ (7,331)

XML

Income Tax (Parenthetical) (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Taxes [Line Items]
Federal statutory income tax rate	35.00%	35.00%	35.00%	35.00%

XML

Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Net Income Per Share

	Three Months Ended September 30,
	2012							2011
	Net Income			Weighted-Average Shares		Per Share Amount		Net Income (Loss)			Weighted-Average Shares		Per Share Amount
Basic net income (loss) per share:	$	11,236						$	6,742
Loss on extinguishment of trust preferred securities									(10,857	)
Loss on CPP unamortized discount									(1,401	)
Less: Preferred Stock dividends and discount accretion		(1,134	)						(868	)
Net income (loss) available to common stockholders		10,102			28,649,996	$	0.35		(6,384	)		26,367,067	$	(0.25	)
Effect of dilutive stock options and warrants					238,080
Diluted net income (loss) per share:
Net income (loss) available to common stockholders	$	10,102			28,888,076	$	0.35	$	(6,384	)		26,367,067	$	(0.25	)

Stock options to purchase 770,001 and 1,008,957 shares for the three months ended September 30, 2012, and 2011, respectively, were not included in the earnings per share calculation because the exercise price exceeded the average market price.

	Nine Months Ended September 30,
	2012							2011
	Net Income			Weighted-Average Shares		Per Share Amount		Net Income			Weighted-Average Shares		Per Share Amount
Basic net income per share:	$	34,812						$	17,691
Loss on extinguishment of trust preferred securities									(10,857	)
Loss on CPP unamortized discount									(1,401	)
Less: Preferred Stock dividends and discount accretion		(3,404	)						(2,846	)
Net income available to common stockholders		31,408			28,619,186	$	1.09		2,587			25,879,277	$	0.10
Effect of dilutive stock options and warrants					200,097							139,659
Diluted net income (loss) per share:
Net income available to common stockholders	$	31,408			28,819,283	$	1.09	$	2,587			26,018,936	$	0.10

XML

Gross Gains and Losses on Sales and Redemptions of Available for Sale Securities and Other Than Temporary Impairment Losses Recognized (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Sales and Redemptions of Available for Sale Securities:
Gross gains	$ 843	$ 861	$ 2,134	$ 2,149
Gross losses
Other-than-temporary impairment losses				$ 400

XML

Purchase and Assumption (Tables)

9 Months Ended

Sep. 30, 2012

Assets and Liabilities of SCB Recorded at Provisional Fair Value

The statement of net assets and liabilities acquired as of February 10, 2012, are presented below. The assets and liabilities of SCB were recorded at the respective acquisition date provisional fair values, and identifiable intangible assets were recorded at provisional fair value.

Assets			Liabilities
Cash and due from banks (1)	$	29,113	Deposits:
Investment securities, available for sale		18,896	Non-interest bearing	$	13,715
Federal Home Loan Bank stock		1,761	NOW accounts		14,746
Loans:			Savings and money market		25,843
Commercial		51,042	Certificate of deposit		71,605
Residential mortgage		11,181	Total Deposits		125,909
Installment		31,570
Total Loans		93,793	Federal Home Loan Bank advances		10,286
			Other liabilities		804
Premises		1,516	Total Liabilities Assumed	$	136,999
Core deposit intangible		484
Other assets		560	Net Gain on Acquisition	$	9,124
Total Assets Purchased	$	146,123

(1)   Includes $17,200,000 cash received from the FDIC.

Acquired Loans Accounted With ASC 310 30

In accordance with ASC 310-30 (formerly Statement of Position (“SOP”) 03-3 as of February 10, 2012, loans acquired during 2012 for which it was probable at acquisition that all contractually required payments would not be collected are as follows:

Preliminary estimate of contractually required principal and interest at acquisition	$	31,143
Preliminary estimate of contractual cash flows not expected to be collected (nonaccretable differences)		9,688
Preliminary estimate of expected cash flows at acquisition		21,455
Preliminary estimate of interest component of expected cash flows (accretable discount)		4,152
Preliminary estimate of fair value of acquired loans accounted for under ASC 310-30	$	17,303

Carrying Amount of Loans Included in Balance Sheet Amounts of Loans Receivable

The carrying amount of these loans is included in the balance sheet amounts of loans receivable at September 30, 2012. The amounts are as follows:

	September 30,
	2012
Commercial and industrial loans	$	12,494
Agricultural production finance and other loans to farmers		1,531
Real estate loans
Construction		92
Commercial and farmland		23,724
Residential		32,936
Individuals' loans for household and other personal expenditures		922
Tax exempt
Lease financing
Other loans		987
Total	$	72,686

Accretable Yield Or Income Expected to be Collected

Accretable yield, or income expected to be collected, is as follows:

	Three Months ended
	September 30, 2012
Beginning balance, June 30, 2012	$	9,048
Accretions		(2,612	)
Ending balance, September 30, 2012	$	6,436

	Nine Months ended
	September 30, 2012
Beginning balance, February 10, 2012	$	9,774
Accretions		(3,338	)
Ending balance, September 30, 2012	$	6,436