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, 2007

                                       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)

                                 (765) 747-1500

              (Registrant's telephone number, including area code)

                                 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 is a large  accelerated  filer, an
accelerated  filer, or a  non-accelerated  filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
(Check one):

Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ]

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 26, 2007, there were 18,252,947 outstanding common shares, without
par value, of the registrant.



<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

                                      INDEX

                                                                        Page No.


PART I.  Financial Information:

 Item 1.          Financial Statements:

                  Consolidated Condensed Balance Sheets........................3

                  Consolidated Condensed Statements of Income..................4

                  Consolidated Condensed Statements of
                  Comprehensive Income.........................................5

                  Consolidated Condensed Statements 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.........................18

 Item 3.          Quantitative and Qualitative Disclosures About
                  Market Risk.................................................28

 Item 4.          Controls and Procedures.....................................28

PART II. Other Information:

 Item 1.          Legal Proceedings...........................................29

 Item 1.A.        Risk Factors................................................29

 Item 2.          Unregistered Sales of Equity
                  Securities and Use of Proceeds..............................29

 Item 3.          Defaults Upon Senior Securities.............................29

 Item 4.          Submission of Matters to a Vote of Security Holders.........29

 Item 5.          Other Information...........................................29

 Item 6.          Exhibits....................................................30

 Signatures...................................................................31

 Index to Exhibits............................................................32


                                                                          Page 2
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
                          PART I. FINANCIAL INFORMATION
                          Item 1. FINANCIAL STATEMENTS
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)
<TABLE>

                                                                   September 30,  December 31,
                                                                       2007           2006
                                                                   ------------   ------------
                                                                    (Unaudited)
  <S>                                                               <C>            <C>
  ASSETS:
  Cash and due from banks .......................................   $    85,645    $    89,957
  Interest-bearing deposits......................................        22,295         11,284
  Investment securities available for sale ......................       465,992        455,933
  Investment securities held to maturity ........................         8,621          9,284
  Mortgage loans held for sale...................................         4,328          5,413
  Loans, net of allowance for loan losses of $27,635 and $26,540.     2,841,366      2,666,061
  Premises and equipment ........................................        44,255         42,393
  Federal Reserve and Federal Home Loan Bank stock...............        25,050         23,691
  Interest receivable ...........................................        25,954         24,345
  Core deposit intangibles ......................................        13,098         15,470
  Goodwill ......................................................       123,168        123,168
  Cash surrender value of life insurance.........................        70,082         64,213
  Other assets ..................................................        24,446         23,658
                                                                    -----------    -----------
      Total assets ..............................................   $ 3,754,300    $ 3,554,870
                                                                    ===========    ===========
  LIABILITIES:
  Deposits:
    Noninterest-bearing .........................................   $   355,339    $   362,058
    Interest-bearing ............................................     2,403,836      2,388,480
                                                                    -----------    -----------
      Total deposits ............................................     2,759,175      2,750,538
  Borrowings:
    Federal funds purchased .....................................        95,697         56,150
    Securities sold under repurchase agreements .................       103,846         42,750
    Federal Home Loan Bank Advances .............................       310,100        242,408
    Subordinated debentures, revolving credit lines
      and term loans ............................................       110,826         99,456
                                                                    -----------    -----------
      Total borrowings ..........................................       620,469        440,764
  Interest payable ..............................................         9,170          9,326
  Other liabilities..............................................        32,745         26,917
                                                                    -----------    -----------
      Total liabilities .........................................     3,421,559      3,227,545

  COMMITMENTS AND CONTINGENT LIABILITIES

  STOCKHOLDERS' EQUITY:
  Preferred stock, no-par value:
    Authorized and unissued - 500,000 shares
  Common Stock, $.125 stated value:
    Authorized --- 50,000,000 shares
    Issued and outstanding - 18,153,828 and 18,439,843 shares....         2,269          2,305
  Additional paid-in capital ....................................       140,642        146,460
  Retained earnings .............................................       197,609        187,965
  Accumulated other comprehensive loss ..........................        (7,779)        (9,405)
                                                                    -----------    -----------
      Total stockholders' equity ................................       332,741        327,325
                                                                    -----------    -----------
      Total liabilities and stockholders' equity ................   $ 3,754,300    $ 3,554,870
                                                                    ===========    ===========
</TABLE>

  See notes to consolidated condensed financial statements.




                                                                          Page 3
<PAGE>



                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                   Three Months Ended       Nine Months Ended
                                                                      September 30,            September 30,
<S>                                                               <C>          <C>        <C>          <C>
Interest Income:                                                    2007        2006         2007         2006
  Loans receivable
    Taxable ...................................................   $53,081     $48,738     $153,930     $137,475
    Tax exempt ................................................       368         189          818          588
  Investment securities
    Taxable ...................................................     3,581       3,289       10,257        9,097
    Tax exempt ................................................     1,613       1,645        4,925        4,905
  Federal funds sold ..........................................        41          13          133           41
  Deposits with financial institutions ........................       145         144          388          390
  Federal Reserve and Federal Home Loan Bank stock ............       328         307          955          938
                                                                  -------     -------     --------     --------
    Total interest income .....................................    59,157      54,325      171,406      153,434
                                                                  -------     -------     --------     --------
Interest expense:
  Deposits ....................................................    23,327      20,291       67,523       51,624
  Borrowings ..................................................     7,295       6,410       20,658       18,831
                                                                  -------     -------      -------      -------
    Total interest expense ....................................    30,622      26,701       88,181       70,455
                                                                  -------     -------      -------      -------
Net Interest Income ...........................................    28,535      27,624       83,225       82,979
Provision for loan losses .....................................     2,810       1,558        6,057        5,013
                                                                  -------     -------      -------      -------
Net Interest Income After Provision for Loan Losses ...........    25,725      26,066       77,168       77,966
                                                                  -------     -------      -------      -------
Other Income:
  Net realized loss on sale of available
    for sale securities .......................................                                 (1)
  Other income ................................................    10,848       8,835       30,419       25,843
                                                                  -------     -------      -------      -------
Total other income ............................................    10,848       8,835       30,418       25,843

Other expenses:
  Salaries and benefits .......................................    14,583      14,033       44,105       41,968
  Write-off of unamortized underwriting expenses ..............                              1,771
  Other expenses ..............................................    10,419       9,922       31,059       29,669
                                                                  -------     -------      -------      -------
Total other expenses ..........................................    25,002      23,955       76,935       71,637
                                                                  -------     -------      -------      -------
Income before income tax ......................................    11,571      10,946       30,651       32,172
Income tax expense ............................................     3,221       3,207        8,322        9,633
                                                                  -------     -------      -------      -------
Net Income ....................................................   $ 8,350     $ 7,739      $22,329      $22,539
                                                                  =======     =======      =======      =======

Per share:

    Basic .....................................................   $   .46     $   .42      $ 1.22       $ 1.23
    Diluted ...................................................       .46         .42        1.22         1.22
    Dividends .................................................       .23         .23         .69          .69

</TABLE>
See notes to consolidated condensed financial statements.
                                                                          Page 4
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
           CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
                                                                                  Three Months Ended        Nine Months Ended
                                                                                      September 30             September 30
                                                                                 ----------------------    ---------------------
                                                                                    2007         2006        2007         2006
                                                                                 ---------    ---------    ---------    --------
<S>                                                                              <C>          <C>          <C>          <C>
Net Income...................................................................... $   8,350    $  7,739     $  22,329    $ 22,539

Other comprehensive income (loss), net of tax:
  Unrealized losses on securities available for sale:
    Unrealized holding losses arising during the period, net of
      income tax benefit of $(1,584), $(2,742), $(312) and $(707) ..............     2,941       3,994           580         941

  Unrealized losses on cash flow hedge assets:
    Unrealized losses arising during the period, net of
      income tax benefit of $(525), $(79), $(346) and $(79) ....................      788          119           520         119
  Unrealized gain on pension minumum funding liability:
    Unrealized loss arising during the period, net of
      income tax expense of $(117), $0, $(351) and $0 ..........................      176                        526

Reclassification adjustment for losses included in net
  income, net of income tax expense of $0, $0, $0 and $0 .......................                                   1
                                                                                 ---------    ---------    ---------    --------
                                                                                    3,905        4,113         1,627       1,060
                                                                                 ---------    ---------    ---------    --------
Comprehensive income ........................................................... $ 12,255     $ 11,852     $  23,956    $ 23,599
                                                                                 =========    =========    =========    ========
</TABLE>
See notes to consolidated condensed financial statements.





                                                                          Page 5
<PAGE>



                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
            CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Dollars in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                      2007         2006
                                                                   ---------    ---------
<S>                                                                <C>          <C>
Balances, January 1 ............................................   $ 327,325    $ 313,396

Net income .....................................................      22,329       22,539

Cash dividends on common stock .................................     (12,613)     (12,662)

Cash dividends on restricted stock awards ......................         (72)         (39)

Other comprehensive loss, net of tax............................       1,627        1,060

Stock issued under employee benefit plan .......................         787          857

Stock issued under dividend reinvestment and stock purchase plan         890          919

Stock options exercised ........................................         496          857

Tax benefit from stock options exercised .......................         106          132

Stock redeemed .................................................      (9,240)      (5,332)

Share-based compensation .......................................       1,106          564
                                                                   ---------    ---------

Balances, September 30 .........................................   $ 332,741    $ 322,291
                                                                   =========    =========

</TABLE>
   See notes to consolidated condensed financial statements.
                                                                          Page 6
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)
<TABLE>

                                                                                              Nine Months Ended
                                                                                                September 30,
                                                                                      ----------------------------------
                                                                                            2007              2006
                                                                                      ----------------  ---------------
<S>                                                                                   <C>               <C>
Cash Flows From Operating Activities:
  Net income........................................................................  $       22,329    $       22,539
  Adjustments to reconcile net income to net cash provided by operating activities
    Provision for loan losses.......................................................           6,057             5,013
    Depreciation and amortization...................................................           3,240             6,495
    Share-based compensation........................................................           1,106               564
    Tax benefits from stock options exercised.......................................            (106)             (132)
    Mortgage loans originated for sale..............................................         (96,392)          (89,366)
    Proceeds from sales of mortgage loans...........................................          97,477            90,879
    Change in interest receivable...................................................          (1,609)           (4,256)
    Change in interest payable......................................................            (156)            4,362
    Other adjustments...............................................................           6,351           (19,886)
                                                                                      ---------------   ---------------
      Net cash provided by operating activities.....................................  $       38,297    $       16,212
                                                                                      ---------------   ---------------


Cash Flows From Investing Activities:
  Net change in interest-bearing deposits...........................................  $      (11,011)   $           31
  Purchases of
    Securities available for sale...................................................         (60,568)          (82,027)
  Proceeds from maturities of
    Securities available for sale...................................................          50,934            42,581
    Securities held to maturity.....................................................             662             6,520
  Purchase of Federal Reserve and
    Federal Home Loan Bank Stock....................................................          (1,359)
  Purchase of bank owned life insurance ............................................          (3,500)             (420)
  Net change in loans...............................................................        (181,362)         (187,443)
  Other adjustments.................................................................          (3,231)           (7,589)
                                                                                      ---------------   ---------------
      Net cash used by investing activities.........................................  $     (209,435)   $     (228,347)
                                                                                      ---------------   ---------------

Cash Flows From Financing Activities:
  Net change in
    Demand and savings deposits.....................................................  $      (57,402)   $       (1,868)
    Certificates of deposit and other time deposits.................................          66,039           313,583
  Borrowings........................................................................         331,605           144,806
  Repayment of borrowings...........................................................        (153,770)         (233,894)
  Cash dividends on common stock....................................................         (12,613)          (12,662)
  Cash dividends on restricted stock awards.........................................             (72)              (39)
  Stock issued under employee benefit plan .........................................             787               857
  Stock issued under dividend reinvestment and stock purchase plans.................             890               919
  Stock options exercised...........................................................             496               857
  Tax benefit from stock options exercised..........................................             106               132
  Stock redeemed....................................................................          (9,240)           (5,332)
                                                                                      ---------------   ---------------
      Net cash provided by financing activities.....................................         166,826           207,359
                                                                                      ---------------   ---------------
Net Change in Cash and Cash Equivalents.............................................          (4,312)           (4,776)
Cash and Cash Equivalents, January 1................................................          89,957            70,417
                                                                                      ---------------   ---------------
Cash and Cash Equivalents, September 30.............................................  $       85,645    $       65,641
                                                                                      ===============   ===============

Additional cash flows information:
  Interest paid ....................................................................  $       88,337    $        66,093
  Income tax paid ..................................................................           6,939             11,273

</TABLE>
See notes to consolidated condensed financial statements.
                                                                          Page 7

<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              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
("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,
2006 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 three  and nine  months  ended  September  30,  2007 are not
necessarily indicative of the results to be expected for the year.

Change in an Accounting Principle

The Corporation or one of its subsidiaries  files income tax returns in the U.S.
federal and Indiana  jurisdictions.  With few exceptions,  the Corporation is no
longer subject to U.S. federal,  state and local examinations by tax authorities
for years before 2003.

The  Corporation  adopted the provisions of the Financial  Accounting  Standards
Board (FASB)  Interpretation  No. 48 (FIN 48),  Accounting  for  Uncertainty  in
Income Taxes - an  interpretation of FASB Statement No. 109, on January 1, 2007.
FIN 48 prescribes a  recognition  threshold  and  measurement  attribute for the
financial  statement  recognition  and  measurement  of a tax position  taken or
expected  to be  taken  in a tax  return.  FIN  48  also  provides  guidance  on
derecognition,  classification,  interest and  penalties,  accounting in interim
periods, disclosure and transition. As a result of the implementation of FIN 48,
the  Corporation  did not identify any uncertain tax positions  that it believes
should be recognized in the financial statements.

NOTE 2.  Share-Based Compensation

Stock  options  and  restricted  stock  awards  ("RSAs")  have  been  issued  to
directors,  officers and other management employees under the Corporation's 1994
Stock  Option  Plan and The 1999  Long-term  Equity  Incentive  Plan.  The stock
options,  which have a ten year life,  become 100 percent  vested  ranging  from
three 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.

The  Corporation's  2004 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 annual offerings  financed by
payroll  deductions.  The price of the stock to be paid by the employees may not
be  less  than  85  percent  of the  lesser  of the  fair  market  value  of the
Corporation's  common  stock  at the  beginning  or at the  end of the  offering
period.  Common stock  purchases are made annually and are paid through  advance
payroll deductions of up to 20 percent of eligible compensation.

SFAS 123(R) requires the Corporation to begin recording  compensation expense in
2006 related to unvested share-based awards outstanding as of December 31, 2005,
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  granted after December 31, 2005 are valued at
fair value in accordance  with provisions of SFAS 123(R) 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 and nine months ended September 30, 2007
totaled $365,000 and $1,106,000, respectively, compared to $212,000 and $564,000
for  the  three  and  nine  months  ended  September  30,  2006,   respectively.
Share-based  compensation  has been  recognized  as a component  of salaries and
benefits  expense  in the  accompanying  Consolidated  Condensed  Statements  of
Income.

                                                                          Page 8
<PAGE>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

NOTE 2.  Share-Based Compensation  continued

The estimated  fair value of the stock options  granted during 2007 and in prior
years was calculated  using a Black Scholes option pricing model.  The following
summarizes the assumptions used in the 2007 Black Scholes model:

      Risk-free interest rate                              4.67%
      Expected price volatility                           29.76%
      Dividend yield                                       3.64%
      Forfeiture rate                                      5.00%
      Weighted-average expected life, until exercise       5.99 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 zero-coupon  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.  SFAS  123(R)  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 5 percent for the nine months ended September 30,
2007, based on historical experience. In the Corporation's pro forma disclosures
required under SFAS 123(R) for the periods prior to fiscal 2006, the Corporation
accounted for forfeitures as they occurred.


                                                                         Page 9
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

NOTE 2.  Share-Based Compensation  continued

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

<TABLE>
<CAPTION>
                                                                            Three Months Ended              Nine Months Ended
                                                                               September 30,                  September 30,
                                                                            2007         2006               2007         2006
                                                                         -----------  -----------        -----------  -----------
<S>                                                                        <C>          <C>                <C>          <C>
      Stock and ESPP Options:
           Pre-tax compensation expense ..............................   $      152   $      165         $      445   $      417

           Income tax benefit ........................................          (12)           4                (28)         (16)
                                                                         ----------   ----------         ----------   ----------
      Stock and ESPP option expense, net of income taxes .............   $      140   $      169         $      417   $      401
                                                                         ==========   ==========         ==========   ==========

      Restricted Stock Awards:
           Pre-tax compensation expense ..............................   $      212   $       47         $      661   $      147

           Income tax benefit ........................................          (74)         (39)              (231)         (97)
                                                                         ----------   ----------         ----------   ----------
      Restricted stock awards expense, net of income taxes ...........   $      138   $        8         $      430   $       50
                                                                         ==========   ==========         ==========   ==========

      Total Share-Based Compensation:
           Pre-tax compensation expense ..............................   $      365   $      212         $    1,106   $      564

           Income tax benefit ........................................          (87)         (35)              (259)        (113)
                                                                         ----------   ----------         ----------   ----------
      Total share-based compensation expense, net of income taxes ....   $      278   $      177         $      847   $      451
                                                                         ==========   ==========         ==========   ==========
</TABLE>

                                                                         Page 10
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

NOTE 2.  Share-Based Compensation  continued

As of September 30, 2007,  unrecognized  compensation  expense  related to stock
options,   RSAs  and  ESPPs   totaling   $332,000,   $1,521,000   and  $138,000,
respectively, is expected to be recognized over weighted-average periods of .76,
1.92 and .75 years, respectively.

Stock option activity under the Corporation's stock option plans as of September
30,  2007 and changes  during the nine months ended  September  30, 2007 were as
follows:
<TABLE>
<CAPTION>
                                                                                      Weighted-
                                                                                       Average
                                                                       Weighted-      Remaining
                                                       Number           Average      Contractual      Aggregate
                                                         of            Exercise         Term          Intrinsic
                                                       Shares           Price        (in Years)        Value
                                                     ----------      ------------   -----------     ----------
<S>                                                  <C>            <C>             <C>             <C>
  Outstanding at January 1, 2007 ..................  1,067,247       $     23.87
  Granted .........................................     75,968             26.00
  Exercised .......................................    (48,609)            18.11
  Cancelled .......................................    (25,555)            23.34
                                                     ----------
  Outstanding at September 30, 2007 ...............  1,069,051       $     24.30           5.51      $ 512,118
                                                     ==========
  Vested and Expected to Vest at September 30, 2007  1,056,259       $     24.28           5.47      $ 512,118
  Exercisable at September 30, 2007 ...............    929,088       $     23.10           5.01      $ 512,118

</TABLE>

The   weighted-average   grant  date  fair  value,   as  calculated   using  the
Black-Scholes  option pricing model,  was $5.91 for stock options granted during
the nine months ended September 30, 2007.

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 2007 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, 2007. 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 2007 was  $250,000.  Exercise  of  options  during  this  same  period
resulted in cash receipts of $496,000.  The Corporation recognized a tax benefit
of  approximately $106,000  in the first nine  months  of 2007,  related  to the
exercise  of  employee  stock  options  and has been  recorded as an increase to
additional paid-in capital.

The following table summarizes  information on unvested  restricted stock awards
outstanding as of September 30, 2007:

<TABLE>
<CAPTION>
                                                                Weighted-Average
                                                   Number of     Grant-Date Fair
                                                    Shares           Value
                                                  ----------      -----------
<S>                                               <C>            <C>
  Unvested RSAs at January 1, 2007 .............     55,000        $    27.83
  Granted ......................................     57,775             26.07
  Forfeited ....................................     (6,166)            25.77
  Vested .......................................     (7,600)            25.48
                                                  ----------
  Unvested RSAs at September 30, 2007 ..........     99,009        $    27.11
                                                  ==========

</TABLE>
                                                                         Page 11
<PAGE>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

NOTE 2.  Share-Based Compensation  continued

The grant date fair value of ESPP options was  estimated at the beginning of the
July 1, 2007 offering period and approximates  $198,000.  The  ESPP options vest
during the twelve month period  ending June 30,  2008.

<TABLE>
NOTE 3.  Investment Securities
                                                          Gross       Gross
                                             Amortized  Unrealized  Unrealized    Fair
                                                Cost       Gains      Losses     Value
<S>                                          <C>         <C>        <C>        <C>
Available for sale at September 30, 2007
  U.S. Treasury ........................     $  1,501    $     9              $  1,510
  U.S. Government-sponsored
    agency securities...................       82,771        140    $  (486)    82,425
  State and municipal ..................      162,902      1,499       (671)   163,730
  Mortgage-backed securities ...........      203,614        419     (2,747)   201,286
  Corporate Obligations ................       11,805                  (545)    11,260
  Marketable equity securities..........        6,095                  (314)     5,781
                                             --------   --------   --------   --------
      Total available for sale .........      468,688      2,067     (4,763)   465,992
                                             --------   --------   --------   --------


Held to maturity at September 30, 2007
  State and municipal...................        8,606        217       (308)     8,515
  Mortgage-backed securities............           15                               15
                                             --------   --------   --------   --------
      Total held to maturity ...........        8,621        217       (308)     8,530
                                             --------   --------   --------   --------
      Total investment securities ......     $477,309   $  2,284   $ (5,071)  $474,522
                                             ========   ========   ========   ========
</TABLE>

The  Corporation  has the  intent  and  ability  to  hold  the  securities  with
unrealized losses to the earlier of recovery or maturity.  If the Corporation is
unable to make this  assertation at any reporting  period,  the Corporation will
take the necessary  actions to recognize the unrealized  loss in the appropriate
period's income statement.

<TABLE>
<CAPTION>
                                                           Gross       Gross
                                              Amortized  Unrealized  Unrealized   Fair
                                                Cost       Gains       Losses    Value
<S>                                             <C>       <C>        <C>       <C>
Available for sale at December 31, 2006
  U.S. Treasury ........................       $  1,502  $      1             $  1,503
  U.S. Government-sponsored
    agency securities ..................         87,193        69    $(1,284)   85,978
  State and municipal ..................        168,262     2,251       (892)  169,621
  Mortgage-backed securities ...........        195,228       600     (3,983)  191,845
  Marketable equity securities .........          7,296                 (310)    6,986
                                               --------  --------   --------  --------
     Total available for sale ..........        459,481     2,921     (6,469)  455,933
                                               --------  --------   --------  --------

Held to maturity at December 31, 2006
  State and municipal ..................          9,266       432       (200)    9,498
  Mortgage-backed securities ...........             18                             18
                                               --------  --------   --------  --------
     Total held to maturity ............          9,284       432       (200)    9,516
                                               --------  --------   --------  --------
     Total investment securities .......       $468,765  $  3,353   $ (6,669) $465,449
                                               ========  ========   ========  ========


</TABLE>

                                                                         Page 12
<PAGE>



                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

NOTE 4.  Loans and Allowance

<TABLE>
                                                                                  September 30,   December 31,
                                                                                       2007          2006
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
Loans:
  Commercial and industrial loans ..............................................   $   626,301    $   537,305
  Agricultural production financing and other loans to farmers .................       113,132        100,098
  Real estate loans:
    Construction ...............................................................       160,624        169,491
    Commercial and farmland ....................................................       912,063        861,429
    Residential ................................................................       769,890        749,921
  Individuals' loans for household and other personal expenditures .............       194,181        223,504
  Tax-exempt loans .............................................................        28,726         14,423
  Lease financing receivables, net of unearned income...........................         8,932          8,010
  Other loans ..................................................................        55,152         28,420
                                                                                   -----------    -----------
                                                                                     2,869,001      2,692,601
  Allowance for loan losses.....................................................       (27,635)       (26,540)
                                                                                   -----------    -----------
      Total Loans...............................................................   $ 2,841,366    $ 2,666,061
                                                                                   ===========    ===========

                                                                                        Nine Months Ended
                                                                                          September 30,

                                                                                       2007           2006
                                                                                   -----------    -----------
Allowance for loan losses:
  Balances, January 1 ..........................................................   $    26,540    $    25,188

  Provision for losses .........................................................         6,057          5,013

  Recoveries on loans ..........................................................           777          1,421

  Loans charged off ............................................................        (5,739)        (4,647)
                                                                                   -----------    -----------
  Balances, September 30 .......................................................   $    27,635    $    26,975
                                                                                   ===========    ===========
</TABLE>

Information on nonaccruing, contractually
past due 90 days or more other than
nonaccruing and restructured loans is              September 30,    December 31,
summarized below:                                      2007            2006
================================================================================

Non-accrual loans................................    $ 30,165       $ 17,926

Loans contractually past due 90 days
  or more other than nonaccruing.................       3,132          2,870

Restructured loans...............................          58             84
                                                     --------       --------
    Total........................................    $ 33,355       $ 20,880
                                                     ========       ========

                                                                         Page 13
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

NOTE 5.  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-captial when share-based awards are exercised, are assumed to be used to
repurchase common stock in the current period.

<TABLE>
                                                                     Three Months Ended September 30,
                                                           2007                                           2006
                                        -------------------------------------------    -------------------------------------------
                                                        Weighted-                                      Weighted-
                                                         Average        Per Share                       Average        Per Share
                                         Income           Shares         Amount         Income           Shares         Amount
                                         ------           ------         ------         ------           ------         ------
<S>                                      <C>            <C>             <C>             <C>            <C>             <C>
Basic net income per share:
  Net income available to
    common stockholders................. $    8,350        18,221,467    $     .46      $    7,739        18,317,558    $     .42
                                                                         ==========                                     ==========
Effect of dilutive stock options........                       54,713                                         63,073
                                         ----------       ------------                  ----------       ------------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions............. $    8,350        18,276,180    $     .46      $    7,739        18,380,631    $     .42
                                         ==========       ============   ==========     ==========       ============   ==========

</TABLE>
Options to  purchase  839,375  and  659,432  shares for the three  months  ended
September  30,  2007 and 2006  were  not  included  in the  earnings  per  share
calculation because the exercise price exceeded the average market price.
<TABLE>
<CAPTION>

                                                                     Nine Months Ended September 30,
                                                           2007                                           2006
                                        -------------------------------------------    -------------------------------------------
                                                        Weighted-                                      Weighted-
                                                         Average        Per Share                       Average        Per Share
                                         Income           Shares         Amount         Income           Shares         Amount
                                         ------           ------         ------         ------           ------         ------
<S>                                      <C>            <C>             <C>             <C>            <C>             <C>
Basic net income per share:
  Net income available to
    common stockholders................. $   22,329        18,307,087    $    1.22      $   22,539        18,375,574    $    1.23
                                                                         ==========                                     ==========
Effect of dilutive stock options........                       67,910                                         79,723
                                         ----------       ------------                  ----------       ------------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions............. $   22,329        18,374,997    $    1.22      $   22,539        18,455,297    $    1.22
                                         ==========       ============   ==========     ==========       ============   ==========

</TABLE>
Options  to  purchase  706,641  and  647,801  shares for the nine  months  ended
September  30,  2007 and 2006  were  not  included  in the  earnings  per  share
calculation because the exercise price exceeded the average market price.


                                                                         Page 14
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

Note 6.  Defined Benefit Pension Costs

The Corporation has defined  benefit  pension plans covering  substantially  all
employees.  The  plans  provide  benefits  that  are  based  on  the  employees'
compensation and years of service. The Corporation uses an actuarial calculation
to determine pension plan costs.

The  following  represents the pension  cost for the three and nine months ended
September 30, 2007 and 2006.

<TABLE>
<CAPTION>
                                                                Three Months Ended             Nine Months Ended
                                                                  September 30,                  September 30,
                                                                2007          2006            2007          2006
                                                           --------------------------     -------------------------
Pension Cost
------------
<S>                                                        <C>           <C>              <C>           <C>
Service cost............................................   $      124    $      131       $      371    $      393

Interest cost ..........................................          716           684            2,148         2,050

Expected return on plan assets .........................         (785)         (728)          (2,354)       (2,184)

Amortization of prior service cost......................            1             2                3             4

Amortization of the net loss............................          104            86              312           260
                                                           ----------    ----------       ----------    ----------
      Total Pension Cost................................   $      160    $      175       $      480    $      523
                                                           ==========    ==========       ==========    ==========
</TABLE>

                                                                         Page 15
<PAGE>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

Note 7.  Impact of Accounting Changes

In March 2006, the FASB issued Statement of Financial  Accounting  Standards No.
156 (SFAS No. 156),  Accounting for Servicing of Financial  Assets, an amendment
of FASB  Statement No. 140,  Accounting for Transfers and Servicing of Financial
Assets and  Extinguishments  of Liabilities,  which requires that all separately
recognized  servicing assets and servicing  liabilities be initially measured at
fair value,  if practicable  and permits the entities to elect either fair value
measurement with changes in fair value reflected in earnings or the amortization
and  impairment  requirements  of SFAS No. 140 for subsequent  measurement.  The
subsequent  measurement of separately  recognized servicing assets and servicing
liabilities at fair value  eliminates the necessity for entities that manage the
risks inherent in servicing assets and servicing liabilities with derivatives to
qualify for hedge accounting  treatment and eliminates the  characterization  of
declines in fair value as  impairments  or direct  write-downs.  SFAS No. 156 is
effective for the Corporation  beginning  January 1, 2007. We have evaluated the
requirements  of SFAS No.  156 and  determined  that it did  not have a material
effect on our financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value  Measurements.  SFAS
No. 157 defines fair value,  establishes a framework for measuring fair value in
generally  accepted  accounting  standards,  and expands  disclosures about fair
value  measurements.  SFAS No. 157 is effective for financial  statements issued
for fiscal years  beginning  after November 15, 2007, and interim periods within
those fiscal years. We do not expect that the adoption of SFAS No. 157 will have
a material impact on our financial condition or results of operations.

In June 2006, the FASB issued  Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, an interpretation of SFAS No. 109,  Accounting for Income Taxes
(Interpretation  No. 48).  Interpretation  No. 48 clarifies the  accounting  for
uncertainty in income taxes in financial statements and prescribes a recognition
threshold and  measurement  attribute for financial  statement  recognition  and
measurement  of a tax position  taken or expected to be taken.  It also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods,  disclosure and transition.  Interpretation No. 48 is effective
for  the  Corporation   beginning   January  1,  2007.  We  have  evaluated  the
requirements  of  Interpretation  No. 48 and determined  that it did  not have a
material effect on our financial condition or results of operations.

In  September  2006,  the  Emerging  Issues Task Force  Issue 06-4 (EITF  06-4),
Accounting  for Deferred  Compensation  and  Postretirement  Benefit  Aspects of
Endorsement  Split-Dollar Life Insurance  Arrangements,  was ratified. EITF 06-4
addresses  accounting for separate  agreements which split life insurance policy
benefits  between an employer and employee.  The Issue  requires the employer to
recognize a liability for future  benefits  payable to the employee  under these
agreements.  The effects of applying EITF 06-4 must be recognized through either
a change in accounting  principle through an adjustment to equity or through the
retrospective  application  to all prior periods.  For calendar year  companies,
EITF 06-4 is effective beginning January 1, 2008. Early adoption is permitted as
of  January  1,  2007.  We do not  expect  the  adoption  of EITF 06-4 to have a
material effect on our consolidated financial statements.

On February  15,  2007,  the FASB issued its  Statement  No. 159, The Fair Value
Option for Financial Assets and Financial  Liabilities-Including an Amendment of
FASB  Statement  No.  115.  FAS 159  permits  entities  to elect to report  most
financial  assets and liabilities at their fair value with changes in fair value
included  in  net  income.   The  fair  value   option  may  be  applied  on  an
instrument-by-instrument  or instrument  class-by-class basis. The option is not
available  for  deposits  withdrawable  on  demand,   pension  plan  assets  and
obligations, leases, instruments classified as stockholders' equity, investments
in  consolidated   subsidiaries  and  variable  interest  entities  and  certain
insurance  policies.  The new  standard is  effective  at the  beginning  of the
Company's  fiscal year beginning  January 1, 2008, and early  application may be
elected in certain circumstances. The Company is currently evaluating the effect
of  adoption  of this  Statement  on its  financial  condition  and  results  of
operations.
                                                                         Page 16
<PAGE>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

Note 8.  Subordinated Debentures

During the second quarter,  the Corporation  called its subordinated  debentures
payable to First Merchants  Capital Trust I. The aggregate  redemption price was
the principal  amount of $54,832,000  plus any accrued but unpaid  interest at a
rate of 8.75 percent.  The redemption of the debentures was immediately followed
by the redemption by First Merchants  Capital Trust I of its outstanding  common
and preferred  securities at their $25 liquidation  value,  plus any accrued but
unpaid distributions.

In order to finance the redemption,  the Corporation  completed the issuance and
sale of  $55,000,000  in aggregate  liquidation  amount of  Fixed/Floating  Rate
Capital Securities (the "Capital  Securities") issued by the Corporation's newly
formed subsidiary,  First Merchants Capital Trust II, a Delaware Statutory Trust
(the "Trust") in a trust preferred transaction.  The Trust simultaneously issued
1,702 shares of the Trust's common  securities (the "Common  Securities") to the
Corporation for the purchase price of $1,702,000,  which  constitutes all of the
issued  and  outstanding  common  securities  of the  Trust.  The Trust used the
proceeds from the sale of the Capital  Securities  and the Common  Securities to
purchase $56,702,000 in aggregate principal amount of Fixed/Floating Rate Junior
Subordinated  Deferrable  Interest  Debentures  issued by the  Corporation  (the
"Debentures").  The  net  proceeds  to the  Corporation  from  the  sale  of the
Debentures  were used by the  Corporation  to finance the  redemption  discussed
above.

The Capital  Securities  and the  Debentures  will mature on September 15, 2037.
Distributions  on the  Capital  Securities  are  cumulative  and will be payable
quarterly  at a fixed  annual  rate of 6.495%  for the  period  from the date of
issuance through September 15, 2012, and, thereafter, at an annual floating rate
equal to three-month LIBOR plus 1.56%,  reset quarterly.  The Capital Securities
are redeemable at any time after September 15, 2012 at par and without  penalty,
and may be redeemed  earlier  following  the  occurrence  of  specified  Special
Events.  In each  case,  the  right of the  Corporation  to redeem  the  related
Debentures, and thereby to cause the redemption of the Capital Securities,  will
be  subject to the  Corporation's  receipt of prior  approval  from the  Federal
Reserve, if then required under applicable capital guidelines or policies of the
Federal Reserve.  The Corporation has the ability to defer interest  payments on
the Capital  Securities  for up to 20 consecutive  quarterly  periods (5 years),
provided that there is no event of default.  Interest on the Capital  Securities
will continue to accrue during the extension  period,  and all accrued principal
and interest must be paid at the end of each extension period. During a deferral
period,  the Corporation may not, except in certain limited  circumstances,  (i)
declare or pay any dividends or distributions on, or redeem, purchase,  acquire,
or make a liquidation payment with respect to, any of the Corporation's  capital
stock or (ii) make any payment of principal  of or interest or premium,  if any,
on or repay,  repurchase or redeem any debt securities of the  Corporation  that
rank pari passu in all respects with or junior in interest to the Debentures.


                                                                        page 17

<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
--------------

FORWARD-LOOKING STATEMENTS

We from time to time 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.

                                                                         Page 18
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations  continued
------------------------

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 the  Corporation's  Annual Report on Form 10-K for the year ended
December 31, 2006.  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, 2007 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 the  Corporation's  Annual Report on Form
10-K for the year ended December 31, 2006.

BUSINESS SUMMARY

The  Corporation is a diversified  financial  holding company  headquartered  in
Muncie,  Indiana.  Since its  organization in 1982, the Corporation has grown to
include 67  banking  center  locations  in 17 Indiana  and 3 Ohio  counties.  In
addition to its branch network,  the  Corporation's  delivery  channels  include
ATMs, check cards, interactive voice response systems and internet technology.

The Corporation's  business  activities are currently limited to one significant
business  segment,  which is community  banking.  As of September 30, 2007,  the
Corporation's  financial service affiliates  included four nationally  chartered
banks:  First  Merchants  Bank,  National  Association,  First Merchants Bank of
Central  Indiana,  National  Association,  Lafayette  Bank  and  Trust  Company,
National  Association and Commerce  National Bank. The banks provide  commercial
and retail  banking  services.  In addition,  the  Corporation's  trust company,
multi-line  insurance company and a title company provide trust asset management
services,  retail and commercial  insurance  agency services and title services,
respectively.

Management believes that its vision, mission,  culture statement and core values
produce profitable growth for stockholders.  Management believes it is important
to maintain a strong control  environment as we continue to grow our businesses.
Credit  policies are  maintained  and continue to produce  sound asset  quality.
Interest rate and market risks inherent in our asset and liability  balances are
managed within prudent ranges,  while ensuring  adequate  liquidity and funding.
Our stockholder value has continued to increase due to customer satisfaction and
the balanced way we manage our business risk.

RESULTS OF OPERATIONS

Net income for the three months ended  September 30, 2007,  equaled  $8,350,000,
compared to  $7,739,000 in the same period of 2006.  Diluted  earnings per share
were $.46,  an  increase  of 9.5 percent  from the $.42  reported  for the third
quarter of 2006.  Net income  for the nine  months  ended  September  30,  2007,
equaled  $22,329,000,  compared to  $22,539,000  during the same period in 2006.
Diluted earnings per share were $1.22 in both periods.

Annualized  returns on average assets and average  stockholders'  equity for the
three  months ended  September  30,  2007,  were .90 percent and 10.14  percent,
respectively,  compared with .90 percent and 9.72 percent for the same period of
2006.

                                                                         Page 19
<PAGE>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations  continued
------------------------

CAPITAL

Our  regulatory  capital  continues  to  exceed  regulatory  "well  capitalized"
standards.  To be  categorized  as well  capitalized,  the Banks must maintain a
minimum total capital to risk-weighted  assets,  Tier I capital to risk-weighted
assets and Tier I capital  to  average  assets of 10  percent,  6 percent  and 5
percent,  respectively.  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. Our Tier I capital to average assets ratio was
7.4 percent at September 30, 2007 and year end 2006.  In addition,  at September
30,  2007,  we had a Tier I  risk-based  capital  ratio of 9.0 percent and total
risk-based capital ratio of 10.8 percent.  Regulatory capital guidelines require
a Tier I risk-based  capital ratio of 4.0 percent and a total risk-based capital
ratio of 8.0 percent.

Our  tangible  capital  ratio,   defined  as  total  stockholders'  equity  less
intangibles net of tax to total assets less  intangibles net of tax, equaled 5.6
percent as of September 30, 2007, and 5.7 percent at December 31, 2006.

We believe that all of the above capital ratios are meaningful  measurements for
evaluating  our safety and  soundness.  Additionally,  we believe the  following
table is also meaningful when  considering our performance  measures.  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)                           2007           2006

Average Goodwill ..........................  $   123,168    $   121,831
Average Core Deposit Intangible (CDI) .....       14,256         16,103
Average Deferred Tax on CDI ...............       (3,781)        (4,994)
                                             -----------    -----------
  Intangible Adjustment ...................  $   133,643    $   132,940
                                             ===========    ===========

Average Stockholders' Equity (GAAP Capital)  $   329,153    $   319,519
Intangible Adjustment .....................     (133,643)      (132,940)
                                             -----------    -----------
  Average Tangible Capital ................  $   195,510    $   186,579
                                             ===========    ===========

Average Assets ............................  $ 3,606,700    $ 3,371,386
Intangible Adjustment .....................     (133,643)      (132,940)
                                             -----------    -----------
  Average Tangible Assets .................  $ 3,473,057    $ 3,328,446
                                             ===========    ===========

Net Income ................................  $    22,329    $    30,198
CDI Amortization, net of tax ..............        1,119          1,920
                                             -----------    -----------
  Tangible Net Income .....................  $    23,448    $    32,118
                                             ===========    ===========

Diluted Earnings per Share ................  $      1.22    $      1.64
Diluted Tangible Earnings per Share .......  $      1.28    $      1.75

Return on Average GAAP Capital ............         9.04%          9.45%
Return on Average Tangible Capital ........        15.99%         17.21%

Return on Average Assets ..................          .83%           .90%
Return on Average Tangible Assets .........          .90%           .99%

                                                                         Page 20
<PAGE>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q


ASSET QUALITY/PROVISION FOR LOAN LOSSES

Our primary  business  focus is middle market  commercial and  residential  real
estate,   auto  and  small   consumer   lending,   which  results  in  portfolio
diversification. We ensure that appropriate methods to understand and underwrite
risk  are  utilized.   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.

At September 30, 2007, non-performing loans totaled $33,355,000,  an increase of
$12,475,000  from  December 31, 2006,  as noted in Note 4. Loans and  Allowance,
included within the Notes to Consolidated Condensed Financial Statements of this
Form 10-Q.

At September  30,  2007,  impaired  loans  totaled  $85,316,000,  an increase of
$24,996,000  from December 31, 2006. In evaluating the adequacy of the allowance
for losses on impaired  loans,  it was determined at September 30, 2007, that an
allowance was not deemed  necessary for impaired loans  totaling  $57,862,000 as
they were adequately collateralized. An allowance of $5,716,000 was recorded for
the remaining $27,455,000 and is included in our allowance for loan losses.

A significant  portion of the increase in non-accrual loans can be attributed to
two relationships.  One relationship for $6.3 million deteriorated  unexpectedly
earlier in the year. In evaluating the future cash flow and collateral position,
we anticipate no additional losses on this relationship. The second relationship
for $2.3 million is also adequately  collateralized and no additional losses are
anticipated.

There has been a continued focus on the reduction of non-performing assets, with
strategies to include aggressive  collection,  sales in the secondary market and
other payoffs of troubled loans through the normal course of the business. While
the non-performing  loans were up in the first and second quarter of 2007, there
was a decrease of 2,726,000  from June 30, 2007 to September  30, 2007.  The top
ten special mention loans are current and accruing interest, and thirteen of the
top twenty classified loans are current and accruing interest.

At  September  30,  2007,  the  allowance  for loan losses was  $27,635,000,  an
increase of $1,095,000 from year end 2006. As a percent of loans,  the allowance
was .96 percent at September 30, 2007 and .99 percent at December 31, 2006.

The provision for loan losses for the first nine months of 2007 was  $6,057,000,
a increase of $1,044,000 from $5,013,000 for the same period in 2006.

                                                                         Page 21

<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
LIQUIDITY

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

Liquidity is dependent  upon the  Corporation's  receipt of dividends  from bank
subsidiaries,  which are subject to certain regulatory limitations and access to
other funding sources.  Liquidity of our bank  subsidiaries 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,  the  Corporation  utilizes  advances from the Federal Home Loan Bank.
("FHLB")  and a revolving  line of credit  with  LaSalle  Bank,  N.A. as funding
sources.   At  September  30,  2007,   total   borrowings  from  the  FHLB  were
$310,100,000.  Our bank  subsidiaries  have pledged  certain  mortgage loans and
certain  investments  to the  FHLB.  The  total  available  remaining  borrowing
capacity from the FHLB at September 30, 2007, was $38,342,000.  At September 30,
2007,  the  revolving  line of credit with LaSalle  Bank,  N.A. had a balance of
$20,000,000 and a remaining borrowing capacity of $5,000,000.

The  principal  source  of  asset-funded   liquidity  is  investment  securities
classified   as   available-for-sale,   the  market   values  of  which  totaled
$465,992,000  at September 30, 2007, an increase of  $10,059,000  or 2.2 percent
over  December 31, 2006.  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  and that are maturing in one year or
less totaled $384,000 at September 30, 2007. In addition,  other types of assets
such as cash and due from banks,  federal  funds sold and  securities  purchased
under agreements to resell, and loans and  interest-bearing  deposits with other
banks maturing within one year are sources of liquidity.

In the normal  course of  business,  the  Corporation  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.

The banks provide  customers with off-balance  sheet credit support through loan
commitments and standby letters of credit.  Summarized  credit-related financial
instruments at September 30, 2007 are as follows:

                                                                At September 30,
(Dollars in thousands)                                               2007
================================================================================
Amounts of commitments:
Loan commitments to extend credit ............................... $  659,708
Standby letters of credit .......................................     20,296
                                                                  ----------
                                                                  $  680,004
                                                                  ==========

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 our ongoing activities.  The
required  payments  under such  commitments  and long-term debt at September 30,
2007 are as follows:
<TABLE>
<CAPTION>
                                2007       2008       2009       2010       2011       2012       Total
(Dollars in thousands)       remaining                                              and after
=======================================================================================================
<S>                          <C>        <C>        <C>        <C>        <C>        <C>        <C>
Operating leases .........   $    479   $  1,697   $  1,372   $  1,170   $    950   $    672   $  6,340
Borrowings ...............    256,038     82,653     48,356     46,100     18,947    168,375    620,469
                             --------   --------   --------   --------   --------   --------   --------
Total ....................   $256,517   $ 84,350   $ 49,728   $ 47,270   $ 19,897   $169,047   $626,809
                             ========   ========   ========   ========   ========   ========   ========
</TABLE>
                                                                         Page 22
<PAGE>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK

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

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

We believe that our liquidity and interest sensitivity position at September 30,
2007,  remained  adequate to meet our primary goal of achieving optimum interest
margins while avoiding undue interest rate risk.

Net interest  income  simulation  modeling,  or  earnings-at-risk,  measures the
sensitivity of net interest income to various interest rate movements. Our 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 our view of future market  movements.  Rather,  these are
intended  to  provide  a  measure  of the  degree of  volatility  interest  rate
movements may introduce into our earnings.

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 our 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
mortgage-related  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, e.g., savings, money market, NOW and demand deposits, reflect
our best estimate of expected future behavior.

                                                                         Page 23
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

The comparative  rising and falling scenarios below 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 us in the base simulation are as follows:

Driver Rates            RISING             FALLING
=============================================================
Prime                   200 Basis Points   (200) Basis Points
Federal Funds           200                (200)
One-Year CMT            200                (200)
Three-Year CMT          200                (200)
Five-Year CMT           200                (200)
CD's                    200                (200)
FHLB Advances           200                (200)

Results for the base,  rising and falling  interest  rate  scenarios  are listed
below,  based upon our rate sensitive assets and liabilities at August 31, 2007.
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.

                                              BASE     RISING    FALLING
                                                (Dollars in thousands)
=========================================================================
Net Interest Income                         $115,793  $113,867   $115,191

Variance from base                                    $ (1,926)  $   (602)

Percent of change from base                              (1.70)%     (.50)%

The comparative  rising and falling scenarios below 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 us in the base simulation are as follows:

Driver Rates            RISING             FALLING
=============================================================
Prime                   200 Basis Points   (200) Basis Points
Federal Funds           200                (200)
One-Year CMT            200                (200)
Two-Year CMT            200                (200)
Three-Year CMT          200                (200)
Five-Year CMT           200                (200)
CD's                    200                (191)
FHLB Advances           200                (200)

Results for the base,  rising and falling  interest  rate  scenarios  are listed
below,  based upon our rate  sensitive  assets and  liabilities  at November 30,
2006. 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.

                                              BASE     RISING    FALLING
                                                (Dollars in thousands)
=========================================================================
Net Interest Income                         $109,090  $108,036   $108,429

Variance from base                                    $ (1,054)  $   (631)

Percent of change from base                               (.96)%     (.58)%

                                                                         Page 24
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

EARNING ASSETS

The following table presents the earning asset mix as of September 30, 2007, and
December 31, 2006.

Earning assets  increased by $197,000,000 in the nine months ended September 30,
2007.  Loans and loans held for sale increased by  $175,000,000  and investments
increased by $9,000,000. The three largest loan increases include commercial and
industrial  of  $89,000,000,  commercial  real estate loans of  $51,000,000  and
residential real estate of $20,000,000.

<TABLE>

----------------------------------------------------------------------------------------------------
EARNING ASSETS
(Dollars in thousands)                                        September 30,             December 31,
                                                                   2007                     2006
----------------------------------------------------------------------------------------------------
<S>                                                            <C>                     <C>
Interest-bearing time deposits ......................          $   22,295               $   11,284

Investment securities available for sale ............             465,992                  455,933

Investment securities held to maturity ..............               8,621                    9,284

Mortgage loans held for sale ........................               4,328                    5,413

Loans ...............................................           2,869,001                2,692,601

Federal Reserve and Federal Home Loan Bank stock                   25,050                   23,691
                                                               ----------               ----------

                     Total ..........................          $3,395,287               $3,198,206
                                                               ==========               ==========

</TABLE>
--------------------------------------------------------------------------------
DEPOSITS AND BORROWINGS

The table below reflects the level of deposits and borrowed funds (federal funds
purchased;   repurchase  agreements;   Federal  Home  Loan  Bank  advances;  and
subordinated debentures,  revolving credit lines and term loans) based on period
ending amounts as of September 30, 2007 and December 31, 2006.

(Dollars in thousands)                             September 30,   December 31,
                                                       2007           2006
                                                    ----------     ----------
Deposits ........................................   $2,759,175     $2,750,538
Federal funds purchased..........................       95,697         56,150
Securities sold under repurchase agreements......      103,846         42,750
Federal Home Loan Bank advances .................      310,100        242,408
Subordinated debentures, revolving credit lines,
   term loans and other .........................      110,826         99,456
                                                    ----------     ----------
                                                    $3,379,644     $3,191,302
                                                    ==========     ==========

We have  continued to leverage our capital  position with Federal Home Loan Bank
advances,  as well as repurchase agreements which are pledged against investment
securities as collateral for the borrowings.  The interest rate risk is included
as part of our interest  simulation  discussed in  Management's  Discussion  and
Analysis of Financial  Condition  and Results of  Operations  under the headings
"LIQUIDITY" and "INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK".
                                                                         Page 25
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

NET INTEREST INCOME

Net Interest  Income is the primary source of our earnings.  It is a function of
net interest  margin and the level of average  earning  assets.  The table below
presents  our asset  yields,  interest  expense,  and net  interest  income as a
percent of average  earning  assets for the six months ended  September 30, 2007
and 2006.

During the nine months ended September 30, 2007, asset yields increased 22 basis
points on a fully taxable equivalent basis (FTE) and interest costs increased 49
basis  points,  resulting  in a 27 basis  point (FTE)  decrease in net  interest
income as compared to the same period in 2006.

<TABLE>
<CAPTION>
                                                            Three Months Ended         Nine Months Ended
                                                              September 30,               September 30,
<S>                                                     <C>           <C>              <C>           <C>
(Dollars in Thousands)                                      2007          2006          2007          2006

Annualized Net Interest Income........................  $  114,142    $  110,499    $  110,967    $  110,639

Annualized FTE Adjustment.............................  $    4,265    $    3,953    $    4,123    $    3,944

Annualized Net Interest Income
  On a Fully Taxable Equivalent Basis.................  $  118,407    $  114,452    $  115,090    $  114,583

Average Earning Assets................................  $3,359,170    $3,125,079    $3,282,126    $3,036,748

Interest Income (FTE) as a Percent
  of Average Earning Assets...........................        7.17%         7.08%         7.09%         6.87%

Interest Expense as a Percent
  of Average Earning Assets...........................        3.65%         3.42%         3.58%         3.09%

Net Interest Income (FTE) as a Percent
  of Average Earning Assets...........................        3.52%         3.66%         3.51%         3.78%


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.  In addition,
annualized amounts are computed utilizing a 30/360 day basis.
</TABLE>

HEDGING ACTIVITIES

On August 1, 2006, the  Corporation  purchased three  prime-based  interest rate
floor  agreements  with an aggregate  notional amount of $250 million and strike
rates  ranging  from 6% to 7%.  The  combined  purchase  price of  approximately
$550,000 will be amortized on an allocated  fair value basis over the three-year
term of the  agreements.  The fair value of the floors at September 30, 2007 was
$928,000.  Ineffectiveness  from the hedging  relationships was immaterial.  The
Corporation's  objective in using  interest  rate floors is to add  stability to
interest  income by  reducing  its  exposure to  decreases  in cash flows on its
prime-based loans. An interest rate floor agreement involves the receipt of cash
payments  when the  underlying  interest  rate falls below the floor strike rate
over the life of the  agreement  without  exchange of the  underlying  principal
(notional)  amount.  The interest rate floors are designated as cash flow hedges
and will be  accounted  for in  accordance  with SFAS No.  133,  Accounting  for
Derivative Instruments and Hedging Activities, as amended.

                                                                         Page 26
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
OTHER INCOME

Total other income in the third  quarter of 2007 was  $2,013,000 or 22.8 percent
higher than the same period of 2006.

Six items primarily account for the change:

1.       The sale of a branch building and other real estate resulted in gains
         of $666,000.

2.       Earnings on bank-owned life insurance increased $279,000 from the same
         period in 2006 due to the purchase of $25,000,000 in additional
         policies in 2006 and 2007.

3.       Net gains and fees on sales of mortgage loans increased $256,000 due to
         additional loans sold in the secondary market.

4.       Insurance commissions increased $204,000 due to the purchase of an
         insurance agency in late 2006.

5.       Service charges in the third quarter of 2007 were $186,000 higher than
         the same period in 2006 due to fee increases.

6.       Trust fees increased $122,000 as a result of increased trust business.

Other  income for the first nine months of 2007 was  $4,575,000  or 17.7 percent
higher than the same period in 2006.

Five items primarily account for the change:

1.       Service charges increased $963,000 from the same period in 2006 due to
         fee increases.

2.       The sale of a branch building and other real estate resulted in gains
         of $916,000.

3.       Earnings on bank-owned life insurance increased $891,000 from the same
         period in 2006 due to the purchase of $25,000,000 in additional
         policies in 2006 and 2007.

4.       Insurance commissions increased $661,000 due to the purchase of an
         insurance agency in late 2006.

5.       Trust fees increased $515,000 as a result of increased trust business.

OTHER EXPENSES

Total other expenses in the third quarter of 2007 were $1,047,000 or 4.4 percent
higher than the same period in 2006.  Salary and employee  benefit expenses were
$1,071,000  higher in the third  quarter of 2007, as compared to the same period
in 2006  due to staff  additions  and  normal  annual  increases.  Approximately
$221,000  of the  increase  is  due to  increases  in  share-based  compensation
expense.

Total other  expenses  for the first nine months of 2007 were $5,298,000  or 7.4
percent higher than the same period in 2006.

Three items primarily account for the change:

1.       Salary and employee  benefit expenses were $2,137,000 higher than the
         same period in 2006 due to staff additions and normal annual increases.
         Approximately, $552,000 of the increase is due to increases in share-
         based compensation expense.

2.       In the second quarter, the Corporation wrote off $1.8 million in
         unamortized underwriting fees associated with First Merchants Capital
         Trust I subordinated debentures.

3.       Other expenses increased $771,000 primarily due to integration
         expenses related to bank combinations and name changes.

                                                                         Page 27
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

INCOME TAXES

Income tax expense,  for the nine months ended September 30, 2007,  decreased by
$1,311,000  from the same period in 2006.  The  effective  tax rate was 27.2 and
29.9 percent for the 2007 and 2006 periods.

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 DISCLOSURES 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 our internal  controls  over  financial  reporting
identified  in connection  with the  evaluation  referenced  above that occurred
during our last fiscal quarter that have materially affected,  or are reasonably
likely to materially affect, our internal control over financial reporting.

                                                                         Page 28
<PAGE>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q
                           PART II. OTHER INFORMATION

Item 1.   Legal Proceedings
---------------------------

          None

Item 1.A. Risk Factors
----------------------

There have been no material changes from the risk factors  previously  disclosed
in the Corporation's December 31, 2006 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 June 30, 2007, as follows(1):
<TABLE>
<CAPTION>
                                                                                               MAXIMUM NUMBER (OR
                                                                    TOTAL NUMBER OF        APPROXIMATE DOLLAR VALUE)
                                                               SHARES PURCHASED AS PART     OF SHARES THAT MAY YET
                        TOTAL NUMBER OF     AVERAGE PRICE        OF PUBLICLY ANNOUNCED         BE PURCHASED UNDER
      PERIOD            SHARES PURCHASED    PAID PER SHARE        PLANS OR PROGRAMS          THE PLANS OR PROGRAMS
      ------            ----------------    --------------    -------------------------    ------------------------
<S>                     <C>                 <C>               <C>                          <C>
07/01/07 - 07/30/07         145,999(1)          $22,53                     0                           0
08/01/07 - 08/31/07          50,000(2)          $20.68                     0                           0
09/01/07 - 09/30/07          13,108(3)          $20.88                     0                           0
</TABLE>

On January 23, 2007, the Corporation's Board authorized management to repurchase
up to 250,000 shares of the Corporation's  Common Stock. This  authorization was
not publicly announced and expires January 22, 2008.

On July 24, 2007, the Corporation's Board authorized management to repurchase up
to 150,000 shares of the Corporation's  Common Stock. This authorization was not
publicly announced and also expires on January 22, 2008.

(1) Of the 145,999  shares  135,000 were  purchased in open market  transactions
pursuant to the above listed  authorizations.  The remaining  10,999 shares were
purchased in connection with the exercise of certain outstanding stock options.

(2) The 50,000 shares were purchased in open market transactions pursuant to the
above listed authorizations.

(3) Of the 13,108  shares  13,000 were  purchased  in open  market  transactions
pursuant  to the above  listed  authorizations.  The  remaining  108 shares were
purchased in connection with the exercise of certain outstanding stock options.


Item 3.  Defaults Upon Senior Securities
----------------------------------------

          None

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

          None

Item 5.  Other Information
--------------------------

          a.  None

          b.  None
                                                                         Page 29
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

                           PART II. OTHER INFORMATION


Item 6.  Exhibits
-----------------------------------------

             Exhibit No.:       Description of Exhibit:      Form 10-Q Page No.:
             ------------       -------------------------    -------------------

                 3(ii)          Bylaws of First Merchants            33
                                Corporation, as most recently
                                amended on October 23, 2007

                 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 2, 2007)

                 4.2            Indenture dated as of July 2, 2007
                                (Incorporated by reference to
                                registrant's Form 8-K filed on
                                July 2, 2007)

                 4.3            Guarantee Agreement dated as of
                                July 2, 2007 (Incorporated by
                                reference to registrant's Form 8-K
                                filed on July 2, 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 2, 2007)

                10.1            Placement Agreement dated June 29,
                                2007 (Incorporated by reference to
                                registrant's Form 8-K filed on
                                July 2, 2007)

                10.2            2007 Directors' Deferred
                                Compensation Plan dated as of
                                August 1, 2007 (Incorporated
                                by reference to registrants Form
                                8-K filed on August 15, 2007)

                31.1            Certification of Chief               47
                                Executive Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                31.2            Certification of Chief               48
                                Financial Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                32              Certifications Pursuant to           49
                                18 U.S.C. Section 1350, as
                                Adopted Pursuant to Section
                                906 of the Sarbanes-Oxley
                                Act of 2002


                                                                         Page 30

<PAGE>


                          FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

                                   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, 2007                  by /s/ Michael C. Rechin
     --------------------------            -------------------------------------
                                           Michael C. Rechin
                                           President and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

Date: November 9, 2007                  by /s/ Mark K. Hardwick
     --------------------------            -------------------------------------
                                           Mark K. Hardwick
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)


                                                                         Page 31

<PAGE>
                          FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

                               INDEX TO EXHIBITS

INDEX TO EXHIBITS

      (a)3.  Exhibits:

             Exhibit No.:       Description of Exhibit:      Form 10-Q Page No.:
             ------------       -------------------------    -------------------

                 3(ii)          Bylaws of First Merchants            33
                                Corporation, as most recently
                                amended on October 23, 2007

                 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 2, 2007)

                 4.2            Indenture dated as of July 2, 2007
                                (Incorporated by reference to
                                registrant's Form 8-K filed on
                                July 2, 2007)

                 4.3            Guarantee Agreement dated as of
                                July 2, 2007 (Incorporated by
                                reference to registrant's Form 8-K
                                filed on July 2, 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 2, 2007)

                10.1            Placement Agreement dated June 29,
                                2007 (Incorporated by reference to
                                registrant's Form 8-K filed on
                                July 2, 2007)

                10.2            2007 Directors' Deferred
                                Compensation Plan dated as of
                                August 1, 2007 (Incorporated
                                by reference to registrants Form
                                8-K filed on August 15, 2007)

                31.1            Certification of Chief               47
                                Executive Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                31.2            Certification of Chief               48
                                Financial Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                32              Certifications Pursuant to           49
                                18 U.S.C. Section 1350, as
                                Adopted Pursuant to Section
                                906 of the Sarbanes-Oxley
                                Act of 2002


                                                                         Page 32

<PAGE>
                                  EXHIBIT-3(ii)

                                    BYLAWS OF
                           FIRST MERCHANTS CORPORATION


     Following  are the  Bylaws  of  First  Merchants  Corporation  (hereinafter
referred  to as the  "Corporation"),  a  corporation  existing  pursuant  to the
provisions of the Indiana Business  Corporation Law (hereinafter  referred to as
the "Act"), as most recently amended effective as of October 23, 2007:

                                    ARTICLE I

                         Name, Principal Office and Seal

     Section 1.     Name and Principal  Office.  The name of the  Corporation is
First Merchants Corporation.  The post office address of the principal office of
the Corporation is 200 East Jackson Street, Muncie, Indiana 47305.

     Section 2.     Seal. The seal of the Corporation  shall be circular in form
and mounted upon a metal die, suitable for impressing the same upon paper. About
the  upper  periphery  of the seal  shall  appear  the  words  "First  Merchants
Corporation" and about the lower periphery  thereof the word "Muncie,  Indiana".
In the center of the seal shall appear the word "Seal".

                                   ARTICLE II

                                   Fiscal Year

     The fiscal year of the  Corporation  shall begin each year on the first day
of January and end on the last day of December of the same year.

                                   ARTICLE III

                                  Capital Stock

     Section 1.      Number of  Shares and Classes of Capital  Stock.  The total
number of shares of capital stock which the Corporation  shall have authority to
issue shall be as stated in the Articles of Incorporation.

     Section 2.      Consideration for No Par Value Shares.  The shares of stock
of the Corporation  without par value shall be issued or sold in such manner and
for such amount of  consideration as may be fixed from time to time by the Board
of Directors. Upon payment of the consideration fixed by the Board of Directors,
such shares of stock shall be fully paid and nonassessable.

     Section 3.      Consideration  for Treasury Shares.  Treasury shares may be
disposed of by the Corporation for such  consideration as may be determined from
time to time by the Board of Directors.

     Section 4.     Payment for Shares.  The  consideration  for the issuance of
shares of capital stock of the  Corporation may be paid, in whole or in part, in
money, in other property, tangible or intangible, or in labor actually performed
for, or services actually rendered to the Corporation;  provided,  however, that
the part of the  surplus  of the  Corporation  which is  transferred  to  stated
capital  upon the issuance of shares as a share  dividend  shall be deemed to be
the  consideration  for  the  issuance  of  such  shares.  When  payment  of the
consideration  for which a share was  authorized  to be issued  shall  have been
received by the  Corporation,  or when surplus  shall have been  transferred  to
stated  capital  upon the  issuance  of a share  dividend,  such share  shall be
declared  and  taken to be fully  paid and not  liable  to any  further  call or
assessment,  and the holder thereof shall not be liable for any further payments
thereon. In the absence of actual fraud in the transaction,  the judgment of the
Board of Directors as to the value of such property,  labor or services received
as  consideration,  or the  value  placed  by the  Board of  Directors  upon the
corporate  assets  in the  event  of a  share  dividend,  shall  be  conclusive.
Promissory notes,  uncertified  checks, or future services shall not be accepted
in payment or part payment of the capital  stock of the  Corporation,  except as
permitted by the Act.

                                                                         Page 33

<PAGE>
     Section 5.     Share  Certificates.  Shares of the Corporation's  stock may
but need not be  represented  by a  certificate.  The rights and  obligations of
shareholders of the same class or series of shares are identical  whether or not
their shares are represented by certificates.

     A book  entry  stock  account  shall  be  established  in the  name of each
shareholder who is the beneficial owner of any shares of the Corporation's stock
that are not  represented by a certificate,  which stock account shall set forth
the number of such shares credited to the shareholder. A shareholder may request
that a stock certificate, representing all or part of the shares credited to his
or her stock account, be issued and delivered to the shareholder at any time.

     Any holder of capital stock of the Corporation shall be entitled to a stock
certificate,  signed by the  President or a Vice  President and the Secretary or
any Assistant  Secretary of the Corporation,  stating the name of the registered
holder, the number of shares  represented by such certificate,  the par value of
each share of stock or that such shares of stock are without par value, and that
such shares are fully paid and nonassessable. If such shares are not fully paid,
the certificate shall be legibly stamped to indicate the per cent which has been
paid,  and as  further  payments  are made,  the  certificate  shall be  stamped
accordingly.  The  certificate  may  bear  the  seal of the  Corporation  or its
facsimile.

     If the  Corporation  is  authorized to issue shares of more than one class,
every certificate shall state the kind and class of shares represented  thereby,
and the relative rights, interests,  preferences and restrictions of such class,
or a summary  thereof;  provided,  that such  statement  may be omitted from the
certificate  if it shall be set forth  upon the face or back of the  certificate
that such  statement,  in full,  will be  furnished  by the  Corporation  to any
shareholder upon written request and without charge.

     Section 6.     Facsimile  Signatures.  If a certificate is countersigned by
the written  signature  of a transfer  agent other than the  Corporation  or its
employee,  the signatures of the officers of the  Corporation may be facsimiles.
If a certificate is countersigned by the written  signature of a registrar other
than the  Corporation or its employee,  the signatures of the transfer agent and
the officers of the Corporation may be facsimiles. In case any officer, transfer
agent, or registrar who has signed or whose facsimile  signature has been placed
upon a certificate  shall have ceased to be such  officer,  transfer  agent,  or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of its issue.

     Section  7.     Transfer  of  Shares.  The  shares of capital  stock of the
Corporation shall be transferable on the books of the Corporation upon surrender
of the certificate or certificates  representing the same,  properly endorsed by
the registered holder or by the holder's duly authorized attorney or accompanied
by proper  evidence of succession,  assignment or authority to transfer.  Shares
that are not represented by a certificate  shall be transferable on the books of
the Corporation  upon receipt of written  direction to do so from the registered
holder  or the  holder's  duly  authorized  attorney  or  accompanied  by proper
evidence  of  succession,  assignment  or  authority  to  transfer,  in  a  form
satisfactory to the Corporation, its transfer agent or registrar.

                                                                         Page 34

<PAGE>

     Section 8.     Cancellation.   Every   certificate   surrendered   to   the
Corporation  for exchange or transfer shall be canceled,  and no new certificate
or certificates  shall be issued in exchange for any existing  certificate until
such existing certificate shall have been so canceled,  except in cases provided
for in Section 10 of this Article III.

     Section 9.     Transfer  Agent and  Registrar.  The Board of Directors may
appoint a transfer  agent and a registrar for each class of capital stock of the
Corporation and may require all  certificates  representing  such shares to bear
the  signature  of such  transfer  agent and  registrar.  Shareholders  shall be
responsible  for notifying the  Corporation  or transfer agent and registrar for
the class of stock held by such  shareholder  in writing of any changes in their
addresses from time to time, and failure so to do shall relieve the Corporation,
its shareholders, Directors, officers, transfer agent and registrar of liability
for failure to direct notices,  dividends,  or other documents or property to an
address other than the one appearing  upon the records of the transfer agent and
registrar of the Corporation.

     Section 10.     Lost, Stolen or Destroyed Certificates. The Corporation may
cause a new certificate or certificates to be issued in place of any certificate
or certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed,  upon the making of an affidavit of that fact by the person
claiming  the  certificate  of stock  to be  lost,  stolen  or  destroyed.  When
authorizing  such issue of a new  certificate or  certificates,  the Corporation
may, in its  discretion  and as a condition  precedent to the issuance  thereof,
require the owner of such lost, stolen or destroyed certificate or certificates,
or the owner's legal representative,  to give the Corporation a bond in such sum
and in such form as it may  direct to  indemnify  against  any claim that may be
made against the Corporation  with respect to the  certificates  alleged to have
been lost,  stolen or  destroyed or the  issuance of such new  certificate.  The
Corporation,  in  its  discretion,  may  authorize  the  issuance  of  such  new
certificates without any bond when in its judgment it is proper to do so.

     Section 11.     Registered Shareholders.  The Corporation shall be entitled
to recognize  the  exclusive  right of a person  registered  on its books as the
owner of such shares to receive dividends, to vote as such owner, to hold liable
for calls and  assessments,  and to treat as owner in all  other  respects,  and
shall not be bound to recognize  any equitable or other claims to or interest in
such  share or shares on the part of any other  person,  whether or not it shall
have express or other notice thereof,  except as otherwise  provided by the laws
of Indiana.

     Section 12.     Options to Officers and Employees. The issuance,  including
the consideration,  of rights or options to Directors,  officers or employees of
the  Corporation,  and not to the shareholders  generally,  to purchase from the
Corporation  shares of its capital  stock  shall be approved by the  affirmative
vote of the  holders of a majority  of the shares  entitled  to vote  thereon or
shall be authorized by and consistent with a plan approved by such a vote of the
shareholders.

                                                                         Page 35

<PAGE>

                                   ARTICLE IV

                            Meetings of Shareholders

     Section  1.     Place  of  Meeting.   Meetings  of   shareholders  of   the
Corporation shall be held at such place, within or without the State of Indiana,
as may from time to time be designated  by the Board of Directors,  or as may be
specified in the notices or waivers of notice of such meetings.

     Section 2.     Annual Meeting.  The annual meeting of shareholders  for the
election of Directors,  and for the  transaction  of such other  business as may
properly  come  before the  meeting,  shall be held at such time as the Board of
Directors may set by  resolution,  following the close of the fiscal year of the
Corporation.  A failure to hold the annual meeting at the designated  time shall
not affect the validity of any corporate action.

     Section 3.     Special Meetings. Special meetings of the shareholders,  for
any  purpose  or  purposes,  unless  otherwise  prescribed  by statute or by the
Articles  of  Incorporation,  may be  called by the  Board of  Directors  or the
President  and shall be called by the  President  or Secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
shareholders  holding of record not less than one-fourth (1/4) of all the shares
outstanding  and  entitled  by the  Articles  of  Incorporation  to  vote on the
business for which the meeting is being called.

     Section 4.     Notice of Meetings. A written or printed notice, stating the
place, day and hour of the meeting,  and in case of a special  meeting,  or when
required by any other provision of the Act, or of the Articles of Incorporation,
as now or hereafter amended,  or these Bylaws, the purpose or purposes for which
the meeting is called, shall be delivered or mailed by the Secretary,  or by the
officers or persons calling the meeting,  to each shareholder of record entitled
by the Articles of Incorporation, as now or hereafter amended, and by the Act to
vote at such  meeting,  at such  address  as  appears  upon the  records  of the
Corporation,  at least ten (10) days before the date of the  meeting.  Notice of
any such meeting may be waived in writing by any shareholder, if the waiver sets
forth in  reasonable  detail the  purpose or  purposes  for which the meeting is
called, and the time and place thereof.  Attendance at any meeting in person, or
by proxy, shall constitute a waiver of notice of such meeting. Each shareholder,
who has in the manner above provided waived notice of a  shareholders'  meeting,
or who personally attends a shareholders'  meeting, or is represented thereat by
a proxy  authorized to appear by an instrument of proxy,  shall be  conclusively
presumed to have been given due notice of such meeting.  Notice of any adjourned
meeting of shareholders  shall not be required to be given if the time and place
thereof are announced at the meeting at which the adjournment is taken except as
may be expressly required by law.

                                                                         Page 36
<PAGE>

     Section 5.     Addresses  of  Shareholders.  The address of any shareholder
appearing upon the records of the  Corporation  shall be deemed to be the latest
address  of  such  shareholder  appearing  on  the  records  maintained  by  the
Corporation  or its  transfer  agent  for  the  class  of  stock  held  by  such
shareholder.

     Section 6.     Voting at Meetings.

     (a)  Quorum.  The  holders  of  record  of a  majority  of the  issued  and
outstanding stock of the Corporation  entitled to vote at such meeting,  present
in person or by proxy, shall constitute a quorum at all meetings of shareholders
for the  transaction of business,  except where  otherwise  provided by law, the
Articles of  Incorporation  or these  Bylaws.  In the  absence of a quorum,  any
officer  entitled to preside at, or act as secretary of, such meeting shall have
the power to  adjourn  the  meeting  from time to time  until a quorum  shall be
constituted.  At any such adjourned  meeting at which a quorum shall be present,
any business may be transacted  which might have been transacted at the original
meeting,  but only those  shareholders  entitled to vote at the original meeting
shall be entitled to vote at any  adjournment or  adjournments  thereof unless a
new record date is fixed by the Board of Directors for the adjourned meeting.

     (b) Voting Rights. Except as otherwise provided by law or by the provisions
of the  Articles of  Incorporation,  every  shareholder  shall have the right at
every  shareholders'  meeting to one vote for each share of stock having  voting
power,  registered in the shareholder's  name on the books of the Corporation on
the date for the determination of shareholders  entitled to vote, on all matters
coming before the meeting including the election of directors. At any meeting of
shareholders,  every  shareholder  having the right to vote shall be entitled to
vote in person,  or by proxy executed by the  shareholder  or a duly  authorized
attorney in fact, in writing,  transmitted by electronic  means, or by any other
method allowed by law, and bearing a date not more than eleven (11) months prior
to its execution, unless a longer time is expressly provided therein.

     (c) Required Vote. When a quorum is present at any meeting, the vote of the
holders of a majority  of the stock  having  voting  power  present in person or
represented  by proxy shall decide any  question  brought  before such  meeting,
unless the question is one upon which, by express provision of the Act or of the
Articles of  Incorporation  or by these Bylaws,  a greater vote is required,  in
which case such express  provision shall govern and control the decision of such
question.

     Section  7.     Voting List.  The  Corporation  or its transfer agent shall
make, at least five (5) business days before each meeting of the shareholders, a
complete list of the shareholders entitled by the Articles of Incorporation,  as
now or hereafter  amended,  to notice of the meeting,  arranged in  alphabetical
order,  with the address of and number of shares held by each,  which list shall
be on file at the principal  office of the Corporation and subject to inspection
during  regular  business  hours  by any  shareholder  entitled  to  vote at the
meeting, or by the shareholder's  agent or attorney authorized in writing.  Such
list shall be available  continuing  through the meeting,  at the  Corporation's
principal  office or at a place  identified  in the  meeting  notice in the city
where the meeting will be held.

                                                                         Page 37

<PAGE>

     Section 8.     Fixing of Record Date to Determine  Shareholders Entitled to
Vote. The Board of Directors may fix a record date,  not exceeding  seventy (70)
days prior to the date of any  meeting of the  shareholders,  for the purpose of
determining the  shareholders  entitled to notice of and to vote at the meeting.
In the  absence  of  action by the Board of  Directors  fixing a record  date as
herein  provided,  the record date shall be the sixtieth (60th) day prior to the
date of the  meeting.  A new  record  date  must be  fixed if a  meeting  of the
shareholders  is  adjourned  to a date more than one hundred  twenty  (120) days
after the date fixed for the original meeting.

     Section  9.     Nominations  for  Director.  The  Nominating and Governance
Committee of the Board of Directors shall have the responsibility for nominating
individuals  to serve as members of the Board of Directors,  including the slate
of Directors to be elected each year at the annual meeting of  shareholders.  In
so doing,  the  Committee  shall  maintain  up-to-date  criteria  for  selecting
Directors and a process for  identifying  and evaluating  prospective  nominees.
Shareholders  may suggest a candidate  for  consideration  by the Committee as a
Director  nominee by  submitting  the  suggestion  in writing and  delivering or
mailing it to the Secretary of the  Corporation at the  Corporation's  principal
office.  Suggestions for nominees from shareholders must include:  (a) the name,
address and number of the Corporation's shares owned by the shareholder; (b) the
name, address,  age and principal  occupation of the suggested nominee; (c) such
other  information  concerning the suggested nominee as the shareholder may wish
to submit or the Committee may reasonably request.  The Committee shall evaluate
suggestions  for  nominees  from  shareholders  in  the  same  manner  as  other
candidates.

Any  nominations  for election as Directors at any annual or special  meeting of
shareholders  not made in accordance with this Section may be disregarded by the
Chairman of the meeting, in the Chairman's discretion;  and, upon the Chairman's
instructions,  the vote tellers or inspectors of shareholder votes may disregard
all votes cast for each such nominee.

                                    ARTICLE V

                               Board of Directors

     Section  1.     Election,  Number  and Term of  Office.  The  business  and
affairs of the Corporation shall be managed in accordance with the Act under the
direction of a Board  consisting of eleven (11) Directors,  to be elected by the
holders of the shares of stock  entitled  by the  Articles of  Incorporation  to
elect  Directors.  The number of  Directors  may be changed by amendment of this
Section by a two-thirds (2/3) vote of the Board of Directors.

     The  Directors  shall be divided  into three (3) classes as nearly equal in
number as  possible,  all  Directors  to serve  three (3) year  terms  except as
provided in the third  paragraph of this Section.  One class shall be elected at
each annual meeting of the  shareholders,  by the holders of the shares of stock
entitled by the Articles of Incorporation to elect Directors.  Unless the number
of Directors is changed by amendment of this  Section,  Class I shall have three
(3)  Directors,  and Classes II and III shall each have four (4)  Directors.  No
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director.

                                                                         Page 38
<PAGE>

     No person  shall serve as a Director  subsequent  to the annual  meeting of
shareholders following the end of the calendar year in which such person attains
the age of seventy  (70) years.  The term of a Director  shall  expire as of the
annual meeting following which the Director is no longer eligible to serve under
the  provisions  of this  paragraph,  even if fewer  than  three (3) years  have
elapsed since the commencement of the Director's term.

     Except in the case of earlier resignation,  removal or death, all Directors
shall hold office until their respective successors are chosen and qualified.

     The  provisions of this Section of the Bylaws may not be changed or amended
except by a two-thirds (2/3) vote of the Board of Directors.

     Section 2.     Vacancies.  Any  vacancy occurring in the Board of Directors
caused by resignation,  death or other incapacity,  or an increase in the number
of Directors, shall be filled by a majority vote of the remaining members of the
Board of Directors, until the next annual meeting of the shareholders, or at the
discretion  of the Board of  Directors,  such vacancy may be filled by a vote of
the shareholders at a special meeting called for that purpose.

     Section  3.     Annual Meeting of Directors.  The Board of Directors  shall
meet each year immediately after the annual meeting of the shareholders,  at the
place where such  meeting of the  shareholders  has been held  either  within or
without  the State of  Indiana,  for the  purpose of  organization,  election of
officers,  and consideration of any other business that may properly come before
the meeting.  No notice of any kind to either old or new members of the Board of
Directors for such annual meeting shall be necessary.

     Section 4.     Regular Meetings. Regular meetings of the Board of Directors
shall be held at such times and  places,  either  within or without the State of
Indiana, as may be fixed by the Directors. Such regular meetings of the Board of
Directors may be held without  notice or upon such notice as may be fixed by the
Directors.

     Section 5.     Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, or by not less than a
majority of the members of the Board of Directors. Notice of the time and place,
either  within or without the State of Indiana,  of a special  meeting  shall be
delivered  personally,  telephoned,  faxed or sent by other  electronic means to
each Director at least twenty-four (24) hours, or mailed or delivered by express
private  delivery  service,  to each Director at the  Director's  usual place of
business or residence at least forty-eight (48) hours,  prior to the time of the
meeting.  Directors, in lieu of such notice, may sign a written waiver of notice
either  before the time of the  meeting,  at the  meeting or after the  meeting.
Attendance  by a Director in person at any special  meeting  shall  constitute a
waiver of notice.

                                                                         Page 39

<PAGE>

     Section 6.     Quorum. A majority of the actual number of Directors elected
and qualified,  from time to time, shall be necessary to constitute a quorum for
the transaction of any business except the filling of vacancies,  and the act of
a  majority  of the  Directors  present  at the  meeting,  at which a quorum  is
present, shall be the act of the Board of Directors, unless the act of a greater
number is  required by the Act, by the  Articles of  Incorporation,  or by these
Bylaws.  A Director,  who is present at a meeting of the Board of Directors,  at
which action on any corporate matter is taken, shall be conclusively presumed to
have  assented  to  the  action  taken,  unless  (a)  the  Director  shall  have
affirmatively  stated the  Director's  dissent at and before the  adjournment of
such  meeting (in which event the fact of such  dissent  shall be entered by the
secretary  of the meeting in the minutes of the  meeting),  or (b) the  Director
shall  forward  such  dissent  by  registered  mail  to  the  Secretary  of  the
Corporation  immediately  after the  adjournment  of the  meeting.  The right of
dissent  provided  for by either  clause  (a) or clause  (b) of the  immediately
preceding  sentence shall not be available,  in respect of any matter acted upon
at any  meeting,  to a Director who voted at the meeting in favor of such matter
and did not  change  this vote  prior to the time that the result of the vote on
such matter was announced by the chairman of such meeting.

     A member of the Board of  Directors  may  participate  in a meeting  of the
Board by means of a conference telephone or similar communications  equipment by
which all  Directors  participating  in the  meeting can  communicate  with each
other, and  participation by these means  constitutes  presence in person at the
meeting.

     Section  7.     Consent  Action  by  Directors.  Any  action  required   or
permitted  to be taken  at any  meeting  of the  Board  of  Directors  or of any
committee  thereof  may be taken  without a meeting,  if prior to such  action a
written  consent  to such  action  is  signed  by all  members  of the  Board of
Directors or such  committee,  as the case may be, and such  written  consent is
filed with the minutes of proceedings of the Board of Directors or committee.

     Section 8.     Removal. Any or all members of the Board of Directors may be
removed,  with  or  without  cause,  at a  meeting  of the  shareholders  called
expressly  for that purpose by the  affirmative  vote of the holders of not less
than two-thirds  (2/3) of the outstanding  shares of capital stock then entitled
to vote on the election of Directors,  except that if the Board of Directors, by
an  affirmative  vote of at  least  two-thirds  (2/3)  of the  entire  Board  of
Directors,  recommends  removal of a Director to the shareholders,  such removal
may be  effected  by the  affirmative  vote of the  holders  of not less  than a
majority of the outstanding shares of capital stock then entitled to vote on the
election of Directors at a meeting of  shareholders  called  expressly  for that
purpose.

     The  provisions in this Section of the Bylaws may not be changed or amended
except by a two-thirds (2/3) vote of the Board of Directors.

     Section 9.     Dividends.  The Board of Directors shall have power, subject
to any restrictions contained in the Act or in the Articles of Incorporation and
out of funds legally available  therefor,  to declare and pay dividends upon the
outstanding  capital stock of the  Corporation as and when they deem  expedient.
Before  declaring any  dividend,  there may be set aside out of any funds of the
Corporation  available for dividends  such sum or sums as the Board of Directors
from time to time in their absolute  discretion deem proper for working capital,
or as a reserve or reserves to meet  contingencies or for such other purposes as
the Board of Directors  may  determine,  and the Board of Directors may in their
absolute discretion modify or abolish any such reserve in the manner in which it
was created.

                                                                         Page 40

<PAGE>



     Section 10.     Fixing of Record Date to Determine Shareholders Entitled to
Receive  Corporate  Benefits.  The Board of Directors may fix a record date with
respect to any dividend,  including a share dividend,  or other  distribution to
the shareholders of the Corporation,  or for a determination of shareholders for
any other purpose, as a time for the determination of the shareholders  entitled
to receive  any such  dividend,  distribution  or rights;  and in such case only
shareholders  of record at the time so fixed shall be  entitled to receive  such
dividend,  rights  or  distribution.   If  no  record  date  is  fixed  for  the
determination of shareholders entitled to receive payment of a dividend, the end
of the day on which the  resolution  of the Board of  Directors  declaring  such
dividend is adopted shall be the record date for such determination.

     Section 11.     Interest  of Directors in Contracts.  Any contract or other
transaction   between  the   Corporation  and  any  corporation  in  which  this
Corporation  owns a majority  of the capital  stock shall be valid and  binding,
notwithstanding that the Directors or officers of this Corporation and the other
corporation  are identical or that some or all of the Directors or officers,  or
both, are also directors or officers of such other corporation.

     Any contract or other  transaction  between the Corporation and one or more
of its Directors or members or  employees,  or between the  Corporation  and any
firm of which one or more of its  Directors are members or employees or in which
they  are  interested,  or  between  the  Corporation  and  any  corporation  or
association  of which one or more of its  Directors are  stockholders,  members,
directors,  officers,  or  employees or in which they are  interested,  shall be
valid  for all  purposes,  notwithstanding  the  presence  of such  Director  or
Directors at the meeting of the Board of Directors of the Corporation which acts
upon, or in reference to, such contract or transaction and  notwithstanding  his
or their  participation  in such action,  if the fact of such interest  shall be
disclosed  or known to the Board of Directors  and the Board of Directors  shall
authorize,  approve  and ratify  such  contract  or  transaction  by a vote of a
majority of the Directors present,  such interested  Director or Directors to be
counted in  determining  whether a quorum is  present,  but not to be counted in
calculating  the  majority of such  quorum  necessary  to carry such vote.  This
Section shall not be construed to invalidate  any contract or other  transaction
which would  otherwise be valid under the common and  statutory  law  applicable
thereto.

     Section  12.     Committees.  The  Board of  Directors  may, by  resolution
adopted by a majority of the actual number of Directors  elected and  qualified,
from time to time,  designate from among its members an Executive  Committee and
one or more other committees.

                                                                         Page 41

<PAGE>

     During  the  intervals  between  meetings  of the Board of  Directors,  any
Executive Committee so appointed,  unless expressly provided otherwise by law or
these  Bylaws,  shall have and may  exercise  all the  authority of the Board of
Directors,  including,  but not limited to, the  authority  to issue and sell or
approve any contract to issue or sell,  securities or shares of the  Corporation
or  designate  the  terms of a series  or class of  securities  or shares of the
Corporation.  The terms which may be affixed by the Executive Committee include,
but are not limited to, the price,  dividend rate, and provisions of redemption,
a sinking fund, conversion,  voting, or preferential rights or other features of
securities or class or series of a class of shares. Such Committee may have full
power to adopt a final  resolution which sets forth these terms and to authorize
a statement of such terms to be filed with the Secretary of State. However, such
Executive  Committee  shall  not have the  authority  to  declare  dividends  or
distributions, amend the Articles of Incorporation or the Bylaws, approve a plan
of merger or  consolidation,  even if such  plan  does not  require  shareholder
approval,   reduce  earned  or  capital   surplus,   authorize  or  approve  the
reacquisition of shares unless pursuant to a general formula or method specified
by the  Board  of  Directors,  or  recommend  to the  shareholders  a  voluntary
dissolution of the Corporation or a revocation thereof.

     The Board of Directors may, in its discretion, constitute and appoint other
committees,  in addition to an Executive Committee,  to assist in the management
and control of the affairs of the Corporation,  with responsibilities and powers
appropriate to the nature of the several committees and as provided by the Board
of Directors in the resolution of appointment or in subsequent  resolutions  and
directives.  Such  committees may include,  but are not limited to, a Nominating
and Governance  Committee,  an Audit  Committee,  and a  Compensation  and Human
Resources Committee.

     No member  of any  committee  appointed  by the  Board of  Directors  shall
continue  to be a  member  thereof  after  he  ceases  to be a  Director  of the
Corporation. The calling and holding of meetings of any committee and its method
of procedure  shall be  determined by the Board of Directors or by the committee
itself, except as otherwise provided in these Bylaws. To the extent permitted by
law, a member of the Board of Directors  serving on any such committee shall not
be liable for any action  taken by such  committee  if the Director has acted in
good faith and in a manner the  Director  reasonably  believed to be in the best
interests  of the  Corporation.  A member of a committee  may  participate  in a
meeting  of  the  committee  by  means  of a  conference  telephone  or  similar
communications  equipment by which all members  participating in the meeting can
communicate  with each  other,  and  participation  by these  means  constitutes
presence in person at the meeting.

                                   ARTICLE VI

                                    Officers

     Section  1.     Principal   Officers.   The   principal   officers  of  the
Corporation  shall be a Chairman of the Board,  a Vice Chairman of the Board,  a
Chief Executive Officer, a President, one (1) or more Vice Presidents (which may
include one (1) or more Executive Vice Presidents, Senior Vice Presidents, First
Vice Presidents and/or other Vice Presidents),  a Treasurer and a Secretary. The
Corporation  may also have, at the  discretion  of the Board of Directors,  such
other subordinate officers as may be appointed in accordance with the provisions
of these  Bylaws.  The Board of Directors  may,  from time to time,  designate a
chief operating  officer and a chief financial  officer from among the principal
officers of the Corporation. Any two (2) or more offices may be held by the same
person.  No person  shall be  eligible  for the office of Chairman of the Board,
Vice Chairman of the Board,  Chief  Executive  Officer or President who is not a
Director of the Corporation.

     Section 2.     Election and Term of Office.  The principal  officers of the
Corporation  shall be chosen  annually by the Board of  Directors  at the annual
meeting  thereof.  Each such  officer  shall  hold  office  until the  officer's
successor  shall have been duly  chosen and  qualified,  or until the  officer's
death,  or until the officer  shall  resign,  or shall have been  removed in the
manner hereinafter provided.

                                                                         Page 42

<PAGE>
     Section 3.     Removal.  Any principal officer may be removed,  either with
or without cause, at any time, by resolution adopted at any meeting of the Board
of  Directors  by a  majority  of the actual  number of  Directors  elected  and
qualified from time to time.

     Section 4.     Subordinate  Officers. In addition to the principal officers
enumerated in Section 1 of this Article VI, the Corporation may have one or more
Assistant Treasurers, one or more Assistant Secretaries and such other officers,
agents and employees as the Board of Directors may deem necessary,  each to hold
office for such period,  to have such  authority,  and to perform such duties as
the Chief  Executive  Officer  or the Board of  Directors  may from time to time
determine.  The Board of  Directors  may delegate to any  principal  officer the
power  to  appoint  and to  remove,  either  with or  without  cause,  any  such
subordinate officers, agents or employees.

     Section 5.      Resignations.  Any officer may resign at any time by giving
written  notice to the Chairman of the Board of Directors,  the Chief  Executive
Officer, the President, or the Secretary. Any such resignation shall take effect
upon receipt of such notice or at any later time specified therein,  and, unless
otherwise  specified  therein,  the acceptance of such resignation  shall not be
necessary to make it effective.

     Section  6.     Vacancies.  Any  vacancy in any office for any cause may be
filled for the unexpired  portion of the term in the manner  prescribed in these
Bylaws for election or appointment to such office for such term.

     Section  7.     Chairman  of  the Board.  The  Chairman  of the Board shall
preside at all  meetings  of  shareholders  and at all  meetings of the Board of
Directors.  The  Chairman of the Board shall  perform such other duties and have
such  other  powers  as,  from  time to time,  may be  assigned  by the Board of
Directors.

     Section  8.     Vice Chairman of the Board.  The Vice Chairman of the Board
shall act in the absence of the Chairman of the Board.  The Vice Chairman of the
Board shall  perform  such other duties and have such other powers as, from time
to time, may be assigned by the Board of Directors.

     Section  9.     Chief  Executive  Officer.  The  Chief  Executive  Officer,
subject  to  the  control  of  the  Board  of  Directors,   shall  have  overall
responsibility for the affairs of the Corporation,  including responsibility for
developing  and  attaining  major  corporate  goals  and  implementing  policies
approved by the Board. In general, the Chief Executive Officer shall perform the
duties and exercise the powers incident to the office of Chief Executive Officer
and all such other  duties and powers as, from time to time,  may be assigned by
the Board of  Directors.  In the absence or  disability  of the  Chairman of the
Board and Vice Chairman of the Board, the Chief Executive  Officer shall preside
at all  meetings of the  shareholders  and the Board of  Directors  at which the
Chief Executive Officer is in attendance.

     Section  10.     President.  The  President  shall  perform  the duties and
exercise  the  powers  incident  to the office of  President  and all such other
duties  and  powers  as,  from  time to time,  may be  assigned  by the Board of
Directors or the Chief Executive  Officer.  Subject to the control and direction
of the Board of Directors  and the Chief  Executive  Officer,  the President may
enter into,  execute and deliver any  agreement,  instrument  or document in the
name and on behalf of the Corporation.

                                                                         Page 43

<PAGE>

     Section  11.     Vice  Presidents.  The  Corporation  shall  have such Vice
Presidents as the Board of Directors shall determine,  which may include one (1)
or more Executive Vice Presidents, Senior Vice Presidents, First Vice Presidents
and/or other Vice Presidents.  The Board of Directors shall designate one of the
Vice  Presidents (an Executive  Vice  President,  if one has been  appointed) to
perform the duties and  exercise  the powers of the  President in the absence or
disability of the President.  The Vice Presidents  shall perform such duties and
have such powers as the Chief Executive Officer, the President,  or the Board of
Directors may from time to time assign.

     Section 12.     Treasurer.  The Treasurer shall have charge and custody of,
and be responsible  for, all funds and securities of the  Corporation  and shall
deposit  all such  funds in the name of the  Corporation  in such banks or other
depositories as shall be selected by the Board of Directors. The Treasurer shall
upon request exhibit at all reasonable  times the  Treasurer's  books of account
and records to any of the Directors of the Corporation  during business hours at
the office of the Corporation  where such books and records shall be kept; shall
render upon request by the Board of  Directors a statement  of the  condition of
the finances of the  Corporation  at any meeting of the Board of Directors or at
the annual meeting of the  shareholders;  shall  receive,  and give receipt for,
moneys due and payable to the  Corporation  from any source  whatsoever;  and in
general,  shall perform all duties  incident to the office of Treasurer and such
other duties as from time to time may be assigned to the  Treasurer by the Chief
Executive Officer, the President, or the Board of Directors. The Treasurer shall
give such bond, if any, for the faithful  discharge of the Treasurer's duties as
the Board of Directors may require.  All acts affecting the  Treasurer's  duties
and  responsibilities  shall  be  subject  to the  review  and  approval  of the
Corporation's chief financial officer.

     Section 13.     Secretary.  The Secretary shall keep or cause to be kept in
the  books  provided  for  that  purpose  the  minutes  of the  meetings  of the
shareholders  and of the  Board of  Directors;  shall  duly  give and  serve all
notices  required to be given in accordance  with the provisions of these Bylaws
and by the  Act;  shall  be  custodian  of the  records  and of the  seal of the
Corporation and see that the seal is affixed to all documents,  the execution of
which  on  behalf  of the  Corporation  under  its  seal is duly  authorized  in
accordance with the provisions of these Bylaws;  and, in general,  shall perform
all duties  incident to the office of  Secretary  and such other  duties as may,
from time to time, be assigned to the Secretary by the Chief Executive  Officer,
the President, or the Board of Directors.

     Section 14.     Voting Corporation's  Securities.  Unless otherwise ordered
by the Board of  Directors,  the  Chairman  of the  Board,  the Chief  Executive
Officer,  the  President  and the  Secretary,  and each of them,  are  appointed
attorneys and agents of the Corporation, and shall have full power and authority
in the name and on behalf of the Corporation, to attend, to act, and to vote all
stock or other  securities  entitled  to be voted at any  meetings  of  security
holders of  corporations,  or  associations  in which the  Corporation  may hold
securities,  in person or by proxy,  as a stockholder or otherwise,  and at such
meetings  shall possess and may exercise any and all rights and powers  incident
to the  ownership  of such  securities,  and  which  as the  owner  thereof  the
Corporation  might have  possessed and exercised,  if present,  or to consent in
writing to any action by any such other corporation or association. The Board of
Directors by resolution  from time to time may confer like powers upon any other
person or persons.

                                                                         Page 44
<PAGE>

                                   ARTICLE VII

                                 Indemnification

     Section  1.     Indemnification  of  Directors,  Officers,  Employees   and
Agents.  Every  person who is or was a Director,  officer,  employee or agent of
this  Corporation  or of any other  corporation  for which such person is or was
serving in any capacity at the request of this Corporation  shall be indemnified
by this  Corporation  against any and all liability and expense that such person
may incur in  connection  with or  resulting  from or arising  out of any claim,
action, suit or proceeding,  provided that such person is wholly successful with
respect thereto or acted in good faith in what such person  reasonably  believed
to be in or not opposed to the best interest of this  Corporation  or such other
corporation,  as the case may be, and, in addition,  in any  criminal  action or
proceeding in which such person had no  reasonable  cause to believe that his or
her conduct was unlawful.  As used herein,  "claim,  action, suit or proceeding"
shall include any claim,  action,  suit or proceeding  (whether brought by or in
the right of this  Corporation or such other  corporation or otherwise),  civil,
criminal,  administrative or  investigative,  whether actual or threatened or in
connection  with an  appeal  relating  thereto,  in which a  Director,  officer,
employee  or  agent  of this  Corporation  may  become  involved,  as a party or
otherwise,

         (i)      by reason of such person's being or having been a Director,
                  officer, employee, or agent of this Corporation or such other
                  corporation or arising out of his or her status as such or

         (ii)     by reason of any past or future action taken or not taken by
                  such person in any such capacity, whether or not such person
                  continues to be such at the time such liability or expense is
                  incurred.

     The terms "liability" and "expense" shall include, but shall not be limited
to, attorneys' fees and disbursements, amounts of judgments, fines or penalties,
and amounts paid in settlement by or on behalf of a Director, officer, employee,
or agent,  but shall not in any event  include  any  liability  or  expenses  on
account of profits realized by such person in the purchase or sale of securities
of the  Corporation  in  violation  of the law.  The  termination  of any claim,
action,  suit or proceeding,  by judgment,  settlement  (whether with or without
court approval) or conviction or upon a plea of guilty or of nolo contendere, or
its  equivalent,  shall  not  create a  presumption  that a  Director,  officer,
employee,  or agent  did not meet the  standards  of  conduct  set forth in this
paragraph.

     Any  such  Director,  officer,  employee,  or  agent  who has  been  wholly
successful with respect to any such claim,  action,  suit or proceeding shall be
entitled  to  indemnification  as a matter of right.  Except as  provided in the
preceding sentence, any indemnification hereunder shall be made only if

                                                                         Page 45

<PAGE>

         (i)      the Board of Directors acting by a quorum consisting of
                  Directors who are not parties to or who have been wholly
                  successful with respect to such claim, action, suit or
                  proceeding shall find that the Director, officer, employee, or
                  agent has met the standards of conduct set forth in the
                  preceding paragraph; or

         (ii)     independent legal counsel shall deliver to the Corporation
                  their written opinion that such Director, officer, employee,
                  or agent has met such standards of conduct.

     If several  claims,  issues or matters  of action  are  involved,  any such
person may be entitled to  indemnification  as to some matters even though he is
not entitled as to other matters.

     The Corporation may advance expenses to or, where  appropriate,  may at its
expense undertake the defense of any such Director,  officer, employee, or agent
upon  receipt  of an  undertaking  by or on behalf of such  person to repay such
expenses if it should  ultimately be determined that such person is not entitled
to indemnification hereunder.

     The  provisions of this Section  shall be  applicable  to claims,  actions,
suits or  proceedings  made or  commenced  after the  adoption  hereof,  whether
arising  from acts or  omissions  to act  during,  before or after the  adoption
hereof.

     The rights of  indemnification  provided  hereunder shall be in addition to
any rights to which any person  concerned  may otherwise be entitled by contract
or as a matter of law and shall inure to the benefit of the heirs, executors and
administrators of any such person.

     The Corporation may purchase and maintain insurance on behalf of any person
who is or was a Director, officer, employee or agent of the Corporation or is or
was serving at the request of the Corporation as a director,  officer,  employee
or agent of another  corporation  against any  liability  asserted  against such
person and  incurred by such person in any capacity or arising out of his or her
status as such, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of this
Section or otherwise.

                                  ARTICLE VIII

                                   Amendments

     Except as expressly  provided  herein or in the Articles of  Incorporation,
the Board of  Directors  may make,  alter,  amend or repeal  these  Bylaws by an
affirmative  vote of a majority of the actual  number of  Directors  elected and
qualified.

                                                                         Page 46
<PAGE>

                                  EXHIBIT-31.1

                           FIRST MERCHANTS CORPORATION

                                   FORM 10-Q
                           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, 2007                  by /s/ Michael C. Rechin
                                           -------------------------------------
                                           Michael C. Rechin
                                           President and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

                                                                         Page 47
<PAGE>
                                  EXHIBIT-31.2

                           FIRST MERCHANTS CORPORATION

                                   FORM 10-Q
                           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, 2007              by: /s/Mark K. Hardwick
                                        ----------------------------------------
                                           Mark K. Hardwick
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)

                                                                         Page 48
<PAGE>

                                  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, 2007 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, 2007                  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, 2007 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, 2007                  by /s/ Mark K. Hardwick
     ---------------------------           -------------------------------------
                                           Mark K. Hardwick
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial 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.

                                                                         Page 49