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 June 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 July 27,  2007,  there were 18,434,596 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.........................19

 Item 3.          Quantitative and Qualitative Disclosures About
                  Market Risk.................................................29

 Item 4.          Controls and Procedures.....................................29

PART II. Other Information:

 Item 1.          Legal Proceedings...........................................30

 Item 1.A.        Risk Factors................................................30

 Item 2.          Unregistered Sales of Equity
                  Securities and Use of Proceeds..............................30

 Item 3.          Defaults Upon Senior Securities.............................30

 Item 4.          Submission of Matters to a Vote of Security Holders.........30

 Item 5.          Other Information...........................................30

 Item 6.          Exhibits....................................................31

 Signatures...................................................................32

 Index to Exhibits............................................................33


                                                                          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)
<TABLE>

                                                                      June 30,    December 31,
                                                                        2007          2006
                                                                   ------------   ------------
                                                                    (Unaudited)
  <S>                                                               <C>            <C>
  ASSETS:
  Cash and due from banks .......................................   $    80,921    $    89,957
  Interest-bearing deposits......................................         8,898         11,284
  Investment securities available for sale ......................       470,388        455,933
  Investment securities held to maturity ........................         8,893          9,284
  Mortgage loans held for sale...................................         2,842          5,413
  Loans, net of allowance for loan losses of $27,608 and $26,540.     2,778,460      2,666,061
  Premises and equipment ........................................        44,126         42,393
  Federal Reserve and Federal Home Loan Bank stock...............        23,822         23,691
  Interest receivable ...........................................        21,615         24,345
  Core deposit intangibles ......................................        13,888         15,470
  Goodwill ......................................................       123,168        123,168
  Cash surrender value of life insurance.........................        69,111         64,213
  Other assets ..................................................        23,383         23,658
                                                                    -----------    -----------
      Total assets ..............................................   $ 3,669,515    $ 3,554,870
                                                                    ===========    ===========
  LIABILITIES:
  Deposits:
    Noninterest-bearing .........................................   $   362,083    $   362,058
    Interest-bearing ............................................     2,357,518      2,388,480
                                                                    -----------    -----------
      Total deposits ............................................     2,719,601      2,750,538
  Borrowings:
    Federal funds purchased .....................................       125,650         56,150
    Securities sold under repurchase agreements .................        91,038         42,750
    Federal Home Loan Bank Advances .............................       268,680        242,408
    Subordinated debentures, revolving credit lines
      and term loans ............................................       102,206         99,456
                                                                    -----------    -----------
      Total borrowings ..........................................       587,574        440,764
  Interest payable ..............................................        10,417          9,326
  Other liabilities..............................................        24,543         26,917
                                                                    -----------    -----------
      Total liabilities .........................................     3,342,135      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 - 18,285,359 and 18,439,843 shares....         2,286          2,305
  Additional paid-in capital ....................................       143,317        146,460
  Retained earnings .............................................       193,460        187,965
  Accumulated other comprehensive loss ..........................       (11,683)        (9,405)
                                                                    -----------    -----------
      Total stockholders' equity ................................       327,380        327,325
                                                                    -----------    -----------
      Total liabilities and stockholders' equity ................   $ 3,669,515    $ 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       Six Months Ended
                                                                         June 30,                June 30,
                                                                    2007        2006          2007         2006
<S>                                                               <C>          <C>         <C>          <C>
Interest Income:
  Loans receivable
    Taxable ...................................................   $51,204     $45,658      $100,849     $ 88,737
    Tax exempt ................................................       249         231           450          399
  Investment securities
    Taxable ...................................................     3,394       3,082         6,676        5,808
    Tax exempt ................................................     1,651       1,613         3,312        3,260
  Federal funds sold ..........................................        91          11            92           28
  Deposits with financial institutions ........................       120         132           243          246
  Federal Reserve and Federal Home Loan Bank stock ............       299         320           627          631
                                                                  -------     -------      --------     --------
    Total interest income .....................................    57,008      51,047       112,249       99,109
                                                                  -------     -------      --------     --------
Interest expense:
  Deposits ....................................................    22,390      16,914        44,196       31,333
  Borrowings ..................................................     7,003       6,367        13,363       12,421
                                                                  -------     -------       -------      -------
    Total interest expense ....................................    29,393      23,281        57,559       43,754
                                                                  -------     -------       -------      -------
Net Interest Income ...........................................    27,615      27,766        54,690       55,355
Provision for loan losses .....................................     1,648       1,729         3,247        3,455
                                                                  -------     -------       -------      -------
Net Interest Income After Provision for Loan Losses ...........    25,967      26,037        51,443       51,900
                                                                  -------     -------       -------      -------
Other Income:
  Net realized loss on sales of available-for-sale securities..                    (9)           (1)
  Other income ................................................     9,766       8,420        19,571       17,008
                                                                  -------     -------       -------      -------
Total other income ............................................     9,766       8,411        19,570       17,008
                                                                  -------     -------       -------      -------
Other expenses:
  Salaries and benefits .......................................    14,796      13,543        29,522       27,935
  Write-off of unamortized underwriting expenses ..............     1,771                     1,771
  Other expenses ..............................................    11,172      10,351        20,640       19,747
                                                                  -------     -------       -------      -------
Total other expenses ..........................................    27,739      23,894        51,933       47,682
                                                                  -------     -------       -------      -------
Income before income tax ......................................     7,994      10,554        19,080       21,226
Income tax expense ............................................     1,786       3,263         5,101        6,426
                                                                  -------     -------       -------      -------
Net Income ....................................................   $ 6,208     $ 7,291       $13,979      $14,800
                                                                  =======     =======       =======      =======

Per share:

    Basic .....................................................   $   .34     $   .39       $  .76       $  .80
    Diluted ...................................................       .34         .39          .76          .80
    Dividends .................................................       .23         .23          .46          .46

</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        Six Months Ended
                                                                                         June 30                  June 30
                                                                                 ----------------------    ---------------------
                                                                                    2007         2006        2007         2006
                                                                                 ---------    ---------    ---------    --------
<S>                                                                              <C>          <C>          <C>          <C>
Net Income...................................................................... $  6,208     $  7,291     $13,979      $14,800

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 $1,493, $1,631, $1,195 and $2,035 ..................   (2,773)      (2,446)     (2,220)      (3,052)

  Unrealized losses on cash flow hedge assets:
    Unrealized losses arising during the period, net of
      income tax benefit of $221, $0, $179 and $0 ..............................     (331)                    (269)

  Unrealized gain on pension minumum funding liability:
    Unrealized loss arising during the period, net of
      income tax expense of $(140), $0, $(140) and $0 ..........................      210                      210

Reclassification adjustment for losses included in net
  income, net of income tax expense of $0, $(4), $0 and $0 .....................                     5           1

                                                                                 ---------    ---------    ---------    --------
                                                                                   (2,894)      (2,441)     (2,278)      (3,052)
                                                                                 ---------    ---------    ---------    --------
Comprehensive income ........................................................... $  3,314     $  4,850     $11,701      $11,748
                                                                                 =========    =========    =========    ========
</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 .....................................................      13,979       14,800

Cash dividends on common stock .................................      (8,435)      (8,449)

Cash dividends on restricted stock awards ......................         (48)         (26)

Other comprehensive loss, net of tax............................      (2,278)      (3,052)

Stock issued under dividend reinvestment and stock purchase plan         593          592

Stock options exercised ........................................         370          755

Tax benefit from stock options exercised .......................          89           78

Stock redeemed .................................................      (4,956)      (5,442)

Share-based compensation .......................................         741          352
                                                                   ---------    ---------

Balances, June 30 ..............................................   $ 327,380    $ 313,004
                                                                   =========    =========

</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>

                                                                                               Six Months Ended
                                                                                                   June 30,
                                                                                      ----------------------------------
                                                                                            2007              2006
                                                                                      ----------------  ----------------
<S>                                                                                   <C>               <C>
Cash Flows From Operating Activities:
  Net income........................................................................  $       13,979    $       14,800
  Adjustments to reconcile net income to net cash provided by operating activities
    Provision for loan losses.......................................................           3,247             3,455
    Depreciation and amortization...................................................           2,357             5,297
    Share-based compensation........................................................             741               352
    Tax benefits from stock options exercised.......................................             (89)              (78)
    Mortgage loans originated for sale..............................................         (58,085)          (57,443)
    Proceeds from sales of mortgage loans...........................................          60,656            57,014
    Change in interest receivable...................................................           2,730               151
    Change in interest payable......................................................           1,091             1,053
    Other adjustments...............................................................            (117)           (1,225)
                                                                                      ---------------   ---------------
      Net cash provided by operating activities.....................................  $       26,510    $       23,376
                                                                                      ---------------   ---------------


Cash Flows From Investing Activities:
  Net change in interest-bearing deposits...........................................  $        2,386    $          219
  Purchases of
    Securities available for sale...................................................         (49,694)          (66,531)
  Proceeds from maturities of
    Securities available for sale...................................................          31,252            27,786
    Securities held to maturity.....................................................             390             1,027
  Purchase of Federal Reserve and
    Federal Home Loan Bank Stock....................................................            (131)             (689)
  Purchase of bank owned life insurance ............................................          (3,500)
  Net change in loans...............................................................        (115,646)         (136,772)
  Other adjustments.................................................................          (4,090)           (7,002)
                                                                                      ---------------   ---------------
      Net cash used by investing activities.........................................  $     (139,033)   $     (181,962)
                                                                                      ---------------   ---------------

Cash Flows From Financing Activities:
  Net change in
    Demand and savings deposits.....................................................  $      (40,530)   $       11,876
    Certificates of deposit and other time deposits.................................           9,593           140,948
  Borrowings........................................................................         192,048           119,306
  Repayment of borrowings...........................................................         (45,237)         (100,194)
  Cash dividends on common stock....................................................          (8,435)           (8,449)
  Cash dividends on restricted stock awards.........................................             (48)              (26)
  Stock issued under dividend reinvestment and stock purchase plans.................             593               592
  Stock options exercised...........................................................             370               755
  Tax benefit from stock options exercised..........................................              89                78
  Stock redeemed....................................................................          (4,956)           (5,442)
                                                                                      ---------------   ---------------
      Net cash provided by financing activities.....................................         103,487           159,444
                                                                                      ---------------   ---------------
Net Change in Cash and Cash Equivalents.............................................          (9,036)              858
Cash and Cash Equivalents, January 1................................................          89,957            70,417
                                                                                      ---------------   ---------------
Cash and Cash Equivalents, June 30..................................................  $       80,921    $       71,275
                                                                                      ===============   ===============

Additional cash flows information:
  Interest paid ....................................................................  $       58,239   $        42,701
  Income tax paid ..................................................................           6,939             7,235

</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 six months ended June 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 and, therefore, any unvested shares are forfeited.

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 six  months  ended  June 30,  2007
totaled $490,000 and $741,000,  respectively,  compared to $158,000 and $352,000
for the three and six months  ended June 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 six months ended June 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               Six Months Ended
                                                                           June 30,     June 30,           June 30,     June 30,
                                                                             2007         2006               2007         2006
                                                                         -----------  -----------        -----------  -----------
<S>                                                                        <C>          <C>                <C>          <C>
      Stock and ESPP Options:
           Pre-tax compensation expense ..............................   $      174   $      116         $      292   $      252

           Income tax benefit ........................................           (9)          (8)               (15)         (20)
                                                                         ----------   ----------         ----------   ----------
      Stock and ESPP option expense, net of income taxes .............   $      165   $      108         $      277   $      232
                                                                         ==========   ==========         ==========   ==========

      Restricted Stock Awards:
           Pre-tax compensation expense ..............................   $      316   $       42         $      449   $      100

           Income tax benefit ........................................         (110)         (37)              (157)         (58)
                                                                         ----------   ----------         ----------   ----------
      Restricted stock awards expense, net of income taxes ...........   $      206   $        5         $      292   $       42
                                                                         ==========   ==========         ==========   ==========

      Total Share-Based Compensation:
           Pre-tax compensation expense ..............................   $      490   $      158         $      741   $      352

           Income tax benefit ........................................         (119)         (45)              (172)         (78)
                                                                         ----------   ----------         ----------   ----------
      Total share-based compensation expense, net of income taxes ....   $      371   $      113         $      569   $      274
                                                                         ==========   ==========         ==========   ==========
</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 June 30, 2007, unrecognized compensation expense related to stock options,
and RSAs  totaling  $408,000  and  $1,676,000,  respectively,  is expected to be
recognized over weighted-average periods of 1.05 and 2.15 years, respectively.

Stock option activity under the Corporation's  stock option plans as of June 30,
2007 and changes during the six months ended June 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 .........................................     65,550             26.31
  Exercised .......................................    (24,098)            18.14
  Cancelled .......................................    (14,689)            25.74
                                                     ----------
  Outstanding at June 30, 2007 ....................  1,094,010       $     24.12           5.63     $1,347,078
                                                     ==========
  Vested and Expected to Vest at June 30, 2007 ....  1,081,482       $     24.10           5.59     $1,347,078
  Exercisable at June 30, 2007 ....................    964,460       $     23.90           5.17     $1,347,078

</TABLE>

The   weighted-average   grant  date  fair  value,   as  calculated   using  the
Black-Scholes  option pricing model,  was $6.45 for stock options granted during
the six months ended June 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 six 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
June 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 six
months of 2007 was  $163,000.  Exercise  of  options  during  this  same  period
resulted in cash receipts of $288,000.  The Corporation recognized a tax benefit
of  approximately  $89,000  in the first  six  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 June 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 ......................................     54,925             26.26
  Forfeited ....................................     (2,900)            25.70
  Vested .......................................     (6,566)            25.50
                                                  ----------
  Unvested RSAs at June 30, 2007 ...............    100,459        $    27.18
                                                  ==========

</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, 2006 offering period and approximates  $198,000.  The ESPP options vests
during the twelve month period  ending June 30,  2007.

<TABLE>
NOTE 3.  Investment Securities
                                                          Gross       Gross
                                             Amortized  Unrealized  Unrealized    Fair
                                                Cost       Gains      Losses     Value
<S>                                          <C>         <C>        <C>        <C>
Available for sale at June 30, 2007
  U.S. Treasury ........................     $  1,502    $               (5)  $  1,497
  U.S. Government-sponsored
    agency securities...................       84,660               $(1,166)    83,494
  State and municipal ..................      165,294      1,052     (1,378)   164,968
  Mortgage-backed securities ...........      208,291         75     (5,462)   202,904
  Corporate Obligations ................       11,796                   (57)    11,739
  Marketable equity securities..........        6,063                  (277)     5,786
                                             --------   --------   --------   --------
      Total available for sale .........      477,606      1,127     (8,345)   470,388
                                             --------   --------   --------   --------


Held to maturity at June 30, 2007
  State and municipal...................        8,877        215       (344)     8,748
  Mortgage-backed securities............           16                               16
                                             --------   --------   --------   --------
      Total held to maturity ...........        8,893        215       (344)     8,764
                                             --------   --------   --------   --------
      Total investment securities ......     $486,499   $  1,342   $ (8,689)  $479,152
                                             ========   ========   ========   ========
</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>
                                                                                     June 30,     December 31,
                                                                                       2007          2006
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
Loans:
  Commercial and industrial loans ..............................................   $   590,345    $   537,305
  Agricultural production financing and other loans to farmers .................       103,713        100,098
  Real estate loans:
    Construction ...............................................................       172,247        169,491
    Commercial and farmland ....................................................       895,301        861,429
    Residential ................................................................       768,392        749,921
  Individuals' loans for household and other personal expenditures .............       206,435        223,504
  Tax-exempt loans .............................................................        23,181         14,423
  Lease financing receivables, net of unearned income...........................         7,906          8,010
  Other loans ..................................................................        38,548         28,420
                                                                                   -----------    -----------
                                                                                     2,806,068      2,692,601
  Allowance for loan losses.....................................................       (27,608)       (26,540)
                                                                                   -----------    -----------
      Total Loans...............................................................   $ 2,778,460    $ 2,666,061
                                                                                   ===========    ===========

                                                                                         Six Months Ended
                                                                                             June 30,

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

  Provision for losses .........................................................         3,247          3,455

  Recoveries on loans ..........................................................           527            620

  Loans charged off ............................................................        (2,706)        (3,379)
                                                                                   -----------    -----------
  Balances, June 30 ............................................................   $    27,608    $    25,884
                                                                                   ===========    ===========
</TABLE>

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

Non-accrual loans................................    $ 30,820       $ 17,926

Loans contractually past due 90 days
  or more other than nonaccruing.................       5,203          2,870

Restructured loans...............................          58             84
                                                     --------       --------
    Total........................................    $ 36,081       $ 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 June 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................. $    6,208        18,290,918    $     .34      $    7,291        18,385,298    $     .39
                                                                         ==========                                     ==========
Effect of dilutive stock options........                       77,595                                         77,980
                                         ----------       ------------                  ----------       ------------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions............. $    6,208        18,368,513    $     .34      $    7,291        18,463,278    $     .39
                                         ==========       ============   ==========     ==========       ============   ==========

</TABLE>
Options to purchase 714,716 and 659,659  shares for the three  months ended June
30,  2007 and 2006 were not  included  in the  earnings  per  share  calculation
because the exercise price exceeded the average market price.
<TABLE>
<CAPTION>

                                                                     Six Months Ended June 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................. $   13,979        18,350,606    $     .76      $   14,800        18,405,063    $     .80
                                                                         ==========                                     ==========
Effect of dilutive stock options........                       81,800                                         89,818
                                         ----------       ------------                  ----------       ------------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions............. $   13,979        18,432,406    $     .76      $   14,800        18,494,881    $     .80
                                         ==========       ============   ==========     ==========       ============   ==========

</TABLE>
Options to purchase 692,836 and 572,616 shares for the six months ended June 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 six months ended
June 30, 2007 and 2006.

<TABLE>
<CAPTION>
                                                                Three Months Ended             Six Months Ended
                                                                     June 30,                       June 30,
                                                                2007          2006             2007          2006
                                                           --------------------------     -------------------------
Pension Cost
------------
<S>                                                        <C>           <C>              <C>           <C>
Service cost............................................   $      123    $      131       $      247    $      262

Interest cost ..........................................          717           683            1,432         1,366

Expected return on plan assets .........................         (785)         (728)          (1,569)       (1,456)

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

Amortization of the net loss............................          104            87              208           174
                                                           ----------    ----------       ----------    ----------
      Total Pension Cost................................   $      160    $      174       $      320    $      348
                                                           ==========    ==========       ==========    ==========
</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 SEC Staff issued Staff  Accounting  Bulletin  ("SAB") No.
108,  Considering  the  Effects of Prior  Year  Misstatements  when  Quantifying
Misstatements  in Current Year  Financial  Statements,  which  addresses how the
effects  of prior  year  uncorrected  misstatements  should be  considered  when
quantifying misstatements in current year financial statements. SAB No. 108 will
require  registrants to quantify  misstatements using both the balance sheet and
income-statement  approaches and to evaluate  whether either approach results in
quantifying  an error that is  material in light of  relevant  quantitative  and
qualitative  factors.  When the effect of initial  adoption is  determined to be
material,  SAB No. 108 allows  registrants to record that effect as a cumulative
effect adjustment to beginning retained earnings. The requirements are effective
for  the  Corporation   beginning   January  1,  2007.  We  have  evaluated  the
requirements  of SAB No.  108 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,  First  Merchants  Corporation  (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 will be 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.

The Debentures were issued pursuant to an Indenture,  (the "Indenture")  between
the Corporation as issuer and Wilmington Trust Company as trustee.  The terms of
the  Debentures  are  substantially  the  same  as  the  terms  of  the  Capital
Securities.  The interest paid by Corporation on the Debentures  will be used by
the Trust to pay the quarterly distributions on the Capital Securities.

                                                                        page 17
<PAGE>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

Note 8.  Subordinated Debentures  continued

The terms of the Capital  Securities  are  governed  by an Amended and  Restated
Declaration of Trust, (the "Trust  Agreement") among the Corporation as sponsor,
Wilmington Trust Company, as institutional  trustee and Delaware trustee and the
administrators named therein.

Under the terms of the Capital Securities,  an event of default generally occurs
upon  the  Corporation's  failure  to  make  required  payments  when  due,  its
declaration  of  bankruptcy,  or breach of certain  covenants made in connection
with the issuance of the Debentures, among other things.

In connection  with the  placement of the Capital  Securities,  the  Corporation
entered into a Guarantee  Agreement with  Wilmington  Trust Company as guarantee
trustee,  (the  "Guarantee  Agreement"),  for the  purpose of  guaranteeing  the
payment,  after the expiration of any cure period,  of any amounts to be paid by
the Trust  under the terms of the Capital  Securities.  The  obligations  of the
Corporation under the Guarantee Agreement  constitute  unsecured  obligations of
the  Corporation  and rank  subordinate  and  junior to all  senior  debt of the
Corporation.  The Guarantee  Agreement  shall terminate upon the full payment of
the redemption price for the Capital Securities or full payment of the Debenture
upon liquidation of the Trust.

The placement of the Securities was conducted pursuant to a Placement Agreement,
(the "Placement Agreement"),  among the Corporation, the Trust and FTN Financial
Capital Markets and Keefe, Bruyette & Woods, Inc., as placement agents.

The preceding description is qualified in its entirety by reference to the terms
of the Trust  Agreement,  the Indenture,  the Guarantee  Agreement,  the form of
Capital  Securities  Certificate and the Placement  Agreement which are filed as
exhibits to this Form 10Q.
                                                                        page 18
<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 19
<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 six months ended
June 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 66  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  June  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.

We believe it is  important  to  maintain a well  controlled  environment  as we
continue to grow our  businesses.  Sound  credit  policies  are  maintained  and
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  June 30,  2007,  equaled  $6,208,000,
compared to  $7,291,000 in the same period of 2006.  Diluted  earnings per share
were $.34,  a decrease of 12.8  percent  from the $.39  reported for the second
quarter  2006.  Net  income  for the six months  ended  June 30,  2007,  equaled
$13,979,000,  compared to  $14,800,000  during the same period in 2006.  Diluted
earnings  per share were $.76 a 5 percent  decrease  from the $.80  reported  in
2006.  The decrease in earnings per share for the second  quarter as well as the
six months ended June 30, 2007,  is primarily a result of the $1.1 million after
tax  write-off  of the  unamortized  underwriting  fees  associated  with  First
Merchants Capital Trust I subordinated  debentures.  For further  discussion see
Note 8 in the  Notes to  Consolidated  Condensed  Financial  Statements  and the
discussion in Managements  discussion and Analysis of Financial  Condition under
the heading "NET INTEREST MARGIN".

Annualized  returns on average assets and average  stockholders'  equity for the
three  months  ended  June  30,  2007,   were  .69  percent  and  7.53  percent,
respectively,  compared with .88 percent and 9.20 percent for the same period of
2006.
                                                                         Page 20
<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.  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 7.5 percent at
June 30, 2007 and 7.4 percent at year end 2006.  In addition,  at June 30, 2007,
we had a Tier I  risk-based  capital  ratio of 9.0 percent and total  risk-based
capital ratio of 10.9 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 5.5
percent as of June 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.

                                               June 30,     December 31,
(Dollars in thousands)                           2007           2006

Average Goodwill ..........................  $   123,168    $   121,831
Average Core Deposit Intangible (CDI) .....       14,654         16,103
Average Deferred Tax on CDI ...............       (3,850)        (4,994)
                                             -----------    -----------
  Intangible Adjustment ...................  $   133,972    $   132,940
                                             ===========    ===========

Average Stockholders' Equity (GAAP Capital)  $   328,987    $   319,519
Intangible Adjustment .....................     (133,972)      (132,940)
                                             -----------    -----------
  Average Tangible Capital ................  $   195,015    $   186,579
                                             ===========    ===========

Average Assets ............................  $ 3,561,773    $ 3,371,386
Intangible Adjustment .....................     (133,972)      (132,940)
                                             -----------    -----------
  Average Tangible Assets .................  $ 3,427,801    $ 3,328,446
                                             ===========    ===========

Net Income ................................  $    13,979    $    30,198
CDI Amortization, net of tax ..............          960          1,920
                                             -----------    -----------
  Tangible Net Income .....................  $    14,939    $    32,118
                                             ===========    ===========

Diluted Earnings per Share ................  $       .76    $      1.64
Diluted Tangible Earnings per Share .......  $       .81    $      1.75

Return on Average GAAP Capital ............         8.50%          9.45%
Return on Average Tangible Capital ........        15.32%         17.21%

Return on Average Assets ..................          .78%           .90%
Return on Average Tangible Assets .........          .87%           .99%

                                                                         Page 21
<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 June 30,  2007,  non-performing  loans  totaled  $36,081,000,  an increase of
$15,201,000  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.  An  increase  of $6.4  million  in the  first  quarter  of 2007 was
primarily due to three loan  relationships.  Two of these loans are well secured
by commercial real estate and the other is well secured by residential property.
The increase of $8.8 million in the second  quarter of 2007 was primarily due to
two loan relationships  secured  by real estate developments, one commercial and
one residential.

At June 30, 2007, impaired loans totaled $80,128,000, an increase of $19,808,000
from  December 31,  2006.  At June 30,  2007,  an  allowance  for losses was not
deemed  necessary for impaired loans totaling  $54,317,000,  but an allowance of
$6,003,000  was  recorded  for  the  remaining  balance  of  impaired  loans  of
$25,811,000 and is included in our allowance for loan losses.

At June 30, 2007, the allowance for loan losses was $27,608,000,  an increase of
$1,068,000  from year end 2006.  As a percent of loans,  the  allowance  was .98
percent at June 30, 2007 and .99 percent at December 31, 2006.

The provision for loan losses for the first six months of 2007 was $3,247,000, a
decrease of $208,000 from $3,455,000 for the same period in 2006.
                                                                         Page 22

<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 June 30, 2007, total borrowings from the FHLB were $268,680,000. Our
bank subsidiaries have pledged certain mortgage loans and certain investments to
the FHLB. The total available remaining borrowing capacity from the FHLB at June
30, 2007, was  $74,828,000.  At June 30, 2007, the revolving line of credit with
LaSalle  Bank,  N.A.  had a balance of  $13,250,000  and a  remaining  borrowing
capacity of $6,750,000.

The  principal  source  of  asset-funded   liquidity  is  investment  securities
classified   as   available-for-sale,   the  market   values  of  which  totaled
$470,388,000  at June 30, 2007, an increase of  $14,255,000  or 3.2 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
$135,000 at June 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 June 30, 2007 are as follows:

                                                                  At June 30,
(Dollars in thousands)                                               2007
================================================================================
Amounts of commitments:
Loan commitments to extend credit ............................... $  698,048
Standby letters of credit .......................................     23,101
                                                                  ----------
                                                                  $  721,149
                                                                  ==========

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 June 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 .........   $    966   $  1,671   $  1,338   $  1,154   $    965   $    752   $  6,846
Borrowings ...............    308,015     75,233     27,358     46,108     18,949    111,911    587,574
                             --------   --------   --------   --------   --------   --------   --------
Total ....................   $308,981   $ 76,904   $ 28,696   $ 47,262   $ 19,914   $112,663   $594,420
                             ========   ========   ========   ========   ========   ========   ========
</TABLE>
                                                                         Page 23
<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  June 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 24
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

The comparative  rising and falling  scenarios for the period ended May 31, 2008
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
for the period ended May 31, 2008 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 May 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                         $112,123  $106,430   $119,651

Variance from base                                    $ (5,693)  $  7,528

Percent of change from base                              (5.10)%     6.70%

The comparative  rising and falling  scenarios for the period ended December 31,
2007 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
for the period ended December 31, 2007 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 25
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

EARNING ASSETS

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

Earning assets  increased by $123,000,000 in the six months ended June 30, 2007.
Loans increased by $111,000,000  and investments  increased by $14,000,000.  The
three largest loan increases  include  commercial and industrial of $53,000,000,
commercial  real estate  loans of  $34,000,000  and  residential  real estate of
$16,000,000.

<TABLE>

----------------------------------------------------------------------------------------------------
EARNING ASSETS
(Dollars in thousands)                                           June 30,               December 31,
                                                                   2007                     2006
----------------------------------------------------------------------------------------------------
<S>                                                            <C>                     <C>
Interest-bearing time deposits ......................             $ 8,898                  $11,284

Investment securities available for sale ............             470,388                  455,933

Investment securities held to maturity ..............               8,893                    9,284

Mortgage loans held for sale ........................               2,842                    5,413

Loans ...............................................           2,806,068                2,692,601

Federal Reserve and Federal Home Loan Bank stock                   23,822                   23,691
                                                               ----------               ----------

                     Total ..........................          $3,320,911               $3,198,206
                                                               ==========               ==========

</TABLE>

                                                                         Page 26
<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 June 30,  2007 and
2006.

During the six months  ended June 30,  2007,  asset  yields  increased  29 basis
points (FTE) and interest  costs  increased 62 basis  points,  resulting in a 33
basis point (FTE) decrease in net interest income as compared to the same period
in 2006.

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

Annualized Net Interest Income........................  $  110,459    $  111,062    $  109,380    $  110,709

Annualized FTE Adjustment.............................  $    4,093    $    3,969    $    4,052    $    3,940

Annualized Net Interest Income
  On a Fully Taxable Equivalent Basis.................  $  114,552    $  115,031    $  113,432    $  114,649

Average Earning Assets................................  $3,275,760    $3,029,988    $3,242,966    $2,991,851

Interest Income (FTE) as a Percent
  of Average Earning Assets...........................        7.09%         6.87%         7.05%         6.76%

Interest Expense as a Percent
  of Average Earning Assets...........................        3.59%         3.07%         3.55%         2.93%

Net Interest Income (FTE) as a Percent
  of Average Earning Assets...........................        3.50%         3.80%         3.50%         3.83%


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.  During  the  quarter,  the fair  value  of the  floors
increased  by  $62,000  to  $490,000.  No  ineffectiveness  was  required  to be
recognized.  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 27
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
OTHER INCOME

Total other income in the second  quarter of 2007 was $1,355,000 or 16.1 percent
higher than the same period of 2006.

Four items primarily account for the change:

1.       Service charges in the second quarter of 2007 were $320,000 higher than
         the same period in 2006 due to mid-year fee increases in 2006.

2.       Earnings on bank-owned life insurance increased $350,000 from the same
         period in 2006 due to the purchase of $21,500,000 in additional
         policies in 2006 and 2007.

3.       Insurance commissions increased $323,000 due to the purchase of an
         insurance agency in late 2006.

4.       Trust fees increased $308,000 as a result of increased trust business.

Other income for the first six months of 2007 was $2,562,000 or 15.06 percent
higher than the same period in 2006.

Four items primarily account for the change:

1.       Service charges increased $777,000 from the same period in 2006 due to
         a mid-year fee increase in 2006.

2.       Earnings on bank-owned life insurance increased $612,000 from the same
         period in 2006 due to the purchase of $21,500,000 in additional
         policies in 2006 and 2007.

3.       Insurance commissions increased $457,000 due to the purchase of an
         insurance agency in late 2006.

4.       Trust fees increased $393,000 as a result of increased trust business.

OTHER EXPENSES

Total  other  expenses  in the  second  quarter of 2007 were  $3,845,000 or 16.1
percent higher than the same period in 2006.

Three items primarily account for the change:

1.       Salary and employee  benefit expenses were $1,071,000 higher in the
         second quarter of 2007, as compared to the same period in 2006 due to
         staff additions and normal annual increases. Approximately $332,000
         of the increase is due to increases in share-based compensation
         expense.

2.       Other expenses increased $535,000 primarily due to integration
         expenses related to bank combinations and name changes.

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

Total other  expenses  for the first six months of 2007 were  $4,251,000  or 8.9
percent higher than the same period in 2006:

Three items primarily account for the change:

1.       Salary and employee  benefit expenses were $1,249,000 higher in the
         same period in 2006 due to staff additions and normal annual increases.
         Approximately, $389,000 of the increase is due to increases in share-
         based compensation expense.

2.       Other expenses increased $601,000 primarily due to integration
         expenses related to bank combinations and name changes.

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

                                                                         Page 28
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

INCOME TAXES

Income  tax  expense,  for the six  months  ended June 30,  2007,  decreased  by
$1,325,000  from the same period in 2006.  The  effective  tax rate was 26.7 and
30.3 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 29
<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>
04/01/07 - 04/30/07               0                  0                     0                           0
05/01/07 - 05/31/07          63,010(2)          $24.17                     0                           0
06/01/07 - 06/30/07           1,417(1)          $24.05                     0                           0
</TABLE>

(1) These  shares were  purchased  in  connection  with the  exercise of certain
outstanding stock options.

(2) 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.  The
60,000 referenced shares were purchased in open market transactions  pursuant to
this authorization. There were 48,000 remaining shares that may yet be purchased
pursuant to such  authorizations as of June 30, 2007. 3,010 of these 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
------------------------------------------------------------

          a.  The Annual Meeting of Shareholders of the Corporation was held on
              April 24, 2007.

          b.  No response is required.

          c.  The following matters were voted on by shareholders:

          i)  Election of Directors - The following directors were elected for a
              term of three years.

                                          Vote Count
                              --------------------------------
                                  Vote For       Vote Against
                              ----------------  --------------
     Michael L. Cox              13,905,020       1,188,814
     Charles E. Schalliol        14,555,205         538,630
     Terry L. Walker             14,555,610         538,225

          ii) Ratification of the appointment of Independent Public Accounting
              Firm - BKD, LLP, Indianapolis, Indiana: Votes For - 14,888,856,
              Votes Against - 84,378, Votes Abstained - 120,600.

          d.  Not applicable.

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

         a.  None

         b.  None
                                                                        Page 30
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

                           PART II. OTHER INFORMATION


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

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

                 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)

                31.1            Certification of Chief               34
                                Executive Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                31.2            Certification of Chief               35
                                Financial Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                32              Certifications Pursuant to           36
                                18 U.S.C. Section 1350, as
                                Adopted Pursuant to Section
                                906 of the Sarbanes-Oxley
                                Act of 2002


                                                                         Page 31


<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: August 9, 2007                    by /s/ Michael C. Rechin
     --------------------------            -------------------------------------
                                           Michael C. Rechin
                                           President and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

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


                                                                         Page 32

<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.:
             ------------       -------------------------    -------------------

                 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)

                31.1            Certification of Chief               34
                                Executive Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                31.2            Certification of Chief               35
                                Financial Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                32              Certifications Pursuant to           36
                                18 U.S.C. Section 1350, as
                                Adopted Pursuant to Section
                                906 of the Sarbanes-Oxley
                                Act of 2002


                                                                         Page 33

<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: August 9, 2007                    by /s/ Michael C. Rechin
                                           -------------------------------------
                                           Michael C. Rechin
                                           President and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

                                                                         Page 34
<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: August 9, 2007                by: /s/Mark K. Hardwick
                                        ----------------------------------------
                                           Mark K. Hardwick
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial  and
                                           Chief Accounting Officer)

                                                                         Page 35
<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  June 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: August 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  June 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: August 9, 2007                    by /s/ Mark K. Hardwick
    ---------------------------            -------------------------------------
                                           Mark K. Hardwick
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial and
                                           Chief Accounting Officer)

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

                                                                         Page 36