FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549



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

                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended September 30, 2008

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

Large accelerated filer [ ]   Accelerated filer [X]   Non-accelerated filer [ ]
Smaller reporting company [ ]

(Do not check if smaller reporting company)

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

As of October 28, 2008, there were 18,284,882  outstanding common shares, 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.........................21

 Item 3.          Quantitative and Qualitative Disclosures About
                  Market Risk.................................................33

 Item 4.          Controls and Procedures.....................................33

PART II. Other Information:

 Item 1.          Legal Proceedings...........................................34

 Item 1.A.        Risk Factors................................................34

 Item 2.          Unregistered Sales of Equity
                  Securities and Use of Proceeds..............................34

 Item 3.          Defaults Upon Senior Securities.............................34

 Item 4.          Submission of Matters to a Vote of Security Holders.........35

 Item 5.          Other Information...........................................35

 Item 6.          Exhibits....................................................36

 Signatures...................................................................37

 Index to Exhibits............................................................38


                                                                          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>

                                                                  September 30,    December 31,
                                                                      2008             2007
                                                                  ------------    ------------
                                                                   (Unaudited)
  <S>                                                              <C>             <C>
  ASSETS:
  Cash and due from banks .......................................  $    69,846     $   134,188
  Federal funds sold ............................................        7,818             495
                                                                   -----------     -----------
  Cash and cash equivalents .....................................       77,664         134,683
  Interest-bearing deposits......................................       15,623          24,931
  Investment securities available for sale ......................      377,329         440,836
  Investment securities held to maturity ........................       11,479          10,331
  Mortgage loans held for sale...................................        2,062           3,735
  Loans, net of allowance for loan losses of $34,985 and $28,228.    3,043,783       2,848,615
  Premises and equipment ........................................       44,402          44,445
  Federal Reserve and Federal Home Loan Bank stock...............       25,494          25,250
  Interest receivable ...........................................       21,569          23,402
  Core deposit intangibles ......................................       10,841          12,412
  Goodwill ......................................................      124,860         123,444
  Cash surrender value of life insurance.........................       73,448          70,970
  Other real estate owned .......................................       16,916           2,573
  Other assets ..................................................       18,604          16,460
                                                                   -----------     -----------
      Total assets ..............................................  $ 3,864,074     $ 3,782,087
                                                                   ===========     ===========
  LIABILITIES:
  Deposits:
    Noninterest-bearing .........................................  $   384,928     $   370,397
    Interest-bearing ............................................    2,529,355       2,473,724
                                                                   -----------     -----------
      Total deposits ............................................    2,914,283       2,844,121
  Borrowings:
    Federal funds purchased .....................................       57,600          52,350
    Securities sold under repurchase agreements .................      100,227         106,497
    Federal Home Loan Bank advances .............................      237,225         294,101
    Subordinated debentures, revolving credit lines
      and term loans ............................................      176,256         115,826
                                                                   -----------     -----------
      Total borrowings ..........................................      571,308         568,774
  Interest payable ..............................................        6,529           8,325
  Other liabilities..............................................       19,861          20,931
                                                                   -----------     -----------
      Total liabilities .........................................    3,511,981       3,442,151

  COMMITMENTS AND CONTINGENT LIABILITIES

  STOCKHOLDERS' EQUITY:
  Cumulative preferred stock, $1,000 par value:
    Authorized -- 600 shares
    Issued and outstanding - 125 shares..........................          125
  Preferred stock, no-par value:
    Authorized and unissued - 500,000 shares
  Common stock, $.125 stated value:
    Authorized -- 50,000,000 shares
    Issued and outstanding - 18,125,090 and 18,002,787 shares....        2,266           2,250
  Additional paid-in capital ....................................      141,777         137,801
  Retained earnings .............................................      210,605         202,750
  Accumulated other comprehensive loss ..........................       (2,680)         (2,865)
                                                                   -----------     -----------
      Total stockholders' equity ................................      352,093         339,936
                                                                   -----------     -----------
      Total liabilities and stockholders' equity ................  $ 3,864,074     $ 3,782,087
                                                                   ===========     ===========
</TABLE>

  See notes to consolidated condensed financial statements.




                                                                          Page 3
<PAGE>



                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
                   CONSOLIDATED CONDENSED STATEMENTS OF INCOME
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                  Three Months Ended      Nine Months Ended
                                                                     September 30,          September 30,
<S>                                                               <C>          <C>          <C>          <C>
                                                                    2008        2007        2008        2007
Interest Income:
  Loans receivable
    Taxable ...................................................   $49,828     $53,081    $149,952    $153,930
    Tax exempt ................................................       321         368         664         818
  Investment securities
    Taxable ...................................................     2,943       3,581       9,139      10,257
    Tax exempt ................................................     1,379       1,613       4,344       4,925
  Federal funds sold ..........................................        10          41          21         133
  Deposits with financial institutions ........................       146         145         561         388
  Federal Reserve and Federal Home Loan Bank stock ............       351         328       1,056         955
                                                                  -------     -------     -------     -------
    Total interest income .....................................    54,978      59,157     165,737     171,406
                                                                  -------     -------     -------     -------
Interest Expense:
  Deposits ....................................................    16,213      23,327      51,943      67,523
  Fed funds purchased .........................................       502         996       1,748       2,897
  Securities sold under repurchase agreements .................       650       1,195       2,098       2,674
  Federal Home Loan Bank advances .............................     2,724       3,302       8,585       9,247
  Subordinated debentures, revolving credit lines
    and term loans ............................................     1,635       1,802       5,127       5,840
                                                                  -------     -------     -------     -------
    Total interest expense ....................................    21,724      30,622      69,501      88,181
                                                                  -------     -------     -------     -------
Net Interest Income ...........................................    33,254      28,535      96,236      83,225
Provision for loan losses .....................................     7,094       2,810      17,987       6,057
                                                                  -------     -------     -------     -------
Net Interest Income After Provision for Loan Losses ...........    26,160      25,725      78,249      77,168
                                                                  -------     -------     -------     -------
Other Income:
  Service charges on deposit accounts .........................     3,568       3,241       9,656       9,215
  Fiduciary activities ........................................     1,932       1,985       6,200       6,278
  Other customer fees .........................................     1,696       1,767       5,142       4,793
  Commission income ............................................    1,457       1,175       4,553       4,082
  Earnings on cash surrender value of life insurance ..........       519         998       1,863       2,465
  Net gains and fees on sales of loans ........................       648         749       1,959       1,892
  Net realized gains/(losses) on sales of
    available-for-sale securities .............................       185                     271
  Other than temporary impairment on investment securities.....    (1,440)                 (1,440)
  Other income ................................................       655         933       1,877       1,693
                                                                  -------     -------     -------     -------
Total other income ............................................     9,220      10,848      30,081      30,418
                                                                  -------     -------     -------     -------
Other expenses:
  Salaries and benefits .......................................    15,330      14,583      47,126      44,105
  Net occupancy ...............................................     1,857       1,818       5,412       5,028
  Equipment ...................................................     1,649       1,645       4,946       5,150
  Marketing ...................................................       605         560       1,701       1,700
  Outside data processing fees.................................     1,068         972       2,959       2,959
  Printing and office supplies.................................       281         394         853       1,081
  Core deposit amortization....................................       809         789       2,407       2,370
  Write-off of unamortized underwriting expense ...............                                         1,771
  Other expenses ..............................................     5,516       4,241      14,388      12,771
                                                                  -------     -------     -------     -------
Total other expenses ..........................................    27,115      25,002      79,792      76,935
                                                                  -------     -------     -------     -------
Income Before Income Tax ......................................     8,265      11,571      28,538      30,651
Income tax expense ............................................     2,516       3,221       8,121       8,322
                                                                  -------     -------     -------     -------
Net Income ....................................................   $ 5,749     $ 8,350    $ 20,417    $ 22,329
                                                                  =======     =======     =======     =======

Per share:

    Basic net income ..........................................   $   .32     $   .46     $  1.13     $  1.22
    Diluted  net income .......................................       .32         .46        1.13        1.22
    Cash dividends paid .......................................       .23         .23         .69         .69
    Average diluted shares outstanding (in thousands) .........    18,196      18,276      18,129      18,375

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


                           FIRST MERCHANTS CORPORATION

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

<TABLE>
                                                                                   Three Months Ended          Nine Months Ended
                                                                                      September 30,              September 30,
                                                                                 ----------------------     ----------------------
                                                                                    2008         2007          2008         2007
                                                                                 ---------    ---------     ---------    ---------
<S>                                                                              <C>          <C>           <C>          <C>
Net Income...................................................................... $  5,749     $  8,350      $ 20,417     $ 22,329

Other comprehensive income net of tax:
  Unrealized gains/(losses) on securities available for sale:
    Unrealized holding gains/(losses) arising during the period, net of
      income tax of $(853), $(1,584), $510 and $(312), respectively.............    1,585        2,941          (947)         580

  Unrealized gains/(losses) on cash flow hedges:
    Unrealized gains/(losses) arising during the period, net of income tax of
      $342, $(525), $(597) and $(346), respectively.............................     (513)         788           896          520

  Amortization of items previously recorded in accumulated other
    comprehensive income/(losses), net of income tax expense
    of $132, $(117), $311, and $(351), respectively.............................     (198)         176          (466)         526

Reclassification adjustment for losses included in net
  income, net of income tax expense of $(502), $0, $(468), and $0, respectively.      753                        701            1
                                                                                 ---------    ---------     ---------   ---------
                                                                                    1,627        3,905           184        1,627
                                                                                 ---------    ---------     ---------   ---------
Comprehensive income ........................................................... $  7,376     $ 12,255      $ 20,601     $ 23,956
                                                                                 =========    =========     =========   =========
</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>
                                                                      2008         2007
                                                                   ---------    ---------
<S>                                                                  <C>            <C>
Balances, January 1 ............................................   $ 339,936    $ 327,325

Net income .....................................................      20,417       22,329

Cash dividends on common stock .................................     (12,561)     (12,685)

Other comprehensive income, net of tax .........................         184        1,627

Stock issued under employee benefit plan .......................         773          787

Stock issued under dividend reinvestment and stock purchase plan         795          890

Stock options exercised, net of tax ............................       1,612          496

Tax benefit from stock options exercised .......................         139          106

Stock redeemed .................................................      (2,180)      (9,240)

Issuance of stock related to acquisition .......................       1,463

Cumulative preferred stock issued ..............................         125

Share-based compensation .......................................       1,390        1,106
                                                                   ---------    ---------

Balances, September 30 .........................................   $ 352,093    $ 332,741
                                                                   =========    =========

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

                           FIRST MERCHANTS CORPORATION

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

                                                                     Nine Months Ended
                                                                      September 30,
                                                            ----------------------------------
                                                                  2008              2007
                                                            ----------------  ----------------
<S>                                                                  <c>               <C>
Cash Flows From Operating Activities:
  Net income............................................    $       20,417    $       22,329
  Adjustments to reconcile net income to net
  cash provided by operating activities
    Provision for loan losses...........................            17,987             6,057
    Depreciation and amortization.......................             3,502             3,240
    Share-based compensation............................             1,390             1,106
    Tax benefits from stock options exercised...........              (139)             (106)
    Mortgage loans originated for sale..................           (82,608)          (96,392)
    Proceeds from sales of mortgage loans...............            84,281            97,477
    Gains on sales of securities
      available for sale................................               271
    Recognized loss on other than temporary impairment..            (1,440)
    Change in interest receivable.......................             1,833            (1,609)
    Change in interest payable..........................            (1,796)             (156)
    Other adjustments...................................               605             6,205
                                                            ---------------   ---------------
      Net cash provided by operating activities.........    $       44,303    $       38,151
                                                            ---------------   ---------------


Cash Flows From Investing Activities:
  Net change in interest-bearing deposits...............    $        9,308    $      (11,011)
  Purchases of
    Securities available for sale.......................           (74,443)          (60,568)
    Securities held to maturity.........................            (2,399)
  Proceeds from sales of securities available for sale..            34,256
  Proceeds from maturities of
    Securities available for sale.......................           101,990            50,934
    Securities held to maturity.........................             1,252               662
  Purchase of Federal Reserve and
    Federal Home Loan Bank Stock........................              (244)           (1,359)
  Purchase of bank owned life insurance ................              (706)           (3,500)
  Net cash paid in acquisitions ........................              (237)
  Net change in loans...................................          (236,823)         (183,954)
  Other adjustments.....................................            (3,460)           (3,232)
                                                            ---------------   ---------------
      Net cash used by investing activities.............    $     (171,506)   $     (212,028)
                                                            ---------------   ---------------

Cash Flows From Financing Activities:
  Net change in
    Demand and savings deposits.........................    $        5,870    $      (57,402)
    Certificates of deposit and other time deposits.....            64,292            66,039
  Proceeds from the sale of other real estate owned.....             8,789             2,739
  Borrowings............................................           737,290           331,605
  Repayment of borrowings...............................          (734,756)         (153,770)
  Cash dividends on common stock........................           (12,561)          (12,685)
  Stock issued under employee benefit plans.............               773               787
  Stock issued under dividend
    reinvestment and stock purchase plans...............               791               890
  Stock options exercised...............................             1,612               496
  Cumulative preferred stock issued.....................               125
  Tax benefit from stock options exercised..............               139               106
  Stock redeemed........................................            (2,180)           (9,240)
                                                           ---------------   ---------------
      Net cash provided by financing activities.........            70,184           169,565
                                                           ---------------   ---------------
Net Change in Cash and Cash Equivalents.................           (57,019)           (4,312)
Cash and Cash Equivalents, January 1....................           134,683            89,957
                                                           ---------------   ---------------
Cash and Cash Equivalents, September 30,................    $       77,664    $       85,645
                                                           ===============   ===============

Additional cash flows information:
  Interest paid ........................................    $       71,297    $       88,337
  Income tax paid ......................................            15,090             6,939
  Loans transferred to other real estate owned..........            23,669             2,592
</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,
2007 has  been  derived  from  the  audited  consolidated  balance  sheet of the
Corporation as of that date. Certain  information and note disclosures  normally
included in the Corporation's annual financial statements prepared in accordance
with accounting  principles  generally  accepted in the United States of America
have  been  condensed  or  omitted.   These  consolidated   condensed  financial
statements  should  be read  in  conjunction  with  the  consolidated  financial
statements  and notes  thereto  included in the  Corporation's  Form 10-K annual
report  filed  with the  Securities  and  Exchange  Commission.  The  results of
operations  for the three  and nine  months  ended  September  30,  2008 are not
necessarily indicative of the results to be expected for the year.

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.  Deferred stock units
("DSUs") have been credited to non-employee  directors who have elected to defer
payment of compensation  under the Corporation's  2008 Equity  Compensation Plan
for  Non-employee  Directors.  DSUs credited are equal to the restricted  shares
that the  non-employee  director  would  have  received  under the  plan.  As of
September  30,  2008,  there  were  1,113  DSUs  credited  to  the  non-employee
directors.

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) required the Corporation to begin recording  compensation expense in
2006 related to unvested share-based awards outstanding as of December 31, 2005,
by recognizing  the  unamortized  grant date fair value of these awards over the
remaining service periods of those awards, with no change in historical reported
fair values and earnings.  Awards  granted after December 31, 2005 are valued at
fair value in accordance  with provisions of SFAS 123(R) and are recognized on a
straight-line  basis over the  service  periods of each award.  To complete  the
exercise  of vested  stock  options,  RSA's and ESPP  options,  the  Corporation
generally  issues  new shares  from its  authorized  but  unissued  share  pool.
Share-based  compensation for the three and nine months ended September 30, 2008
totaled  $488,000  and  $1,390,000,   respectively,  compared  to  $365,000  and
$1,106,000 for the three and nine months ended  September 30, 2007.  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 2008 and in prior
years was calculated  using a Black Scholes option pricing model.  The following
summarizes the assumptions used in the 2008 Black Scholes model:

      Risk-free interest rate                              2.69%
      Expected price volatility                           32.13%
      Dividend yield                                       3.68%
      Forfeiture rate                                      5.00%
      Weighted-average expected life, until exercise       6.53 years

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

Share-based  compensation  expense  recognized  in  the  Consolidated  Condensed
Statements  of  Income  is based on awards  ultimately  expected  to vest and is
reduced for  estimated  forfeitures.  SFAS  123(R)  requires  forfeitures  to be
estimated at the time of grant and revised, if necessary, in subsequent periods,
if actual forfeitures differ from those estimates.  Pre-vesting forfeitures were
estimated to be  approximately 5 percent for the nine months ended September 30,
2008, based on historical experience.

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

<TABLE>
<CAPTION>
                                                                                    Three Months Ended           Nine Months Ended
                                                                                       September 30,                September 30,
                                                                                    2008         2007           2008         2007
                                                                                -----------  -----------    -----------  -----------
<S>                                                                               <C>          <C>            <C>          <C>
      Stock and ESPP Options:
           Pre-tax compensation expense ........................................$      164   $      152     $      485   $      445

           Income tax benefit ..................................................       (14)         (12)           (35)         (28)
                                                                                ----------   ----------     ----------   ----------
      Stock and ESPP option expense, net of income taxes .......................$      150   $      140     $      450   $      417
                                                                                ==========   ==========     ==========   ==========

      Restricted Stock Awards:
           Pre-tax compensation expense ........................................$      324   $      212     $      905   $      661

           Income tax benefit ..................................................      (113)         (74)          (317)        (231)
                                                                                ----------   ----------     ----------   ----------
      Restricted stock awards expense, net of income taxes .....................$      211   $      138     $      588   $      430
                                                                                ==========   ==========     ==========   ==========

      Total Share-Based Compensation:
           Pre-tax compensation expense ........................................$      488   $      365     $    1,390   $    1,106

           Income tax benefit ..................................................      (127)         (87)          (352)        (259)
                                                                                ----------   ----------     ----------   ----------
      Total share-based compensation expense, net of income taxes ..............$      361   $      278     $    1,038   $      847
                                                                                ==========   ==========     ==========   ==========
</TABLE>

                                                                         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

As of September 30, 2008,  unrecognized  compensation  expense  related to stock
options and RSAs totaling $374,000 and $1,919,000  respectively,  is expected to
be recognized over weighted-average periods of .87 and 1.54 years, respectively.

Stock option activity under the Corporation's stock option plans as of September
30, 2008 and changes  during the nine months  ended  September  30, 2008 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, 2008 ....................  1,054,430       $     24.30
  Granted ...........................................     82,713             26.76
  Exercised .........................................   (123,739)            22.74
  Cancelled .........................................    (59,713)            24.76
                                                      ----------
  Outstanding at September 30, 2008 .................    953,691       $     24.69           5.55       $ 646,170
                                                      ==========
  Vested and Expected to Vest at September 30, 2008..    947,549       $     24.67           5.53       $ 645,624
  Exercisable at September 30, 2008 .................    847,441       $     24.36           4.95       $ 603,165

</TABLE>

The  weighted-average  grant date fair value was $6.08 for stock options granted
during the nine months ended September 30, 2008.

The aggregate  intrinsic  value in the table above  represents the total pre-tax
intrinsic value (the difference between the Corporation's closing stock price on
the last  trading day of the first nine months of 2008 and the  exercise  price,
multiplied by the number of in-the-money  options) that would have been received
by the option  holders had all option holders  exercised  their stock options on
September 30, 2008. The amount of aggregate intrinsic value will change based on
the fair market value of the Corporation's common stock.

The aggregate  intrinsic value of stock options  exercised during the first nine
months of 2008 was  $613,000.  Exercise  of  options  during  this  same  period
resulted in cash  receipts  of  $1,612,000.  The  Corporation  recognized  a tax
benefit of approximately  $139,000 in the first nine months of 2008,  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 RSAs  outstanding as of
September 30, 2008:

<TABLE>
<CAPTION>
                                                                Weighted-Average
                                                   Number of     Grant-Date Fair
                                                    Shares           Value
                                                  ----------      -----------
<S>                                               <C>            <C>
  Unvested RSAs at January 1, 2008 .............     98,027        $    27.12
  Granted ......................................     66,696             26.25
  Forfeited ....................................     (1,802)            25.79
  Vested .......................................     (1,438)            27.20
                                                  ----------
  Unvested RSAs at September 30, 2008 ..........    161,483        $    26.78
                                                  ==========

</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

The grant date fair value of ESPP options was  estimated at the beginning of the
July 1, 2008 offering period and  approximates  $240,000.  The ESPP options vest
during the twelve month period ending June 30, 2009. At September 30, 2008,  all
compensation  expense  related  to ESPP  options  was  fully  recognized.  Total
unrecognized compensation expense related to unvested ESPP options was $180,000,
which is expected to be recognized over a period of nine months.

Note 3.  Disclosures About Fair Value of Assets and Liabilities

Effective  January 1, 2008,  the  Corporation  adopted  Statement  of  Financial
Accounting Standards No. 157, Fair Value Measurements (FAS 157). FAS 157 defines
fair  value,  establishes  a  framework  for  measuring  fair value and  expands
disclosures   about  fair  value   measurements.   FAS  157  has  been   applied
prospectively as of the beginning of the year.

FAS 157 defines  fair value as the price that would be received to sell an asset
or  paid to  transfer  a  liability  in an  orderly  transaction between  market
participants  at the  measurement  date.  FAS 157 also  establishes a fair value
hierarchy which requires an entity to maximize the use of observable  inputs and
minimize the use of unobservable  inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:

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

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

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

Following is a description of the valuation  methodologies  used for instruments
measured at fair value on a recurring  basis and recognized in the  accompanying
balance  sheet,  as  well as the  general  classification  of  such  instruments
pursuant to the valuation hierarchy.

Available-for-sale securities

Where quoted  market prices are available in an active  market,  securities  are
classified  within Level 1 of the valuation  hierarchy.  There are no securities
classified  within Level 1 of the  hierarchy.  If quoted  market  prices are not
available, then fair values are estimated by using pricing models, quoted prices
of securities with similar  characteristics  or discounted  cash flows.  Level 2
securities  include treasury  securities,  agencies,  mortgage backs,  state and
municipal,  corporate obligations,  and marketable equity securities. In certain
cases  where  Level  1 or  Level 2  inputs  are not  available,  securities  are
classified  within  Level  3  of  the  hierarchy  and  include   mortgage-backed
securities and corporate obligations.

The corporation has certain securities that have had a drop in fair market value
as a result of the widening in market spreads that many sectors have experienced
in recent months. Management has determined that these securities are not deemed
to be other than temporarily impaired as the drop in market value is a result of
illiquidity  in the current market rather than poor  performance.  There has not
been an adverse change in future cash flows of the securities.  These securities
have a book value and fair value,  as  determined  through an analysis of future
cash flow, of $11.1 million.

Interest rate swap agreements

The fair value is  estimated  by a third party using  inputs that are  primarily
unobservable  and  cannot  be  corroborated  by  observable   market  data  and,
therefore, are classified within Level 3 of the valuation hierarchy.

                                                                         Page 11
<page>

                           FIRST MERCHANTS CORPORATION

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

The  following  table  presents  the  fair  value  measurements  of  assets  and
liabilities  recognized in the accompanying balance sheet measured at fair value
on a recurring  basis and the level  within the FAS 157 fair value  hierarchy in
which the fair value measurements fall at September 30, 2008.
<table>
<caption>
                                                                              Fair Value Measurements Using
                                                          -----------------------------------------------------------------
                                                                 Quoted Prices in     Significant
                                                                  Active Markets         Other             Significant
                                                                  for Identical       Observable           Unobservable
                                                                    Assets               Inputs               Inputs
                                             Fair Value            (Level 1)           (Level 2)             (Level 3)
                                           --------------------------------------------------------------------------------
<S>                                           <C>                     <C>                <C>                    <C>
Available for sale securities                $377,329                                  $365,871              $11,458
Hedged loans                                   45,299                                                         45,299
Interest rate swap agreements                    (627)                                                          (627)

</table>

The  following  is a  reconciliation  of the  beginning  and ending  balances of
recurring fair value measurements  recognized in the accompanying  balance sheet
using  significant  unobservable  Level  3  inputs for the three and nine months
ended September 30, 2008.
<table>
<caption>
                                                                    Three Months Ended
                                                                    September 30, 2008

                                               ---------------------------------------------------------
                                                  Available for Sale      Hedged             Interest
                                                      Securities           Loans            Rate Swaps
                                               ---------------------------------------------------------

                                                      <C>                 <c>                <c>
Beginning balance                                      $  9,500           $ 22,797                 (201)

Total realized and unrealized gains and losses
  Included in net income                                                  $    475             $   (426)
  Included in other comprehensive income                  2,121

Purchases, issuances, and settlements                                       22,200

Transfers in/(out) of Level 3                              (128)

Principal payments                                          (35)              (173)
                                               ---------------------------------------------------------
Ending balance                                         $ 11,458           $ 45,299             $   (627)
                                               =========================================================
</table>
<table>
<caption>
                                                                    Nine Months Ended
                                                                   September 30, 2008

                                               ---------------------------------------------------------
                                                  Available for Sale      Hedged             Interest
                                                      Securities           Loans            Rate Swaps
                                               ---------------------------------------------------------

                                                      <C>                 <c>                <c>
Beginning balance                                      $ 12,023

Total realized and unrealized gains and losses
  Included in net income                                                  $    704             $   (627)
  Included in other comprehensive income                 (1,270)

Purchases, issuances, and settlements                                       44,792

Transfers in/(out) of Level 3                               847

Principal payments                                         (142)              (197)
                                               ---------------------------------------------------------
Ending balance                                         $ 11,458           $ 45,299             $   (627)
                                               =========================================================
</table>

                                                                         Page 12
<page>
                           FIRST MERCHANTS CORPORATION

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


Following is a  description  of  valuation  methodologies  used for  instruments
measured  at  fair  value  on  a  non-recurring  basis  and  recognized  in  the
accompanying  balance  sheet,  as well  as the  general  classification  of such
instruments pursuant to the valuation hierarchy.

Impaired Loans

Loan impairment is reported when scheduled  payments under contractual terms are
deemed  uncollectible.  Impaired  loans  are  carried  at the  present  value of
estimated future cash flows using the loan's existing rate, or the fair value of
collateral if the loan is collateral  dependent.  A portion of the allowance for
loan losses is allocated to impaired  loans if the value of such loans is deemed
to be less than the unpaid balance. If these allocations cause the allowance for
loan losses to  increase,  such  increase  is  reported  as a  component  of the
provision for loan losses.  Loan losses are charged  against the allowance  when
management believes the  uncollectability  of the loan is confirmed.  During the
first nine months of 2008, certain impaired loans were partially  charged-off or
re-evaluated,  resulting in a remaining balance for these loans, net of specific
reserve,  of  $11,500,000  as of September  30,  2008.  The  valuation  would be
considered  Level 3,  consisting  of appraisals  of  underlying  collateral  and
discounted cash flow analysis.

                                                                         Page 13
<page>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)
<TABLE>
NOTE 4.  Investment Securities
                                                          Gross       Gross
                                             Amortized  Unrealized  Unrealized    Fair
                                                Cost       Gains      Losses     Value
<S>                                          <C>         <C>        <C>        <C>
Available for sale at September 30, 2008
  U.S. Treasury ........................     $ 11,496    $     7              $ 11,503
  U.S. Government-sponsored
    agency securities...................       13,416        105    $     2     13,519
  State and municipal ..................      128,005      1,545        215    129,335
  Mortgage-backed securities ...........      205,303      1,891        989    206,205
  Corporate obligations ................       13,615                 2,073     11,542
  Marketable equity securities..........        5,240                    15      5,225
                                             --------   --------   --------   --------
      Total available for sale .........      377,075      3,548      3,294    377,329
                                             --------   --------   --------   --------


Held to maturity at September 30, 2008
  State and municipal...................       11,467         60        365     11,162
  Mortgage-backed securities............           12                               12
                                             --------   --------   --------   --------
      Total held to maturity ...........       11,479         60        365     11,174
                                             --------   --------   --------   --------
      Total investment securities ......     $388,554   $  3,608   $  3,659   $388,503
                                             ========   ========   ========   ========
</TABLE>

The  Corporation  has the  intent  and  ability  to  hold  the  securities  with
unrealized losses to the earlier of recovery of maturity.  If the Corporation is
unable to make this assertion 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, 2007
  U.S. Treasury ........................       $  1,501  $     18             $  1,519
  U.S. Government-sponsored
    agency securities ..................         67,793       240    $    98    67,935
  State and municipal ..................        150,744     2,324        156   152,912
  Mortgage-backed securities ...........        199,591     1,654      1,444   199,801
  Corporate obligations ................         13,740                1,294    12,446
  Marketable equity securities .........          6,835                  612     6,223
                                               --------  --------   --------  --------
     Total available for sale ..........        440,204     4,236      3,604   440,836
                                               --------  --------   --------  --------

Held to maturity at December 31, 2007
  State and municipal ..................         10,317       237        298    10,256
  Mortgage-backed securities ...........             14                             14
                                               --------  --------   --------  --------
     Total held to maturity ............         10,331       237        298    10,270
                                               --------  --------   --------  --------
     Total investment securities .......       $450,535  $  4,473   $  3,902  $451,106
                                               ========  ========   ========  ========
</TABLE>
The  Corporation's  investments  in certain debt  securities are reported in the
financial  statements  at  an  amount  less  than  their  historical  cost.  The
historical cost of these  investments  totaled  $136,569,000 and $214,293,000 at
September  30, 2008 and  December 31,  2007,  respectively.  Total fair value of
these investments was $132,910,000 and $210,391,000  which is approximately 34.2
and 46.6 percent of the Corporation's  available-for-sale  and  held-to-maturity
investment portfolio at September 30, 2008 and December 31, 2007,  respectively.
These declines primarily resulted from increases in market interest rates.

                                                                         Page 14
<page>
                           FIRST MERCHANTS CORPORATION

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

INVESTMENT SECURITIES continued

Based on evaluation of available  evidence,  including  recent changes in market
interest  rates,  credit  rating  information  and  information   obtained  from
regulatory  filings,  management  believes  the declines in fair value for these
securities  are  temporary.  Additionally,  the  Corporation  has the intent and
ability to hold these  securities  until a recovery  of fair  value.  Should the
impairment  of any of these  securities  become other than  temporary,  the cost
basis of the investment will be reduced and the resulting loss recognized in net
income in the period the other-than-temporary impairment is identified.

At September 30, 2008, approximately 100% of the mortgage-backed securities held
by  the  Corporation  are  issued  by  U.S.  government-sponsored  entities  and
agencies,   primarily  Fannie  Mae  and  Freddie  Mac,  institutions  which  the
government has affirmed its commitment to support. Because the decline in market
value is  attributable  to changes in interest  rates and  illiquidity,  and not
credit  quality,  and because the Corporation has the intent and ability to hold
these  mortgage-backed  securities until a recovery of fair value,  which may be
maturity,   the   Corporation   does  not  consider   these   securities  to  be
other-than-temporarily impaired at September 30, 2008.

The Corporation's unrealized losses on corporate obligations relate primarily to
its  investment in pooled trust  preferred  securities.  The decline in value is
attributable to temporary  illiquidity and the financial  crisis affecting these
markets and not the expected cash flows of the individual securities. Due to the
illiquidity in the market,  it is unlikely that the Corporation would be able to
recover  its  investment  in  these  securities  if  the  Corporation  sold  the
securities  at  this  time.   The   Corporation   has  analyzed  the  cash  flow
characteristics  of the securities and this analysis included utilizing the most
recent  trustee  reports and any other  relevant  market  information  including
announcements  of deferrals or defaults of trust preferred  securities.  Because
the  Corporation  has the intent and  ability to hold these  securities  until a
recovery of fair value and has  determined  that there was no adverse  change in
the cash  flow as  viewed  by a market  participant,  the  Corporation  does not
consider   these   investments   to  be   other-than-temporarily   impaired   at
September 30, 2008.



                                                                         Page 15
<page>
                           FIRST MERCHANTS CORPORATION

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

INVESTMENT SECURITIES continued

The following tables show the  Corporation's  gross  unrealized  losses and fair
value,  aggregated  by  investment  category and length of time that  individual
securities  have been in a continuous  unrealized loss position at September 30,
2008 and December 31, 2007:

<table>
<caption>
====================================================================================================================================
                                                                              GROSS                   GROSS                  GROSS
                                                                 FAIR      UNREALIZED    FAIR      UNREALIZED    FAIR     UNREALIZED
(Dollars in Thousands)                                           VALUE        LOSSES     VALUE        LOSSES     VALUE       LOSSES
====================================================================================================================================
                                                                   Less than 12            12 Months or
                                                                       Months                  Longer                 Total
                                                                  --------------          --------------            ---------
<S>                                                                <C>         <C>     <C>           <C>          <C>           <C>
Temporarily Impaired Investment
   Securities at September 30, 2008:
U.S. Government-sponsored Agency Securities ...............         996      $   (2)                             $   996   $     (2)
State and Municipal .......................................    $ 34,609        (303)   $  3,523     $  (277)      38,132       (580)
Mortgage-backed Securities ................................      70,124        (603)     12,102        (386)      82,226       (989)
Corporate Obligations .....................................         320      (1,646)     11,191        (427)      11,511     (2,073)
Marketable Equity Securities ..............................                                  45         (15)          45        (15)
                                                               --------     -------    --------     -------     --------   --------
   Total Temporarily Impaired Investment Securities .......    $106,049     $(2,554)   $ 26,861     $(1,105)    $132,910   $ (3,659)
                                                               ========     =======    ========     =======     ========   ========



====================================================================================================================================
                                                                              GROSS                   GROSS                  GROSS
                                                                 FAIR      UNREALIZED    FAIR      UNREALIZED    FAIR     UNREALIZED
(Dollars in Thousands)                                           VALUE        LOSSES     VALUE        LOSSES     VALUE       LOSSES
====================================================================================================================================
                                                                  Less than 12            12 Months or
                                                                       Months                  Longer                  Total
                                                                   --------------          --------------            ---------
Temporarily Impaired Investment
   Securities at December 31, 2007:
U.S. Government-sponsored Agency Securities ...............                            $ 45,572     $   (98)     $45,572   $    (98)
State and Municipal .......................................     $   858      $   (7)     60,996        (447)      61,854       (454)
Mortgage-backed Securities ................................       3,489         (30)     86,161      (1,414)      89,560     (1,444)
Corporate Obligations .....................................      12,415      (1,294)                              12,415     (1,294)
Marketable Equity Securities ..............................                                 900        (612)         900       (612)
                                                               --------     -------    --------     -------     --------    --------
   Total Temporarily Impaired Investment Securities .......    $ 16,762     $(1,331)   $193,629     $(2,571)    $210,391   $ (3,902)
                                                               ========     =======    ========     =======     ========    ========
</table>

                                                                         Page 16
<page>
                           FIRST MERCHANTS CORPORATION

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

NOTE 5.  Loans and Allowance

<TABLE>
                                                                                 September 30,  December 31,
                                                                                     2008          2007
                                                                                 -----------    -----------
<S>                                                                              <C>            <C>
Loans:
  Commercial and industrial loans .............................................. $   851,233    $   662,701
  Agricultural production financing and other loans to farmers .................     136,176        114,324
  Real estate loans:
    Construction ...............................................................     167,512        165,425
    Commercial and farmland ....................................................     966,259        947,234
    Residential ................................................................     731,065        744,627
  Individuals' loans for household and other personal expenditures .............     145,345        187,880
  Tax-exempt loans .............................................................      34,010         16,423
  Lease financing receivables, net of unearned income...........................       9,262          8,351
  Other loans ..................................................................      37,906         29,878
                                                                                 -----------    -----------
                                                                                   3,078,768      2,876,843
  Allowance for loan losses.....................................................     (34,985)       (28,228)
                                                                                 -----------    -----------
      Total Loans............................................................... $ 3,043,783    $ 2,848,615
                                                                                 ===========    ===========

                                                                                       Nine Months Ended
                                                                                         September 30,

                                                                                     2008          2007
                                                                                 -----------    -----------
Allowance for loan losses:
  Balances, January 1 .......................................................... $    28,228    $    26,540

  Provision for losses .........................................................      17,987          6,057

  Recoveries on loans ..........................................................       3,718            777

  Loans charged off ............................................................     (14,948)        (5,739)
                                                                                 -----------    -----------
  Balances, September 30........................................................ $    34,985    $    27,635
                                                                                 ===========    ===========
</TABLE>

                                               September 30,  December 31,
                                                   2008           2007
                                                ----------    ------------
Non Performing Assets:

  Non-accrual loans.............................. $ 37,879     $ 29,031
  Renegotiated loans.............................      135          145
                                                  --------     --------
  Non performing loans (NPL).....................   38,014       29,176
  Real estate owned and repossessed assets.......   16,916        2,573
                                                  --------     --------
  Non performing assets (NPA)....................   54,930       31,749
  90+ days delinquent............................    8,056        3,578
                                                  --------     --------
  NPAS & 90+ days delinquent..................... $ 62,986     $ 35,327
                                                  ========     ========

                                                                         Page 17
<PAGE>

                           FIRST MERCHANTS CORPORATION

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

NOTE 6.  Net Income Per Share

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

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

<TABLE>

                                                                          Three Months Ended September 30,
                                                               2008                                         2007
                                             -------------------------------------------  ------------------------------------------
                                                             Weighted-                                    Weighted-
                                              Net             Average       Per Share      Net             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......................$    5,749        18,114,916    $     .32    $    8,350        18,221,467    $     .46
                                                                             ==========                                   ==========

Effect of dilutive stock options.............                      81,537                                       54,713
                                             ----------       ------------                ----------       ------------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions..................$    5,749        18,196,453    $     .32    $    8,350        18,276,180    $     .46
                                             ==========       ============   ==========   ==========       ============   ==========

Stock options to purchase  806,789 and 839,375 shares for the three months ended
September  30,  2008 and 2007  were  not  included  in the  earnings  per  share
calculation because the exercise price exceeded the average market price.
<caption>
                                                                         Nine Months Ended September 30,
                                                               2008                                         2007
                                             -------------------------------------------  ------------------------------------------
                                                             Weighted-                                    Weighted-
                                              Net             Average       Per Share      Net             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......................$   20,417        18,035,064    $     1.13   $   22,329        18,307,087    $    1.22
                                                                             ==========                                   ==========

Effect of dilutive stock options.............                      94,252                                       67,910
                                             ----------       ------------                ----------       ------------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions..................$   20,417        18,129,316    $    1.13    $   22,329        18,374,997    $    1.22
                                             ==========       ============   ==========   ==========       ============   ==========

</TABLE>
Stock options to purchase  703,124 and 706,641  shares for the nine months ended
September  30,  2008 and 2007  were  not  included  in the  earnings  per  share
calculation because the exercise price exceeded the average market price.


                                                                         Page 18



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

Note 7.  Impact of Accounting Changes

EFFECT OF NEWLY ISSUED ACCOUNTING STANDARDS

Statement of Financial  Accounting  Standards No. 159, The Fair Value Option for
Financial  Assets and Financial  Liabilities  (FAS 159) became effective for the
Corporation  on January 1, 2008.  FAS 159 allows  companies  an option to report
selected  financial  assets and  liabilities  at fair value.  Because we did not
elect  the fair value  measurement  provision for any of our financial assets or
liabilities,  the  adoption  of SFAS  159 did not have  any  impact  on our 2008
consolidated financial statements.  Presently, we have not determined whether we
will elect the fair value measurement provisions for future transactions.

Effective  January 1, 2008, the  Corporation  adopted EITF 06-4,  Accounting for
Deferred  Compensation  and  Postretirement   Benefit  Aspects  of   Endorsement
Split-Dollar Life Insurance Arrangements and EITF 06-10, Accounting for Deferred
Compensation  and  Postretirement   Benefit  Aspects  of  Collateral  Assignment
Split-Dollar  Life  Insurance  Arrangements.  The adoption of EITF 06-4 and EITF
06-10 did not have any impact on our 2008 consolidated financial statements.

Future Accounting Matters

Financial  Accounting  Standards Board Statement No. 141 (SFAS 141R),  "Business
Combinations  (Revised  2007)," was issued in December  2007 and is effective on
January 1, 2009.  It replaces  SFAS 141 which  applies to all  transactions  and
other  events  in which  one  entity  obtains  control  over  one or more  other
businesses.  SFAS 141R requires an acquirer, upon initially obtaining control of
another entity,  to recognize the assets,  liabilities  and any  non-controlling
interest in the acquiree at fair value as of the  acquisition  date.  Contingent
consideration  is required to be  recognized  and  measured at fair value on the
date of  acquisition  rather  than at a  later  date  when  the  amount  of that
consideration  may be determinable  beyond a reasonable  doubt.  This fair value
approach  replaces the cost allocation  process  required under SFAS 141 whereby
the cost of an acquisition  was allocated to the individual  assets acquired and
liabilities  assumed  based on their  estimated  fair value.  SFAS 141R requires
acquirers  to  expense   acquisition-related   costs  as  incurred  rather  than
allocating such costs to the assets acquired and liabilities assumed. Under SFAS
141R, the  requirements of SFAS 146,  "Accounting for Costs Associated with Exit
or  Disposal  Activities,"  would  have  to be  met in  order  to  accrue  for a
restructuring plan in purchase accounting.  Pre-acquisition contingencies are to
be recognized at fair value, unless it is a non-contractual  contingency that is
not likely to  materialize,  in which  case,  nothing  should be  recognized  in
purchase accounting.  Instead, that contingency would be subject to the probable
and estimable recognition criteria under SFAS 5, "Accounting for Contingencies."

Financial   Accounting   Standards   Board   Statement   No.  160  (SFAS   160),
"Noncontrolling  Interest in Consolidated Financial Statements,  an amendment of
ARB Statement No. 51," was issued in December  2007 and  establishes  accounting
and reporting standards for the non-controlling interest in a subsidiary and for
the  deconsolidation of a subsidiary.  SFAS 160 clarifies that a non-controlling
interest in a subsidiary, which is sometimes referred to as a minority interest,
is an ownership interest in the consolidated entity that should be reported as a
component  of equity  in the  consolidated  financial  statements.  Among  other
requirements,  SFAS 160  requires  consolidated  net  income to be  reported  at
amounts  that  are  attributable  to both  the  parent  and the  non-controlling
interest.  It also requires  disclosure,  on the face of the consolidated income
statement,  of the amounts of consolidated net income attributable to the parent
and to the non-controlling  interest.  SFAS 160 is effective for the Corporation
on  January  1, 2009 and is not  expected  to have a  significant  impact on the
Corporation's financial statements.

Financial Accounting Standards Board Statement No. 161 (SFAS 161),  "Disclosures
About  Derivative  Instruments  and Hedging  Activities,  an  Amendment  of FASB
Statement  No.  133," was  issued  in March  2008 and  amends  and  expands  the
disclosure  requirements of SFAS 133 to provide greater  transparency  about (i)
how  and  why  an  entity  uses  derivative  instruments,  (ii)  how  derivative
instruments  and related  hedge items are  accounted  for under SFAS 133 and its
related interpretations, and (iii) how derivative instruments and related hedged
items affect an entity's  financial  position,  results of  operations  and cash
flows. To meet those objectives, SFAS 161 requires qualitative disclosures about
objectives and strategies for using derivatives,  quantitative disclosures about
fair value amounts of gains and losses on derivative instruments and disclosures
about credit-risk-related contingent features in derivative agreements. SFAS 161
is effective for the  Corporation on January 1, 2009 and is not expected to have
a significant impact on the Corporation's financial statements.

                                                                         Page 19
<page>
                          FIRST MERCHANTS CORPORATION
                                    FORM 10-Q
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                          (Table dollars in thousands)
                                   (Unaudited)

NOTE 8   PENDING ACQUISITION

On September 3, 2008,  the  Corporation  entered into a definitive  agreement to
acquire  Lincoln  Bancorp and its wholly  owned  subsidiary  Lincoln  Bank.  The
agreement provides that shareholders of Lincoln will receive, at their election,
either 0.7004 shares of First Merchants common stock, subject to possible upward
or downward  adjustment  as provided in the Merger  Agreement or $15.76 in cash.
The  number of shares of First  Merchants  common  stock and the  amount of cash
payable in  connection  with the merger is  subject to various  limitations  and
prorations. The transaction value is estimated at approximately $75 million. The
Corporation  will issue no more than 3,576,417 shares of its common stock in the
transaction. The transaction is expected to close in the fourth quarter of 2008.

                                                                         Page 20
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

FORWARD-LOOKING STATEMENTS

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

     *  statements of our goals, intentions and expectations;

     *  statements regarding our business plan and growth strategies;

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

     *  estimates of our risks and future costs and benefits.

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

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

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

     *  adverse developments in our loan and investment portfolios;

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

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

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

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

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

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

                                                                         Page 21
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

RECENT MARKET DEVELOPMENTS

The global and U.S.  economies are experiencing  significantly  reduced business
activity  as a result of,  among other  factors,  disruptions  in the  financial
system during the past year.  Dramatic declines in the housing market during the
past  year,   with  falling  home  prices  and   increasing   foreclosures   and
unemployment,  have  resulted  in  significant  write-downs  of asset  values by
financial  institutions,   including  government-sponsored  entities  and  major
commercial and investment banks. These write-downs, initially of mortgage-backed
securities but spreading to credit default swaps and other derivative securities
have caused many financial  institutions  to seek additional  capital,  to merge
with larger and stronger institutions and, in some cases, to fail.

Reflecting  concern about the stability of the financial  markets  generally and
the strength of  counterparties,  many lenders and institutional  investors have
reduced,  and in some cases,  ceased to provide funding to borrowers,  including
other financial  institutions.  The  availability  of credit,  confidence in the
financial  sector,  and level of volatility  in the financial  markets have been
significantly  adversely  affected as a result. In recent weeks,  volatility and
disruption in the capital and credit markets has reached  unprecedented  levels.
In some cases, the markets have produced  downward  pressure on stock prices and
credit capacity for certain issuers without regard to those issuers'  underlying
financial strength.

In response to the financial  crises  affecting the banking system and financial
markets  and going  concern  threats  to  investment  banks and other  financial
institutions,  on October 3, 2008, the Emergency  Economic  Stabilization Act of
2008 (the "EESA") was signed into law.  Pursuant to the EESA, the U.S.  Treasury
will have the authority  to, among other things,  purchase up to $700 billion of
mortgages,  mortgage-backed  securities and certain other financial  instruments
from  financial  institutions  for the  purpose  of  stabilizing  and  providing
liquidity to the U.S. financial markets.

On October  14,  2008,  Secretary  Paulson,  after  consulting  with the Federal
Reserve  and the  FDIC,  announced  that the  Department  of the  Treasury  will
purchase  equity  stakes in a wide  variety  of banks and  thrifts.  Under  this
program,  known as the Troubled Asset Relief Program  Capital  Purchase  Program
(the "TARP Capital Purchase  Program"),  from the $700 billion authorized by the
EESA, the Treasury will make $250 billion of capital available to U.S. financial
institutions in the form of preferred stock. In conjunction with the purchase of
preferred  stock,  the Treasury will receive  warrants to purchase  common stock
with  an  aggregate  market  price  equal  to 15% of the  preferred  investment.
Participating  financial  institutions  will be required to adopt the Treasury's
standards for executive  compensation  and corporate  governance  for the period
during which the Treasury  holds equity  issued under the TARP Capital  Purchase
Program. Secretary Paulson also announced that nine large financial institutions
have already agreed to participate in the TARP Capital Purchase Program.

Also on October 14, 2008,  after receiving a  recommendation  from the boards of
the FDIC and the Federal Reserve,  and consulting with the President,  Secretary
Paulson signed the systemic risk exception to the FDIC Act, enabling the FDIC to
temporarily  provide a 100%  guarantee  of the senior  debt of all  FDIC-insured
institutions  and their holding  companies,  as well as deposits in non-interest
bearing  transaction  deposit  accounts  under a Temporary  Liquidity  Guarantee
Program.  Coverage under the Temporary  Liquidity Guarantee Program is available
for 30 days without charge and thereafter at a cost of 75 basis points per annum
for senior unsecured debt and 10 basis points per annum for non-interest bearing
transaction deposits. The Corporation is assessing its participation in both the
TARP Capital Purchase Program and the Temporary  Liquidity Guarantee Program but
has not yet made a definitive decision as to whether it will participate.

It is not clear at this time what  impact the EESA,  the TARP  Capital  Purchase
Program, the Temporary Liquidity Guarantee Program,  other liquidity and funding
initiatives of the Federal  Reserve and other agencies that have been previously
announced,  and any additional programs that may be initiated in the future will
have on the  financial  markets  and the  other  difficulties  described  above,
including  the extreme  levels of  volatility  and limited  credit  availability
currently being experienced, or on the U.S. banking and financial industries and
the broader U.S. and global  economies.  Further  adverse  effects could have an
adverse effect on the Corporation and its business.


                                                                         Page 22
<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 our Annual  Report on Form 10-K for the year ended  December 31,
2007. Certain policies are considered critical because they are highly dependent
upon subjective or complex judgments, assumptions and estimates. Changes in such
estimates may have a significant  impact on the  financial  statements.  We have
reviewed the application of these policies with the Audit Committee of our Board
of Directors.

We believe there have been no  significant  changes during the nine months ended
September  30, 2008 to the items that we disclosed  as our  critical  accounting
policies and  estimates  in  Management's  Discussion  and Analysis of Financial
Condition  and Results of  Operations  in our Annual Report on Form 10-K for the
year ended December 31, 2007.

BUSINESS SUMMARY

We are a diversified financial holding company headquartered in Muncie, Indiana.
Since its  organization in 1982, the Corporation has grown to include 65 banking
center  locations in 18 Indiana and 3 Ohio  counties.  In addition to its branch
network,  the  Corporation's   delivery  channels  include  ATMs,  check  cards,
interactive voice response systems and internet technology.

The Corporation's  business  activities are currently limited to one significant
business  segment,  which is community  banking.  As of September 30, 2008,  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,  our  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.

On  September  3, 2008,  the  Corporation  announced a  definitive  agreement to
acquire  Lincoln Bancorp  through a merger of Lincoln into First  Merchants.  At
September  30,  2008,  Lincoln  Bancorp  had $831.3  million in assets.  Lincoln
Bancorp  and  Lincoln  Bank  are  headquartered  in  Plainfield,   Indiana  with
additional offices in Avon, Bargersville, Brownsburg, Crawfordsville, Frankfort,
Franklin, Greenwood,  Mooresville,  Morgantown, Nashville and Trafalgar. Lincoln
Bank  also has 2 loan  production  offices  located  in  Carmel  and  Greenwood,
Indiana.  First  Merchants and Lincoln will have combined assets of $4.7 billion
and create the largest financial  holding company based in Central Indiana.  The
combined  company will have eighty-two  banking offices in twenty-three  Indiana
and three Ohio counties,  a trust company with assets under management in excess
of $1.7  billion,  and a  multi-line  insurance  agency.  The  merger is pending
Lincoln Bancorp shareholder  approval and regulatory  approval.  The company has
filed the registration  statement which includes the terms and conditions of the
merger agreement on form S-4 dated September 24, 2008 (file No. 333-153656).

Management believes that its vision, mission,  culture statement and core values
produce  profitable  growth for  shareholders.  Management  also  believes it is
important to maintain a strong  control  environment  as we continue to grow our
businesses.  Interest rate and market risks  inherent in our asset and liability
balances are managed within prudent ranges,  while ensuring  adequate  liquidity
and funding.  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.




                                                                         Page 23
<PAGE>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q

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

RESULTS OF OPERATIONS

Net income for the three months ended  September 30, 2008,  equaled  $5,749,000,
compared to  $8,350,000 in the same period of 2007.  Diluted  earnings per share
were $.32,  compared to $.46 reported for the third quarter 2007. Net income for
the nine months ended September 30, 2008 was $20,417,000 compared to $22,329,000
for the same period in 2007.  Diluted  earnings per share were $1.13 in 2008 and
$1.22 in 2007.

Net-interest  margin  expanded by 39 basis points from 3.52 percent in the third
quarter  of 2007 to 3.91  percent  in 2008.  As a  result,  net-interest  income
increased by $4.7 million,  or 16.5 percent.  Year-to-date  net interest  margin
improved by 32 basis points as net interest  income  increased by $13 million or
15.6 percent.

Provision  expense  totaled $7.1  million for the  quarter,  an increase of $4.3
million, as net charge-offs totaled $3.7 million. Year-to-date provision expense
totaled  $18  million,  an  increase  of $12  million  over the prior  year,  as
charge-off's  totaled $11.2  million.  Non-performing  assets  increased from 84
basis points of total assets to 142 basis points during the year.

The  Corporation's  allowance  for loan  losses  as a  percent  of  total  loans
increased from .96 to 1.14 percent since September 30, 2007. The increase totals
$7.4 million in additional  reserves.  The  increased  allowance for loan losses
total is  comprised of a $2.0 million  increase in the general  historical  loss
component,  a $6.3 million  increase in  environmental  factors and a decline in
specific reserves of $924,000.

Total  non-interest  income decreased by $1.6 million,  during the quarter,  due
primarily to a $1.4 million  write-off of the other than temporarily  impairment
of Federal Home Loan Mortgage  Corporation  preferred  stock. The investment was
deemed to be  permanently  impaired  as the market  value  continued  to decline
rapidly with no  indication of recovery.  Total  expenses  increased  during the
quarter by $2.1 million totaling $27.1 million. Year-to-date non-interest income
declined by $337,000 and non-interest expense increased $2,857,000.

Annualized  returns on average assets and average  stockholders'  equity for the
nine months  ended  September  30,  2008,  were .72  percent  and 7.81  percent,
respectively,  compared with .83 percent and 9.05 percent for the same period of
2007.

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 7.3 percent at
September 30, 2008 and 7.2 percent at year end 2007.  In addition,  at September
30,  2008,  we had a Tier I  risk-based  capital  ratio of 8.5 percent and total
risk-based capital ratio of 11.2 percent.  Regulatory capital guidelines require
a Tier I risk-based capital ratio of at least 4.0 percent and a total risk-based
capital ratio of at least 8.0 percent.

Our GAAP capital ratio,  defined as total stockholders'  equity to total assets,
equaled 9.1 percent at September  30, 2008 and 9.0 percent at December 31, 2007.
When we acquire other companies for stock,  GAAP capital increases by the entire
amount of the purchase price.

Our  tangible  capital  ratio,   defined  as  total  stockholders'  equity  less
intangibles net of tax to total assets less  intangibles net of tax, equaled 5.9
percent as of September 30, 2008, and 5.7 percent at December 31, 2007.

                                                                         Page 24
<page>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations  continued
------------------------

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.
<table>
                                           September 30,    December 31,
(Dollars in thousands)                          2008            2007
                                            -----------     -----------
<S>                                               <C>           <C>
Average goodwill .......................... $   124,310     $   123,191
Average core deposit intangible (CDI) .....      11,679          13,868
Average deferred tax on CDI ...............      (2,971)         (3,659)
                                            -----------     -----------
  Intangible adjustment ................... $   133,018     $   133,400
                                            ===========     ===========

Average stockholders' equity (GAAP capital) $   348,415     $   330,786
Intangible adjustment .....................    (133,018)       (133,400)
                                            -----------     -----------
  Average tangible capital ................ $   215,397     $   197,386
                                            ===========     ===========

Average assets ............................ $ 3,791,305     $ 3,639,772
Intangible adjustment .....................    (133,018)       (133,400)
                                            -----------     -----------
  Average tangible assets ................. $ 3,658,287     $ 3,506,372
                                            ===========     ===========

Net income ................................ $    20,417     $    31,639
CDI amortization, net of tax ..............       1,119           1,919
                                            -----------     -----------
  Tangible net income ..................... $    21,536     $    33,558
                                            ===========     ===========

Diluted earnings per share ................ $      1.13     $      1.73
Diluted tangible earnings per share ....... $      1.19     $      1.83

Return on average GAAP capital ............        7.81%           9.56%
Return on average tangible capital ........       13.33%          17.00%

Return on average assets ..................         .72%            .87%
Return on average tangible assets .........         .78%            .96%
</table>
                                                                         Page 25
<PAGE>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

ASSET QUALITY/PROVISION FOR LOAN LOSSES

Our primary  business  focus is middle market  commercial and  residential  real
estate,   auto  and  small   consumer   lending,   which  results  in  portfolio
diversification. We ensure that appropriate methods to understand and underwrite
risk  are  utilized.   Commercial  loans  are   individually   underwritten  and
judgmentally risk rated.  They are periodically  monitored and prompt corrective
actions  are  taken  on   deteriorating   loans.   Retail  loans  are  typically
underwritten with statistical  decision-making  tools and are managed throughout
their life cycle on a portfolio basis.

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

At September 30, 2008,  non-performing  assets, which includes nonaccrual loans,
restructured loans, and other real estate owned totaled $54,930,000, an increase
of  $23,181,000  from December 31, 2007 as noted in Note 5 Loans and  Allowance,
included within the Notes to Consolidated Condensed Financial Statements of this
Form 10Q. Other real estate owned increased  $14,343,000 from December 31, 2007,
largely due to two relationships,  one that came into other real estate owned in
the first quarter of 2008 and one in the second quarter. Other real estate owned
declined by $300,000 in the third quarter due to a sale of property.  Additional
sales are anticipated in the fourth quarter.  Current appraisals are obtained to
determine value as management  continues to agressively market these real estate
assets.

Non-performing  loans will  increase or decrease  going forward due to portfolio
growth,  routine problem loan  recognition and resolution  through  collections,
sales or  charge-offs.  The  performance of any loan can be affected by external
factors such as economic conditions,  or factors particular to a borrower,  such
as actions of a borrower's management.

At September  30, 2008,  impaired  loans  totaled  $129,052,000,  an increase of
$42,103,000  from  December 31, 2007.  At September  30, 2008,  an allowance for
losses was not deemed  necessary for impaired  loans totaling  $114,940,000,  as
there was no identified  loss on these  credits.  An allowance of $6,123,000 was
recorded  for the  remaining  balance of impaired  loans of  $14,112,000  and is
included in our allowance for loan losses.

The  increase  of total  impaired  loans is  primarily  due to the  increase  of
performing,  substandard classified loans, which comprise a portion of our total
impaired loans. A loan is deemed impaired when, based on current  information or
events,  it is probable all amounts due of principal  and interest  according to
the  contractual  terms of the loan agreement will not be collected.  All of our
criticized loans, including substandard, doubtful and loss credits, are included
in the impaired loan total.

At September 30, 2008, the allowance for loan losses was $34,985,000,an increase
of $6,757,000 from year end 2007. As a percent of loans,  the allowance was 1.14
percent at September 30, 2008 and .98 percent at December 31, 2007.

The provision for loan losses for the first nine months of 2008 was $17,987,000,
an increase of  $11,930,000  from  $6,057,000  for the same period in 2007.  The
increase  from the prior year was a result of an increase in net charge offs and
the increase in non-performing loans.

The  decline  in the value of the  residential  real  estate in our  market  has
negatively  impacted the underlying  collateral value in our  residential,  land
development and construction  loans.  This downturn in the real estate market is
expected  to  continue  and   management  is  proactive  in   evaluating   loans
collateralized   by  real  estate.   The   evaluation  by  management   includes
consideration of specific  borrower cash flow analysis and estimated  collateral
values,  types and amounts on  non-performing  loans,  past and anticipated loan
loss  experience,  changes in the  composition  of the loan  portfolio,  and the
current  condition and amount of loans  outstanding.  The  determination  of the
provision  in  any  period  is  based  on  management's  continuing  review  and
evaluation of the loan  portfolio,  and its judgment as to the impact of current
economic conditions on the portfolio.


                                                                         Page 26

<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

LIQUIDITY

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

Our  liquidity  is  dependent  upon  our  receipt  of  dividends  from  our 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,  we utilize  advances  from the Federal Home Loan Bank  ("FHLB") and a
revolving  line of credit  with  LaSalle  Bank,  N.A.  as  funding  sources.  At
September 30, 2008, total borrowings from the FHLB were  $237,225,000.  Our bank
subsidiaries  have pledged  certain  mortgage loans and investments to the FHLB.
The total available  remaining borrowing capacity from the FHLB at September 30,
2008, was  $15,247,000.  At September 30, 2008, our revolving line of credit had
no balance and a remaining borrowing capacity of $25,000,000.

The  principal  source  of  asset-funded   liquidity  is  investment  securities
classified  as  available   for  sale,   the  market  values  of  which  totaled
$377,329,000  at September 30, 2008, a decrease of  $63,507,000  or 14.4 percent
below  December 31, 2007.  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  $2,254,000  at September  30,  2008.  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,  we  are 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.

We  provide  customers  with  off-balance  sheet  credit  support  through  loan
commitments and standby letters of credit.  Summarized  credit-related financial
instruments at September 30, 2008 are as follows:

                                                                At September 30,
(Dollars in thousands)                                               2008
                                                                --------------
Amounts of commitments:
Loan commitments to extend credit ............................... $  700,555
Standby letters of credit .......................................     32,523
                                                                  ----------
                                                                  $  733,078
                                                                  ==========

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,  we have  entered  into a number of
long-term leasing  arrangements to support our ongoing activities.  The required
payments  under such  commitments  and  borrowings  at September 30, 2008 are as
follows:
<TABLE>
<CAPTION>
                                2008       2009       2010       2011       2012       2013       Total
(Dollars in thousands)       remaining                                              and after
                            ---------------------------------------------------------------------------
<S>                          <C>        <C>        <C>        <C>        <C>        <C>        <C>
Operating leases .........   $    440   $  1,590   $  1,312   $  1,117   $    735   $    378   $  5,572
Borrowings ...............    220,131     55,340     61,045     25,941     65,710    143,141    571,308
                             --------   --------   --------   --------   --------   --------   --------
Total ....................   $220,571   $ 56,930   $ 62,357   $ 27,058   $ 66,445   $143,519   $576,880
                             ========   ========   ========   ========   ========   ========   ========
</TABLE>
                                                                         Page 27
<PAGE>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK

Asset/Liability  Management  ("ALM") has been an important factor in our ability
to  record   consistent   earnings  growth  through  periods  of  interest  rate
volatility.  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,  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 ALM  function  to
provide optimum and stable net interest  income.  To accomplish this, we use two
ALM  tools.  GAP/Interest  Rate  Sensitivity  Reports  and Net  Interest  Income
Simulation Modeling are both constructed, presented, and monitored quarterly.

We believe that our liquidity and interest sensitivity position at September 30,
2008,  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 on
the following page. 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 28
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

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

Driver Rates            RISING             FALLING
-------------------------------------------------------------
Prime                   200 Basis Points   (200) Basis Points
Federal Funds           200                (200)
One-Year CMT            200                (200)
Three-Year CMT          200                (200)
Five-Year CMT           200                (200)
CD's                    200                (170)
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 September 30,
2008. 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                         $130,147  $133,524   $124,485

Variance from base                                    $  3,377   $ (5,663)

Percent of change from base                                2.6%      (4.4)%

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

Driver Rates            RISING             FALLING
-------------------------------------------------------------
Prime                   200 Basis Points   (200) Basis Points
Federal Funds           200                (200)
One-Year CMT            200                (200)
Two-Year CMT            200                (200)
Three-Year CMT          200                (200)
Five-Year CMT           200                (200)
CD's                    200                (193)
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 December 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                         $117,693  $120,089   $116,063

Variance from base                                    $  2,396   $ (1,630)

Percent of change from base                                2.0 %     (1.4)%

                                                                         Page 29
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

EARNING ASSETS

The following table presents the earning asset mix as of September 30, 2008, and
December 31, 2007.  Earning assets  increased by $128,829,000 in the nine months
ended  September  30,  2008.   Loans  and  loans  held  for  sale  increased  by
$200,252,000.  The three largest loan segments that increased were in commerical
and  industrial,  agricultural  production,  and commercial  and farmland.  Loan
segments that decreased were loans to individuals and  residential  real estate.
Investments  decreased by $62,359,000 as lower yielding  investments matured and
were reinvested in higher yielding loans.

<TABLE>

EARNING ASSETS
(Dollars in thousands)                                   September 30,      December 31,
                                                              2008              2007
----------------------------------------------------------------------------------------
<S>                                                       <C>              <C>
Interest-bearing time deposits ......................     $   15,623        $   24,931

Investment securities available for sale ............        377,329           440,836

Investment securities held to maturity ..............         11,479            10,331

Mortgage loans held for sale ........................          2,062             3,735

Loans ...............................................      3,078,768         2,876,843

Federal Reserve and Federal Home Loan Bank stock              25,494            25,250
                                                          ----------        ----------

                     Total ..........................     $3,510,755        $3,381,926
                                                          ==========        ==========


</table>
                                                                         Page 30
<PAGE>
                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

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 three and nine months ended September
30, 2008 and 2007.

The following table reflects the change in asset yields,  interest costs and the
resulting  net  interest  margin  for the three  months  and nine  months  ended
September 2008 and 2007.
<TABLE>
<CAPTION>
                                                            Three Months Ended             Nine Months Ended
                                                              September 30,                  September 30,
<S>                                                     <C>           <C>             <C>           <C>
(Dollars in Thousands)                                      2008         2007             2008         2007
                                                        -----------  -----------      -----------  -----------
Annualized net interest income........................  $  133,017   $  114,142       $  128,315   $  110,967

Annualized FTE adjustment.............................  $    3,661   $    4,265       $    3,595   $    4,123

Annualized net interest income
  On a fully taxable equivalent basis.................  $  136,678   $  118,407       $  131,910   $  115,090

Average earning assets................................  $3,499,686   $3,359,170       $3,441,884   $3,282,126

Interest income (FTE) as a percent
  of average earning assets...........................        6.39%        7.17%            6.52%        7.09%

Interest expense as a percent
  of average earning assets...........................        2.48%        3.65%            2.69%        3.58%

Net interest income (FTE) as a percent
  of average earning assets...........................        3.91%        3.52%            3.83%        3.51%

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  was  to be  amortized  on an  allocated  fair  value  basis  over  the
three-year term of the agreements.  On March 19, 2008, the Corporation  received
$5,216,000 in connection  with the  termination of the three interest rate floor
agreements.  The contractual  maturity of the floors was August 1, 2009.  During
the life of the floors, pre-tax gains of approximately  $4,662,500 were deferred
in accumulated  other  comprehensive  income (AOCI) in accordance with cash flow
hedge  accounting rules  established by SFAS No. 133,  Accounting for Derivative
Instruments and Hedging  Activities (as amended).  The amounts  deferred in AOCI
will be reclassified out of equity into earnings over the remaining  contractual
term of the original  contract.  SFAS 133 requires that amounts deferred in AOCI
be  reclassified  into earnings in the same periods  during which the originally
hedged  cash  flows  (prime-based  interest  payments  on loan  assets)  affects
earnings,  as long as the  originally  hedged  cash  flows  remain  probable  of
occurring (i.e. the principal  amount of designated  prime-based  loans match or
exceed the notional  amount of the terminated  floor through August 1, 2009). If
the  principal  amount of the  originally  hedged loans falls below the notional
amount of the terminate floors,  then amounts in AOCI could be accelerated.  The
Corporation  decided to terminate the interest rate floor  agreements only after
considering the impact of the transaction on its risk management  objectives and
after  alternative  strategies  were in place to mitigate the adverse  impact of
falling  interest rates on its net interest  margin.  At September 30, 2008, the
remaining pre-tax gains are approximately $2.8 million.



                                                                         Page 31
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

The Corporation  offers interest rate  derivative  products (e.g.  interest rate
swaps) to certain of its high-quality commercial borrowers.  This product allows
customers to enter into an agreement with the Corporation to swap their variable
rate loan to a fixed rate.  These  derivative  products  are designed to reduce,
eliminate  or modify  the risk of  changes in the  borrower's  interest  rate or
market price risk.  The  extension of credit  incurred  through the execution of
these  derivative  products  is  subject  to the  same  approvals  and  rigorous
underwriting   standards  as  the  related   traditional  credit  product.   The
Corporation  limits its risk  exposure  to these  products  by  entering  into a
mirror-image,  offsetting swap agreement with a separate,  well-capitalized  and
rated  counterparty  previously  approved  by the  Credit  and  Asset  Liability
Committee.  By using these interest rate swap  arrangements,  the Corporation is
also better  insulated from the interest rate risk associated with  underwriting
fixed-rate loans. These derivative contracts are not designated against specific
assets or liabilities  under SFAS 133 and,  therefore,  do not qualify for hedge
accounting.  The derivatives are recorded on the balance sheet at fair value and
changes in fair value of both the customer and the offsetting  swaps  agreements
are recorded (and essentially offset) in non-interest  income. The fair value of
the  derivative  instruments  incorporates  a  consideration  of credit risk (in
accordance with SFAS 157), resulting in some volatility in earnings each period.
As of  September  30,  2008,  the notional  amount of  customer-facing  swaps is
approximately   $48,235,000.    This   amount   is   offset   with   third-party
counterparties,  as described  above,  in the same amount.  As of September  30,
2008,  the fair value of  derivative  assets in this  program  is  approximately
$767,000; the fair value of derivative liabilities is approximately $690,000.

OTHER INCOME

Total other income in the third  quarter of 2008 was  $1,628,000 or 15.0 percent
lower than the same period of 2007.

Five items primarily account for the change:

1.   In the third  quarter  2008,  an other than  temporary  impairment  loss of
     $1,458,000 was recognized on Freddie Mac Preferred  Stock.

2.   The sale of a branch  building  and other real estate  resulted in gains of
     $666,000 in the third quarter of 2007.

3.   Earnings on  bank-owned  life  insurance  decreased  $479,000 from the same
     period in 2007 due to the  decline in the  subprime  and  commercial  paper
     markets.

4.   Service  Charges  increased  $327,000  from the same  period in 2007 due to
     increased fees and activity.

5.   Fees  related to the new  derivative  product  were  $254,000  in the third
     quarter of 2008. This product was introduced in 2008.

Other income for the first nine months of 2008 was $337,000 or 1.1 percent lower
than the same period in 2007.

Five items primarily account for the change:

1.   In the third  quarter  2008,  an other than  temporary  impairment  loss of
     $1,458,000 was recognized on Freddie Mac Preferred Stock.

2.   Earnings on  bank-owned  life  insurance  decreased  $602,000 from the same
     period in 2007 due to the  decline in the  subprime  and  commercial  paper
     markets.

3.   Fees related to the new derivative  product were $620,000 through the first
     nine months of 2008. This product was introduced in 2008.

4.   Insurance  commissions  increased $471,000 from the same period in 2007 due
     to the purchase of an insurance agency in April 2008.

5.   Service  Charges  increased  $441,000  from the same  period in 2007 due to
     increased fees and activity.




                                                                         Page 32
<PAGE>


                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

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

OTHER EXPENSES

Total other expenses in the third quarter of 2008 were $2,113,000 or 8.5 percent
higher than the same period in 2007.

Four items primarily account for the change:

1.   Salary and employee  benefit expenses were $747,000 higher than in the same
     period of 2007 due to staffing additions and normal annual increases.

2.   Expenses  related to other real estate  owned and  repossessed  assets were
     $727,000 higher in 2008 than in the same period of 2007.

3.   FDIC  insurance  increased  $262,000  from the same period in 2007 due to a
     cumulative credit that was utilized in prior periods.

Total other  expenses for the first nine months of 2008 were  $2,857,000  or 3.7
percent higher than the same period in 2007.

Four items account for the majority of the change:

1.   Salary and employee  benefit  expenses were  $3,021,000  higher than in the
     same period of 2007 due to staffing additions and normal annual increases.

2.   Expenses  related to other real estate owned and  repossessed  assets were,
     $633,000 higher in 2008 than in the same period of 2007.

3.   FDIC  insurance  increased  $310,000  from the same period in 2007 due to a
     cumulative credit that was utilized in prior periods.

4.   In the second  quarter of 2007, the  Corporation  wrote off $1.8 million in
     unamortized underwriting fees associated with First Merchants Capital Trust
     I subordinated debentures.


INCOME TAXES

Income tax expense,  for the nine months ended September 30, 2008,  decreased by
$201,000 from the same period in 2007.  The effective tax rate was 28.5 and 27.2
percent for the 2008 and 2007 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.

                                                                         Page 33
<PAGE>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q
                           PART II. OTHER INFORMATION

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

          None

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

In  addition  to the risk  factors  previously  disclosed  in the  Corporation's
December 31, 2007 Annual Report on Form 10-K, the  Corporation may suffer losses
in is portfolio  despite its underwriting  practices.  In connection with recent
negative  economic  developments,  many  financial  institutions,  including the
Corporation,   have  experienced   unusual  and  significant   declines  in  the
performance of their loan  porfolios,  and the values of real estate  collateral
supporting  many loans have  declined.  If the current trends in the housing and
real esate markets continue, we expect that loan delinquencies and credit losses
may increase. Although the Corporation believes its underwriting and loan review
procedures  are  appropriate  for the  various  kinds of loans they  make,  loan
quality  deterioration  could  adversely  affect  the  Corporation's  results of
operations and financial condition.


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

          a.   None

          b.   None

          c.   Issuer Purchases of Equity Securities

The following  table  presents  information  relating to our purchases of equity
securities during the quarter ended September 30,  2008, 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(2)       THE PLANS OR PROGRAMS
      ------            ----------------    --------------    -------------------------    ------------------------
<S>                     <C>                 <C>               <C>                          <C>
07/01/08 - 07/31/08               0             $    0                    0                     390,000
08/01/08 - 08/31/08               0                  0                    0                     390,000
09/01/08 - 09/30/08               0                  0                    0                     390,000
</TABLE>



On December 4, 2007, the Corporation's Board authorized management to repurchase
up to 500,000 shares of the Corporation's  Common Stock. This  authorization was
publicly  announced and expires December 31, 2008. There were 390,000  remaining
shares that may yet be purchased pursuant to such authorizations as of September
30, 2008.



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

         None

                                                                         Page 34
<page>
                           FIRST MERCHANTS CORPORATION
                                    FORM 10-Q
                           PART II. OTHER INFORMATION


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

     None

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

         a.  None

         b.  None
                                                                         Page 35
<PAGE>

                           FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

                           PART II. OTHER INFORMATION


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

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

                2.1             Agreement of Reorganization
                                and Merger between First
                                Merchants Corporation and
                                Lincoln Bancorp dated
                                September 2, 2008
                                (Incorporated by reference
                                to Registrant's Form 8-K
                                filed September 3, 2008).
                                Upon request, the Registrant
                                agrees to furnish
                                supplementally to the
                                Commission a copy of the
                                Disclosure Letters referenced
                                in the Agreement of
                                Reorganization and Merger.

                2.2             First Amendment of                   39
                                Reorganization and Merger
                                dated October 29, 2008

                3a              Bylaws of First Merchants            41
                                Corporation dated
                                October 28, 2008

                10              First Merchants Corporation          55
                                2007 Directors' Deferred
                                Compensation Plan (Effective
                                as of August 1, 2007)
                                (As Amended by First and
                                Second Amendments


                31.1            Certification of Chief               69
                                Executive Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                31.2            Certification of Chief               70
                                Financial Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                32              Certifications Pursuant to           71
                                18 U.S.C. Section 1350, as
                                Adopted Pursuant to Section
                                906 of the Sarbanes-Oxley
                                Act of 2002


                                                                         Page 36


<PAGE>


                          FIRST MERCHANTS CORPORATION

                                    FORM 10-Q

                                   SIGNATURES

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

                                          First Merchants Corporation
                                          ---------------------------
                                                   (Registrant)


Date: November 5, 2008                  by /s/ Michael C. Rechin
     --------------------------            -------------------------------------
                                           Michael C. Rechin
                                           President and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

Date: November 5, 2008                  by /s/ Mark K. Hardwick
     --------------------------            -------------------------------------
                                           Mark K. Hardwick
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)


                                                                         Page 37

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

                2.1             Agreement of Reorganization
                                and Merger between First
                                Merchants Corporation and
                                Lincoln Bancorp dated
                                September 2, 2008
                                (Incorporated by reference
                                to Registrant's Form 8-K
                                filed September 3, 2008).
                                Upon request, the Registrant
                                agrees to furnish
                                supplementally to the
                                Commission a copy of the
                                Disclosure Letters referenced
                                in the Agreement of
                                Reorganization and Merger.

                2.2             First Amendment of                   38
                                Reorganization and Merger
                                dated October 29, 2008

                3a              Bylaws of First Merchants            41
                                Corporation dated
                                October 28, 2008

                10              First Merchants Corporation          55
                                2007 Directors' Deferred
                                Compensation Plan (Effective
                                as of August 1, 2007)
                                (As Amended by First and
                                Second Amendments)


                31.1            Certification of Chief               69
                                Executive Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                31.2            Certification of Chief               70
                                Financial Officer Pursuant
                                to Section 302 of the
                                Sarbanes - Oxley Act of
                                2002

                32              Certifications Pursuant to           71
                                18 U.S.C. Section 1350, as
                                Adopted Pursuant to Section
                                906 of the Sarbanes-Oxley
                                Act of 2002


                                                                         Page 38

<PAGE>

                                  EXHIBIT-2.2

                          FIRST MERCHANTS CORPORATION

                                   FORM 10-Q
                               FIRST AMENDMENT OF
                           REORGANIZATION AND MERGER


     THIS FIRST AMENDMENT TO AGREEMENT OF REORGANIZATION  AND MERGER (the "First
Amendment"),  made as of the 29th day of October,  2008, is by and between FIRST
MERCHANTS CORPORATION,  an Indiana corporation ("First Merchants"),  and LINCOLN
BANCORP, an Indiana corporation ("Lincoln").

                                   WITNESSETH:

     WHEREAS,  First  Merchants  and  Lincoln  are  parties to an  Agreement  of
Reorganization and Merger, dated September 2, 2008 (the "Agreement"); and

     WHEREAS, the parties now desire to amend the Agreement as herein provided;

     NOW, THEREFORE,  in consideration of the premises,  and the mutual promises
herein  contained,  the parties agree that the Agreement shall be, and it hereby
is, amended as follows:

                          PART I. AMENDATORY PROVISION

     All capitalized  terms used, but not otherwise  defined herein,  shall have
the meaning ascribed in the Agreement.

     1.   Section  8.08(b).  Section 8.08(b) of the Agreement is hereby amended
by adding the following sentence at the end of the subsection:

          Notwithstanding  the foregoing,  the indemnity  obligations  contained
          herein  shall be limited as  required  by Federal  banking law and the
          obligations   are  invalid  and   unenforceable   to  the  extent  the
          obligations exceed such limitations.

                           PART II. CONTINUING EFFECT

     All other terms,  conditions,  representations,  warranties  and  covenants
contained in the Agreement  shall remain  unchanged  and shall  continue in full
force and effect.  Except as expressly herein  provided,  the Agreement and this
First Amendment shall be interpreted,  wherever possible, in a manner consistent
with one another,  but in the event of any  irreconcilable  inconsistency,  this
First Amendment shall control.

     This First Amendment may be signed in multiple counterparts,  each of which
(including a facsimile  thereof)  will be deemed an  original,  but all of which
will constitute one and the same instrument.

        [THIS SPACE INTENTIONALLY LEFT BLANK. SIGNATURE PAGE TO FOLLOW.]

                                                                         Page 39

<page>
     IN WITNESS  WHEREOF,  First  Merchants  and Lincoln  have caused this First
Amendment to be executed effective as of the date first above written.


"FIRST MERCHANTS"                        FIRST MERCHANTS CORPORATION


                                         By:   /s/  Michael C. Rechin
                                               ---------------------------------
                                               Michael C. Rechin, President and
                                               Chief Executive Officer


"LINCOLN"                                LINCOLN BANCORP


                                         By:   /s/  Jerry R. Engle
                                               ---------------------------------
                                               Jerry R. Engle, President and
                                               Chief Executive Officer

     LINCOLN BANK, an Indiana state bank,  and FIRST  MERCHANTS  BANK OF CENTRAL
INDIANA,  NATIONAL ASSOCIATION,  a national banking association,  hereby join in
this First Amendment as required by Section 13.02(b) of the Agreement.


                                         LINCOLN BANK


                                         By:   /s/  Jerry R. Engle
                                               ---------------------------------
                                               Jerry R. Engle, President and
                                               Chief Executive Officer


                                         FIRST MERCHANTS BANK OF CENTRAL INDIANA


                                         By:   /s/  Michael L. Baker
                                               ---------------------------------
                                               Michael L. Baker, President and
                                               Chief Executive Officer

                                                                         Page 40
<page>
                                   EXHIBIT-3A

                          FIRST MERCHANTS CORPORATION

                                   FORM 10-Q
                                   BYLAWS OF
                          FIRST MERCHANTS CORPORATION

     Following  are the  Bylaws  of  First  Merchants  Corporation  (hereinafter
referred  to as the  "Corporation"),  a  corporation  existing  pursuant  to the
provisions of the Indiana Business  Corporation Law (hereinafter  referred to as
the "Act"), as most recently amended effective as of October 28, 2008:

                                    ARTICLE I

                         Name, Principal Office and Seal

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

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

                                   ARTICLE II

                                   Fiscal Year

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

                                   ARTICLE III

                                  Capital Stock

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

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

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

                                                                         Page 41
<PAGE>
     Section 4. Payment for Shares. The consideration for the issuance of shares
of capital stock of the  Corporation may be paid, in whole or in part, in money,
in other property,  tangible or intangible,  or in labor actually performed for,
or services actually rendered to the Corporation;  provided,  however,  that the
part of the surplus of the  Corporation  which is  transferred to stated capital
upon the  issuance  of  shares  as a share  dividend  shall be  deemed to be the
consideration for the issuance of such shares. When payment of the consideration
for which a share was  authorized  to be issued shall have been  received by the
Corporation,  or when surplus shall have been transferred to stated capital upon
the issuance of a share  dividend,  such share shall be declared and taken to be
fully  paid and not liable to any  further  call or  assessment,  and the holder
thereof shall not be liable for any further payments thereon.  In the absence of
actual  fraud in the  transaction,  the judgment of the Board of Directors as to
the value of such property, labor or services received as consideration,  or the
value placed by the Board of Directors upon the corporate assets in the event of
a share dividend, shall be conclusive.  Promissory notes, uncertified checks, or
future  services shall not be accepted in payment or part payment of the capital
stock of the Corporation, except as permitted by the Act.

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

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

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

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

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

                                                                         Page 42
<page>

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

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

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

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

                                                                         Page 43
<page>

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

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


                                   ARTICLE IV

                            Meetings of Shareholders

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

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

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

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

                                                                         Page 44
<page>
     Section 5.  Addresses  of  Shareholders.  The  address  of any  shareholder
appearing upon the records of the  Corporation  shall be deemed to be the latest
address  of  such  shareholder  appearing  on  the  records  maintained  by  the
Corporation  or its  transfer  agent  for  the  class  of  stock  held  by  such
shareholder.

     Section 6. Voting at Meetings.

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

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

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

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

                                                                         Page 45
<page>

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

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

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

                                    ARTICLE V

                               Board of Directors

     Section 1. Election, Number and Term of Office. The business and affairs of
the Corporation  shall be managed in accordance with the Act under the direction
of a Board consisting of ten (10) Directors, to be elected by the holders of the
shares of stock entitled by the Articles of  Incorporation  to elect  Directors.
The  number of  Directors  may be  changed  by  amendment  of this  Section by a
two-thirds (2/3) vote of the Board of Directors.

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

                                                                         Page 46
<page>

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

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

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

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

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

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

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

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

                                                                         Page 47
<page>

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

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

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

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

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

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

                                                                         Page 48
                                                                          <page>

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

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

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

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

                                                                         Page 49
<page>

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

                                   ARTICLE VI

                                    Officers

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

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

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

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

                                                                         Page 50
<page>

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

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

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

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

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

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

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

                                                                         Page 51
<page>

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

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

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

                                   ARTICLE VII

                                 Indemnification

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

                                                                         Page 52
<page>

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

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

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

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

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

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

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

                                                                         Page 53
<page>

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

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

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

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

                                  ARTICLE VIII

                                   Amendments

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

                                                                         Page 54
<page>
                                   EXHIBIT-10

                          FIRST MERCHANTS CORPORATION

                                   FORM 10-Q
                   2007 DIRECTORS' DEFERRED COMPENSATION PLAN
                        (Effective as of August 1, 2007)
                   (As Amended by First and Second Amendments)








                           FIRST MERCHANTS CORPORATION

                   2007 DIRECTORS' DEFERRED COMPENSATION PLAN

                        (Effective as of August 1, 2007)

                   (As Amended by First and Second Amendments)














                                                                         Page 55
<PAGE>






                                    ARTICLE I

                                  INTRODUCTION

     Section 1.1 Purpose.  The purpose of the First Merchants  Corporation  2007
Directors'  Deferred  Compensation  Plan (the "Plan") is to permit  non-employee
members of the Board of Directors (the "Board") of First  Merchants  Corporation
(the "Company") and non-employee members of the board of directors of Affiliates
who adopt the Plan with the Company's consent in accordance with Section 9.1, to
elect to defer all or a portion of the fees  payable to them for their  services
as board  members.  It is the intention of the Company and  Affiliates  that the
Plan constitute a deferred  compensation  arrangement that complies with Section
409A  of  the  Internal   Revenue  Code  of  1986,   as  amended  (the  "Code").
Consequently,  the Plan  will be  administered  and its  provisions  interpreted
consistently with that intention.

     Section 1.2 Effective Date: Plan Year. The "Effective  Date" of the Plan is
August 1, 2007. The "Plan Year" is the 12-month period beginning on each January
1 and ending on the next following December 31.

     Section  1.3   Administration.   The  Plan  will  be  administered  by  the
Compensation Committee of the Board (the "Committee").  The Committee, from time
to time, may adopt any rules and procedures it deems  necessary or desirable for
the proper and efficient administration of the Plan that are consistent with the
terms of the Plan. The Committee may also delegate day-to-day  administration to
individual employees of First Merchants Bank. Any notice or document required to
be  given  or  filed  with  the  Committee  will be  properly  given or filed if
delivered to or mailed,  by registered  mail,  postage paid, to the Compensation
Committee  of the Board of  Directors,  First  Merchants  Corporation,  200 East
Jackson, Muncie, Indiana 47308, Attention: Human Resource Department.

     Section  1.4  Affiliates.  Any  corporation  or  trade  or  business  whose
employees  are  treated as being  employed by the  Company  under Code  Sections
414(b),  414(c),  414(m) or 414(o) (an  "Affiliate") may adopt the Plan with the
Company's consent in accordance with Section 9.1.

     Section  1.5  Supplements.  The  provisions  of the Plan may be modified by
supplements to the Plan. The terms and provisions of each  supplement are a part
of the  Plan and  supersede  any  other  provisions  of the  Plan to the  extent
necessary to eliminate any inconsistencies  between the supplement and any other
Plan provisions.

     Section 1.6 Definitions. The following terms are defined in the Plan in the
following
<table>
Sections:
<S>              <C>                                                      <C>
               Term                                                       Plan Section
               Acceleration Event                                            4.7
               Account                                                       3.3
               Affiliate                                                     1.4
               Board                                                         1.1
               Change in Control                                             4.5
               Code                                                          1.1
               Committee                                                     1.3
               Company                                                       1.1
               Director                                                      2.1
               Effective Date                                                1.2
               ERISA                                                         7.2

               Fees                                                          3.1
               Participant                                                   2.2
               Participant Deferral Contribution                             3.1
               Plan                                                          1.1
               Plan Year                                                     1.2
               Separation from Service                                       4.1(b)
               Total and Permanent Disability                                3.2(e)(ii)
               Trust                                                         7.2
               Unforeseeable Emergency                                       3.2(e)(i)
</table>

                                                                         Page 56
<page>
                                                    ARTICLE II

                                           ELIGIBILITY AND PARTICIPATION

     Section 2.1 Eligibility.  Any duly elected and serving  non-employee member
of the Board or board of  directors  of an  Affiliate  that has adopted the Plan
under Article IX ("Director") is eligible to become a Participant in the Plan as
of the  later  of the  Effective  Date or the  date  the  individual  becomes  a
Director.

     Section 2.2 Deferral  Election Form. A Director will become a "Participant"
by  completing a deferral  election  form pursuant to Article III. A Participant
will cease to be an active  Participant  effective as of the earlier of the date
the Plan is terminated  or the date the  Participant  is no longer  serving as a
Director, so that he or she will not be entitled to make deferrals under Article
III on or after that date.

                                   ARTICLE III

                          CONTRIBUTIONS AND ALLOCATIONS

     Section 3.1 Participant  Deferral  Contributions.  Subject to the terms and
limitations  of this Article III, a Participant  may elect,  pursuant to Section
3.2, to have all or a portion of his Fees  payable in any Plan Year  withheld by
the Company and  credited as a  "Participant  Deferral  Contribution"  under the
Plan.  The  term  "contribution"  is  used  for  ease  of  reference;   however,
contributions  are merely  credits  to each  Participant's  Account,  which is a
bookkeeping  account.  The term "Fees," for purposes of the Plan, means the fees
payable by the Company or an Affiliate to the Participant for the  Participant's
services as a Director,  including  retainer  fees for  attendance  at regularly
scheduled  meetings,  special  meetings  called from time to time,  and fees for
attendance  at any and all meetings of  committees  of the  applicable  board of
directors. Fees may be paid in the form of cash ("Cash Fees") and in the form of
shares of restricted stock ("Stock Fees").

     Section 3.2 Deferral Elections.  Participant Deferral Contributions will be
withheld from a  Participant's  Fees in accordance  with the following terms and
conditions.

     (a)  Requirement for Deferral Elections. As a condition to the Company's or
          an Affiliate's  obligation to withhold and the Committee's  obligation
          to credit  Participant  Deferral  Contributions  for the  benefit of a
          Participant pursuant to Section 3.1, the Participant must complete and
          file  a  deferral  election  form  with  the  Committee  (in a  format
          prescribed by the Committee).

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     (b)  Timing of  Execution  and  Delivery of  Elections.  To be effective to
          defer any portion of a  Participant's  Fees, a deferral  election form
          must be filed  with the  Committee  on or prior to the last day of the
          calendar  year  preceding  the initial Plan Year in which the services
          giving rise to the Fees are performed. This Fee deferral election will
          remain effective for all fixture years unless the Participant  files a
          new Fee deferral  election,  terminating or amending the Participant's
          Fee deferral election. For example, to defer Fees payable with respect
          to director  services  performed  during the 2008 and subsequent  Plan
          Years,  an election must be filed on or before December 31, 2007. This
          deferral  election will apply in the 2008 Plan Year and all subsequent
          Plan Years until  terminated  or amended with respect to a future Plan
          Year.

     (c)  Initial  Eligibility.  In the case of the first  Plan Year in which an
          individual becomes eligible to participate, the deferral election form
          may be  filed at any time  within  30 days of the date the  individual
          first becomes eligible to participate  (rather than the date specified
          under  subsection  3.2(b)).  This initial  election will only apply to
          Fees paid for  services  performed  after the  filing of the  deferral
          election form. This special initial eligibility election rule will not
          apply if the  Director  is or has  been a  participant  in a  deferred
          compensation  arrangement  required  to be  aggregated  with this Plan
          under the rules of Code Section 409A.

     (d)  Change of Deferral Elections.  Subject to the provisions of subsection
          3.2(e),  as of December 31 of each year, a deferral  election made for
          Fees payable in a  subsequent  Plan Year will remain in effect for the
          Plan Year and all future Plan Years,  unless and until the election is
          revoked or a new  election  filed,  effective  solely for future  Plan
          Years. The revocation or new election must be filed in accordance with
          the  requirements of subsection  3.2(b).  No deferral  election may be
          changed  for Fees  payable  for a Plan Year  after the last day of the
          election  period4escribed  in  subsection  3.2(b).  For  example,  any
          election  in place for 2008  Fees may not be  changed  after  December
          31,2007,  however,  in December 2009 the  Participant may submit a new
          deferral  election  that  terminates  or  changes  the  amount  of the
          deferral for the year 2010.

     (e)  Cancellation of Elections.

          (i)  Unforeseeable  Emergency.  The Committee, in its sole discretion,
               may  cancel  a  Participant's  election  to  defer  Fees  if  the
               Committee    determines   the   Participant   has   suffered   an
               "Unforeseeable  Emergency"  or has taken a hardship  distribution
               pursuant  to  Treasury  Regulation  1.401(k)-1(d)(3)  from a plan
               qualified under Code Section 401(k).  The cancellation will apply
               to  the  period   after  the   Committee's   determination.   The
               Participant  must submit a signed  statement of the facts causing
               the severe financial hardship and any other information  required
               by  the  Committee,   in  its  sole  discretion.   "Unforeseeable
               Emergency" means a severe  financial  hardship of the Participant
               resulting  from an illness or  accident of the  Participant,  the
               Participant's  spouse,  the  Participant's  beneficiary,  or  the
               Participant's  dependent  (as  defined  in Code  Section  152(a),
               without regard to Code Sections 152(b)(1), (b)(2) and (d)(1)(B));
               loss of the Participant's property due to casualty (including the
               need to rebuild a home  following  damage to a home not otherwise
               covered by insurance,  for example,  not as a result of a natural
               disaster);   imminent   foreclosure   of  or  eviction  from  the
               Participant's  primary  residence;  the  need to pay for  medical
               expenses,  including nonrefundable  deductibles,,  as well as for
               the costs of prescription  drug  medication;  the need to pay for
               the funeral  expenses  of a spouse or a dependent  (as defined in
               Code  Section   152(a))  or  other  similar   extraordinary   and
               unforeseeable  circumstances arising as a result of events beyond
               the control of the Participant.

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          (ii) Total  and  Permanent  Disability.  The  Committee  in  its  sole
               discretion,  may also  cancel a  Participant's  election to defer
               fees  if  the  Committee  determines  that  the  Participant  has
               incurred a "Total and Permanent Disability." The determination of
               Total  and  Permanent  Disability  will be  made  by a  physician
               approved by the  Committee.  Any  cancellation  will apply to the
               period  after  the  Committee's   determination.   A  "Total  and
               Permanent  Disability"  is a medically  determinable  physical or
               mental  impairment  resulting in the  Participant's  inability to
               perform the duties of his or her  position  or any  substantially
               similar position, where such impairment can be expected to result
               in death or can be  expected to last for a  continuous  period of
               not less than six months.

     Section 3.3 Plan  Account.  The  Committee  will  establish and maintain an
"Account"  under the Plan for each  Participant and will increase and decrease a
Participant's Account as provided in Section 3.5.

     Section 3.4 Investment  Credits. A Participant's  Account will be increased
to  reflect  the  increase  in the  value  of the  Account  established  for the
Participant.  The amount of  earnings  credited  on  deferred  Cash Fees will be
determined  as if the deferred Cash Fees were invested in the greater of the Fed
Funds Rate or the Five-Year  Treasury  Interest Rate  determined as of the first
business day of each quarter of the calendar year, but not to exceed 120 percent
of the Applicable Long Term Federal rate for monthly compounding.  The amount of
earnings  credited on deferred  Stock Fees will be equal to dividends paid on an
equivalent  number of shares of common  stock of the  Company  for the period of
time that the Stock Fees are deferred.  In the event any Participant is entitled
to a distribution  of the Account under Article IV, the increase in the value of
the Account  will be  allocated  as of the last day of the  quarter  immediately
preceding the quarter in which the payment to the Participant will be made.

     Section  3.5  Account  Allocations.   As  of  each  accounting  date,  each
Participant's Account will be:

          (i)  Increased by the amount credited to the Account under Section 3.1
               since the last accounting;

          (ii) Increased by the amount  determined  under  Section 3.4 since the
               last accounting; and

          (iii) Decreased by any payment made under Article IV.

The  accounting  date  under this  Section  will be any date  determined  by the
Committee.  However, the accounting required under this Section must be made, at
a minimum, as of the last day of each Plan Year.

                                   ARTICLE IV

                                BENEFIT PAYMENTS

     Section 4.1 Time of Payment of Benefits. Except as provided in Sections 4.5
through 4.7, a Participant  will receive or will begin to receive payment of his
Account  balance (as determined  under Article III) within 90 days following the
date specified for payment or the commencement of payment effectively elected by
the Participant, as provided in subsection 4.1(a).

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     (a)  Timing of Execution and Delivery of Election.  A Participant may elect
          the date or dates his Account balance will be paid or will begin to be
          paid by completing  and filing with the  Committee a payment  election
          form approved by the  Committee.  To be effective,  the election under
          this Section must be filed with the  Committee no later than the later
          of: (i) the time the  Participant is first eligible to make a deferral
          election  under  this Plan (or under any  other  plan  required  to be
          aggregated with this Plan pursuant to the requirements of Code Section
          409A);  or (ii) December 31, 2007.  If no date is  specified,  payment
          will be made or commenced  within 90 days following the  Participant's
          Separation from Service.

     (b)  Separation from Service.  "Separation  from Service" means the date on
          which the Participant ceases to be a Director.

     (c)  Change of Payment Election. An election as to the date payment will be
          made or  commenced  may be  changed by a  Participant  by filing a new
          payment election form with the Committee; provided, however, that: (i)
          the new  election  will not take effect until at least 12 months after
          the date the new  election is filed,  (ii) the single lump sum payment
          or the  commencement  of  installment  payments  will be delayed for a
          period of not less than five years from the date the  payment or first
          payment would  otherwise have been made, and (iii) the new election is
          filed with the  Committee  at least 12 months prior to the date of the
          first scheduled payment under the Plan.

     Section 4.2 Method of Payment.  Except as provided in Sections  4.5 through
4.7, a  Participant  may elect,  in  accordance  with  Section  4.3, to have the
balance of his or deferred Cash Fees distributed in cash in:

     (a)  A single lump sum payment; or

     (b)  Annual installment payments over a period of 2 to 5 years.

All deferred Stock Fees will be paid in a single lump sum.

     Section 4.3 Method of Payment Elections.

     (a)  Initial  Election.  A  Participant  may elect the  manner in which his
          Account  balance will be paid to him under  Section 4.2 in  accordance
          with the terms and conditions of this Section. To make an election,  a
          Participant  must file an election  with the  Committee  (on a form or
          forms  prescribed by the  Committee).  To be  effective,  the election
          under this Section must be filed with the  Committee no later than the
          later of: (i) the time the Participant first makes a deferral election
          under the Plan;  or (ii)  December 31, 2007. If no election is made or
          if the election is not timely or properly made,  distribution  will be
          made in the form of a single lump sum payment.

     (b)  Change of Method of Payment Election.  An election as to the manner of
          payment may not be changed after the payment has been made or payments
          have  commenced.  Prior to that  time,  a  Participant  may change his
          election by filing a new election form with the  Committee;  provided,
          however,  that:  (i) the new  election  will not take effect  until at
          least 12 months  after the date the new  election  is filed;  (ii) the
          single lump sum payment or the  commencement  of installment  payments
          with  respect to which such  election is made must be  deferred  for a
          period of not less than five  years from the date such  payment  would
          otherwise have been made; and (iii) the new election is filed at least
          12 months prior to the date of the first  scheduled  payment under the
          Plan.

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     (c)  Installments.  If installment  distributions are elected,  the initial
          annual  installment  amount will be the deferred  Cash Fees  otherwise
          payable in a single sum  multiplied  by a fraction,  the  numerator of
          which  is one and the  denominator  of which is the  total  number  of
          installment distributions. Subsequent annual installments will also be
          a fraction of the unpaid deferred Cash Fees, the numerator of which is
          always one but the  denominator  of which is the  denominator  used in
          calculating the previous  installment minus one. For example,  if five
          annual installment  payments are elected, the initial installment will
          be one-fifth of the vested deferred Cash Fees, the second  installment
          will be one-fourth  of the remaining  deferred Cash Fees and the third
          installment will be one-third of the remaining deferred Cash Fees, and
          so on.

     Section 4.4 Vesting.  A Participant  will be fully "vested" in his deferred
Cash Fees at all times.  A  Participant  will be  "vested"  in his Stock Fees in
accordance with Sections 3.04 and 3.05 of the First Merchants Corporation Equity
Compensation Plan for Non-Employee Directors.

     Section 4.5 Change in Control. In the event a Change in Control occurs, the
Participant's  Account will be  distributed no later than 90 days following such
determination,  in a single lump sum payment. A "Change in Control" means any of
the following:

     (a)  A change in the  ownership of the Company  occurs on the date that any
          person, or group of persons,  as defined below,  acquires ownership of
          stock of the Company  that,  together with stock held by the person or
          group, constitutes more than 50 percent of the total fair market value
          or total  voting power of the stock of the  Company.  However,  if any
          person or group is considered to own more than 50 percent of the total
          fair market value or total voting power of the stock,  the acquisition
          of additional  stock by the same person or group is not  considered to
          cause a change in the  ownership  of the Company (or to cause a change
          in the  effective  control of the  Company  as  defined in  subsection
          4.5(b)). An increase in the percentage of stock owned by any person or
          group, as a result of a transaction in which the Company  acquires its
          stock in exchange for property  will be treated as an  acquisition  of
          stock for purposes of this  subsection.  This  subsection only applies
          when there is a transfer of stock of the Company (or issuance of stock
          of a corporation) and stock in the Company remains  outstanding  after
          the transaction.

               For purposes of this  subsection and subsection  4.5(b),  persons
          will not be  considered  to be acting as a group  solely  because they
          purchase or own stock of the Company at the same time,  or as a result
          of the same public offering. However, persons will be considered to be
          acting as a group if they are owners of a corporation that enters into
          a merger,  consolidation,  purchase or acquisition of stock or similar
          business  transaction  with the  Company.  If a person,  including  an
          entity,  owns  stock in both  corporations  that  enter into a merger,
          consolidation,   purchase   or   acquisition   of  stock  or   similar
          transaction,  such  shareholder  is considered to be acting as a group
          with other  shareholders  only with  respect to the  ownership in that
          corporation  before the transaction  giving rise to the change and not
          with respect to the ownership interest in the other corporation.

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     (b)  Change in the Effective  Control. A change in the effective control of
          the Company will occur when: (i) any person or group acquires,  or has
          acquired  during the  12-month  period  ending on the date of the most
          recent  acquisition  by such  person(s),  ownership  of  stock  of the
          Company  possessing 30 percent or more of the total voting  power;  or
          (ii) a  majority  of  members  of the  Board is  replaced  during  any
          12-month  period by  directors  whose  appointment  or election is not
          endorsed by a majority of the members of the board of directors  prior
          to the date of the appointment or election.  However, if any person or
          group  is  considered  to   effectively   control  the  Company,   the
          acquisition of additional control of the Company by the same person(s)
          is not considered to cause a change in the effective control.

     (c)  Change in the  Ownership  of a  Substantial  Portion of the  Company's
          Assets.  A change in the  ownership  of a  substantial  portion of the
          Company's assets occurs on the date that any person or group acquires,
          or has acquired  during the 12-month  period ending on the date of the
          most recent  acquisition  by such  person(s),  assets from the Company
          that have a total  gross fair  market  value  equal to or more than 40
          percent bf the total gross fair  market  value of all of the assets of
          the  Company  immediately  prior to such  acquisition(s).  Gross  fair
          market  value  means the value of the  assets of the  Company,  or the
          value of the assets being  disposed of,  determined  without regard to
          any liabilities associated with such assets.

               However, there is no Change in Control under this subsection when
          there  is  a  transfer  to  an  entity  that  is   controlled  by  the
          shareholders of the Company immediately after the transfer. A transfer
          of assets by the Company is not  treated as a change in the  ownership
          of such assets if the assets are  transferred to: (i) a shareholder of
          the Company (immediately before the asset transfer) in exchange for or
          with respect to its stock;  (ii) an entity,  50 percent or more of the
          total value or voting power of which is owned, directly or indirectly,
          by the  Company;  (iii) a  person,  or group of  persons,  that  owns,
          directly  or  indirectly,  50  percent  or more of the total  value or
          voting  power of all the  outstanding  stock of the Company or (iv) an
          entity,  at least 50  percent  of the total  value or voting  power of
          which is owned,  directly  or  indirectly,  by a person  described  in
          (iii), For purposes of this subsection,  except as otherwise provided,
          a person's status is determined  immediately after the transfer of the
          assets.  For example, a transfer to a corporation in which the Company
          has no  ownership  interest  before  the  transaction,  but which is a
          majority-owned subsidiary of the Company after the transaction, is not
          treated as a change in the ownership of the assets of the Company.

               For purposes of this  subsection,  persons will not be considered
          to be acting as a group  solely  because they  purchase  assets of the
          Company at the same time.  However,  persons will be  considered to be
          acting as a group if they are owners of a corporation that enters into
          a merger, consolidation, purchase or acquisition of assets, or similar
          business  transaction  with the  Company.  If a person,  including  an
          entity shareholder,  owns stock in both corporations that enter into a
          merger,  consolidation,  purchase or acquisition of assets, or similar
          transaction,  such  shareholder  is considered to be acting as a group
          with other  shareholders  in a  corporation  only to the extent of the
          ownership in that  corporation  before the transaction  giving rise to
          the change and not with respect to the ownership interest in the other
          corporation.

               Notwithstanding the foregoing, the acquisition of common stock of
          the  Company by any  retirement  plan  sponsored  by the Company or an
          Affiliate will not constitute a Change in Control.

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     Section 4.6 Unforeseeable  Emergency. In the event the Committee determines
in its sole  discretion  that a Participant  has  experienced  an  Unforeseeable
Emergency,  all or a portion of a  Participant's  Account may be  distributed no
later than 90 days following such  determination,  in a single lump sum payment.
The Participant  must submit a signed  statement of the facts causing the severe
financial hardship and any other information  required by the Committee,  in its
sole  discretion.  Payment  under  this  Section  is  subject  to the  following
conditions:

     (a)  The emergency must not be able to be relieved through reimbursement or
          compensation  from  insurance  or  otherwise,  by  liquidation  of the
          Participant's  assets, to the extent  liquidation of such assets would
          not cause  severe  financial  hardship,  or by  cessation of deferrals
          under this Plan.

     (b)  The  amount  of  the  distribution  must  be  limited  to  the  amount
          reasonably  necessary to satisfy the emergency need (which may include
          amounts  necessary to pay any Federal,  state or local income taxes or
          penalties reasonably  anticipated to result from the distribution) and
          must take into account any  additional  compensation  available due to
          cancellation of a deferral election under subsection 3.2(e).

     Section 4.7 Acceleration of Time of Payment. Except as provided in Sections
4.5,  4.6 or this  Section,  the time or schedule of payment of a  Participant's
Account provided in Sections 4.1 through 4.4 may not be accelerated. The time or
schedule  of  payment  of a  Participant's  Account  may be  accelerated  in the
following  circumstances,  each of which is an  "Acceleration  Event," to a time
that is no later than 90 days following the Committee's  determination  that one
of the Acceleration Events has occurred:

     (a)  Domestic  Relations  Order.  The time or schedule of a payment  from a
          Participant's  Account  may be  accelerated  to make a  payment  to an
          individual other than the Participant as may be necessary to fulfill a
          domestic relations order (as defined in Code Section 414(p)(1)(B)).

     (b)  Conflicts  of  Interest.  The time or  schedule  of a  payment  from a
          Participant's  Account  may be  accelerated  to the extent  reasonably
          necessary to avoid the  violation  of an  applicable  Federal,  state,
          local or foreign  ethics law or conflicts  of interest law  (including
          where  such  payment is  reasonably  necessary  to permit the  service
          provider to  participate  in activities in the normal course of his or
          her position in which the service provider would otherwise not be able
          to  participate  under an  applicable  rule).  A payment is reasonably
          necessary to avoid the violation of Federal,  state,  local or foreign
          ethics laws or conflicts of interest law if the payment is a necessary
          part of a course of action that results in compliance  with a Federal,
          state,  local or foreign  ethics law or conflicts of interest law that
          would be violated absent such course of action,  regardless of whether
          other actions would also result in compliance with the Federal, state,
          local or foreign ethics law or conflicts of interest law.

     (c)  Income  Inclusion  Under Code Section 409A.  The time or schedule of a
          payment from a  Participant's  Account may be  accelerated  to pay the
          income tax,  interest and penalties  imposed if the Plan fails to meet
          the  requirements  of  Code  Section  409A  and  related  regulations;
          provided, however, such payment will not exceed the amount required to
          be  included  in income as a result of the  failure to comply with the
          requirements of Code Section 409A and related regulations.

     (d)  Plan  Termination.  The time or schedule of payment or commencement of
          payments from a Participant's Account may be accelerated when the Plan
          is terminated in accordance with one of the following:

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<page>

          (i)  The Company  terminates  the Plan within 12 months of a corporate
               dissolution taxed under Code Section 331, or with the approval of
               a bankruptcy  court pursuant to 11 U.S.C.  Section  503(b)(l)(A),
               provided that the amounts deferred under the Plan are included in
               the  Participants'  gross  incomes in the latest of the following
               years (or,  if earlier,  the taxable  year in which the amount is
               constructively received).

               (A)  The  calendar  year  in  which  the  Plan   termination  and
                    liquidation occurs;

               (B)  The first  calendar  year in which  the  amount is no longer
                    subject to a substantial risk of forfeiture; or

               (C)  The   first   calendar   year  in  which  the   payment   is
                    administratively practicable.

          (ii) The Company's  irrevocable  action to terminate and liquidate the
               Plan within the 30 days  preceding  or the 12 months  following a
               change   in   control   as   defined   in   Treasury   Regulation
               1.409A-3(i)(5).  For purposes of this subsection 4.7(e)(ii),  the
               Plan may be terminated only if all agreements, methods, programs,
               and  other   arrangements   sponsored  by  the  Company  and  all
               participating Affiliates immediately after the time of the change
               in control with respect to which  deferrals of  compensation  are
               treated  as  having  been  deferred  under a  single  plan  under
               Treasury Regulation 1 .409A-1(c)(2) are terminated and liquidated
               with respect to each  Participant  that experienced the change in
               control,   so  that  under  the  terms  of  the  termination  and
               liquidation  all such  Participants  are  required to receive all
               amounts  of  compensation  deferred  under  the  Plan  and  other
               arrangements within 12 months of the date the Company irrevocably
               takes all  necessary  action to terminate  and liquidate the Plan
               and other arrangements.

          (iii) The Company's  termination and liquidation of the Plan, provided
               that:

               (A)  The termination and liquidation  does not occur proximate to
                    a downturn in the financial health of the Company;

               (B)  The  Company   terminates  and  liquidates  all  agreements,
                    programs,  and other  arrangements  that would be aggregated
                    under  Treasury   Regulation  Section   1.409A-1(c)  if  the
                    Participant had deferrals of  compensation  under all of the
                    agreements,  methods,  programs, and other arrangements that
                    are terminated and liquidated;

               (C)  No  payments in  liquidation  of the Plan are made within 12
                    months of the date the Company takes all necessary action to
                    irrevocably  terminate  and  liquidate  the plan  other than
                    payments  that would be payable  under the terms of the Plan
                    if the action to terminate  and  liquidate  the Plan had not
                    occurred;

               (D)  All  payments  are made  within  24  months  of the date the
                    Company takes all necessary action to irrevocably  terminate
                    and liquidate the Plan; and

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<page>
               (E)  The Company  does not adopt a new plan or  arrangement  that
                    would be aggregated  with any terminated and liquidated plan
                    or arrangement under Treasury Regulation Section 1.409A-1(c)
                    if the  same  Participant  participated  in  both  plans  or
                    arrangements,  at any time within three years  following the
                    date the Company takes all necessary  action to  irrevocably
                    terminate and liquidate the Plan.

          (iv) Such other events and conditions as the Internal  Revenue Service
               may prescribe in generally  applicable  guidance published in the
               Internal Revenue Bulletin.

     NOTE:  Article IV, Benefit  Payments,  is amended,  in accordance  with the
transitional  relief  provided  under  Section  3.02 of IRS Notice  2007-86,  to
provide  (notwithstanding  any contrary  provisions of Sections 4.1, 4.3 or 4.7)
that a Participant may elect, on or before December 31, 2008, to change the time
or method of payment previously elected by such Participant and/or to accelerate
the time of  payment  previously  elected,  with  respect  to all or part of the
Participant's  Account balance under the Plan; however,  any such election shall
apply only to amounts that would not  otherwise be payable in 2008 and shall not
cause an amount to be paid in 2008 that would not otherwise be payable in 2008

                                    ARTICLE V

                               PLAN ADMINISTRATION


     Section  5.1  Appointment  of  the  Committee.  The  Committee,  or a  duly
authorized  officer or officers of the Company empowered by the Committee to act
on its behalf, will be responsible for administering the Plan, and the Committee
will be charged with the full power and the responsibility for administering the
Plan in all its details.

     Section 5.2 Powers and Responsibilities of the Committee.

     (a)  Committee  Powers.  The  Committee  will have all powers  necessary to
          administer the Plan, including the power to construe and interpret the
          Plan  documents;  to decide all questions  relating to an individual's
          eligibility  to  participate  in the Plan;  to  determine  the amount,
          manner and timing of any  distribution of benefits or withdrawal under
          the Plan; to resolve any claim for benefits in accordance with Article
          VI, and to appoint or employ  advisors,  including  legal counsel,  to
          render advice with respect to any of the Committee's  responsibilities
          under the Plan. Any  construction,  interpretation,  or application of
          the Plan by the Committee will be final, conclusive and binding.

     (b)  Records and Reports. The Committee will be responsible for maintaining
          sufficient  records to determine  each  Participant's  eligibility  to
          participate in the Plan, and for purposes of determining the amount of
          contributions  that may be made on behalf of the Participant under the
          Plan.

     (c)  Rules and  Decisions.  The  Committee may adopt such rules as it deems
          necessary,  desirable,  or  appropriate in the  administration  of the
          Plan.  All  rules  and  decisions  of the  Committee  will be  applied
          uniformly   and   consistently   to  all   Participants   in   similar
          circumstances.   When  making  a  determination  or  calculation,  the
          Committee  will be entitled to rely upon  information  furnished  by a
          Participant  or  beneficiary,  the Company or the legal counsel of the
          Company.

     (d)  Application  for Benefits.  The Committee may require a Participant or
          beneficiary to complete and file with it an application for a benefit,
          and  to  furnish  all  pertinent  information  requested  by  it.  The
          Committee  may rely  upon all such  information  so  furnished  to it,
          including the Participant's or beneficiary's current mailing address.

                                                                         Page 65

<page>

     (e)  Delegation.  The  Committee  may authorize one or more officers of the
          Company to perform administrative responsibilities on its behalf under
          the  Plan,  Any such duly  authorized  officer  will  have all  powers
          necessary  to carry out the  administrative  duties  delegated to such
          officer by the Committee.

     Section 5.3  Liabilities.  The individual  members of the Committee will be
indemnified  and held harmless by the Company with respect to any alleged breach
of responsibilities performed or to be performed hereunder.

                                   ARTICLE VI

                                 BENEFIT CLAIMS

     While a  Participant  or  beneficiary  need not file a claim to receive his
benefit  under the Plan,  if he wishes to do so, a claim must be made in writing
and filed with the Committee.  If a claim is denied,  the Committee will furnish
the  claimant  with  written  notice of its  decision.  A claimant may request a
review of the denial of a claim for  benefits by filing a written  request  with
the Committee.  The Committee will afford the claimant a full and fair review of
such request.

                                   ARTICLE VII

                              FUNDING AND TRANSFERS

     Section 7.1 Unfunded Status.  The Plan will be maintained in such a fashion
that at all  times  for  purposes  of the  Code it will  be  unfunded  and  will
constitute a mere  promise by the Company to make Plan  benefit  payments in the
future. Any and all rights created under this Plan will be unsecured contractual
rights against the Company.

     Section 7.2 Trust.  Notwithstanding  the  provisions  of Section  7.1,  the
Committee  may,  in its  discretion,  satisfy  all or any part of the  Company's
obligations under the Plan from a trust established by the Company in connection
with the Plan  ("Trust")  or from an  insurance  contract,  annuity  or  similar
vehicle owned by the Company or by setting aside and investing  amounts deferred
under the Plan as an asset of the Company.  Any such Trust or other vehicle will
constitute  solely a means  to  assist  the  Company  in  meeting  its  promised
obligations  under the Plan and will not  constitute a funded account within the
meaning of the  Employee  Retirement  Income  Security  Act of 1974,  as amended
("ERISA") or the Code, nor will it create a security interest for the benefit of
any  Participant  or  beneficiary.  Any Trust created  hereunder will conform in
substantially  all  respects to the terms of the Model  Trust,  as  described in
Revenue Procedure 92-64.

                                  ARTICLE VIII

                      AMENDMENT AND TERMINATION OF THE PLAN

     Section 8.1  Amendment  of the Plan.  The Company may amend the Plan at any
time in its sole discretion.  Notwithstanding the foregoing, the Company may not
amend the Plan to reduce a  Participant's  Account  balance as determined on the
day preceding the effective date of the amendment.

     Section 8.2  Termination of the Plan. The Company may terminate the Plan at
any time in its sole  discretion.  Absent an  amendment  to the  contrary,  Plan
benefits that had accrued prior to the termination will be paid at the times and
in the manner provided for by the Plan at the time of the termination.

                                                                         Page 66
<page>

                                   ARTICLE IX

                           PARTICIPATION BY AFFILIATES

     Section 9.1 Affiliate  Participation.  Any Affiliate may adopt the Plan and
become a participating Company under the Plan by filing with the Committee:

     (a)  A certified  copy of a  resolution  of its board of  directors to that
          effect; and
     (b)  A written  document  signed by an  authorized  officer of the  Company
          which indicates the consent of the Company to that action.

     Notwithstanding any provision herein to the contrary, First Merchants Bank,
N.A.,  First  Merchants Bank of Central  Indiana,  N.A.,  First  Merchants Trust
Company,  N.A., Commerce National Bank and Lafayette Bank and Trust, N.A., shall
automatically be participating Affiliates as of the Effective Date.

     Section  9.2  Company  Action  Binding on Other  Employers.  As long as the
Company  is the  sponsor  of the  Plan,  it is  empowered  to act for any  other
participating Affiliate in all matters relating to the Plan or the Committee.

                                    ARTICLE X

                                  MISCELLANEOUS

     Section 10.1  Governing  Law. The Plan shall be  construed,  regulated  and
administered according to the laws of the State of Indiana, without reference to
that state's choice of law  principles,  except in those areas  preempted by the
laws of the  United  States  of  America  in which  case the  federal  laws will
control.

     Section 10.2 Headings and Gender.  The headings and subheadings in the Plan
have been  inserted for  convenience  of reference  only and will not affect the
construction  of  the  Plan  provisions.  In  any  necessary  construction,  the
masculine will include the feminine and the singular the plural, and vice versa.

     Section  10.3  Withholding  of Taxes.  The Company will  withhold  from any
amount  payable  under this Plan all  federal,  state,  city and local  taxes as
legally required.

     Section 10.4 Spendthrift Clause. No benefit or interest available under the
Plan will be subject in any manner to anticipation,  alienation, sale, transfer,
assignment,  pledge,  encumbrance,  attachment or  garnishment by creditors of a
Participant or a Participant's beneficiary, either voluntarily or involuntarily.

     Section  10.5  Counterparts.  This Plan may be  executed  in any  number of
counterparts,  each one constituting but one and the same instrument, and may be
sufficiently evidenced by any one counterpart.

     Section 10.6 No Enlargement of Rights. Nothing contained in the Plan may be
construed as a contract of  employment  between the Company and any person,  nor
may the Plan be deemed to give any person the right to be retained as a director
or limit the right of the Company to dismiss a director.

                                                                         Page 67
<page>

     Section 10.7 Limitations on Liability.  Notwithstanding any other provision
of the Plan,  neither the Company  nor any  individual  acting as an employee or
agent of the Company will be liable to a Participant or any  beneficiary for any
claim,  loss,  liability or expense incurred in connection with the Plan, except
when the same has been judicially  determined to be due to the gross  negligence
or willful misconduct of that person.

     Section  10.8  Incapacity  of  Participant  or  Beneficiary.  If any person
entitled  to receive a  distribution  under the Plan is  physically  or mentally
incapable of personally receiving and giving a valid receipt for any payment due
(unless a prior  claim for the  distribution  has been made by a duly  qualified
guardian or other legal representative),  then, unless and until a claim for the
distribution  has  been  made  by a  duly  appointed  guardian  or  other  legal
representative of the person,  the Committee may provide for the distribution to
be made to any other  individual  or  institution  then  contributing  toward or
providing for the care and  maintenance of the person.  Any payment made for the
benefit of the person  under this  Section  will be a payment for the account of
such person and a complete  discharge  of any  liability  of the Company and the
Plan.

     Section 10.9 Evidence. Evidence required of anyone under the Plan may be by
certificate,  affidavit,  document or other information which the person relying
on the evidence considers pertinent and reliable,  and signed, made or presented
by the proper party or parties.

     Section 10.10 Action by Company. Any action required of or permitted by the
Company under the Plan will be by resolution of the Board,  by the  Compensation
Committee of the Board,  or by a person or persons  authorized  by resolution of
the Compensation Committee or the Board.

     Section  10.11  Severability.  In the event any  provisions of the Plan are
held to be illegal or invalid for any reason,  the illegality or invalidity will
not affect the remaining  parts of the Plan,  and the Plan will be construed and
endorsed as if the illegal or invalid provisions had never been contained in the
Plan.

     Section 10.12 Information to be Furnished by a Participant.  A Participant,
or any other  person  entitled  to  benefits  under the Plan,  must  furnish the
Committee with any and all documents,  evidence,  data or other  information the
Committee  considers necessary or desirable for the purpose of administering the
Plan. Benefit payments under the Plan are conditioned on a Participant (or other
person who is entitled to benefits)  furnishing  full,  true and complete  data,
evidence or other  information to the Committee,  and on the prompt execution of
any document  reasonably  related to the administration of the Plan requested by
the Committee.

     Section  10.13  Binding on  Successors.  The Plan will be binding  upon and
inure to the benefit of the  Company and its  successors  and  assigns,  and the
successors,  assigns, designees and estates of a Participant. The Plan will also
be  binding  upon  and  inure  to  the  benefit  of any  successor  organization
succeeding to substantially  all of the assets and business of the Company,  but
nothing in the Plan will preclude the Company from merging or consolidating into
or with, or  transferring  all or  substantially  all of its assets to,  another
organization  which  assumes  the  Plan  and  all  obligations  of  the  Company
hereunder.  The Company agrees that it will make  appropriate  provision for the
preservation of a  Participant's  rights under the Plan in any agreement or plan
which it may enter into to effect any merger,  consolidation,  reorganization or
transfer  of  assets.  Upon such a  merger,  consolidation,  reorganization,  or
transfer of assets and assumption of Plan  obligations of the Company,  the term
"Company"  will refer to such other  organization  and the Plan will continue in
full force and effect.

                                                                         Page 68
<page>

                                  EXHIBIT-31.1

                           FIRST MERCHANTS CORPORATION

                                   FORM 10-Q
                           CERTIFICATIONS PURSUANT TO
                                 SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002



CERTIFICATION
-------------

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

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

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

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

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

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

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

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

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

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

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

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

Date: November 5, 2008                  by /s/ Michael C. Rechin
                                           -------------------------------------
                                           Michael C. Rechin
                                           President and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

                                                                         Page 69

<page>


                                  EXHIBIT-31.2

                           FIRST MERCHANTS CORPORATION

                                   FORM 10-Q
                           CERTIFICATIONS PURSUANT TO
                                 SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION
-------------

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

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

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

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

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

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

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

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

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

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

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

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

Date: November 5, 2008              by: /s/ Mark K. Hardwick
                                        ----------------------------------------
                                        Mark K. Hardwick
                                        Executive Vice President and
                                        Chief Financial Officer
                                        (Principal Financial Officer)

                                                                         Page 70
<PAGE>

                                  EXHIBIT-32

                           CERTIFICATIONS PURSUANT TO
                            18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection  with the quarterly  report of First  Merchants  Corporation  (the
"Corporation")  on Form 10-Q for the period  ending  September 30, 2008 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, Michael C. Rechin,  President and Chief Executive Officer of the Corporation,
do hereby  certify,  in  accordance  with 18 U.S.C.  Section  1350,  as  adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date: November 5, 2008                  by /s/ Michael C. Rechin
    ---------------------------            -------------------------------------
                                           Michael C. Rechin
                                           President and
                                           Chief Executive Officer
                                           (Principal Executive Officer)

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



In connection  with the quarterly  report of First  Merchants  Corporation  (the
"Corporation")  on Form 10-Q for the period  ending  September 30, 2008 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, Mark K. Hardwick, Executive Vice President and Chief Financial Officer of the
Corporation,  do hereby certify,  in accordance with 18 U.S.C.  Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date: November 5, 2008                  by /s/ Mark K. Hardwick
    ---------------------------            -------------------------------------
                                           Mark K. Hardwick
                                           Executive Vice President and
                                           Chief Financial Officer
                                           (Principal Financial Officer)

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

                                                                         Page 71