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.

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, 2008. 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.

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

We believe there have been no significant changes during the three months ended March 31, 2009 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, 2008.

BUSINESS SUMMARY

The Corporation is a diversified financial holding company headquartered in Muncie, Indiana. Since its organization in 1982, the Corporation has grown to include 82 banking center locations in 24 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 March 31, 2009, 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; and one Indiana commercial bank: Lincoln Bank. The banks provide commercial and retail banking services. In addition, the trust company and multi-line insurance company provide trust asset management services and retail and commercial insurance agency services, respectively.

On April 17th, 2009, the Corporation merged Lincoln Bank into First Merchants Bank of Central Indiana, National Association ("FMBCI"). This expands the FMBCI footprint beyond Madison County to include Brown, Hendricks, Johnson and Morgan Counties.

Management believes that its vision, mission, culture statement and core values produce profitable growth for stockholders. 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.

RESULTS OF OPERATIONS

Net income per share available to common stockholders was $.17 for the first quarter of 2009, down from $.45 in the first quarter of 2008. Net income available to common stockholders totaled $3.5 million versus $8.1 million in the first quarters of 2009 and 2008, respectively. Provision expense, the primary driver of the decrease in net income, totaled $12.9 million during the quarter, an increase of $9.1 million over the same period last year. The increase in provision expense exceeded the expansion of net interest income by $1.4 million reflecting the current challenge presented to banks during times of economic recession. The Corporation's return on average assets was .30% for the first quarter ending March 31, 2009 compared to .54% for the same quarter in 2008. The Corporation's return on average stockholders' equity was 3.10% for the first quarter of 2009 compared to 5.90% for the first quarter in 2008.

As of March 31, 2009, the Corporation's tangible common equity ratio totaled 4.88%, tier 1 leverage ratio totaled 9.17%, tier 1 risk-based capital totaled 10.47% and total risk- based capital totaled 12.97%. The Corporation issued $116 million in preferred stock through the U.S. Department of Treasury's Capital Purchase Program as discussed in the Management's Discussion and Analysis of Financial Condition under the heading "CAPITAL".

Total assets reached a record $4.9 billion at March 31, 2009, an increase of $1.1 billion, from the March 31, 2008 total of $3.8 billion. Of the $1.1 billion increase, the completion of the merger with Lincoln Bancorp on December 31, 2008 accounted for $876 million.

Loans and investments, the Corporation's primary earning assets, totaled $4.1 billion at March 31, 2009, an increase of $742 million over March 31, 2008. Loans accounted for $722 million of the increase as investment securities increased by $20 million. Of the $742 million increase, Lincoln accounted for $637 million in loans and $122 million in investments.

The Corporation's allowance for loan losses, as a percent of total loans, increased from .99 percent, as of March 31, 2008, to 1.60 percent at March 31, 2009, a $29.4 million increase. Lincoln's acquired allowance totaled $10.7 million and provision expense exceeded net charge-offs for the quarter by $6.9 million. Total specific impairment reserves are $14.6 million, or 25% of the total allowance methodology.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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Non-performing loans totaled $109 million at quarter end. Of these non-performing loans, commercial real estate loans totaled $36 million, land and lot development loans totaled $28 million, 1-4 family residential properties totaled $18 million, commercial and industrial loans totaled $19 million and other loans totaled $8 million.

The Corporation's total deposits increased by $872 million over the prior year as Lincoln Bank accounted for $655 million of the increase. Total borrowings increased by $22 million including the $137 million increase from Lincoln Bank and the addition of $79 million from the temporary liquidity guarantee program as discussed in the Management's Discussion and Analysis of Financial Condition under the heading "LIQUIDITY". The Corporation has improved its liquidity position as evidenced by its $89 million federal funds sold position at quarter end.

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. Net-Interest margin contracted by 6 basis points from 3.74 percent in the first quarter of 2008 to 3.68 percent in the first quarter of 2009 and earning assets increased by $901 million. Of the $901 million, Lincoln accounted for $792 million of the increase. As a result, net-interest income increased by $7.7 million. The table below presents our asset yields, interest expense, and net interest income as a percent of average earning assets for the three months ended March 31, 2009 and 2008.

During the three months ended March 31, 2009, asset yields decreased 109 basis points on a fully taxable equivalent basis (FTE) and interest costs decreased 103 basis points, resulting in a 6 basis point (FTE) decrease in net interest income as compared to the same period in 2008.

                                                        Three Months Ended
                                                             March 31,
(in thousands)                                      2009                       2008

Annualized net interest income               $        153,999             $        123,237

Annualized FTE adjustment                    $          4,274             $          3,615

Annualized net interest income on a
fully taxable equivalent basis               $        158,273             $        126,852

Average earning assets                       $      4,298,621             $      3,396,641

Interest income (FTE) as a percent of
average earning assets                                   5.69 %                       6.78 %

Interest expense as a percent of
average earning assets                                   2.01 %                       3.04 %

Net interest income (FTE) as a percent
of average earning assets                                3.68 %                       3.74 %

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.

NON-INTEREST INCOME

Non-interest income increased by $3.9 million during the first quarter of 2009 as compared to the first quarter of 2008. The sale of investment securities resulted in net gains of approximately $2,314,000, an increase of $2,241,000 from the same period in 2008. Net gains and fees on sales of mortgage loans increased $787,000, or 122.4 percent, due to additional loans sold in the secondary market and increased volume as a result of the Lincoln acquisition on December 31, 2008. Decreasing mortgage loan rates during the first quarter of 2009 resulted in an increase in refinancing volume, which facilitated an increase in loan sale activity.

NON-INTEREST EXPENSE

Non-interest expenses for the quarter ending March 31, 2009, increased by $8.4 million over the same period in 2009. Salary and benefit expense increased by $3.9 million including $2.9 million attributable to Lincoln, $622,000 attributable to health insurance claims and another $398,000 in severance packages as the Corporation continues to gain efficiencies in the legacy organization. Core deposit intangibles amortization increased by $487,000 during the quarter. Outside data processing costs included $655,000

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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to run Lincoln Bank's separate operating platform prior to integration and $397,000 in conversion expense. FDIC expenses increased $447,000 from the same period in 2008 due to a cumulative credit that was utilized in prior periods, a rate increase and an increase in costs associated with the acquisition of Lincoln.

Additional credit costs are also reflected in other expense as other real estate expense increased by $276,000 and professional services related to loan workouts increased by $532,000.

INCOME TAXES

Income tax expense, for the three months ended March 31, 2009, decreased by $1,896,000 from the same period in 2008. The effective tax rate was 22.8 and 27.7 percent for the 2009 and 2008 periods respectively. The decline in the effective tax rate is primarily due to tax-exempt interest income accounting for a larger percentage of pre-tax earnings in 2009.

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 9.17 percent at March 31, 2009 and 7.7 percent at year end 2008. In addition, at March 31, 2009, we had a Tier I risk-based capital ratio of 10.47 percent and total risk-based capital ratio of 12.97 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 10.4 percent at March 31, 2009 and 8.3 percent at December 31, 2008. 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 4.9 percent as of March 31, 2009, and 5.0 percent at December 31, 2008.

On February 20, 2009, we completed the sale to the Treasury of $116,000,000 of newly issued First Merchants non-voting preferred shares as part of the Capital Purchase Program ("CPP") enacted as part of the Troubled Assets Relief Program ("TARP"), under the Emergency Economic Stabilization Act of 2008 ("EESA"). The Treasury has certain supervisory and oversight duties and responsibilities under EESA and the CPP and, pursuant to the terms of a Letter Agreement and a Securities Purchase Agreement - Standard Terms attached thereto (collectively, the "Securities Purchase Agreement"), the Treasury is empowered to unilaterally amend any provision of the Securities Purchase Agreement with the Corporation to the extent required to comply with any changes in applicable federal statutes.

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.

                                                           March 31,                    December 31,
(Dollars in thousands)                                       2009                           2008
Average goodwill                                         $   142,070                  $     124,403
Average core deposit intangible (CDI)                         21,870                         11,388
Average deferred tax on CDI                                   (2,353 )                       (2,867 )
      Intangible adjustment                              $   161,587                  $     132,924
Average stockholders' equity (GAAP capital)              $   450,654                  $     349,594
Average Cumulative preferred stock issued
under the Capital Purchase Program                           (49,683 )
Average Warrants issued under the Capital
Purchase Program                                              (1,887 )
Intangible adjustment                                       (161,587 )                     (132,924 )
      Average tangible capital                           $   237,497                  $     216,670
Average assets                                           $ 4,720,134                  $   3,811,166
Intangible adjustments                                      (161,587 )                     (132,924 )
      Average tangible assets                            $ 4,558,547                  $   3,678,242
Net income available to common stockholders              $     3,489                  $      20,638
CDI amortization, net of tax                                     774                          1,919
      Tangible net income available to common
      stockholders                                       $     4,263                  $      22,557

Diluted earnings per share                               $      0.17                  $        1.14
Diluted tangible earnings per share                      $      0.20                  $        1.24

Return on average GAAP capital                                 3.10%                          5.90%
Return on average tangible capital                             7.28%                         10.41%

Return on average assets                                       0.30%                          0.54%
Return on average tangible assets                              0.37%                          0.61%

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 March 31, 2009, non-performing assets, which includes nonaccrual loans, restructured loans, and other real estate owned totaled $130,623,000 an increase of $24,489,000 from December 31, 2008 as noted in Note 6 Loans and Allowance, included within the Notes to Consolidated Condensed Financial Statements of this Form 10Q. Other real estate owned increased $3,619,000 from December 31, 2008, largely due to one relationship that came into other real estate owned in the first quarter of

2009. Current appraisals are obtained to determine value as management continues to aggressively 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 March 31, 2009, impaired loans totaled $265,742,000, an increase of $59,616,000 from December 31, 2008. At March 31, 2009, an allowance for losses was not deemed necessary for impaired loans totaling $221,618,000, as there was no identified loss on these credits. An allowance of $14,590,000 was recorded for the remaining balance of impaired loans of $44,124,000 and is

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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included in our allowance for loan losses. 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 March 31, 2009, the allowance for loan losses was $58,502,000, an increase of $8,959,000 from year end 2008. As a percent of loans, the allowance was 1.60 percent at March 31, 2009 and 1.33 percent at December 31, 2008.

The provision for loan losses for the first three months of 2009 was $12,921,000, an increase of $9,098,000 from $3,823,000 for the same period in 2008. The increase from the prior year was a result of an increase in net charge offs and the increase in non-performing loans. In addition, there was an adjustment to the allowance acquired with Lincoln Bancorp on December 31, 2008, as discussed in NOTE 8. Goodwill.

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.

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 stockholders, 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 utilized advances from the Federal Home Loan Bank ("FHLB") and a revolving line of credit with LaSalle Bank, N.A. ("LaSalle") as funding sources. At March 31, 2009, total borrowings from the FHLB were $278,583,000. Our bank subsidiaries have pledged certain mortgage loans and investments to the FHLB. The total available remaining borrowing capacity from the FHLB at March 31, 2009, was $197,986,000. At March 31, 2009, our revolving line of credit with LaSalle had a balance of $10,000,000 with no remaining borrowing capacity.

On March 31, 2009, four (4) of the wholly-owned subsidiary banks (collectively, the "Banks") of the Corporation completed the issuance and sale of an aggregate of $79,000,000 of 2.625% Senior Notes due March 30, 2012 (the "Notes") through a pooled offering. The Notes are issued by the Banks and are not obligations of, or guaranteed by, the Corporation. Including the FDIC fee, underwriting, legal and accounting expenses, the effective rate will be 3.812%. The Notes are guaranteed by the Federal Deposit Insurance Corporation under its Temporary Liquidity Guarantee Program and are backed by the full faith and credit of the United States. Each bank also entered into a Master Agreement with the FDIC on January 16, 2009. The agreement contains, among other things, certain terms and conditions that must be included in the governing documents for any senior debt securities issued by the Banks that are guaranteed pursuant to the FDIC's Temporary Liquidity Guarantee Program.

The principal source of asset-funded liquidity is investment securities classified as available for sale, the market values of which totaled $426,589,000 at March 31, 2009, a decrease of $33,047,000 or 7.2 percent below December 31, 2008. 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 $10,805,000 at March 31, 2009. 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

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