Filed Pursuant to Rule 424(b)(3)
                                                      Registration No. 333-70241

PROSPECTUS SUPPLEMENT
TO PROSPECTUS INCLUDED IN 
REGISTRATION STATEMENT ON FORM S-4 
FILED ON JANUARY 7, 1999 


                      [ANDERSON COMMUNITY BANK LETTERHEAD]


                                February 10, 1999

Dear Shareholder:

         You are cordially  invited to attend a Special  Meeting of Shareholders
of Anderson Community Bank to be held at the Anderson Fine Arts  Center-Carnegie
Building located at 32 West 10th Street,  Anderson,  Indiana, on March 25, 1999,
at 3:30 p.m. local time.

         The purpose of the meeting is to consider and vote upon the adoption of
the Agreement of Reorganization  and Merger dated October 27, 1998,  pursuant to
which Anderson Community Bank will merge with and into Pendleton Banking Company
under  the  name  "The  Madison  Community  Bank."  If the  proposed  merger  is
consummated,  shares of Anderson  Common Stock will be converted  into shares of
Common Stock of First  Merchants  Corporation,  the parent  company of Pendleton
Banking  Company,   all  as  described  in  the  accompanying   Prospectus/Proxy
Statement.

         Your Board of  Directors  believes  that the  proposed  merger  between
Anderson  Community Bank and Pendleton  Banking Company is in the best interests
of Anderson  and its  shareholders  and has  unanimously  approved  the proposed
merger.  Enclosed  with this  letter  are (i) a Notice  of  Special  Meeting  of
Shareholders  and  Prospectus/Proxy  Statement  dated February 10, 1999,  (ii) a
proxy  card for you to  complete,  sign,  date and  return,  and (iii) a postage
pre-paid envelope. We encourage you to read the enclosed materials carefully and
in their entirety.

         Whether or not you attend the Special Meeting,  your Board of Directors
requests that you complete,  sign and date the enclosed proxy card and return it
in the enclosed postage pre-paid envelope at your earliest  convenience prior to
the Special Meeting. If you desire, you may cancel your proxy at any time before
it is voted at the Special Meeting.

THE  BOARD  OF  DIRECTORS  UNANIMOUSLY  RECOMMENDS  A VOTE FOR  ADOPTION  OF THE
PROPOSED MERGER.

                                           Very truly yours,


                                           /s/ James F. Ault
                                           James F. Ault
                                           Chairman of the Board