UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D. C. 20549

                                    FORM 10-K

                Annual Report Pursuant to Section 13 or 15 (d) of
                       the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2002       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                                         47305-2814
        Muncie, Indiana                                         (Zip Code)

(Address of principal executive offices)

        Registrant's telephone number, including area code: (765) 747-1500

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section
12 (g) of the Act:

                   Common Stock, $.125 stated value per share

                                (Title of Class)

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein,and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes [x] No[ ]

The aggregate  market value (not necessarily a reliable indication of the price
at which more than a limited number of shares would  trade) of the voting stock
held by non-affiliates of the registrant was $464,241,000 as of the last
business day of the registrant's most recently completed second fiscal quarter
(June 28, 2002).

As of March 15, 2003 there were 16,330,031 outstanding common shares, without
par value, of the registrant.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                                      Part of Form 10-K
              Documents                            Into Which Incorporated

Portions of the Registrant's Annual Report  Part II (Items 5, 6, 7, 7A, 8 and 9)
   to Shareholders for the year ended
          December 31, 2002
Portions of the Registrant's
     Definitive Proxy Statement for
     Annual Meeting of Shareholders
      to be held April 10, 2003                 Part III (Items 10 through 13)


Exhibit Index:  Page 34


<PAGE>



FORM 10-K TABLE OF CONTENTS

                                                                       Form 10-K
                                                                          Page
                                                                         Number

Part I

  Item 1 - Business............................................................3

  Item 2 - Properties.........................................................22

  Item 3 - Legal Proceedings..................................................22

  Item 4 - Submission of Matters to a Vote of Security Holders................22

  Supplemental Information - Executive Officers of the Registrant.............23

Part II

  Item 5 -  Market For the Registrant's Common Equity and
            Related Stockholder Matters.......................................24

  Item 6 -  Selected Financial Data...........................................24

  Item 7 -  Management's Discussion and Analysis of Financial
            Condition and Results of Operations...............................24

  Item 7A-  Quantitative and Qualitative Disclosures about Market Risk........24

  Item 8 -  Financial Statements and Supplementary Data.......................26

  Item 9 -  Changes In and Disagreements With Accountants on
            Accounting and Financial Disclosure...............................26

Part III

  Item 10- Directors and Executive Officers of the Registrant.................27

  Item 11- Executive Compensation.............................................27

  Item 12- Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters.....................28

  Item 13- Certain Relationships and Related Transactions.....................28

  Item 14- Controls and Procedures............................................28

Part IV

  Item 15- Exhibits, Financial Statement Schedules and
           Reports on Form 8-K................................................29

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

           Certifications Pursuant to Section 302 of
             The Sarbanes-Oxley Act of 2002...................................32

           Exhibit Index......................................................34


                                                                       Page 2

<PAGE>

                                     PART I

ITEM 1.  BUSINESS
--------------------------------------------------------------------------------

GENERAL

First Merchants  Corporation (the  "Corporation") was incorporated under Indiana
law on September 20, 1982, as the bank holding company for First Merchants Bank,
National  Association  ("First  Merchants"),   a  national  banking  association
incorporated in 1893.  Prior to December 16, 1991, First Merchants' name was The
Merchants  National  Bank of Muncie.  On  November  30,  1988,  the  Corporation
acquired Pendleton Banking Company  ("Pendleton"),  a state chartered commercial
bank organized in 1872. On July 31, 1991, the Corporation  acquired First United
Bank ("First United"),  a state chartered  commercial bank organized in 1882. On
August 1, 1996,  the  Corporation  acquired  The Union County  National  Bank of
Liberty ("Union County"),  a national banking association  incorporated in 1872.
On October 2, 1996, the Corporation acquired The Randolph County Bank ("Randolph
County"),  a state chartered  commercial bank founded in 1865. On April 1, 1998,
Pendleton  acquired the Muncie  office of Insurance and Risk  Management,  Inc.,
which was renamed, on April 1, 1998, First Merchants  Insurance  Services,  Inc.
("FMIS").  On April 1, 1999, the Corporation acquired The First National Bank of
Portland  ("First  National"),  a national banking  association  incorporated in
1904.  On April 21, 1999,  the  Corporation  acquired  Anderson  Community  Bank
("Anderson"),  a state charted  commercial  bank founded in 1995.  Pendleton and
Anderson  were  combined  on April 21,  1999,  to form  Madison  Community  Bank
("Madison").  Decatur  Bank and  Trust  Company  ("Decatur")  a state  chartered
commercial  bank  organized in 1966 was acquired on June 1, 2000. On January 19,
2000,  First Merchants  Reinsurance  Company was formed to underwrite  accident,
health and credit life  insurance.  On July 1, 2001,  the  Corporation  acquired
Frances  Slocum  Bank & Trust  Company  ("Frances  Slocum"),  a state  chartered
commercial  bank organized in 1963.  Effective  January 1, 2002, the Corporation
acquired  Delaware  County  Abstract  Company,  Inc.  and  Beebe &  Smith  Title
Insurance Company, Inc., which were merged into Indiana Title Insurance Company,
a wholly-owned  subsidiary of the Corporation.  Such title insurance  operations
were subsequently  contributed to Indiana Title Insurance Company,  LLC in which
the  Corporation  has a  52.12%  ownership  interest.  On  April  1,  2002,  the
Corporation  acquired  Lafayette  Bank and Trust Company  ("Lafayette")  a state
chartered commercial bank founded in 1899. On September 6, 2002, the Corporation
acquired  Stephenson  Insurance  Service,  Inc.,  which was  merged  into  FMIS.
Effective  January 1, 2003,  the  Corporation  formed  Merchants  Trust Company,
National Association ("MTC"), a wholly-owned  subsidiary of the Corporation.  On
January 1, 2003, MTC purchased the trust  operations of First  Merchants,  First
National and Lafayette,  which united the trust and asset management services of
all  affiliate  banks of the  Corporation.  On March 1,  2003,  the  Corporation
acquired  Commerce  National  Bank  ("Commerce  National"),  a national  banking
association incorporated in 1991.

As of December 31, 2002,  the  Corporation  had  consolidated  assets of $2.679
billion,  consolidated  deposits of $2.037 billion and  stockholders'  equity of
$261.1 million.

The Corporation is headquartered in Muncie, Indiana, and is presently engaged in
conducting  commercial  banking  business  through  the  offices  of its ten
banking  subsidiaries.  As  of  December  31,  2002,  the  Corporation  and  its
subsidiaries had 1,127 full-time equivalent employees.

Through its bank subsidiaries, the Corporation offers a broad range of financial
services,  including:   accepting  time, savings  and  demand  deposits;  making
consumer, commercial, agri-business and real estate mortgage loans; renting safe
deposit facilities;  providing personal and corporate trust services;  providing
full service  brokerage;  and providing  other  corporate  services,  letters of
credit and repurchase  agreements.  Through  various nonbank  subsidiaries,  the
Corporation  also offers personal and commercial  lines of insurance and engages
in the title agency  business and the reinsurance of credit life,  accident, and
health insurance.

The Corporation makes its Annual Report on Form 10-K,  Quarterly Reports on Form
10-Q,  Current  Reports on Form 8-K and  amendments  to those  reports  filed or
furnished  pursuant to Section 13(a) or 15(d) of the Securities  Exchange Act of
1934,  as amended,  available on its website at  www.firstmerchants.com  without
charge, as soon as reasonably  practicable after such reports are electronically
filed  with,  or  furnished  to,  the   Securities   and  Exchange   Commission.
Additionally,  the Corporation  will also provide without charge,  a copy of its
Form 10-K to any  shareholder  by mail.  Requests  should  be sent to Mr.  Brian
Edwards,  Shareholder Relations Officer, First Merchants  Corporation,  P.O. Box
792, Muncie, IN 47308-0792.

Acquisition Policy

The  Corporation  anticipates  that it will  continue  its policy of  geographic
expansion  of its  banking  business  through  the  acquisition  of banks  whose
operations  are consistent  with its community  banking  philosophy.  Management
routinely  explores  opportunities to acquire  financial  institutions and other
financial  services-related  businesses and to enter into strategic alliances to
expand the scope of its services and its customer base.

                                                                       Page 3
<PAGE>

--------------------------------------------------------------------------------

COMPETITION

The Corporation's  banking  subsidiaries are located in Adams,  Boone,  Carroll,
Delaware,  Fayette,  Hamilton,  Henry,  Howard,  Jasper,  Jay,  Madison,  Miami,
Tippecanoe,  Wabash, Wayne, White,  Randolph,  and Union counties in Indiana and
Butler and Franklin counties in Ohio. In addition to the competition provided by
the lending  and  deposit  gathering  subsidiaries  of  national  manufacturers,
retailers,  insurance companies and investment brokers, the banking subsidiaries
compete  vigorously  with other banks,  thrift  institutions,  credit unions and
finance companies located within their service areas.


                           REGULATION AND SUPERVISION

                       OF FIRST MERCHANTS AND SUBSIDIARIES

BANK HOLDING COMPANY REGULATION

The  Corporation is registered as a bank holding company and has elected to be a
financial  holding company.  It is subject to the supervision of, and regulation
by the Board of  Governors of the Federal  Reserve  System  ("Federal  Reserve")
under the Bank Holding  Company Act of 1956,  as amended  (the "BHC Act").  Bank
holding  companies are required to file periodic reports with and are subject to
periodic  examination  by the Federal  Reserve.  The Federal  Reserve has issued
regulations  under the BHC Act  requiring a bank  holding  company to serve as a
source of financial and managerial strength to its subsidiary banks. Thus, it is
the policy of the Federal Reserve that, a bank holding company should stand
ready to use its resources to provide  adequate  capital funds to its subsidiary
banks during periods of financial stress or adversity.  Additionally,  under the
Federal Deposit  Insurance  Corporation  Improvement Act of 1991  ("FDICIA"),  a
bank  holding  company is  required  to  guarantee  the  compliance  of any
subsidiary  bank that may become  "undercapitalized"  (as defined in the FDICIA)
with the terms of any capital restoration plan filed by such subsidiary with its
appropriate  federal banking agency.  Under the BHC Act, the Federal Reserve has
the authority to require a bank  holding  company to terminate any activity
or relinquish  control of a nonbank  subsidiary (other than a nonbank subsidiary
of a bank) upon the determination that such activity  constitutes a serious risk
to the financial stability of any bank subsidiary.

The BHC Act requires the Corporation to obtain the prior approval of the Federal
Reserve before:

1.  Acquiring direct or indirect control or ownership of any voting shares of
    any bank or bank holding company if, after such acquisition, the bank
    holding company will directly or indirectly own or control more than 5% of
    the voting shares of the bank or bank holding company.

2.  Merging or consolidating with another bank holding company; or

3.  Acquiring substantially all of the assets of any bank.

The BHC Act  generally  prohibits  bank holding  companies  that have not become
financial  holding  companies from (i) engaging in activities other than banking
or managing or controlling  banks or other  permissible  subsidiaries,  and
(ii) acquiring or retaining direct or indirect control of any company engaged in
the activities other than those activities  determined by the Federal Reserve to
be closely related to banking or managing or controlling banks.

The BHC Act does not place territorial  restrictions on such  nonbanking-related
activities.

                                                                       Page 4
<PAGE>


CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES

     The Corporation is required to comply with the Federal Reserve's
risk-based capital guidelines. These guidelines require a minimum ratio of
capital to risk-weighted assets of 8% (including certain off-balance sheet
activities such as standby letters of credit). At least half of the total
required capital must be "Tier 1 capital," consisting principally of common
shareholders' equity, noncumulative perpetual preferred stock, a limited amount
of cumulative perpetual preferred stock and minority interest in the equity
accounts of consolidated subsidiaries, less certain goodwill items. The
remainder may consist of a limited amount of subordinate debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, cumulative perpetual preferred stock, and a limited amount of
the general loan loss allowance.

     In addition to the risk-based capital  guidelines,  the Federal Reserve has
adopted a Tier 1  (leverage)  capital  ratio  under  which the Corporation  must
maintain a minimum level of Tier 1 capital to average total consolidated assets.
The ratio is 3% in the case of bank  holding  companies  which have the  highest
regulatory  examination ratings and are not contemplating  significant growth or
expansion.  All other bank holding companies are expected to maintain a ratio of
at least 1% to 2% above the stated minimum.

     The following are the Corporation's regulatory capital ratios as of
December  31, 2002:

                                      Corporation       Regulatory Minimum
                                                            Requirement

Tier 1 Capital:                          10.1%                 4.0%
(to risk-weighted assets)

Total Capital:                           11.2%                 8.0%


BANK REGULATION

     First Merchants, Union County, First  National  and  Commerce  National are
national banks and are  supervised,  regulated and examined by the Office of the
Comptroller of the Currency (the "OCC"). First United, Madison, Randolph County,
Decatur,  Frances Slocum and Lafayette are state banks  chartered in Indiana and
are  supervised,  regulated and examined by the Indiana  Department of Financial
Institutions. In addition, six of the Corporation's subsidiaries, Madison, First
United, Randolph County,  Decatur,  Frances Slocum and Lafayette are supervised,
regulated  and examined by the FDIC.  Each  regulator has the authority to issue
cease-and-desist  orders if it determines  that activities of the bank regularly
represent an unsafe and unsound banking practice or a violation of law.

     Both federal and state law extensively  regulate various aspects of the
banking   business   such  as   reserve   requirements,   truth-in-lending   and
truth-in-savings  disclosures, equal credit opportunity,  fair credit reporting,
trading in securities and other aspects of banking  operations.  Current federal
law also requires banks,  among other things,  to make deposited funds available
within specified time periods.
                                                                        Page 5
<PAGE>

BANK REGULATION continued

     Insured state-chartered banks are prohibited under FDICIA from engaging
as the principal in activities that are not permitted for national banks, unless
(i) the FDIC determines that the activity would pose no significant  risk to the
appropriate  deposit  insurance fund, and (ii) the bank is, and continues to be,
in compliance with all applicable capital standards.

BANK CAPITAL REQUIREMENTS

     The FDIC and the OCC have adopted  risk-based  capital ratio guidelines
to which  state-chartered  banks and national banks are subject.  The guidelines
establish a framework that makes regulatory capital  requirements more sensitive
to  differences in risk  profiles.  Risk-based  capital ratios are determined by
allocating   assets  and  specified   off-balance   sheet  commitments  to  four
risk-weighted  categories,  with higher levels of capital being required for the
categories perceived as representing greater risk.

     Like the capital guidelines  established by the Federal Reserve,  these
guidelines divide a bank's capital into tiers.  Banks are required to maintain a
total risk-based  capital ratio of 8%. The FDIC or OCC may, however,  set higher
capital  requirements  when a bank's  particular  circumstances  warrant.  Banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.

     In addition,  the FDIC and the OCC established guidelines prescribing a
minimum  Tier 1 leverage  ratio  (Tier 1 capital  to  adjusted  total  assets as
specified  in the  guidelines).  These  guidelines  provide for a minimum Tier 1
leverage ratio of 3% for banks that meet specified criteria, including that they
have the highest  regulatory  rating and are not  experiencing  or  anticipating
significant  growth.  All other banks are required to maintain a Tier 1 leverage
ratio of 3% plus an additional 100 to 200 basis points.

     All of the Corporation's affiliate banks exceed the risk-based  capital
guidelines of the FDIC and/or the OCC as of December 31, 2002.

     The  Federal  Reserve,  the  FDIC  and the OCC  have  adopted  rules to
incorporate  market and  interest  rate risk  components  into their  risk-based
capital   standards.   Amendments  to  the  risk-based   capital   requirements,
incorporating  market  risk,  became  effective  January 1, 1998.  Under the new
market risk  requirements,  capital  will be  allocated to support the amount of
market risk related to a financial institution's ongoing trading activities.

FDIC IMPROVEMENT ACT OF 1991

     The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA")  requires,   among  other  things,   federal  bank   regulatory
authorities  to take "prompt  corrective  action" with respect to banks which do
not meet minimum capital  requirements.  For these purposes,  FDICIA establishes
five capital tiers: well capitalized, adequately capitalized,  undercapitalized,
significantly  undercapitalized  and critically  undercapitalized.  The FDIC has
adopted  regulations  to implement the prompt  corrective  action  provisions of
FDICIA.

     "Undercapitalized"  banks are  subject  to growth  limitations  and are
required to submit a capital  restoration  plan. A bank's  compliance  with such
plan is required to be guaranteed by the bank's parent  holding  company.  If an
"undercapitalized"  bank fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. "Significantly undercapitalized" banks are
subject  to one or more  restrictions,  including  an  order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total  assets and cease  receipt  of  deposits  from  correspondent  banks,  and
restrictions    on    compensation    of   executive    officers.    "Critically
undercapitalized"  institutions  may  not,  beginning  60  days  after  becoming
"critically  undercapitalized,"  make any  payment of  principal  or interest on
certain subordinated debt or extend credit for a highly leveraged transaction or
enter into any transaction outside the ordinary course of business. In addition,
"critically  undercapitalized"  institutions  are  subject to  appointment  of a
receiver or conservator.

                                                                        Page 6
<PAGE>

FDICIA continued

     As of December 31, 2002,  each bank  subsidiary of First  Merchants is
"well capitalized" based on the "prompt corrective action" ratios and deadlines
described above. It should be noted, however, that a bank's capital category is
determined  solely for the purpose of applying the OCC's (or the FDIC's) "prompt
corrective action" regulations and that the capital category may not constitute
an accurate  representation  of the bank's overall  financial condition or
prospects.

DEPOSIT INSURANCE

     The Corporation's affiliated banks are insured up to  regulatory  limits by
the FDIC and,  accordingly,  are  subject to deposit  insurance  assessments  to
maintain  the Bank  Insurance  Fund  (the  "BIF")  and the  Savings  Association
Insurance  Fund  ("SAIF")  administered  by  the  FDIC.  The  FDIC  has  adopted
regulations  establishing a permanent  risk-related deposit insurance assessment
system. Under this system, the FDIC places each insured bank in one of nine risk
categories  based  on  (i)  the  bank's  capitalization,  and  (ii)  supervisory
evaluations provided to the FDIC by the institution's primary federal regulator.
Each insured bank's  insurance  assessment  rate is then  determined by the risk
category in which it is classified by the FDIC.

     The Deposit  Insurance Funds Act of 1996 provides for assessments to be
imposed on insured  depository  institutions with respect to deposits insured by
the BIF and the SAIF (in addition to assessments currently imposed on depository
institutions with respect to BIF- and SAIF-insured deposits) to pay for the cost
of Financing  Corporation  ("FICO")  funding.  The FICO  assessments do not vary
depending  upon  a  depository   institution's   capitalization  or  supervisory
evaluations.

DIVIDEND LIMITATIONS

     National and state banking laws restrict the amount of dividends that an
affiliate  bank  may  declare  in a  year  without  obtaining  prior  regulatory
approval. National and state banks are limited to the bank's retained net income
(as defined)  for the current  year plus those for the  previous  two years.  At
December 31, 2002, the Corporation's  affiliate banks had a total of $15,147,000
retained net profits  available for 2003  dividends to the  Corporation  without
prior regulatory approval.

BROKERED DEPOSITS

     Under FDIC  regulations,  no  FDIC-insured  depository  institution can
accept  brokered  deposits  unless  it (i)  is  well  capitalized,  or  (ii)  is
adequately  capitalized and received a waiver from the FDIC. In addition,  these
regulations  prohibit any depository  institution  that is not well  capitalized
from (a) paying an interest  rate on deposits in excess of 76 basis  points over
certain prevailing market rates or (b) offering "pass through" deposit insurance
on certain  employee  benefit plan accounts unless it provides certain notice to
affected depositors.

INTERSTATE BANKING AND BRANCHING

     Under the Riegle-Neal  Interstate Banking and Branching  Efficiency Act
of 1994  ("Riegle-Neal")  subject  to  certain  concentration  limits,  required
regulatory  approvals and other  requirements,  (i) financial  holding companies
such as the Corporation  are  permitted  to  acquire  banks  and  bank  holding
companies  located in any state;  (ii) any bank that is a  subsidiary  of a bank
holding  company is permitted to receive  deposits,  renew time deposits,  close
loans,  service  loans and receive loan  payments as an agent for any other bank
subsidiary  of that holding  company;  and (iii) banks are  permitted to acquire
branch  offices  outside their home states by merging with  out-of-state  banks,
purchasing  branches in other states, and establishing de novo branch offices in
other states.
                                                                        Page 7
<PAGE>


FINANCIAL SERVICES MODERNIZATION ACT

     The Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization
Act")  establishes  a  comprehensive  framework  to  permit  affiliations  among
commercial  banks,  insurance  companies,  securities firms, and other financial
service  providers by revising and  expanding  the existing BHC Act.  Under this
legislation,  bank holding  companies would be permitted to conduct  essentially
unlimited  securities  and  insurance  activities  as well as  other  activities
determined by the Federal  Reserve Board to be financial in nature or related to
financial services.  As a result,  the Corporation is able to provide securities
and insurance services.  Furthermore, under this legislation, the Corporation is
able to acquire, or be acquired by, brokerage and securities firms and insurance
underwriters. In addition, the Financial Services Modernization Act broadens the
activities  that may be conducted  by national  banks  through the  formation of
financial  subsidiaries.  Finally,  the  Financial  Services  Modernization  Act
modifies the laws governing the implementation of the Community Reinvestment Act
and  addresses a variety of other legal and  regulatory  issues  affecting  both
day-to-day operations and long-term activities of financial institutions.

     A bank holding  company  may become a financial  holding company if each of
its  subsidiary  banks is well  capitalized,  is well managed and has at least a
satisfactory   rating  under  the  Community   Reinvestment  Act,  by  filing  a
declaration  that the bank holding company wishes to become a financial  holding
company. Also effective March 11, 2000, no regulatory approval is required for a
financial  holding  company to  acquire a company,  other than a bank or savings
association, engaged in activities that are financial in nature or incidental to
activities  that are financial in nature,  as determined by the Federal  Reserve
Board.  The  Federal  Reserve  Bank  of  Chicago   approved  the   Corporation's
application to become a Financial Holding Company effective September 13, 2000.

USA PATRIOT ACT

As part of the USA Patriot Act,  signed into law on October 26,  2001,  Congress
adopted   the   International   Money   Laundering   Abatement   and   Financial
Anti-Terrorism  Act of 2001 (the "Act"). The Act authorizes the Secretary of the
Treasury,  in consultation with the heads of other government agencies, to adopt
special  measures  applicable  to  financial  institutions  such as banks,  bank
holding  companies,  broker-dealers  and  insurance  companies.  Among its other
provisions,  the Act requires each  financial  institution:  (i) to establish an
anti-money  laundering  program;  (ii)  to  establish  due  diligence  policies,
procedures  and  controls  that are  reasonably  designed  to detect  and report
instances of money  laundering in United  States  private  banking  accounts and
correspondent  accounts  maintained  for  non-United  States  persons  or  their
representatives; and (iii) to avoid establishing, maintaining, administering, or
managing  correspondent  accounts  in the United  States for, or on behalf of, a
foreign  shell bank that does not have a physical  presence in any  country.  In
addition,  the Act expands the circumstances under which funds in a bank account
may be forfeited and requires covered  financial  institutions to respond under
certain  circumstances to requests for information from federal banking agencies
within 120 hours.

Treasury regulations  implementing the due diligence requirements were issued in
2002. These regulations  required minimum standards to verify customer identity,
encouraged cooperation among financial institutions,  federal banking agencies,
and law enforcement authorities regarding possible money laundering or terrorist
activities,  prohibited  the  anonymous  use of  "concentration  accounts,"  and
required  all  covered  financial  institutions  to have in place an  anti-money
laundering compliance program.

The Act also  amended  the Bank  Holding  Company Act and the Bank Merger Act to
require  the  federal  banking  agencies  to  consider  the  effectiveness  of a
financial  institution's  anti-money  laundering  activities  when  reviewing an
application under these acts.

                                                                       Page 8
<PAGE>


THE SARBANES-OXLEY ACT

The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley  Act"), which became law on July
30, 2002, added new legal requirements for public companies  affecting corporate
governance, accounting and corporate reporting.

The Sarbanes-Oxley Act provides for, among other things:
     *  a prohibition on personal loans made or arranged by the issuer to its
        directors and executive officers (except for loans made by a bank
        subject to Regulation O);

     *  independence requirements for audit committee members;

     *  independence requirements for company auditors;

     *  certification of financial statements on Forms 10-K and 10-Q reports by
        the chief executive officer and the chief financial officer;

     *  the forfeiture by the chief executive officer and chief financial
        officer of bonuses or other incentive-based compensation and profits
        from the sale of an issuer's securities by such officers in the
        twelve month period following initial publication of any financial
        statements that later require restatement due to corporate misconduct;

     *  disclosure of off-balance sheet transactions;

     *  two-business day filing requirements for insiders filing Form 4s;

     *  disclosure of a code of ethics for financial officers and filing a
        Form 8-K for a change in or waiver of such code;

     *  the reporting of securities violations "up the ladder" by both in-house
        and outside attorneys;

     *  restrictions on the use of non-GAAP financial measures in press releases
        and SEC filings;

     *  the formation of a public accounting oversight board; and

     *  various increased criminal penalties for violations of securities laws.

The Sarbanes-Oxley Act contains provisions which became effective upon enactment
on July 30, 2002 and provisions  which will become effective from within 30 days
to one year from  enactment.  The SEC has been  delegated  the task of  enacting
rules to implement various provisions.  In addition,  each of the national stock
exchanges  has  proposed  new  corporate   governance  rules,   including  rules
strengthening  director  independence  requirements for boards,  the adoption of
corporate governance codes and charters for the nominating, corporate governance
and audit committees.

ADDITIONAL MATTERS

     The Corporation and its affiliate banks are subject to the Federal Reserve
Act,  which  restricts  financial  transactions  between  banks  and  affiliated
companies.  The statute limits credit  transactions  between  banks,  affiliated
companies and its executive officers and its affiliates.  The statute prescribes
terms and  conditions for bank  affiliate  transactions  deemed to be consistent
with safe and sound  banking  practices,  and  restricts the types of collateral
security  permitted  in  connection  with the bank's  extension  of credit to an
affiliate.  Additionally,  all transactions  with an affiliate must be on terms
substantially  the same or at least as  favorable  to the  institution  as those
prevailing at the time for comparable transactions with non-affiliated parties.

     In addition to the matters discussed above, the Corporation's  affiliate
banks are subject to  additional  regulation  of their  activities,  including a
variety of consumer protection regulations affecting their lending,  deposit and
collection  activities  and  regulations  affecting  secondary  mortgage  market
activities.

     The earnings of  financial  institutions  are also  affected by general
economic  conditions and prevailing  interest rates,  both domestic and foreign,
and by the monetary and fiscal policies of the United States  Government and its
various agencies, particularly the Federal Reserve.

     Additional legislation and administrative actions affecting the banking
industry may be considered by the United States Congress, state legislatures and
various  regulatory  agencies,  including  those referred to above. It cannot be
predicted with certainty whether such legislation or administrative  action will
be  enacted  or the  extent to which the  banking  industry  in general or the
Corporation and its affiliate banks in particular would be affected.

                                                                        Page 9
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     The Corporation from time to time includes forward-looking statements in
its oral and written communication.  The Corporation may include forward-looking
statements in filings with the Securities and Exchange Commission,  such as this
Form 10-K, in other  written  materials  and in oral  statements  made by senior
management to analysts, investors,  representatives of the media and others. The
Corporation intends 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 the Corporation is including this
statement  for  purposes  of  these  safe  harbor  provisions.   Forward-looking
statements  can  often  be  identified  by the  use of  words  like  "estimate,"
"project,"  "intend,"  "anticipate,"  "expect"  and similar  expressions.  These
forward-looking statements include:

     *  statements of the Corporation's goals, intentions and expectations;

     *  statements regarding the Corporation's business plan and growth
        strategies;

     *  statements regarding the asset quality of the Corporation's loan and
        investment portfolios; and

     *  estimates of the Corporation's 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 the Corporation's net interest margin,
        asset valuations and expense expectations;

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

     *  adverse developments in the Corporation's loan and investment
        portfolios;

     *  competitive factors in the banking industry, such as the trend towards
        consolidation in the Corporation's market; and

     *  changes in the banking legislation or the regulatory requirements of
        federal and state agencies applicable to bank holding companies and
        banks like the Corporation's affiliate banks.

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

                                                                         Page 10

<PAGE>
STATISTICAL DATA

The following tables set forth statistical data relating the Corporation and its
subsidiaries.

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
The daily average balance sheet amounts, the related interest income or expense,
and average rates earned or paid are presented in the following table.
(Dollars in Thousands)
<TABLE>
<CAPTION>
                                               2002                              2001                            2000
                                  ------------------------------  -------------------------------  -------------------------------
                                              Interest                        Interest                         Interest
                                   Average    Income/    Average   Average    Income/    Average    Average    Income/    Average
                                   Balance    Balance      Rate    Balance    Expense      Rate     Balance    Expense      Rate
                                  ---------  ---------  --------- ---------  ---------  ---------  ---------  ---------  ---------
<S>                               <C>           <C>       <C>    <C>           <C>          <C>   <C>           <C>          <C>
Assets:
Federal funds sold ............   $   39,239    $    557   1.4%  $   31,820    $    899     2.8%  $    9,938    $    666     6.7%
Interest-bearing deposits......        2,866         141   4.9        2,060         106     5.1        1,807         103     5.7
Federal Reserve and
  Federal Home Loan Bank stock.       12,327         735   6.0        7,657         559     7.3        6,456         585     9.1
Securities: (1)
  Taxable .......................    170,937       9,086   5.3      179,006      11,207     6.3      235,745      14,478     6.1
  Tax-exempt ....................    131,145       9,523   7.3       85,288       6,312     7.4       95,836       7,057     7.4
                                  ----------    --------         ----------    --------           ----------    --------
    Total Securities.............    302,082      18,609   6.2      264,294      17,519     6.6      331,581      21,535     6.5
Mortgage loans held for sale.....     21,545         503   2.3          481          41     8.5           75           8    10.7
Loans: (2)
  Commercial ....................  1,010,232      66,736   6.6      612,031      49,786     8.1      492,793      45,373     9.2
  Bankers' acceptance and
    Commercial paper purchased...
  Real estate mortgage...........    484,267      35,704   7.4      404,831      31,908     7.9      372,104      29,795     8.0
  Installment ...................    318,277      26,649   8.4      245,978      21,388     8.7      233,966      20,622     8.8
  Tax-exempt ....................      8,108         725   8.9        7,234         674     9.3        5,075         478     9.4
                                  ----------    --------         ----------    --------           ----------    --------
    Total loans .................  1,842,429     130,317   7.1    1,270,555     103,797     8.2    1,104,013      96,276     8.7
                                  ----------    --------         ----------    --------           ----------    --------
    Total earning assets.........  2,198,943     150,359   6.8    1,576,386     122,880     7.8    1,453,795     119,165     8.2
                                  ----------    --------         ----------    --------           ----------    --------
Net unrealized gain (loss) on securities
available for sale...............      6,214                          2,608                          (13,421)
Allowance for loan losses........    (20,187)                       (13,736)                         (11,570)
Cash and due from banks..........     66,510                         42,814                           39,250
Premises and equipment ..........     44,088                         25,265                           22,329
Other assets ....................    110,683                         56,357                           42,308
                                   ---------                      ---------                        ---------
    Total assets ................ $2,406,251                     $1,689,694                       $1,532,691
                                  ==========                     ==========                       ==========
Liabilities:
  Interest-bearing deposits:
    NOW accounts ................ $  273,126       3,680   1.3%  $  192,573       2,475     1.3%  $  168,773       2,920     1.7%

    Money market deposit accounts    332,811       3,290   1.0      214,087       6,386     3.0      193,932       9,000     4.6
    Savings deposits ............    184,849       2,184   1.2      122,175       2,310     1.9       98,988       2,477     2.5
    Certificates and other
      time deposits .............    838,272      30,546   3.6      655,477      34,655     5.3      612,605      35,210     5.7
                                  ----------    --------         ----------    --------           ----------    --------
  Total interest-bearing
    deposits.....................  1,629,058      39,700   2.4    1,184,312      45,826     3.9    1,074,298      49,607     4.6

Borrowings ......................    277,709      14,060   5.1      171,771      10,248     6.0      169,869      10,939     6.4
                                  ----------    --------         ----------    --------           ----------    --------
  Total interest-bearing
    liabilities..................  1,906,767      53,760   2.8    1,356,083      56,074     4.1    1,244,167      60,546     4.9
Noninterest-bearing deposits.....    227,995                        147,318                          134,717
Other liabilities ...............     33,914                         20,061                           12,361
                                  ----------                     ----------                       ----------
    Total liabilities............  2,168,676                      1,523,462                        1,391,245
Stockholders' equity ............    237,575                        166,232                          141,446
                                  ----------                     ----------                       ----------
    Total liabilities and
     stockholders' equity........ $2,406,251      53,760   2.4(3)$1,689,694      56,074     3.6(3)$1,532,691      60,546     4.2(3)
                                  ==========    --------         ==========    --------           ==========    --------
    Net interest income .........               $ 96,599                       $ 66,806                          $ 58,619
                                                ========                       ========                          ========
    Net interest margin..........                          4.4                              4.2                               4.0
(1)     Average  balance of securities  is computed  based on the average of the
        historical amortized cost balances without the effects of the fair value
        adjustment.
(2)     Nonaccruing loans have been included in the average balances.
(3)     Total interest expense divided by total earning assets adjustment
        to convert tax exempt investment  securities to fully taxable equivalent
        basis,    using   marginal   rate   of   35%   for   2002,   2001,   and
        2000.............................
                                                 $3,676                            $2,445                            $2,637
                                                 ======                            ======                            ======
</TABLE>
                                                                        Page 11
<PAGE>

STATISTICAL DATA (continued)
----------------

ANALYSIS OF CHANGES IN NET INTEREST INCOME

The following table presents net interest income  components on a tax-equivalent
basis and reflects  changes between  periods  attributable to movement in either
the  average  balance  or  average  interest  rate for both  earning  assets and
interest-bearing  liabilities.  The  volume  differences  were  computed  as the
difference in volume  between the current and prior year times the interest rate
of the  prior  year,  while the  interest  rate  changes  were  computed  as the
difference  in rate  between  the current and prior year times the volume of the
prior  year.  Volume/rate  variances  have  been  allocated  on the basis of the
absolute relationship between volume variances and rate variances.
<TABLE>
<CAPTION>

                                                 2002 Compared to 2001                               2001 Compared to 2000
                                               Increase (Decrease) Due To                          Increase (Decrease) Due To
                                        -----------------------------------------          -----------------------------------------


                                          Volume         Rate          Total                  Volume         Rate          Total
                                          ------         ----          -----                  ------         ----          -----
                                                        (Dollars in Thousands on Fully Taxable Equivalent Basis)
<S>                                      <C>            <C>          <C>                     <C>            <C>          <C>

Interest income:
  Federal funds sold ...............     $   176       $   (518)     $  (342)               $    795       $   (562)    $    233
  Interest-bearing deposits ........          49             42           91                      14            (11)           3
  Federal Reserve and Federal
    Home Loan Bank stock ...........         293           (117)         176                      98           (124)         (26)
  Securities .......................       2,386         (1,296)       1,090                  (4,452)           436       (4,016)
  Mortgage loans held for sale .....         513            (51)         462                      35             (2)          33
  Loans ............................      40,558        (14,556)      26,002                  13,843         (6,355)       7,488
                                         --------      ---------    ---------                --------      ---------    ---------
  Totals ...........................      43,975        (16,496)      27,479                  10,333         (6,618)       3,715
                                         --------      ---------    ---------                --------      ---------    ---------
Interest expense:
  NOW accounts .....................       1,080            125        1,205                     374           (819)        (445)
  Money market deposit
    accounts........................       2,468         (5,564)      (3,096)                    860         (3,474)      (2,614)
  Savings deposits..................         928         (1,054)        (126)                    511           (678)        (167)
  Certificates and other
    time deposits...................       8,244        (12,353)      (4,109)                  2,372         (2,927)        (555)
  Borrowings........................       5,552         (1,741)       3,811                     121           (812)        (691)
                                         --------      ---------    ---------                --------      ---------    ---------
    Totals..........................      18,272        (20,587)      (2,315)                  4,238         (8,710)      (4,472)
                                         --------      ---------    ---------                --------      ---------    ---------

Change in net interest
  income (fully taxable
  equivalent basis)................      $25,703       $  4,091       29,794                 $ 6,095       $  2,092        8,187
                                         ========      =========                             ========      =========


Tax equivalent adjustment
  using marginal rate
  of 35% for 2002, 2001,
 and 2000..........................                                   (1,232)                                                192
                                                                   ----------                                          ----------


Change in net interest
  income...........................                                $  28,562                                           $   8,379
                                                                   ==========                                          ==========

</TABLE>
                                                                        Page 12
<PAGE>

STATISTICAL DATA (continued)

INVESTMENT SECURITIES

The  amortized  cost,  gross  unrealized  gains,  gross  unrealized  losses  and
approximate  market value of the  investment  securities at the dates  indicated
were:
<TABLE>
<CAPTION>
                                                                          Gross            Gross
                                                       Amortized        Unrealized      Unrealized          Fair
                                                         Cost             Gains           Losses            Value
                                                    ----------------  ---------------  --------------  --------------
                                                                          (Dollars in Thousands)
<S>                                                   <C>               <C>              <C>             <C>
Available for sale at December 31, 2002
   U.S. Treasury ...............................      $    125                                           $    125
   Federal agencies ............................        27,630          $    814         $      8          28,436
   State and municipal .........................       135,715             5,787              178         141,324
   Mortgage-backed securities ..................       117,724             2,448               54         120,118
   Other asset-backed securities ...............         1,000                                              1,000
   Corporate obligations .......................        12,101               465                           12,566
   Marketable equity securities ................        29,452                20              116          29,356
                                                      --------          --------         --------        --------
      Total available for sale .................       323,747             9,534              356         332,925
                                                      --------          --------         --------        --------

Held to maturity at December 31, 2002
   State and municipal .........................         9,013               448                            9,461
   Mortgage-backed securities ..................           124                                                124
                                                      --------          --------         --------        --------
      Total held to maturity ...................         9,137               448                            9,585
                                                      --------          --------         --------        --------
      Total investment securities ..............      $332,884          $  9,982         $    356        $342,510
                                                      ========          ========         ========        ========


Available for sale at December 31, 2001
   U.S. Treasury ...............................      $    124                                           $    124
   Federal agencies ............................        30,808          $    767         $      2          31,573
   State and municipal .........................        74,776             1,644              215          76,205
   Mortgage-backed securities ..................       100,811             1,710                1         102,520
   Other asset-backed securities ...............        10,116               167                           10,283
   Corporate obligations .......................         3,498               116                            3,614
   Marketable equity securities ................         7,472                                123           7,349
                                                      --------          --------         --------        --------
      Total available for sale .................       227,605             4,404              341         231,668
                                                      --------          --------         --------        --------

Held to maturity at December 31, 2001
   State and municipal .........................         8,426               166               58           8,534
   Mortgage-backed securities ..................           228                                                228
                                                      --------          --------         --------        --------
      Total held to maturity ...................         8,654               166               58           8,762
                                                      --------          --------         --------        --------
      Total investment securities ..............      $236,259          $  4,570         $    399        $240,430
                                                      ========          ========         ========        ========
</TABLE>


                                                                        Page 13

<PAGE>
--------------------------------------------------------------------------------
STATISTICAL DATA (continued)
<TABLE>
<CAPTION>
                                                                            Gross          Gross
                                                       Amortized         Unrealized      Unrealized        Fair
                                                          Cost              Gains          Losses         Value
                                                     ---------------   --------------  --------------  ------------
<S>                                                   <C>               <C>              <C>             <C>
Available for sale at December 31, 2000:
    U.S. Treasury..............................        $  2,997                                          $  2,997
    Federal agencies...........................          55,403         $    268        $    155           55,516
    State and municipal........................          81,370            1,045             103           82,312
    Mortgage-backed securities.................         127,907              139             922          127,124
    Other asset-backed securities  ............          19,924               10             148           19,786
    Corporate obligations  ....................           7,238                9             395            6,852
    Marketable equity securities...............           1,277                              134            1,143
                                                       --------         --------        --------         --------
       Total available for sale................         296,116            1,471           1,857          295,730
                                                       --------         --------        --------         --------

Held to maturity at December 31, 2000:
   U.S. Treasury...............................             250                                               250
   State and municipal.........................          11,645              131              36           11,740
   Mortgage-backed securities..................             338                                               338
                                                       --------         --------        --------         --------
      Total held to maturity...................          12,233              131              36           12,328
                                                       --------         --------        --------         --------
      Total investment securities..............        $308,349         $  1,602        $  1,893         $308,058
                                                       ========         ========        ========         ========


<CAPTION>
                                                                              Cost
                                                    ----------------------------------------------------------
                                                          2002                 2001                 2000
                                                          ----                 ----                 ----
<S>                                                     <C>                  <C>                  <C>
Federal Reserve and Federal Home Loan
   Bank stock at December 31:
Federal Reserve Bank stock ....................        $   493               $  493               $  493
Federal Home Loan Bank stock ..................         10,916                7,857                6,692
                                                       -------                -----                -----
    Total .....................................        $11,409               $8,350               $7,185
                                                       =======               ======               ======
</TABLE>

The Fair value of Federal Reserve and Federal Home Loan Bank stock  approximates
cost.

The maturity  distribution  (dollars in  thousands)  and average  yields for the
securities portfolio at December 31, 2002 were:

Securities available for sale December 31, 2002:
<TABLE>
<CAPTION>
                                                 Within 1 Year                 1-5 Years                  5-10 Years
                                                 -------------                 ---------                  ----------
                                              Amount        Yield*        Amount        Yield*       Amount        Yield*
                                              ------        ------        ------        ------       ------        ------
<S>                                          <C>              <C>        <C>             <C>        <C>              <C>
U.S. Treasury......................          $   125          1.2%
Federal Agencies...................            7,311          5.0        $15,069         3.7%       $ 4,054          3.9%
State and Municipal................           12,132          4.5         45,572         4.4         44,508          4.6
Corporate Obligations..............            3,059          6.6          9,507         6.1
                                             -------                     -------                    -------
    Total..........................          $22,627          4.9%       $70,148         4.5%       $48,562          4.6%
                                             =======                     =======                    =======
</TABLE>

                                                                        Page 14
<PAGE>
--------------------------------------------------------------------------------

STATISTICAL DATA (continued)
<TABLE>
<CAPTION>
                                                                            Marketable Equity,
                                                                            Mortgage and Other
                                             Due After Ten Years         Asset-Backed Securities                Total
                                             -------------------         -----------------------                -----
                                            Amount         Yield*         Amount         Yield*          Amount        Yield*
                                            ------         ------         ------         ------          ------        ------
<S>                                        <C>               <C>       <C>                <C>          <C>              <C>
U.S. Treasury........................                                                                  $    125         1.2%
Federal Agencies.....................     $  2,002           2.7%                                        28,436         4.0
State and Municipal..................       39,112           4.5                                        141,324         4.5
Corporate Obligations................                                                                    12,566         6.3
Marketable Equity Securities.........                                  $  29,356           1.3%          29,356         1.3
Mortgage-backed securities...........                                    120,118           5.1          120,118         5.1
Other asset-backed securities........                                      1,000           3.8            1,000         3.8
                                          --------                     ---------                       --------
    Total............................     $ 41,114           4.4%      $ 150,474           4.3%        $332,925         4.4%
                                          ========                     =========                       ========
</TABLE>

Securities held to maturity at December 31, 2002:
<TABLE>
<CAPTION>

                                                  Within 1 Year                1-5 Years                   5-10 Years
                                                  -------------                ---------                   ----------
                                            Amount         Yield*         Amount        Yield*       Amount         Yield*
                                            ------         ------         ------        ------       ------         ------
<S>                                       <C>                <C>         <C>              <C>        <C>              <C>
State and Municipal..................     $  1,286           5.1%        $ 4,857          5.2%       $2,015           5.4%

</TABLE>

<TABLE>
<CAPTION>
                                                                             Mortgage Backed
                                            Due After Ten Years                Securities                     Total
                                            -------------------               ------------                    -----
                                           Amount          Yield*         Amount        Yield*        Amount        Yield*
                                           ------          ------         ------        ------        ------        ------
<S>                                        <C>               <C>         <C>              <C>         <C>             <C>
State and Municipal..................     $   855            6.0%                                     $ 9,013         5.3%
Mortgage-backed securities...........                                    $   124          8.4%            124         8.4
                                          -------                        -------                      -------
     Total............................    $   855            6.0%        $   124          8.4%        $ 9,137         5.4%
                                          =======                        =======                      =======

</TABLE>

   *Interest  yields on state and municipal  securities are presented on a fully
   taxable equivalent basis using a 35% rate.

Federal Reserve and Federal Home Loan Bank stock at December 31, 2002:
<TABLE>
<CAPTION>

                                           Amount          Yield
<S>                                       <C>               <C>
Federal Reserve Bank Stock...........     $   493           6.0%
Federal Home Loan Bank stock.........      10,916           5.8
                                          -------
    Total............................     $11,409           5.9%
                                          =======
</TABLE>

                                                                        Page 15

<PAGE>

STATISTICAL DATA (continued)

LOAN PORTFOLIO

TYPES OF LOANS

The loan portfolio at the dates indicated is presented below:
<TABLE>
<CAPTION>

                                                     2002              2001              2000             1999             1998
                                                     ----              ----              ----             ----             ----
                                                                                (Dollars in Thousands)
<S>                                                 <C>               <C>               <C>              <C>             <C>
Loans at December 31:
  Commercial and
    industrial loans...........................   $  406,644        $  301,962        $  258,405         $224,712        $188,841
  Bankers acceptances and loans
    to financial institutions..................                                                                               900
  Agricultural production
    financing and other loans
    to farmers.................................       85,059            29,645            24,547           21,547          21,951
  Real estate loans:
    Construction...............................      133,896            58,316            45,412           31,996          31,719
    Commercial and farmland....................      401,561           230,233           167,317          150,544         137,671
    Residential................................      746,349           544,028           466,660          380,596         361,611
  Individuals' loans for
    household and other
    personal expenditures......................      206,083           179,325           201,629          181,878         142,938
  Tax-exempt loans.............................       12,615             7,277             6,093            4,070           2,652
  Other loans..................................       12,170             8,800             5,523            3,552           2,073
                                                   ----------        ----------        ----------        ---------       ---------
            Total loans........................   $2,004,377        $1,359,586        $1,175,586         $998,895        $890,356
                                                   ==========        ==========        ==========        =========       =========
</TABLE>

Residential  Real Estate Loans Held for Sale at December 31, 2002,  2001,  2000,
1999, and 1998 were $21,545,000, $307,000, $0, $61,000, and $776,000.

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES


Presented in the table below are the maturities of loans  (excluding  commercial
real  estate,  banker  acceptances,   farmland,   residential  real  estate  and
individuals'  loans) outstanding as of December 31, 2002. Also presented are the
amounts due after one year classified according to the sensitivity to changes in
interest rates.

<TABLE>
<CAPTION>
                                                                               Maturing
                                                    Within              1-5               Over
                                                    1 Year             Years             5 Years            Total
                                                 --------------    ---------------    --------------     ------------
                                                                        (Dollars in Thousands)
<S>                                              <C>               <C>                  <C>               <C>
Commercial and industrial loans................  $  279,576        $  92,923           $  34,145          $  406,644
Agricultural production financing
  and other loans to farmers...................      73,909            8,741               2,409              85,059
Real estate - Construction.....................     100,005           26,336               7,555             133,896
Tax-exempt loans...............................         521            7,553               4,541              12,615
Other loans....................................         413           11,594                 163              12,170
                                                 ----------        ---------            ---------         ----------
      Total....................................  $  454,424        $ 147,147            $ 48,813          $  650,384
                                                 ==========        =========            =========         ==========

</TABLE>
                                                                        Page 16
<PAGE>

STATISTICAL DATA  (continued)

<TABLE>
<CAPTION>
                                                                       Maturing
                                                  ---------------------------------------------------
                                                           1 - 5                       Over
                                                           Years                     5 Years
                                                           -----                     -------
                                                                (Dollars in Thousands)
<S>                                                 <C>                         <C>
Loans maturing after one year with:

  Fixed rate..............................          $      74,191               $     47,598
  Variable rate...........................                 72,956                      1,215
                                                    -------------               ------------
    Total.................................          $     147,147               $     48,813
                                                    =============               ============
</TABLE>

NONACCRUING, CONTRACTUALLY PAST DUE 90 DAYS OR MORE
OTHER THAN NONACCRUING AND RESTRUCTURED LOANS

<TABLE>
<CAPTION>
                                                                              December 31
                                                  --------------------------------------------------------------------
                                                   2002          2001          2000           1999           1998
                                                   ----          ----          ----           ----            ----
                                                                       (Dollars in Thousands)
<S>                                               <C>           <C>           <C>            <C>             <C>
Nonaccruing loans.........................        $14,134       $6,327        $2,370         $1,280          $1,073
Loans contractually past due 90
  days or more other than
  nonaccruing.............................          6,676        4,828         2,483          2,826           2,334
Restructured loans........................          2,508        3,511         3,085            908           1,110

</TABLE>

Nonaccruing loans are loans which are reclassified to a nonaccruing  status when
in  management's  judgment the collateral  value and financial  condition of the
borrower do not justify accruing interest. Interest previously recorded, but not
deemed  collectible,  is reversed and charged against  current income.  Interest
income on these loans is then recognized when collected.

Restructured  loans are loans for which the  contractual  interest rate has been
reduced  or  other  concessions  are  granted  to  the  borrower, because  of  a
deterioration  in the  financial  condition  of the  borrower  resulting  in the
inability of the borrower to meet the original contractual terms of the loans.

Interest  income  of  $783,000  for the year  ended  December  31,  2002,  was
recognized on the nonaccruing and restructured  loans listed in the table above,
whereas  interest income of $1,544,000  would have been  recognized  under their
original loan terms.

Potential problem loans:

Management  has  identified  certain  other  loans  totaling  $36,630,000  as of
December 31, 2002,  not included in the table above,  or the impaired loan table
in the footnotes to the consolidated financial statements, about which there are
doubts as to the borrowers' ability to comply with present repayment terms.

The  Corporation's  affiliate banks generate  commercial,  mortgage and consumer
loans from customers located primarily in north-central and east-central Indiana
and Butler and  Franklin  counties  in  Ohio.  The  Banks'  loans are  generally
secured by specific  items of  collateral,  including  real  property,  consumer
assets,   and  business  assets.   Although  the  Banks  have  diversified  loan
portfolios,  a  substantial  portion of their  debtors'  ability to honor  their
contracts  is  dependent   upon  economic   conditions  in  the  automotive  and
agricultural industries.
                                                                        Page 17
<PAGE>

STATISTICAL DATA (continued)
----------------

SUMMARY OF LOAN LOSS EXPERIENCE

The following table summarizes the loan loss experience for the years indicated.

<TABLE>
<CAPTION>
                                                    2002            2001            2000            1999            1998
                                                    ----            ----            ----            ----            ----
                                                                            (Dollars in Thousands)
<S>                                               <C>             <C>             <C>             <C>             <C>
Allowance for loan losses:
  Balance at January 1....................        $ 15,141        $ 12,454        $ 10,128        $  9,209        $ 8,429

  Chargeoffs:
    Commercial and industrial(1)...........          4,711           1,688             974             361            794
    Real estate mortgage(3)................            800             227              43              40             44
    Individuals' loans for household and
      other personal expenditures,
      including other loans................          2,602           1,632           1,274           1,368          1,393
                                                  --------        --------        --------        --------        -------
      Total chargeoffs.....................          8,113           3,547           2,291           1,769          2,231
                                                  --------        --------        --------        --------        -------
  Recoveries:
    Commercial and industrial(2)...........            549             176             171             114            325
    Real estate mortgage(4)................             92              32               1              32             20
    Individuals' loans for household and
      other personal expenditures,
      including other loans................            672             365             407             301            294
                                                  --------        --------        --------        --------        -------
      Total recoveries.....................          1,313             573             579             447            639
                                                  --------        --------        --------        --------        -------

  Net chargeoffs...........................          6,800           2,974           1,712           1,322          1,592
                                                  --------        --------        --------        --------        -------
  Provisions for loan losses...............          7,174           3,576           2,625           2,241          2,372
  Allowance acquired in purchase...........          6,902           2,085           1,413
                                                  --------        --------        --------        --------        -------
  Balance at December 31...................        $22,417         $15,141         $12,454         $10,128        $ 9,209
                                                  ========        ========        ========        ========        =======

  (1)Category also includes the chargeoffs for bankers acceptances, loans to
     financial institutions, tax-exempt loans and agricultural production
     financing and other loans to farmers.
  (2)Category also includes the recoveries for bankers acceptances, loans to
     financial institutions, tax-exempt loans and agricultural production
     financing and other loans to farmers.
  (3)Category includes the chargeoffs for construction, commercial and farmland
     and residential real estate loans.
  (4)Category includes the recoveries for construction, commercial and farmland
     and residential real estate loans.

  Ratio of net chargeoffs during the
   period to average loans
   outstanding during the period..........           .37%             .23%             .16%            .14%           .18%



</TABLE>


                                                                        Page 18
<PAGE>

STATISTICAL DATA (continued)
----------------

Allocation of the Allowance for Loan Losses at December 31:

Presented  below is an analysis of the  composition  of the  allowance  for loan
losses and per cent of loans in each category to total loans:
<TABLE>
<CAPTION>
                                                                     2002                            2001
                                                         -------------------------       -------------------------
                                                          Amount          Per Cent        Amount          Per Cent
                                                         --------         --------       --------         --------
                                                                          (Dollars in Thousands)
<S>                                                      <C>                 <C>         <C>                 <C>
Balance at December 31:
  Commercial and industrial(1)................           $ 12,405            31.2%       $  6,884            28.8%
  Real estate mortgage(2).....................              2,875            57.3           2,655            56.9
  Individuals' loans for household and
    other personal expenditures,
    including other loans.....................              7,037            11.5           5,502            14.3
  Unallocated.................................                100             N/A             100            N/A
                                                         --------           ------       --------           ------
  Totals......................................           $ 22,417           100.0%       $ 15,141           100.0%
                                                         ========           ======       ========           ======


                                                                    2000                             1999
                                                         -------------------------        -------------------------
                                                          Amount          Per Cent         Amount          Per Cent
                                                         --------         --------        --------         --------
                                                                           (Dollars in Thousands)
Balance at December 31:
  Commercial and industrial(1)................           $  4,478            28.0%        $  3,347            27.8%
  Real estate mortgage(2).....................              1,554            53.9            1,297            53.2
  Individuals' loans for household and
    other personal expenditures,
    including other loans.....................              4,622            18.1            3,914            19.0
  Unallocated.................................              1,800            N/A             1,570            N/A
                                                         --------           ------        --------           ------
  Totals......................................           $ 12,454           100.0%        $ 10,128           100.0%
                                                         ========           ======        ========           ======


                                                                    1998
                                                         -------------------------
                                                          Amount          Per Cent
                                                         --------         --------
Balance at December 31:                                   (Dollars in Thousands)
  Commercial and industrial(1)................           $  2,954           27.3%
  Real estate mortgage(2).....................              1,313           56.1
  Individuals' loans for household and
    other personal expenditures,
    including other loans.....................              3,514           16.6
  Unallocated. .... ..........................              1,428            N/A
                                                         --------          ------
  Totals......................................           $  9,209          100.0%
                                                         ========          ======

  (1) Category also includes the allowance for loan losses and per cent of loans
      for bankers acceptances, loans to financial institutions, tax-exempt loans
      and agricultural production financing and other loans to farmers.
  (2) Category includes the allowance for loan losses and per cent of loans for
      construction, commercial and farmland and residential real estate loans.
</TABLE>
                                                                        Page 19
<PAGE>

STATISTICAL DATA (continued)
----------------

Loan Administration and Loan Loss Chargeoff Procedures

Primary  responsibility  and  accountability  for day-to-day  lending activities
rests with the  Corporation's  affiliate banks. Loan personnel at each bank have
the authority to extend credit under guidelines  approved by the bank's board of
directors.  Executive  and board  loan  committees  active at each bank serve as
vehicles  for  communication  and for the  pooling of  knowledge,  judgment  and
experience of its members.  These  committees  provide valuable input to lending
personnel,  act as an approval  body,  and  monitor  the overall  quality of the
banks' loan portfolios.  The Executive  Committee of the Corporation's  Board of
Directors  meets  bimonthly to approve or disapprove  all new loans in excess of
$1,000,000. The Corporation also maintains a loan grading and review program for
its  affiliate  banks,  which  includes  quarterly  reviews  of  problem  loans,
delinquencies  and charge-offs.  The purpose of this program is to evaluate loan
administration,  credit  quality,  loan  documentation  and the  adequacy of the
allowance for loan losses.

The Corporation  maintains an allowance for loan losses to cover probable credit
losses identified during its loan review process.  The allowance is increased by
the provision for loan losses and decreased by charge-offs less recoveries.  All
charge-offs  are approved by the bank's  senior loan officer and are reported to
the Banks' Boards.  The Banks charge off loans when a determination is made that
all or a portion of a loan is  uncollectible  or as a result of  examinations by
regulators and the independent auditors.

Provision for Loan Losses

In banking,  loan losses are one of the costs of doing  business.  Although  the
Banks' management emphasize the early detection and chargeoff of loan losses, it
is inevitable  that at any time certain losses exist in the portfolio which have
not been specifically identified.  Accordingly, the provision for loan losses is
charged to earnings on an  anticipatory  basis,  and recognized  loan losses are
deducted from the allowance so established.  Over time, all net loan losses must
be charged to earnings.  During the year, an estimate of the loss experience for
the year serves as a starting point in determining the appropriate level for the
provision. However, the amount actually provided in any period may be greater or
less than net loan losses, based on management's  judgment as to the appropriate
level of the allowance for loan losses.  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.  The evaluation by management includes consideration of past loan
loss  experience,  changes in the  composition  of the loan  portfolio,  and the
current condition and amount of loans outstanding.

Impaired loans are measured by the present value of expected  future cash flows,
or the fair value of the  collateral  of the  loans,  if  collateral  dependent.
Information on impaired loans is summarized below:

<TABLE>
<CAPTION>
                                                                           2002              2001              2000
                                                                     ---------------   ---------------   ---------------
                                                                                    (Dollars in Thousands)
<S>                                                                   <C>               <C>               <C>
For the year ending December 31:
  Impaired loans with an allowance...................                 $     16,901      $     10,381      $      7,862
  Impaired loans for which the discounted
    cash flows or collateral value exceeds the
    carrying value of the loan.......................                       27,450            10,780             6,977
                                                                      ------------      ------------      ------------

        Total impaired loans.........................                 $     44,351      $     21,161      $     14,839
                                                                      ============      ============      ============

  Allowance for impaired loans (included in the
    Corporation's allowance for loan losses).........                 $      7,299      $      3,251      $      2,253
  Average balance of impaired loans..................                       49,663            22,327            15,053
  Interest income recognized on impaired loans.......                        3,656             1,538             1,361
  Cash basis interest included above.................                        2,344             1,555             1,080
</TABLE>
                                                                        Page 20
<PAGE>
--------------------------------------------------------------------------------
STATISTICAL DATA (continued)

DEPOSITS

The average balances,  interest income and expense and average rates on deposits
for the years  ended  December  2002,  2001 and 2000 are  presented  within  the
distribution of assets, liabilities and stockholders' equity table on page 11 of
this Form 10-K.

As of December  31,  2002,  certificates  of deposit and other time  deposits of
$100,000 or more mature as follows:

<TABLE>
<CAPTION>
                                                                       Maturing
                                                   -------------------------------------------------
                                    3 Months            3-6              6-12            Over 12
                                    or less           Months            Months           Months             Total
                                  -------------    --------------    --------------   --------------    --------------
                                                                (Dollars in Thousands)
<S>                                 <C>              <C>                <C>              <C>               <C>
Certificates of deposit and
  other time deposits..........     $ 69,737         $ 19,601           $ 26,319         $ 84,077          $199,734
Per cent.......................           35%              10%                13%              42%              100%

</TABLE>
RETURN ON EQUITY AND ASSETS

The information regarding return on equity and assets is presented on page 2 of
the Corporation's 2002 Annual Report to Stockholders - Financial Review under
the caption "Five - Year Summary of Selected Financial Data" within Exhibit 13
of this Form 10-K.

SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
                                                                     2002                2001                2000
                                                              -----------------   -----------------   -----------------
                                                                                (Dollars in Thousands)
<S>                                                               <C>                 <C>                 <C>
Balance at December 31:
  Securities sold under repurchase
    agreements (short-term portion)........                       $  65,962           $  22,732           $  31,956
  Federal funds purchased..................                                              10,500                 975
  U.S. Treasury demand notes...............                                               6,273               4,968
                                                                  ---------           ---------           ---------

          Total short-term borrowings.........                    $  65,962           $  39,505           $  37,899
                                                                  =========           =========           =========
</TABLE>

Securities sold under repurchase  agreements are borrowings  maturing within one
year and are secured by U.S. Treasury and Federal agency obligations.

Pertinent information with respect to short-term borrowings is summarized below:

<TABLE>
<CAPTION>
                                                                       2002                2001                2000
                                                                 -----------------   -----------------   -----------------
                                                                                   (Dollars in Thousands)
<S>                                                                     <C>                 <C>                 <C>
Weighted average interest rate on outstanding
balance at December 31:

    Securities sold under repurchase
        agreements(short-term portion)..............                   1.1%                3.3%                6.2%
    Total short-term borrowings.....................                   1.1                 2.4                 5.6

Weighted average interest rate during the year:
    Securities sold under repurchase
        agreements (short-term portion).............                   1.4%                3.7%                5.6%
    Total short-term borrowings.....................                   1.3                 4.0                 5.0

Highest amount outstanding at any month end
during the year:
    Securities sold under repurchase
        agreements (short-term portion).............             $  54,375           $  17,750           $  14,505
    Total short-term borrowings.....................                67,984              46,195              56,099

Average amount outstanding during the year:
    Securities sold under repurchase
        agreements (short-term portion).............             $  41,241           $  14,036           $  12,116
    Total short-term borrowings.....................                49,886              22,126              33,165


</TABLE>

                                                                        Page 21
<PAGE>

ITEM 2.  PROPERTIES.
--------------------------------------------------------------------------------

The headquarters of the Corporation and First Merchants are located in a
five-story building at 200 East Jackson Street, Muncie, Indiana. The building is
owned by First Merchants.

The Corporation's  affiliate banks conduct business through numerous  facilities
owned and leased by the respective  affiliate  banks.  Of the 70 banking offices
operated by the  Corporation's  affiliate  banks, 55 are owned by the respective
banks and 15 are leased from non-affiliated third parties.

None of the properties owned by the Corporation's affiliate banks are subject to
any major  encumbrances.  The net investment of the Corporation and subsidiaries
in real estate and equipment at December 31, 2002 was $38,645,000.

--------------------------------------------------------------------------------
ITEM 3.  LEGAL PROCEEDINGS.

There is no pending legal  proceeding,  other than ordinary  routine  litigation
incidental to the business of the Corporation or its subsidiaries, of a material
nature to which the  Corporation or its  subsidiaries is a party or of which any
of their properties are subject.  Further, there is no material legal proceeding
in which any  director,  officer,  principal  shareholder,  or  affiliate of the
Corporation,  or any  associate  of any  such  director,  officer  or  principal
shareholder, is a party, or has a material interest, adverse to the Corporation
or any of its subsidiaries.

None of the routine legal  proceedings,  individually  or in the  aggregate,  in
which the  Corporation  or its  affiliates  are  involved are expected to have a
material  adverse impact on the financial  position or the results of operations
of the Corporation.

--------------------------------------------------------------------------------
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No  matters  were  submitted  during  the  fourth  quarter  of 2002 to a vote of
security holders, through the solicitation of proxies or otherwise.

                                                                        Page 22
<PAGE>

SUPPLEMENTAL INFORMATION - EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------------------------------------
The names,  ages, and positions with the Corporation and subsidiary banks of all
executive officers of the Corporation and all persons chosen to become executive
officers are listed below.
<TABLE>
<CAPTION>

<S>                                         <C>                                      <C>
                                                 Offices with the Corporation                 Principal Occupation
               Name and Age                          And Subsidiary Banks                    During Past Five Years
------------------------------------------- ---------------------------------------- ----------------------------------------

Michael L. Cox                              President, Chief Executive Officer       Chief Executive Officer of the
58                                          Corporation                              Corporation since April 1999;
                                                                                     President First Merchants from
                                                                                     April 1999 to September 2000;
                                                                                     President and Chief Operating Officer,
                                                                                     Corporation since August 1998 and
                                                                                     May, 1994 to April 1999 respectively;
                                                                                     President and Chief Operating Officer,
                                                                                     First Merchants from April, 1996 to
                                                                                     April 1999; Director, Corporation
                                                                                     and First  Merchants since December, 1984.

Roger M. Arwood                             Executive Vice President and             Chief Operating Officer of the Corporation
51                                          Chief Operating Officer, Corporation     since August 2002; President and Chief
                                                                                     Executive Officer First Merchants from
                                                                                     September 2000 to August 2002; Bank of America
                                                                                     from 1983 to February 2000; Executive Vice
                                                                                     President of the Corporation since February of
                                                                                     2000.


Robert R. Connors                           Senior Vice President of Operations      Senior Vice President of Operations and
53                                          and Technology, Corporation and First    Technology, Corporation and First Merchants
                                            Merchants                                since August 2002; Senior Vice President of
                                                                                     Operations and Compliance Officer at First
                                                                                     Internet Bank of Indiana from 1999 to 2002;
                                                                                     Senior Vice President of Operations and Chief
                                                                                     Information Officer at Peoples Bank & Trust
                                                                                     Company from 1984 to 1999.

Larry R. Helms                              Senior Vice President, General           Senior Vice President and General Counsel,
62                                          Counsel and Secretary, Corporation       Corporation since 1982  and Secretary
                                                                                     since January 1997; Senior Vice President,
                                                                                     First Merchants from January 1979 to  2002;
                                                                                     Director of First United Bank from 1991 to 2002
                                                                                     and Pendleton Banking Company from 1992 to
                                                                                     2002.


Mark K. Hardwick                            Senior Vice President and Chief          Senior Vice President and Chief Financial
32                                          Financial Officer, Corporation           Officer of the Corporation since April of 2002;
                                                                                     Corporate Controller, Corporation from
                                                                                     November 1997 to April 2002; Senior Accountant,
                                                                                     Geo. S. Olive & Company from September 1994 to
                                                                                     October 1997.


</TABLE>

                                                                        Page 23
<PAGE>

                                     PART II

ITEM 5.     MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
                  STOCKHOLDER MATTERS.
--------------------------------------------------------------------------------

The  information  required under this item is incorporated by reference to pages
53 and 54 of the  Corporation's  2002 Annual  Report to  Stockholders  under the
captions "Stock Information" and "Common Stock Listing", Exhibit 13.

ITEM 6.      SELECTED FINANCIAL DATA.
--------------------------------------------------------------------------------

The  information  on  page  2  of  the  Corporation's   2002  Annual  Report  to
Stockholders - Financial Review under the caption "Five-Year Summary of Selected
Financial Data", is expressly incorporated herein by reference.

ITEM 7.      MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND
                  RESULTS OF OPERATIONS.
--------------------------------------------------------------------------------

The information on page 3 through 17 of the Corporation's  2002 Annual Report to
Stockholders  - Financial  Review under the caption  "Management's  Discussion &
Analysis  of  Financial  Condition  and  Results of  Operations",  is  expressly
incorporated herein by reference.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
--------------------------------------------------------------------------------

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

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

      Management believes that the Corporation's liquidity and interest
sensitivity position at December 31, 2002, remained adequate to meet the
Corporation's primary goal of achieving optimum interest margins while avoiding
undue interest rate risk. The following table presents the Corporation's
interest rate sensitivity analysis as of December 31, 2002.

INTEREST RATE SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
(dollars in thousands)                                                                At December 31, 2002
-----------------------------------------------------------------------------------------------------------------------------------
                                                                1-180 DAYS   181-365 DAYS    1-5 YEARS    BEYOND 5 YEARS    TOTAL
===================================================================================================================================
<S>                                                            <C>           <C>            <C>            <C>        <C>
Rate-Sensitive Assets:
   Federal funds sold and interest-bearing deposits ........   $   34,968                                               $   34,968
   Investment securities ...................................       27,765    $   12,136     $   85,429     $  216,732      342,062
   Loans ...................................................      850,254       195,160        661,945        318,563    2,025,922
   Federal Reserve and Federal Home Loan Bank stock ........       11,409                                                   11,409
                                                               ----------    ----------     ----------     ----------   ----------
        Total rate-sensitive assets ........................      924,396       207,296        747,374        535,295    2,414,361
                                                               ----------    ----------     ----------     ----------   ----------
Rate-Sensitive Liabilities:
   Interest-bearing deposits ...............................      723,470       494,076        494,077         52,937    1,764,560
   Securities sold under repurchase agreements .............       65,962                       23,632                      89,594
   Other short-term borrowings .............................       10,168                                                   10,168
   Federal Home Loan Bank advances .........................        7,807         7,819         67,398        101,653      184,677
   Trust preferred securities ..............................                                                   53,188       53,188
   Other borrowed funds ....................................       19,300                                                   19,300
                                                               ----------    ----------     ----------     ----------   ----------
        Total rate-sensitive liabilities ...................      826,707       501,895        585,107        207,778    2,121,487
                                                               ----------    ----------     ----------     ----------   ----------

Interest rate sensitivity gap by period ....................   $   97,689    $ (294,599)    $  162,267     $  327,517
Cumulative rate sensitivity gap ............................       97,689      (196,910)       (34,643)       292,874
Cumulative rate sensitivity gap ratio
   at December 31, 2002 ....................................        111.8%         85.2%          98.2%         113.8%
   at December 31, 2001 ....................................        135.4%         97.6%         109.7%         116.9%
</TABLE>
                                                                       Page 24
<PAGE>

The Corporation had a cumulative negative gap of $196,910,000 in the one-year
horizon at December 31, 2002, just over 7.4 percent of total assets. Net
interest income at financial institutions with negative gaps tends to increase
when rates decrease and decrease as interest rates increase.

      The Corporation places its greatest credence in net interest income
simulation modeling. The GAP/Interest Rate Sensitivity Report is believed by the
Corporation's management to have two major shortfalls. The GAP/Interest Rate
Sensitivity Report fails to precisely gauge how often an interest rate sensitive
product reprices, nor is it able to measure the magnitude of potential future
rate movements.

      Net interest income simulation modeling, or earnings-at-risk, measures the
sensitivity of net interest income to various interest rate movements. The
Corporation's asset liability process monitors simulated net interest income
under three separate interest rate scenarios; base, rising and falling.
Estimated net interest income for each scenario is calculated over a 12-month
horizon. The immediate and parallel changes to the base case scenario used in
the model are presented below. The interest rate scenarios are used for
analytical purposes and do not necessarily represent management's view of future
market movements. Rather, these are intended to provide a measure of the degree
of volatility interest rate movements may introduce into the earnings of the
Corporation.

      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 management's 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
management's best estimate of expected future behavior.

      The comparative rising and falling scenarios for the period ended December
31, 2003 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 management in the base
simulation for the period ended December 31, 2003 are as follows:

Driver Rates                      RISING              FALLING
================================================================================
Prime                             200 Basis Points    (50) Basis Points
Federal Funds                     200                 (50)
One-Year T-Bill                   200                 (20)
Two-Year T-Bill                   200                 (59)
Interest Checking                 100                  --
MMIA Savings                      100                  --
First Flex                        100                 (25)
CD's                              200                 (53)
FHLB Advances                     200                 (66)

      Results for the base, rising and falling interest rate scenarios are
listed below, based upon the Corporation's rate sensitive assets at December 31,
2002. 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
===============================================================================
Net Interest Income (dollars in thousands)  $105,138  $113,855   $ 98,793

Variance from base                                    $  8,717   $ (6,345)

Percent of change from base                               8.29%    (6.03)%

                                                                      Page 25
<PAGE>

The  comparative  rising and falling  scenarios for the year ended  December 31,
2002 assume  further  interest  rate changes in addition to the base  simulation
discussed  above.  These changes are immediate and parallel  changes to the base
case senario.  In addition,  total rate movements  (beginning point minus ending
point) to each of the various  driver rates  utilized by  management in the base
simulation for the year ended December 31, 2002 are as follows:

Driver Rates                      RISING              FALLING
================================================================================
Prime                             200 Basis Points   (150)Basis Points
Federal Funds                     200                (100)
One-Year T-Bill                   200                (100)
Two-Year T-Bill                   200                (100)
Interest Checking                 100                 (25)
MMIA Savings                       75                 (25)
Money Market Index                200                (100)
CD's                              170                (130)
FHLB Advances                     200                (100)

Results for the base,  rising and falling  interest  rate  scenarios  are listed
below,  based upon the Corporation's rate sensitive assets at December 31, 2001.
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
================================================================================
Net Interest Income (dollars in thousands)    $ 74,029    $ 74,356    $ 71,540

Variance from base                                        $    327    $ (2,489)

Percent of change from base                                    .44%      (3.36)%

Item 7A.  includes  forward-looking  statements.  Readers are cautioned that, by
their  nature,  forward-looking  statements  are  based on  assumptions  and are
subject to risks,  uncertainties,  and other factors.  Actual results may differ
materially  from the  expectations  of the  Corporation  that are  expressed  or
implied  by  any  forward-looking  statement.   Factors  that  could  cause  the
Corporation's  actual results to vary materially from those expressed or implied
by  any   forward-looking   statements   include  the  effects  of  competition,
technological  changes and legal and regulatory  developments;  acquisitions  of
other businesses by the Corporation and integration of such acquired businesses;
changes in fiscal,  monetary and tax policies;  market,  economic,  operational,
liquidity,  credit and interest  rate risks  associated  with the  Corporation's
business;  inflation; competition in the financial services industry; changes in
general  economic  conditions,  either  nationally or regionally,  resulting in,
among other things, credit quality deterioration;  changes in the  securities
markets;  and  the  continued   availability  of  earnings  and  excess  capital
sufficient for the lawful and prudent declaration and payment of cash dividends.
Investors  should  consider  these  risks, uncertainties,  and other  factors in
addition  to  those  mentioned  by the  Corporation  from  time  to  time in the
Corporation's other SEC reports when considering any forward-looking statement.

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------------------------------------------

Pages 18 through 51 of the  Corporation's 2002 Annual Report to Stockholders -
Financial Review, are expressly incorporated herein by reference.

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                 FINANCIAL DISCLOSURE.
--------------------------------------------------------------------------------

In  connection  with its  audits  for the two most  recent  fiscal  years  ended
December  31,  2002,  there have been no  disagreements  with the  Corporation's
independent  certified public accountants on any matter of accounting principles
or practices,  financial statement  disclosure or audit scope or procedure,  nor
have there been any changes in accountants.

                                                                        Page 26
<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------------------------------------

The  information in the  Corporation's  Proxy  Statement dated February 25, 2003
furnished to its  stockholders  in connection  with an annual meeting to be held
April 10, 2003 (the "2003 Proxy  Statement"),  under the  captions  "Election of
Directors"  and "Section 16(a)  Beneficial  Ownership Reporting  Compliance", is
expressly incorporated herein by reference.  The information required under this
item  relating  to  executive  officers  is set  forth in Part I,  "Supplemental
Information  - Executive  Officers of the  Registrant"  of this annual report on
Form 10-K and is expressly incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION.
--------------------------------------------------------------------------------

The information in the Corporation's  2003 Proxy Statement,  under the captions,
"Compensation of Directors", "Compensation of Executive Officers", "Compensation
and  Human   Resources   Committee   Interlocks   and  Insider   Participation",
"Compensation  and Human Resources  Committee Report on Executive  Compensation"
and "Performance Graph," is expressly incorporated herein by reference.

                                                                       Page 27
<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS.
--------------------------------------------------------------------------------

The information in the  Corporation's  2003 Proxy Statement,  under the caption,
"Security  Ownership of Certain  Beneficial Owners and Management," is expressly
incorporated herein by reference.

The following table presents information relating to securities aurthorized
under equity compensation plans.
<TABLE>
<CAPTION>
                      Equity Compensation Plan Information

                                              (a)                        (b)                               (c)
                                      Number of securities to      Weighted-average          Number of securities remaining
                                      be issued upon exercise     exercise price of       available for future issuance under
                                      of outstanding options,    outstanding options,    equity compensations plans (excluding
    Plan category                       warrants and rights      warrants and rights       securities reflected in column (a)
    -------------                     -----------------------    --------------------    -------------------------------------
<S>                                   <C>                        <C>                     <C>
Equity compensation plans approved
  by stockholders                                    771,589     $             20.78                                  195,217
Equity compensation plans not
  approved by stockholders                            30,871                   21.65
                                      -----------------------    --------------------    -------------------------------------
  Total                                              802,460    $              20.81                                  195,217
                                      =======================    ====================    =====================================
</TABLE>

The only  plan  reflected  above  that  was not  approved  by the  Corporation's
stockholders  relates  to  certain  First  Merchants  Corporation  Stock  Option
Agreements  ("Agreements").  These Agreements  provide for  non-qualified  stock
options of the common stock of the Corporation to be granted to each director of
First Merchants Bank, National  Association (the "Bank") who, on the date of the
grant:  (a) is serving as a director of the Bank;  (b) is not an employee of the
Corporation,  the Bank, or any of the  Corporation's  other  affiliated banks or
non-bank subsidiaries;  and (c) is not serving as a director of the Corporation.
The exercise price of the shares is equal to the fair market value of the shares
upon the grant of the option. Options become 100 percent vested when granted and
are fully  exercisable  six months after the date of the grant,  for a period of
ten years.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
--------------------------------------------------------------------------------

The information in the  Corporation's  2003 Proxy  Statement,  under the caption
"Interest of  Management  in Certain  Transactions,"  is expressly  incorporated
herein by reference.

ITEM 14. CONTROLS AND PROCEDURES
--------------------------------------------------------------------------------

Within the 90 days  prior to the filing  date of this  report,  the  Corporation
carried out an evaluation,  under the supervision and with the  participation of
the  Corporation's  management,  including  the  Corporation's  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,
the Corporation's  Chief Executive Officer and Chief Financial Officer concluded
that  the  Corporation's  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 Corporation reports filed
or submitted under the Securities  Exchange Act of 1934 is recorded,  processed,
summarized and reported within the time periods  specified in the Securities and
Exchange Commission's rules and forms.

There have been no  significant  changes in our  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
we carried out this evaluation.

                                                                      Page 28
<PAGE>

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

<S>                                                                          <C>

(a) 1.      Financial Statements:
                 Independent accountants' report
                 Consolidated balance sheets at
                      December 31, 2002 and 2001
                 Consolidated statements of income,
                      years ended December 31, 2002,
                      2001 and 2000
                 Consolidated statements of comprehensive income,
                      years ended December 31, 2002, 2001 and 2000
                 Consolidated statements of stockholders' equity,
                      years ended December 31, 2002, 2001 and 2000
                 Consolidated statements of cash flows,
                      years ended December 31, 2002,
                      2001 and 2000
                 Notes to consolidated financial
                      statements

</TABLE>

(a) 2.      Financial statement schedules:
                          All schedules are omitted because
                          they are not applicable or not required,
                          or because the required information is included in the
                          consolidated financial statements or related notes.


(a) 3.      Exhibits:


Exhibit No:                           Description of Exhibits:
-----------                           ------------------------

    2          Agreement of Reorganization and Merger between First Merchants
               Corporation and CNBC Bancorp dated August 28, 2002.
               (Incorporated by reference to registrant's Form 8-K filed on
               August 28, 2002)

    3a         First Merchants Corporation Articles of Incorporation.
               (Incorporated by reference to registrant's Form 10-Q for quarter
               ended June 30, 1999)

    3b         First Merchants Corporation Bylaws (Incorporated by reference to
               registrant's Form 10-Q for quarter ended June 30, 2002)

   4.1         Certificate of Trust of First Merchants Capital Trust I dated
               December 12, 2001 (3)

   4.2         Amended and Restated Trust Agreement of First Merchants Capital
               Trust I dated April 17, 2002 (3)

   4.3         Agreement as to Expenses and Liabilities dated April 17, 2002 (3)

   4.4         Cumulative Trust Preferred Security Certificate (3)

   4.5         Preferred Securities Guarantee Agreement dated April 17, 2002 (3)

   4.6         Indenture dated April 17, 2002 (3)

   4.7         First Supplemental Indenture dated April 17, 2002 (3)

   4.8         8.75% Junior Subordinated Debenture due June 30, 2002 (3)

   10a         First   Merchants   Corporation  and  First  Merchants  Bank,
               National    Association    Management   Incentive   Plan.
               (Incorporated by reference to registrant's  Form 10-K for year
               ended December 31, 1996)(1)

   10b         First Merchants Corporation Senior Management Incentive
               Compensation Program, as amended.  (Incorporated by reference to
               the registrant's Form 10-K for the year ended December 31,
               2000)(1)

   10c         First Merchants Bank, National  Association Unfunded Deferred
               Compensation Plan, as amended.  (Incorporated by reference to
               registrant's Form 10-K for year ended December 31, 1996)(1)

   10d         First  Merchants   Corporation  1994  Stock  Option  Plan.
               (Incorporated by reference to registrant's  Form 10-K for year
               ended December 31, 1993)(1)

                                                                        Page 29
<PAGE>

ITEM 15.  FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND REPORTS ON
              FORM 8-K (continued)
--------------------------------------------------------------------------------

       10e         First Merchants  Corporation Change of Control Agreement with
                   Mark K. Hardwick dated May 14, 2002.  (Incorporated by
                   reference to registrant's Form 10-Q for quarter ended June
                   30, 2002) (1)

       10f         First Merchants Corporation change of Control Agreement with
                   Roger M. Arwood dated November 14, 2000.  (Incorporated by
                   reference to registrant's Form 10-K for year ended December
                   31, 2001)(1)

       10g         First Merchants Corporation Change of Control Agreement with
                   Larry R. Helms dated November 14, 2000.  (Incorporated by
                   reference to registrant's Form 10-K for year ended December
                   31, 2001)(1)

       10h         First Merchants Corporation Change of Control Agreement with
                   Robert R. Connors dated August 26, 2002.  (Incorporated by
                   reference to registrant's Form 10-Q for quarter ended
                   September 30, 2002)(1)

       10i         First Merchants Change of Control Agreement with Michael L.
                   Cox dated May 11, 1999.  (Incorporated by reference to
                   registrant's Form 10-K for year ended December 31, 2001)(1)

       10j         First Merchants  Corporation  Unfunded Deferred  Compensation
                   Plan.  (Incorporated  by reference to registrant's  Form 10-K
                   for year ended December 31, 1996)(1)

       10k         First Merchants Corporation Supplemental Executive Retirement
                   Plan and amendments  thereto.  (Incorporated by reference to
                   registrant's Form 10-K for year ended December 31, 1997)(1)

       10l         First Merchants Corporation 1999 Long-Term Equity Incentive
                   Plan, as amended.(1)(2)

       13          2002 Annual Report to Stockholders-Financial Review  (except
                   for the pages and information  expressly  incorporated by
                   reference in this Form 10-K, the Annual Report to
                   Stockholders-Financial Review is provided solely for the
                   information of the  Securities  and  Exchange Commission  and
                   is not  deemed  "filed"  as part of this Form 10-K(2)

       21          Subsidiaries of Registrant(2)

       23          Consent of Independent Accountants(2)

       24          Limited Power of Attorney(2)

       99.1        Financial statements and independent accountants' report for
                   First Merchants Corporation Employee Stock Purchase Plan (See
                   Exhibit 13 to this Form 10-K)(2)

       99.2        Certifications Pursuant to 18 U.S.C. Section 1350,
                   as Adopted Pursuant to Section 906 of
                   The Sarbanes-Oxley Act of 2002(2)

       (1) Management contract or compensatory plan.
       (2) Filed here within.
       (3) Incorporated by reference to the registrant's Form 8-K filed on
           April 19, 2002.
                                                                       Page 30
<PAGE>
(b) Reports on Form 8-K:

       NONE

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) 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, on this 28th day of March,
2003.

                                               FIRST MERCHANTS CORPORATION

                                               By /s/ Michael L.Cox
                                               -----------------------------
                                                      Michael L. Cox, President
                                                      & Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form  10-K  has  been  signed  by the  following  persons  on  behalf  of the
registrant and in the capacities indicated, on this 28th day of March, 2003.

/s/ Michael L. Cox                        /s/Mark K. Hardwick
--------------------------------------    --------------------------------------
    Michael L. Cox  President and           Mark K. Hardwick Sr. Vice President
                    Chief Executive                          and Chief Financial
                    Officer (Principal                       Officer (Principal
                    Executive Officer)                       Financial and
                                                             Accounting Officer)

/s/ Stefan S. Anderson*                    /s/ Michael L. Cox
-----------------------------------        ------------------------------------
    Stefan S. Anderson     Director            Michael L. Cox          Director

/s/Roger M. Arwood*
------------------------------------       ------------------------------------
   Roger M. Arwood         Director            Barry J. Hudson         Director

/s/ James F. Ault*                         /s/ Robert T. Jeffares*
------------------------------------       ------------------------------------
    James F. Ault           Director           Robert T. Jeffares      Director

/s/ Dennis A. Bieberich*                   /s/ Norman M. Johnson*
------------------------------------       ------------------------------------
    Dennis A. Bieberich     Director           Norman M. Johnson       Director

/s/Richard A. Boehning*                    /s/ George A. Sissel*
------------------------------------       ------------------------------------
   Richard A. Boehning     Director            George A. Sissel        Director

/s/ Blaine M. Brownell*
------------------------------------       ------------------------------------
    Blaine M. Brownell      Director           Robert M. Smitson       Director

                                           /s/ Dr. John E. Worthen*
------------------------------------       ------------------------------------
    Frank A. Bracken        Director           Dr. John E. Worthen     Director

/s/ Thomas B. Clark*
------------------------------------
    Thomas B. Clark         Director

* By Mark K.  Hardwick  as  Attorney-in  Fact  pursuant  to a  limited  Power of
Attorney  executed by the  directors  listed  above,  which Power of Attorney is
being filed with the Securities and Exchange Commission as an exhibit hereto.
                                                 By  /s/  Mark K. Hardwick
                                                 ------------------------------
                                                          Mark K. Hardwick
                                                          As Attorney-in-Fact
                                                          March 28, 2003

                                                                       Page 31

<PAGE>
                           FIRST MERCHANTS CORPORATION

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

CERTIFICATION

I, Michael L. Cox, certify that:

1. I have reviewed this annual report on Form 10-K of First Merchants
Corporation;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures 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 annual report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure
     controls and procedures as of a date within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

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

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6. The  registrant's  other  certifying  officer  and I have  indicated in this
annual report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 28, 2003


by: /s/ Michael L. Cox
    ----------------------
        Michael L. Cox
        President and Chief Executive Officer
                                                                        Page 32
<PAGE>
CERTIFICATION
-------------
I, Mark K. Hardwick, certify that:

1. I have reviewed this annual report on Form 10-K of First Merchants
Corporation;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures 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 annual report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure
     controls and procedures as of a date within 90 days prior to the filing
     date of this annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions about the
     effectiveness of the disclosure controls and procedures based on our
     evaluation as of the Evaluation Date;

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

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

6. The  registrant's  other  certifying  officer  and I have  indicated in this
annual  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 28, 2003

by: /s/ Mark K. Hardwick
    --------------------
        Mark K. Hardwick
        Senior Vice President and
        Chief Financial Officer
        (Principal Financial and Chief
        Accounting Officer)
                                                                       Page 33
<PAGE>



INDEX TO EXHIBITS
--------------------------------------------------------------------------------

   (a)3.   Exhibits:

      Exhibit No:                          Description of Exhibit:

    2          Agreement of Reorganization and Merger between First Merchants
               Corporation and CNBC Bancorp dated August 28, 2002.
               (Incorporated by reference to registrant's Form 8-K filed on
               August 28, 2002)

    3a         First Merchants Corporation Articles of Incorporation.
               (Incorporated by reference to registrant's Form 10-Q for quarter
               ended June 30, 1999)

    3b         First Merchants Corporation Bylaws (Incorporated by reference to
               registrant's Form 10-Q for quarter ended June 30, 2002)

   4.1         Certificate of Trust of First Merchants Capital Trust I dated
               December 12, 2001 (3)

   4.2         Amended and Restated Trust Agreement of First Merchants Capital
               Trust I dated April 17, 2002 (3)

   4.3         Agreement as to Expenses and Liabilities dated April 17, 2002 (3)

   4.4         Cumulative Trust Preferred Security Certificate (3)

   4.5         Preferred Securities Guarantee Agreement dated April 17, 2002 (3)

   4.6         Indenture dated April 17, 2002 (3)

   4.7         First Supplemental Indenture dated April 17, 2002 (3)

   4.8         8.75% Junior Subordinated Debenture due June 30, 2002 (3)

   10a         First   Merchants   Corporation  and  First  Merchants  Bank,
               National    Association    Management   Incentive   Plan.
               (Incorporated by reference to registrant's  Form 10-K for year
               ended December 31, 1996)(1)

   10b         First Merchants Corporation Senior Management Incentive
               Compensation Program, as amended.  (Incorporated by reference to
               the registrant's Form 10-K for the year ended December 31,
               2000)(1)

   10c         First Merchants Bank, National  Association Unfunded Deferred
               Compensation Plan, as amended.  (Incorporated by reference to
               registrant's Form 10-K for year ended December 31, 1996)(1)

   10d         First  Merchants   Corporation  1994  Stock  Option  Plan.
               (Incorporated by reference to registrant's  Form 10-K for year
               ended December 31, 1993)(1)

   10e         First Merchants  Corporation Change of Control Agreement with
               Mark K. Hardwick dated May 14, 2002.  (Incorporated by
               reference to registrant's Form 10-Q for quarter ended June
               30, 2002) (1)
                                                                       Page 34
<PAGE>


   10f         First Merchants Corporation change of Control Agreement with
               Roger M. Arwood dated November 14, 2000.  (Incorporated by
               reference to registrant's Form 10-K for year ended December
               31, 2001)(1)

   10g         First Merchants Corporation Change of Control Agreement with
               Larry R. Helms dated November 14, 2000.  (Incorporated by
               reference to registrant's Form 10-K for year ended December
               31, 2001)(1)

   10h         First Merchants Corporation Change of Control Agreement with
               Robert R. Connors dated August 26, 2002.  (Incorporated by
               reference to registrant's Form 10-Q for quarter ended
               September 30, 2002)(1)

   10i         First Merchants Change of Control Agreement with Michael L.
               Cox dated May 11, 1999.  (Incorporated by reference to
               registrant's Form 10-K for year ended December 31, 2001)(1)

   10j         First Merchants  Corporation  Unfunded Deferred  Compensation
               Plan.  (Incorporated  by reference to registrant's  Form 10-K
               for year ended December 31, 1996)(1)

   10k         First Merchants Corporation Supplemental Executive Retirement
               Plan and amendments  thereto.  (Incorporated by reference to
               registrant's Form 10-K for year ended December 31, 1997)(1)

   10l         First Merchants Corporation 1999 Long-Term Equity Incentive
               Plan, as amended.(1)(2)

   13          2002 Annual Report to Stockholders-Financial Review  (except
               for the pages and information  expressly  incorporated by
               reference in this Form 10-K, the Annual Report to
               Stockholders-Financial Review is provided solely for the
               information of the  Securities  and  Exchange Commission  and
               is not  deemed  "filed"  as part of this Form 10-K(2)

   21          Subsidiaries of Registrant(2)

   23          Consent of Independent Accountants(2)

   24          Limited Power of Attorney(2)

   99.1        Financial statements and independent accountants' report for
               First Merchants Corporation Employee Stock Purchase Plan (See
               Exhibit 13 to this Form 10-K)(2)

   99.2        Certifications Pursuant to 18 U.S.C. Section 1350,
               as Adopted Pursuant to Section 906 of
               The Sarbanes-Oxley Act of 2002(2)

   (1) Management contract or compensatory plan.
   (2) Filed here within.
   (3) Incorporated by reference to the registrant's Form 8-K filed on
       April 19, 2002.

                                                                        Page 35

<PAGE>
                                  EXHIBIT-10L
        FIRST MERCHANTS CORPORATION 1999 LONG-TERM EQUITY INVENTIVE PLAN,
                                   AS AMENDED

Exhibit 10l--FIRST MERCHANTS CORPORATION 1999 LONG-TERM EQUITY INCENTIVE PLAN


                                    ARTICLE I

                            ESTABLISHMENT AND PURPOSE

         Section 1.01. Establishment and Term of Plan. First Merchants
Corporation, an Indiana corporation (the "Company"), hereby establishes the
First Merchants Corporation 1999 Long-Term Equity Incentive Plan (the "Plan"),
effective as of April 14, 1999, subject to the approval of the Plan at the
Company's 1999 annual meeting of shareholders by the holders of a majority of
the shares of the Company's common stock present and voting at that meeting in
person or by proxy.

         Section 1.02. Purpose. The Plan is designed to promote the interests of
the Company, its subsidiaries, and its shareholders by providing stock-based
incentives to selected Employees, Non-Employee Directors, Subsidiary Directors
and Advisory Directors who are expected to contribute materially to the success
of the Company and its subsidiaries. The purpose of the Plan is to provide a
means of rewarding performance and to provide an opportunity to increase the
personal ownership interest of Employees, Non-Employee Directors, Subsidiary
Directors and Advisory Directors in the continued success of the Company. The
Company believes that the Plan will assist its efforts to attract and retain
quality Employees, Non-Employee Directors, Subsidiary Directors and Advisory
Directors.

                                   ARTICLE II

                                 ADMINISTRATION

         Section 2.01. Administrative Committee. The Plan shall be administered
by the Committee, which shall serve at the pleasure of the Board of Directors.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and to adopt such
rules and regulations for administering the Plan as it may deem necessary to
comply with the requirements of the Plan or any applicable law.

        Section 2.02. Powers of the Committee. The Committee shall, subject to
the terms of this Plan, have the authority to: (i) select the eligible
Employees, Subsidiary Directors and Advisory Directors who shall receive Awards,
(ii) grant Awards, (iii) determine the types and sizes of Awards to be granted
to Employees, Subsidiary Directors and Advisory Directors under the Plan (but
not to Non-Employee Directors, who shall receive Director Options in accordance
with Article VI of this Plan), (iv) determine the terms, conditions, vesting
periods, and restrictions applicable to Awards (other than Director Options),
(v) adopt, alter, and repeal administrative rules and practices governing this
Plan, (vi) interpret the terms and provisions of this Plan and any Awards
granted under this Plan, (vii) prescribe the forms of any Award Agreements or
other instruments relating to Awards, and (viii) otherwise supervise the
administration of this Plan. The Committee may delegate any of its authority to
any other person or persons that it deems appropriate with respect to Awards
granted to Employees who are not officers of the Company.

         Section 2.03. Actions of the Committee. All actions taken and all
interpretations and determinations made in good faith by the Committee, or made
by any other person or persons to whom the Committee has delegated authority,
shall be final and binding upon all Participants, the Company, and all other
interested persons. All decisions by the Committee shall be made with the
approval of not less than a majority of its members. Members of the Committee
who are eligible for Awards may vote on any matters affecting the administration
of the Plan or the grant of any Awards pursuant to the Plan, except that no such
member shall act upon the granting of an Award to himself or herself; but any
such member may be counted in determining the existence of a quorum of the
Committee.

                                   ARTICLE III

                                   ELIGIBILITY

         Section 3.01. Employees, Subsidiary Directors and Advisory Directors.
Any Employee of the Company or any of its Subsidiaries who is selected by the
Committee to be a Participant under the Plan, and any Subsidiary Director or
Advisory Director, shall be eligible for the grant of Awards (other than
Director Options). The selection of the Employees, Subsidiary Directors and
Advisory Directors to receive Awards (other than Director Options) shall be
within the discretion of the Committee. More than one Award may be granted to
the same Employee, Subsidiary Director or Advisory Director.

         Section 3.02. Non-Employee Directors. All Non-Employee Directors are
eligible for the grant of Director Options, as provided in Article VI of this
Plan. Non-Employee Directors are not, however, eligible for the grant of any
Awards other than Director Options.
<PAGE>
                                   ARTICLE IV

                            SHARES SUBJECT TO AWARDS

         Section 4.01. Number of Common Shares. The shares subject to the Awards
and other provisions of the Plan shall be the Company's authorized but unissued,
or reacquired Common Shares. The aggregate number of Common Shares that may be
subject to Awards granted under this Plan in any fiscal year shall be equal to
the sum of (i) one percent (1%) of the number of Common Shares Outstanding as of
the last day of the Company's prior fiscal year, plus (ii) the number of Common
Shares that were available for the grant of Awards, but not granted, under this
Plan in any previous fiscal year; provided that in no event will the number of
Common Shares available for the grant of Awards in any fiscal year exceed
one-and-one-half percent (1 1/2%) of the Common Shares Outstanding as of the
last day of the prior fiscal year. The aggregate number of Common Shares that
may be issued under the Plan upon the exercise of Incentive Stock Options is
1,200,000, as adjusted pursuant to Section 4.02. No fractional shares shall be
issued under this Plan; if necessary, the Committee shall determine the manner
in which the value of fractional shares will be treated.

         The assumption of awards granted by an organization acquired by the
Company, or the grant of Awards under this Plan in substitution for any such
awards, shall not reduce the number of Common Shares available for the grant of
Awards under this Plan. Common Shares subject to an Award that is forfeited,
terminated or canceled without having been exercised shall again be available
for grant under this Plan, subject to the limitations noted in the foregoing
paragraph of this Section 4.01.

         Section 4.02. Adjustment. In the event of any change in the Common
Shares by reason of a merger, consolidation, reorganization, recapitalization or
similar transaction, or in the event of a stock split, stock dividend or
distribution to shareholders (other than normal cash dividends), spin-off or any
other change in the corporate structure of the Company, the Committee shall
adjust the number and class of shares that may be issued under this Plan, the
aggregate number of Common Shares that may be issued under the Plan upon the
exercise of Incentive Stock Options, the number and class of shares subject to
outstanding Awards, the exercise price applicable to outstanding Awards, and the
Fair Market Value of the Common Shares and other value determinations applicable
to outstanding Awards, as appropriate. All determinations made by the Committee
with respect to adjustments under this Section 4.02 shall be conclusive and
binding for all purposes of the Plan.

<PAGE>
                                    ARTICLE V

                                     AWARDS

         Section 5.01. Grant of Awards. Awards authorized under this Article V
may be granted pursuant to another incentive program which incorporates by
reference the terms and conditions of this Plan. Awards may be granted singly or
in combination or tandem with other Awards. Awards may also be granted in
replacement of, or in substitution for, other awards granted by the Company
whether or not such other awards were granted under this Plan; without limiting
the foregoing, if a Participant pays all or part of the exercise price or taxes
associated with an Award by the transfer of Common Shares or the surrender of
all or part of an Award (including the Award being exercised), the Committee
may, in its discretion, grant a new Award to replace the Common Shares that were
transferred or the Award that was surrendered. The Company may assume awards
granted by an organization acquired by the Company or may grant Awards in
replacement of, or in substitution for, any such awards.

                  Section 5.02.  Types of Awards.  Awards may include, but are
not limited to, the following:

                  (a) Director  Option.  A right to purchase  Common Shares
         granted to a Non-Employee Director pursuant to Article VI of this Plan.

                  (b) Stock Award. An Award that is made in Common Shares or
         Restricted Stock or that is otherwise based on, or valued in whole or
         in part by reference to, the Common Shares. All or part of any Stock
         Award may be subject to conditions, restrictions and risks of
         forfeiture, as and to the extent established by the Committee. Stock
         Awards may be based on the Fair Market Value of the Common Shares, or
         on other specified values or methods of valuation, as determined by the
         Committee.

                  (c) Stock Option. A right to purchase a specified number of
         Common Shares, during a specified period and at a specified exercise
         price, all as determined by the Committee. A Stock Option may be an
         Incentive Stock Option or a Non-Qualified Stock Option. Incentive Stock
         Options may only be issued to Employees. In addition to the terms,
         conditions, vesting periods, and restrictions established by the
         Committee in the Award Agreement, Incentive Stock Options must comply
         with the requirements of Section 422 of the Code, Section 5.03(f), and
         this Article V.

<PAGE>
         Section 5.03. Terms and Conditions of Awards; Agreements. Awards
granted under the Plan shall be evidenced by an Award Agreement  executed by the
Company and the Participant,  which shall contain such terms and be in such form
as the  Committee  may  from  time to time  approve,  subject  to the  following
limitations and conditions:

                  (a) Number of Shares. The Award Agreement shall state, as
         appropriate, the type and total number of shares granted, and/or the
         type and total number of shares with respect to which Stock Options are
         granted.

                  (b) Award Prices. The Award Agreement shall state, as
         applicable, the price per share of the Common Shares with respect to
         which Stock Options are issued. The price or other value shall be
         determined by the Committee. For Incentive Stock Options, the exercise
         price shall satisfy all of the requirements of the Code and of Section
         5.03(f) of this Plan.

                  (c) Payment of Exercise Price; Deferral. The exercise price of
         a Stock Option (other than an Incentive Stock Option), Director Option,
         and any Stock Award for which the Committee has established an exercise
         price, may be paid in cash, by the transfer of Common Shares, by the
         surrender of all or part of an Award (including the Award being
         exercised), or by a combination of these methods, as and to the extent
         permitted by the Committee. The exercise price of an Incentive Stock
         Option may be paid in cash, by the transfer of Common Shares, or by a
         combination of these methods, as and to the extent permitted by the
         Committee at the time of grant, but may not be paid by the surrender of
         all or part of an Award. The Committee may prescribe any other method
         of paying the exercise price that it determines to be consistent with
         applicable law and the purpose of this Plan.

                  With the approval of the Committee, the delivery of the Common
         Shares, cash, or any combination thereof subject to an Award (other
         than Director Options) may be deferred, either in the form of
         installments or a single future delivery. The Committee may also permit
         selected Participants to defer the payment of some or all of their
         Awards, as well as other compensation, in accordance with procedures
         established by the Committee to assure that the recognition of taxable
         income is deferred under the Code. The Committee may also establish
         rules and procedures for the crediting of interest on deferred cash
         payments and dividend equivalents on Awards.

                  (d) Issuance of Shares and compliance with Securities Laws.
         The Company may postpone the issuance and delivery of certificates
         representing shares until (a) the admission of such shares to listing
         on any stock exchange on which shares of the Company of the same class
         are then listed, and (b) the completion of such registration or other
         qualification of such shares under any state or federal law, rule or
         regulation as the Company shall determine to be necessary or advisable,
         which registration or other qualification the Company shall use it best
         efforts to complete; provided, however, a person purchasing shares
         pursuant to the Plan has no right to require the Company to register
         the Common Shares under federal or state securities laws at any time.
         Any person purchasing shares pursuant to the Plan may be required to
         make such representations and furnish such information as may, in the
         opinion of counsel for the Company, be appropriate to permit the
         Company, in light of the existence or non-existence with respect to
         such shares of an effective registration under the Securities Act of
         1933, as amended, or any similar state statute, to issue the shares in
         compliance with the provisions of those or any comparable acts.

                  (e) Rights as a Shareholder. Unless otherwise provided by the
         Board of Directors or the Committee, a Participant shall have rights as
         a shareholder with respect to shares covered by an Award, including
         voting rights or rights to dividends, only upon the date of issuance of
         a certificate to him or her, and, if payment is required, only after
         such shares are fully paid.

<PAGE>
                  (f) Incentive Stock Options. To the extent any Award granted
         pursuant to this Plan contains an Incentive Stock Option, the following
         limitations and conditions shall apply to such Incentive Stock Option
         and the Award Agreement relating thereto in addition to the terms and
         conditions provided herein:

                           (i)      Price. The price of an Incentive Stock
                                    Option shall be an amount per share not less
                                    than the Fair Market Value per share of the
                                    Common Shares on the date of granting of the
                                    option. In the case of Incentive Stock
                                    Options granted to an Employee of the
                                    Company who is a 10% shareholder, the option
                                    price shall be an amount per share not less
                                    than one hundred ten percent (110%) of the
                                    Fair Market Value per share of the Common
                                    Shares on the date of the granting of the
                                    Incentive Stock Option.

                           (ii)     Exercise Period. Unless terminated earlier
                                    pursuant to other terms and provisions of
                                    the Award Agreement, the term of each
                                    Incentive Stock Option shall expire within
                                    the period prescribed in the Agreement
                                    relating thereto, which shall not be more
                                    than five (5) years from the date the
                                    Incentive Stock Option is granted if the
                                    Participant is a ten percent (10%)
                                    shareholder, and not more than ten (10)
                                    years from the date the Incentive Stock
                                    Option is granted if the Participant is not
                                    a ten percent (10%) shareholder.

                           (iii)    Limitation on Grants. No Incentive Stock
                                    Option shall be granted under this Plan
                                    after April 14, 2009.

                           (iv)     Limitation on Transferability. No Incentive
                                    Stock Option shall be assignable or
                                    transferable except by will or under the
                                    laws of descent and distribution. During the
                                    lifetime of a Participant, the Incentive
                                    Stock Option shall be exercisable only by
                                    the Participant and may not be transferred
                                    or assigned pursuant to a qualified domestic
                                    relations order.

                           (v)      Maximum Exercise Rule. The aggregate Fair
                                    Market Value (determined at the time the
                                    option is granted) of the shares with
                                    respect to which Incentive Stock Options are
                                    exercisable for the first time by an
                                    Employee during any calendar year under all
                                    such plans of the Company and any parent or
                                    Subsidiary of the Company shall not exceed
                                    One Hundred Thousand Dollars ($100,000).

                  (g) Termination of Awards Under Certain Conditions. The
         Committee may cancel any unexpired, unpaid or deferred Awards at any
         time, if the Participant is not in compliance with all applicable
         provisions of this Plan or with any Award Agreement, or if the
         Participant, whether or not he or she is currently employed by the
         Company, engages in any of the following activities without the prior
         written consent of the Company:

                           (i)      Directly or indirectly renders services to
                                    or for an organization, or engages in a
                                    business that is, in the judgment of the
                                    Committee, in competition with the Company.

                           (ii)     Discloses to anyone outside of the Company,
                                    or uses for any purpose other than the
                                    Company's business, any confidential or
                                    proprietary information or material relating
                                    to the Company, whether acquired by the
                                    Participant during or after employment with
                                    the Company.
<PAGE>

                  The Committee may, in its discretion and as a condition to the
         exercise of an Award, require a Participant to acknowledge in writing
         that he or she is in compliance with all applicable provisions of this
         Plan and of any Award Agreement and has not engaged in any activities
         referred to in clauses (i) and (ii) above.

                  (h) Nontransferability. Unless otherwise determined by the
         Committee and provided in the Award Agreement, (i) no Award granted
         under this Plan may be transferred or assigned by the Participant to
         whom it is granted other than by will, pursuant to the laws of descent
         and distribution, or pursuant to a qualified domestic relations order,
         and (ii) an Award granted under this Plan may be exercised, during the
         Participant's lifetime, only by the Participant or by the Participant's
         guardian or legal representative.

         Section 5.04. Election to Defer Grant or Receipt of Award.
Notwithstanding any provision herein to the contrary, the Committee may provide,
in any Award Agreement or in any program granting Awards under this Plan, that
the Participant may elect to defer receipt of the Award as provided in the Award
Agreement or program.


                                   ARTICLE VI

                                DIRECTOR OPTIONS

         Section 6.01.  Grant of Director Options.

                  (a) Administration. A committee formed by only those Directors
         other than Non-Employee Directors shall have full authority to
         administer Director Options, including authority to require that any
         Non-Employee Director sign an Award Agreement as a condition of
         receiving a Director Option.

                  (b) Granting of Director Options. Until this Plan is
         terminated, each individual serving as a Non-Employee Director on July
         1 in any year after 1998 shall automatically receive a Director Option,
         effective on such date.

         Section 6.02. Number of Common Shares Subject to Each Director Option.
Each Director Option shall entitle the Non-Employee Director the right to
purchase one thousand (1,000) Common Shares on the terms and conditions
specified herein.

         Section  6.03.  Exercise  Price.  The exercise  price of the Common
Shares  subject to each Director  Option shall be the Fair Market Value of the
Common Shares at the date of grant.

         Section 6.04. Date Director Options Become Exercisable. Unless
otherwise established by the Board of Directors, each Director Option shall
become exercisable in full six (6) months after the date of grant; provided,
however, all Director Options shall become exercisable in full (i) upon a Change
of Control, (ii) in accordance with the terms of Section 6.06, or (iii) upon
attainment by the Non-Employee Director of age 70.

         Section 6.05. Expiration Date. Unless terminated earlier pursuant to
the terms of this Plan, each Director Option shall terminate, and the right of
the holder to purchase Common Shares upon exercise of the Director Option shall
expire, at the close of business on the tenth anniversary date of the date of
grant.

<PAGE>

         Section 6.06. Continuous Service as a Director. No Director Option may
be exercised unless the Non-Employee Director to whom the Director Option was
granted has continued to be a Non-Employee Director from the time of grant
through the time of exercise, except as provided in Section 6.04 and this
Section 6.06.

                  (a) Retirement or Disability. If the service in office of a
         Non-Employee Director is terminated due to the retirement or Disability
         of the Non-Employee Director, the Non-Employee Director (or his or her
         legal representative if he or she becomes incapacitated), shall have
         the right, on or after the date of such termination but in no event
         following the expiration of the Director Option, to exercise the
         Director Option in full, whether or not the Non-Employee Director would
         otherwise have been entitled to exercise the Director Option at such
         date.

                  (b) Death. If the service in office of a Non-Employee Director
         is terminated due to the death of the Non-Employee Director, the
         Non-Employee Director's estate, executor, administrator, personal
         representative or beneficiary shall have the right to exercise the
         Director Option in full prior to the earlier of (i) one (1) year after
         the date of his or her death, and (ii) the expiration of the Director
         Option.

                  (c) Employed by Company. If a Non-Employee Director ceases to
         be a Non-Employee Director by reason of his or her employment by the
         Company or his or her appointment as a Subsidiary Director or Advisory
         Director, the Director Option granted to that Non-Employee Director
         shall be treated the same as Non-Qualified Stock Options held by
         Employees, Subsidiary Directors or Advisory Directors, whichever is
         applicable, and shall continue to be exercisable prior to the
         expiration of the Director Option, subject to the limitations on
         exercise following termination of employment, or termination of service
         as a Subsidiary Director or Advisory Director, established by the
         Committee pursuant to Article VIII of this Plan.


                                   ARTICLE VII

                           TAX WITHHOLDING OBLIGATIONS

         Prior to the payment of an Award, the Company may withhold, or require
a Participant to remit to the Company, an amount sufficient to pay any federal,
state and local withholding taxes associated with the Award. The Committee may,
in its discretion and subject to such rules as the Committee may adopt, permit a
Participant to pay any or all withholding taxes associated with the Award in
cash, by the transfer of Common Shares, by the surrender of all or part of an
Award (including the Award being exercised), or by a combination of these
methods.


                                  ARTICLE VIII

             TERMINATION OF EMPLOYMENT OR TERMINATION OF SERVICE AS
                    SUBSIDIARY DIRECTOR OR ADVISORY DIRECTOR

         Section 8.01. Termination of Employment. Unless the Committee provides
otherwise in the Award Agreement, if a Participant's employment with the Company
or a Subsidiary terminates for any reason other than Retirement, Disability or
death of the Participant, he or she may, but only within the thirty (30)-day
period immediately following such termination of employment, and in no event
later than the expiration date specified in the Award Agreement, exercise his or
her Award to the extent that he or she was entitled to exercise it at the date
of such termination; provided, however, if a Participant's employment is
terminated for deliberate, willful or gross misconduct, as determined by the
Board of Directors, all rights under the Award shall expire upon receipt of the
notice of such termination. The transfer of an Employee from the employ of the
Company to a Subsidiary, or vice versa, or from one Subsidiary to another
Subsidiary, shall not be deemed a termination of employment for purposes of the
Plan.

<PAGE>

         Section 8.02. Retirement or Disability. Unless the Committee provides
otherwise in the Award Agreement, if a Participant's employment with the Company
or any Subsidiary, or his or her service as a Subsidiary Director or Advisory
Director, terminates due to Retirement or Disability, the Participant (or his or
her legal representative if he or she becomes incapacitated) may, on or after
the date of such termination but in no event later than the expiration date of
the Award, exercise in full each Award granted to the Participant prior to such
termination, whether or not the Participant would otherwise have been entitled
to exercise the Award at such date. However, if the Award being exercised under
this Section is an Incentive Stock Option, it may be exercised as such only
during (i) the three (3) month period immediately following a termination due to
Retirement, or (ii) during the one (1) year period immediately following a
termination due to Disability (but in no event later than the expiration date of
the Award). During the remainder of the exercise period, if any, the option may
be exercised as a Non-Qualified Stock Option.

         Section 8.03. Death. Unless the Committee provides otherwise in the
Award Agreement, if a Participant dies (whether prior to or after termination of
employment or termination of service as a Subsidiary Director or Advisory
Director), the Participant's estate, executor, administrator, personal
representative or beneficiary may, within the one (1) year period immediately
following the Participant's death but in no event later than the expiration date
of the Award, exercise in full each Award granted to the Participant prior to
his or her death, whether or not the Participant would otherwise have been
entitled to exercise the Award at such date. If the Award being exercised under
this Section is an Incentive Stock Option and the Participant dies prior to
termination of employment or within three (3) months following such termination,
the Award may continue to be exercised as an Incentive Stock Option during the
entire one (1) year period immediately following the Participant's death (but in
no event later than the expiration date of the Award).


                                   ARTICLE IX

                                CHANGE OF CONTROL

         Unless and to the extent the terms and conditions of a Change of
Control agreement between the Company and a Participant provide otherwise, in
the event of a Change of Control of the Company, (i) all Stock Options then
outstanding will become fully exercisable as of the date of the Change of
Control, and (ii) all restrictions and conditions applicable to Restricted Stock
and other Stock Awards will be deemed to have been satisfied as of the date of
the Change of Control. Any such determination by the Board of Directors that is
made after the occurrence of a Change of Control will not be effective unless a
majority of the Directors then in office were in office at the beginning of a
period of twenty-four (24) consecutive months and the determination is approved
by a majority of such Directors.


                                    ARTICLE X

                           AMENDMENT OF PLAN OR AWARDS

         Section 10.01. Amendment, Suspension or Termination of Plan. The Board
of Directors may, from time to time, amend, suspend or terminate this Plan at
any time, and, in accordance with such amendments, may thereupon change terms
and conditions of any Awards not theretofore issued. Shareholder approval for
any such amendment will be required only to the extent necessary to satisfy the
rules of NASDAQ or any national exchange on which the Common Shares are listed,
or to satisfy any applicable federal or state law or regulation.

         Section 10.02. Amendment of Outstanding Awards. The Committee may, in
its discretion, amend the terms of any Award (other than a Director Option),
prospectively or retroactively, but no such amendment may impair the rights of
any Participant without his or her consent. Shareholder approval for any such
amendment will be required only to the extent necessary to satisfy the rules of
NASDAQ or any national exchange on which the Common Shares are listed, or to
satisfy any applicable federal or state law or regulation. The Committee may, in
whole or in part, waive any restrictions or conditions applicable to, or
accelerate the vesting of, any Award (other than a Director Option).

<PAGE>

                                   ARTICLE XI

                                  MISCELLANEOUS

         Section 11.01. Governing Law. The interpretation, validity and
enforcement of this Plan will, to the extent not otherwise governed by the Code
or the securities laws of the United States, be governed by the laws of the
State of Indiana.

         Section 11.02. Rights of Employees. Nothing in this Plan will confer
upon any Participant the right to continued employment by the Company or limit
in any way the Company's right to terminate any Participant's employment at
will.


                                   ARTICLE XII

                                   DEFINITIONS

         Section 12.01.  Definitions.  When capitalized in this Plan, unless the
context otherwise requires:

                  (a) "Advisory Director" means an advisory director of the
         Company or any of its Subsidiaries, who is not an Employee or Director
         of the Company or any of its Subsidiaries.

                  (b) "Award" means a grant made to a Participant pursuant to
         Article V of this Plan.

                  (c) "Award Agreement" means a written instrument between the
         Company and a Participant evidencing an Award and prescribing the
         terms, conditions, and restrictions applicable to the Award.

                  (d)  "Board of Directors" means the Board of Directors of the
         Company, as constituted at any time.

                  (e)  "Change of Control" means the first to occur of the
         following events:

                           (i)      any "person," as such term is used in
                                    Sections 13(d) and 14(d) of the Securities
                                    Exchange Act of 1934, as amended (the
                                    "Exchange Act") other than the Company, is
                                    or becomes the "beneficial owner" (as
                                    defined in Rule 13d-3 under the Exchange
                                    Act), directly or indirectly, of securities
                                    of the Company or First Merchants Bank,
                                    National Association (the "Bank")
                                    representing twenty-five percent (25%) or
                                    more of the combined voting power of the
                                    Company's or Bank's then outstanding
                                    securities;

                           (ii)     persons constituting a majority of the Board
                                    of Directors of the Company or the Bank were
                                    not directors of the Company or the Bank for
                                    at least the twenty-four (24) months
                                    preceding months;

                           (iii)    the  shareholders of the Company or the Bank
                                    approve a merger or  consolidation  of the
                                    Company or the Bank with any other  company,
                                    other than (1) a merger or  consolidation
                                    which would result in the voting securities
                                    of the Company or the Bank outstanding
                                    immediately prior thereto  continuing to
                                    represent  (either by remaining  outstanding
                                    or by being converted into voting securities
                                    of the surviving  entity)  more than  fifty
                                    percent (50%) of the combined  voting  power
                                    of the  voting securities of the Company or
                                    the Bank or such surviving entity
                                    outstanding  immediately after such  merger
                                    or consolidation or (2) a merger or
                                    consolidation  effected to implement a
                                    recapitalization of the Company or the Bank
                                    (or similar  transaction) in which no person
                                    acquires  fifty  percent (50%) or more of
                                    the combined voting power  of the  Company's
                                    or the  Bank's  then  outstanding
                                    securities; or

                           (iv)     the shareholders of the Company approve a
                                    plan of complete liquidation of the Company
                                    or the Bank or an agreement for the sale or
                                    disposition by the Company or the Bank of
                                    all or substantially all of the Company's
                                    assets.
<PAGE>

                  (f) "Code" means the Internal Revenue Code of 1986, as
         amended.

                  (g) "Committee" means the Compensation and Human Resources
         Committee of the Board of Directors, consisting of two or more
         Non-Employee Directors who are "non-employee directors" as defined in
         paragraph (b)(3) of Rule 16b-3.

                  (h)  "Common Share" means a share of common stock of First
         Merchants Corporation.

                  (i) "Common Shares Outstanding" means the total number of
         Common Shares outstanding as reflected in the Company's financial
         statements as of the most recent fiscal year-end.

                  (j)  "Company" means First Merchants Corporation.

                  (k)  "Director" means a director of the Company.

                  (l) "Director Option" means a right to purchase Common Shares
         granted to a Non-Employee Director pursuant to Article VI.

                  (m) "Disabled" or "Disability" means a permanent disability as
         defined in the applicable long-term disability plan of the Company;
         except that "Disabled" or "Disability" with respect to Director Options
         or Awards made to Subsidiary Directors or Advisory Directors shall mean
         total and permanent disability as defined in Section 22(e)(3) of the
         Code.

                  (n) "Employee" means any individual employed by the Company or
         any of its Subsidiaries, including officers and Employees who are
         members of the Board of Directors of the Company or any of its
         Subsidiaries.

                  (o) "Fair Market Value" of a Common Share means the value of
         the share on a particular date, determined as follows:

                  (i)      if the stock is not listed on such date on any
                           national securities exchange, the average between the
                           highest "bid" and lowest "offered" quotations of a
                           share on such date (or, if none, on the most recent
                           date on which there were bid and offered quotations
                           of a share), as reported by NASDAQ, or other similar
                           service selected by the Committee;

                  (ii)     if the stock is listed on such date on one (1) or
                           more national securities exchanges, the last reported
                           sale price of a share on such date as recorded on the
                           composite tape system, or, if such system does not
                           cover the stock, the last reported sale price of a
                           share on such date on the principal national
                           securities exchange on which the stock is listed, or,
                           if no sale of the stock took place on such date, the
                           last reported sale price of a share on the most
                           recent day on which a sale of a share took place as
                           recorded by such system or on such exchange, as the
                           case may be; or

                  (iii)    if the stock is neither listed on such date on a
                           national securities exchange nor traded in the
                           over-the-counter market, the fair market value of a
                           share on such date as determined in good faith by the
                           Committee, on a basis consistent with regulations
                           under the Code.
<PAGE>

                  (p) "Incentive Stock Options" means stock options issued to
         Employees which qualify under and meet the requirements of Section 422
         of the Code.

                  (q)  "Non-Employee  Director"  means any  Director of the
         Company who is not an Employee of the Company or any of its
         Subsidiaries.

                  (r) "Non-Qualified Stock Options" means stock options which do
         not qualify under or meet the requirements of Section 422 of the Code.

                  (s) "Participant" means any person to whom an Award has been
         granted under this Plan.

                  (t) "Plan" means this First Merchants Corporation 1999
         Long-Term Equity Incentive Plan authorized by the Board of Directors at
         its meeting held on February 9, 1999, as such Plan from time to time
         may be amended as herein provided.

                  (u) "Restricted Stock" means an Award of Common Shares that
         are nontransferable and are subject to a substantial risk of
         forfeiture.

                  (v) "Retirement", in the case of an Employee, means the
         termination of all employment with the Company and its Subsidiaries for
         any reason other than death or Disability after the day on which the
         Employee has attained age 55.

                  (w) "Rule 16b-3" means Rule 16b-3 of the Securities and
         Exchange Commission, under the Securities Exchange Age of 1934, as
         amended.

                  (x) "Stock Options" means the Incentive Stock Options and the
         Non-Qualified Stock Options issued pursuant to the Plan.

                  (y) "Subsidiary" means a corporation or other form of business
         association of which shares (or other ownership interests) having fifty
         percent (50%) or more of the voting power are, or in the future become,
         owned or controlled, directly or indirectly, by the Company.

                  (z) "Subsidiary Director" means a director of a Subsidiary of
         the Company, who is not a Director of the Company or an Employee of the
         Company or any of its Subsidiaries.

As amended, August 14, 2001

<PAGE>
                                   EXHIBIT-13
               2002 ANNUAL REPORT TO STOCKHOLDERS-FINANCIAL REVIEW

EXHIBIT 13--2002 ANNUAL REPORT TO STOCKHOLDERS - FINANCIAL REVIEW

================================================================================

Financial Review

================================================================================

FIVE-YEAR SUMMARY OF
SELECTED FINANCIAL DATA                                                     2


MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS                               3


INDEPENDENT ACCOUNTANTS' REPORT                                            18


CONSOLIDATED
FINANCIAL STATEMENTS                                                       19


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS                                                       23


STOCKHOLDER INFORMATION                                                    52

================================================================================


                                                                              1
<PAGE>

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
===================================================================================================================================

(in thousands, except share data)                               2002            2001           2000           1999           1998
===================================================================================================================================
<S>                                                          <C>            <C>            <C>            <C>            <C>
Operations (4)
Net Interest Income
     Fully Taxable Equivalent (FTE) Basis ...............    $   96,599     $   66,806     $   58,619     $   56,513     $   52,463
Less Tax Equivalent Adjustment ..........................         3,676          2,445          2,637          2,948          2,767
                                                             ----------     ----------     ----------     ----------     ----------
Net Interest Income .....................................        92,923         64,361         55,982         53,565         49,696
Provision for Loan Losses ...............................         7,174          3,576          2,625          2,241          2,372
                                                             ----------     ----------     ----------     ----------     ----------
Net Interest Income
     After Provision for Loan Losses ....................        85,749         60,785         53,357         51,324         47,324
Total Other Income ......................................        27,077         18,543         16,634         14,573         12,880
Total Other Expenses ....................................        71,009         45,195         40,083         36,710         32,741
                                                             ----------     ----------     ----------     ----------     ----------
     Income Before Income Tax Expense ...................        41,817         34,133         29,908         29,187         27,463
Income Tax Expense ......................................        13,981         11,924          9,968         10,099          9,556
                                                             ----------     ----------     ----------     ----------     ----------
Net Income ..............................................    $   27,836     $   22,209     $   19,940     $   19,088     $   17,907
                                                             ==========     ==========     ==========     ==========     ==========

Per share data (1)(4)
Basic Net Income ........................................    $     1.79     $     1.71     $     1.59     $     1.44     $     1.36
Diluted Net Income ......................................          1.77           1.69           1.58           1.43           1.34
Cash Dividends Paid (2) .................................           .90            .88            .82            .76            .70
December 31 Book Value ..................................         16.00          13.46          12.19          10.48          11.66
December 31 Market Value (Bid Price) ....................         22.75          22.87          20.52          23.18          23.58

Average balances (4)
Total Assets ............................................    $2,406,251     $1,689,694     $1,532,691     $1,397,230     $1,254,223
Total Loans .............................................     1,842,429      1,270,555      1,104,013        935,716        870,317
Total Deposits ..........................................     1,857,053      1,331,631      1,209,015      1,073,074      1,016,629
Securities Sold Under Repurchase Agreements
     (long-term portion) ................................        66,535         44,394         53,309         56,181         34,900
Total Federal Home Loan Bank Advances ...................       155,387        103,941         80,008         57,062         30,742
Total Trust Preferred Securities ........................        37,379
Total Stockholders' Equity ..............................       237,575        166,232        141,446        149,727        148,052

Year-end balances (4)
Total Assets ............................................    $2,678,687     $1,787,035     $1,621,063     $1,474,048     $1,362,527
Total Loans .............................................     2,025,922      1,359,893      1,175,586        998,956        891,132
Total Deposits ..........................................     2,036,688      1,421,251      1,288,299      1,147,203      1,085,952
Securities Sold Under Repurchase Agreements
      (long-term portion) ...............................        23,632         32,500         32,500         35,000         28,000
Total Federal Home Loan Bank Advances ...................       184,677        103,499         93,182         73,514         47,068
Total Trust Preferred Securities ........................        53,188
Total Stockholders' Equity ..............................       261,129        179,128        156,063        126,296        153,891

Financial ratios (4)
Return on Average Assets ................................          1.16%          1.31%          1.30%          1.37%          1.43%
Return on Average Stockholders' Equity ..................         11.72          13.36          14.10          12.75          12.09
Average Earning Assets to Total Assets ..................         91.38          93.29          94.85          94.77          94.80
Allowance for Loan Losses as % of Total Loans ...........          1.11           1.11           1.06           1.01           1.03
Dividend Payout Ratio ...................................         50.85          52.07          51.90          53.15          52.24
Average Stockholders' Equity to Average Assets ..........          9.87           9.84           9.23          10.72          11.80
Tax Equivalent Yield on Earning Assets (3) ..............          6.83           7.80           8.19           7.81           8.15
Cost of Supporting Liabilities ..........................          2.44           3.56           4.16           3.54           3.74
Net Interest Margin on Earning Assets ...................          4.39           4.24           4.03           4.27           4.41
</TABLE>

(1)   Restated for all stock dividends and stock splits.

(2)   Dividends per share is for First Merchants Corporation only, not restated
      for pooling transactions.

(3)   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.

(4)   Business combinations that affect the comparability of this information
      are discussed in Note 2 to the consolidated financial statements.


                                                                              2
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

The Corporation's financial data has been restated for all mergers accounted for
as pooling of interests.

FORWARD-LOOKING STATEMENTS

      The Corporation from time to time includes forward-looking statements in
its oral and written communication. The Corporation may include forward-looking
statements in filings with the Securities and Exchange Commission, such as Form
10-K and Form 10-Q, in other written materials and in oral statements made by
senior management to analysts, investors, representatives of the media and
others. The Corporation intends 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 the Corporation is
including this statement for purposes of these safe harbor provisions.
Forward-looking statements can often be identified by the use of words like
"estimate," "project," "intend," "anticipate," "expect" and similar expressions.
These forward-looking statements include:

      *     statements of the Corporation's goals, intentions and expectations;

      *     statements regarding the Corporation's business plan and growth
            strategies;

      *     statements regarding the asset quality of the Corporation's loan and
            investment portfolios; and

      *     estimates of the Corporation's 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 the Corporation's net
            interest margin, asset valuations and expense expectations;

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

      *     adverse developments in the Corporation's loan and investment
            portfolios;

      *     competitive factors in the banking industry, such as the trend
            towards consolidation in the Corporation's market; and

      *     changes in the banking legislation or the regulatory requirements of
            federal and state agencies applicable to bank holding companies and
            banks like the Corporation's affiliate banks.


                                                                              3
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

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

CRITICAL ACCOUNTING POLICIES

      Certain policies are important to the portrayal of the Corporation's
financial condition, since they require management to make difficult, complex or
subjective judgements, some of which relate to matters that are inherently
uncertain. Management believes that its critical accounting policies are those
that involve the determination of the allowance for loan losses ("ALL").

      The ALL is a significant estimate that can and does change based on
management's assumptions about specific borrowers and applicable economic and
environmental conditions, among other factors. The ALL is maintained to absorb
losses inherent in the loan portfolio and is based on ongoing, quarterly
assessments of the probable losses inherent in the loan portfolio. The ALL is
increased by the provision for loan losses, which is charged against current
operating results. Loan losses are charged against the allowance when management
believes the uncollectibility of a loan balance is confirmed. Subsequent
recoveries, if any, are credited to the allowance. The Corporation's methodology
for assessing the appropriateness of the ALL consists of three key elements -
the determination of the appropriate reserves for specifically identified loans,
historical losses, and environmental or qualitative factors.

      Specific allowances are established in those instances where management
has identified significant conditions or circumstances related to a credit that
management believes indicate the probability that a loss may be incurred. The
loans that are reviewed for specific allowances are generally those internally
classified as substandard, doubtful or loss, including nonaccrual loans, loans
in the process of foreclosure and certain loans past due 90 days or more and
still accruing interest. Additionally, management also specifically reviews any
other loan with a significant loss exposure.

      The Corporation's five-year average historical loss experience is used to
estimate an appropriate allowance for those loans not individually reviewed. The
historical loss experience is determined for each type of loan in the portfolio.

      There are certain inherent risks in the Corporation's loan portfolio;
accordingly, the Corporation includes certain environmental or qualitative
factors in its determination of the adequacy of the allowance for loan losses.
These factors include national and local economic conditions that could have an
impact of the credit quality of the loan portfolio, lending policies and
procedures, portfolio size and composition, delinquency and non-performing loan
trends, lending management and staff, loan review systems and procedures,
concentration of credit, among other factors. The evaluation of the inherent
loss with respect to these factors is subject to a higher degree of uncertainty
because they are not identified with specific credits.


                                                                              4
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

RESULTS OF OPERATIONS

      Net income for the year 2002 reached $27,836,000, up from $22,209,000 in
2001. The $5,627,000 increase is attributable to several factors, including the
April 1, 2002 acquisition of Lafayette Bank and Trust Company ("Lafayette"),
improved net interest margin and the elimination of goodwill amortization.
However, these factors were mitigated by increased provision for loan losses and
increased other expenses. These factors and others are discussed within the
respective sections of Management's Discussion & Analysis of Financial Condition
and Results of Operations. Diluted earnings per share totaled $1.77, a 4.7%
increase over $1.69 reported for 2001. In 2002, First Merchants Corporation
("Corporation") recorded the twenty-seventh consecutive year of improvement in
net income on both an aggregate and per share basis.

      Net income for the year 2001 reached $22,209,000 up from $19,940,000 in
2000. The $2,269,000 increase is attributable to several factors, including the
July 1, 2001 acquisition of Frances Slocum Bank and Trust Company and improved
net interest margin; however, these factors were mitigated by increased other
expenses. These factors and others are discussed within the respective sections
of Management's Discussion & Analysis of Financial Condition and Results of
Operations. Diluted earnings per share totaled $1.69, a 7.0% increase over $1.58
reported for 2000.

      Return on equity was 11.72 percent in 2002, as compared to the 2001 and
2000 figures of 13.36 percent and 14.10 percent.

      Return on assets was 1.16 percent in 2002, 1.31 percent in 2001 and 1.30
percent in 2000.

      The declines in return on equity and return on assets during 2002 are
primarily due to increased provision for loan losses, which is discussed in the
Asset Quality/Provision for Loan Losses section of Management's Discussion &
Analysis of Financial Condition and Results of Operations.

CAPITAL

      The Corporation's capital strength continues to exceed regulatory minimums
and management believes that its capital levels continue to be a distinct
advantage in the competitive environment in which the Corporation operates.

      Tier I capital consists primarily of common stockholders' equity and trust
preferred securities, less nonqualifying intangible assets and unrealized net
securities gains. The Corporation's Tier I capital to average assets ratio was
7.92 percent and 8.7 percent at December 31, 2002 and 2001, respectively. In
addition, at December 31, 2002, the Corporation had a Tier I risk-based capital
ratio of 10.06 percent and total risk-based capital ratio of 11.17 percent.
Regulatory capital guidelines require a Tier I risk-based capital ratio of 4.0
percent and a total risk-based capital ratio of 8.0 percent.


                                                                              5
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

CAPITAL  continued

The Corporation has an employee stock purchase plan and an employee stock option
plan. Activity under these plans is described in Note 16 to the Consolidated
Financial Statements. The transactions under these plans have not had a material
effect on the Corporation's capital position.

ASSET QUALITY/PROVISION FOR LOAN LOSSES

      Asset quality has been a major factor in the Corporation's ability to
generate consistent profit improvement. 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
independent loan review provided by an outside accounting firm. 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.
(See Critical Accounting Policies)

      At December 31, 2002, non-performing loans totaled $23,318,000, an
increase of $8,652,000, as noted in the table on the following page. This
increase was primarily due to the addition of $8,122,000 in non-accrual loans
and past due 90 days or more other than non-accruing loans related to the
acquisition of Lafayette and the general downturn in the economy.

      At December 31, 2002, impaired loans totaled $44,351,000, an increase of
$23,190,000 from year end 2001. The increase was attributable to the addition of
impaired loans totaling $14,677,000, related to the acquisition of Lafayette and
several borrowers whose loans are considered impaired at December 31, 2002, but
were not impaired at December 31, 2001. At December 31, 2002, an allowance for
losses was not deemed necessary for impaired loans totaling $27,450,000, but an
allowance of $7,299,000 was recorded for the remaining balance of impaired loans
of $16,901,000 and is included in the Corporation's allowance for loan losses.
The average balance of impaired loans for 2002 was $49,663,000.

      At December 31, 2002, the allowance for loan losses was $22,417,000, an
increase of $7,276,000 from year end 2001. As a percent of loans, the allowance
was 1.11 percent at both December 31, 2002 and 2001.

      The provision for loan losses in 2002 was $7,174,000, an increase of
$3,598,000 from $3,576,000 in 2001. The Corporation's adequacy of the allowance
for loan losses reflects increased non-performing loans, increased specific
reserves and increased impaired loans, resulting in increased provision expense.
Of the $3.6 million increase, approximately $900,000 is attributable to the
provision for loan losses for Lafayette subsequent to its acquisition, with the
remaining based on the regular ongoing evaluation of the loan portfolios of the
Corporation's bank subsidiaries. Current non-performing and impaired loan
balances indicate that some decline in loan asset quality has occurred, which
management believes is a result of current economic conditions.


                                                                              6
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

The following table summarizes the non-accrual, contractually past due 90 days
or more other than non-accruing and restructured loans for the Corporation.

(dollars in thousands)                                         December 31,
--------------------------------------------------------------------------------
                                                           2002            2001
================================================================================

Non-accrual loans ..............................         $14,134         $ 6,327

Loans contractually
   past due 90 days or more
   other than non-accruing .....................           6,676           4,828

Restructured loans .............................           2,508           3,511
                                                         -------         -------

   Total .......................................         $23,318         $14,666
                                                         =======         =======

The table below presents loan loss experience for the years indicated.

<TABLE>
<CAPTION>
(Dollars in Thousands)                                                                2002                2001                2000
===================================================================================================================================
<S>                                                                                 <C>                 <C>                 <C>
Allowance for loan losses:
    Balance at January 1 ...............................................            $15,141             $12,454             $10,128
                                                                                    -------             -------             -------
    Chargeoffs .........................................................              8,113               3,547               2,291
    Recoveries .........................................................              1,313                 573                 579
                                                                                    -------             -------             -------
    Net chargeoffs .....................................................              6,800               2,974               1,712
    Provision for loan losses ..........................................              7,174               3,576               2,625
    Allowance acquired in acquisitions..................................              6,902               2,085               1,413
                                                                                    -------             -------             -------
    Balance at December 31 .............................................            $22,417             $15,141             $12,454
                                                                                    =======             =======             =======
   Ratio of net chargeoffs during the period to
     average loans outstanding during the period .......................               .37%                .23%                .16%
</TABLE>

LIQUIDITY

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

      The liquidity of the Corporation is dependent upon the receipt of
dividends from its bank subsidiaries, which are subject to certain regulatory
limitations as explained in Note 14 to the consolidated financial statements,
and access to other funding sources. Liquidity of the Corporation's bank
subsidiaries is derived primarily from core deposit growth, principal payments
received on loans, the sale and maturity of investment securities, net cash
provided by operating activities, and access to other funding sources. The most
stable source of liability-funded liquidity for both the long-term and
short-term is deposit growth and retention in the core deposit base. In
addition, the Corporation utilizes advances from the Federal Home Loan Bank
("FHLB") as a funding source. At December 31, 2002, total borrowings from the
FHLB were $184,677,000. The Corporation's bank subsidiaries have pledged certain
mortgage loans and certain investments to the FHLB. The total available
remaining borrowing capacity from the FHLB at December 31, 2002, was
$221,204,000. The principal source of asset-funded liquidity is investment
securities classified as available-for-sale, the market values of which totaled


                                                                              7
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

LIQUIDITY  continued

$332,925,000 at December 31, 2002, an increase of $101,257,000 or 43.7% over
2001. 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 $1,286,000 at
December 31, 2002. In addition, other types of assets-such as cash and due from
banks, federal funds sold and securities purchased under agreements to resell,
and loans and interest-bearing deposits with other banks maturing within one
year-are sources of liquidity.

      In the normal course of business, the Corporation is a party to a number
of other off-balance sheet activities that contain credit, market and
operational risk that are not reflected in whole or in part in the Corporation's
consolidated financial statements. Such activities include: traditional
off-balance sheet credit-related financial instruments, commitments under
operating leases and long-term debt.

     The Corporation provides customers with off-balance sheet credit support
through loan commitments and standby letters of credit. Summarized
credit-related financial instruments at December 31, 2002 are as follows:

                                                                 At December 31,
(Dollars in thousands)                                                2002
================================================================================

Amounts of commitments:
Loan commitments to extend credit ............................... $  312,146
Standby letters of credit .......................................     18,124
                                                                  ----------
                                                                  $  330,270
                                                                  ==========

      Since many of the commitments are expected to expire unused or be only
partially used, the total amount of unused commitments in the preceding table
does not necessarily represent future cash requirements.

     In addition to owned banking facilities, the Corporation has entered into a
number of long-term leasing arrangements to support the ongoing activities of
the Corporation. The required payments under such commitments and long-term debt
at December 31, 2002 are as follows:

<TABLE>
<CAPTION>
                                2002       2003       2004       2005       2006      2007       Total
(Dollars in thousands)                                                             and after
=======================================================================================================
<S>                          <C>        <C>        <C>        <C>        <C>        <C>        <C>
Operating leases .........   $    967   $    795   $    533   $    567   $    345   $    323   $  3,530
Trust preferred securities     53,188     53,188
Long-term debt ...........     81,588     32,382     27,750     20,403     10,495    101,653    274,271
                             --------   --------   --------   --------   --------   --------   --------
Total ....................   $ 82,555   $ 33,177   $ 28,283   $ 20,970   $ 10,840   $155,164   $330,989
                             ========   ========   ========   ========   ========   ========   ========
</TABLE>

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK

      Asset/Liability Management has been an important factor in the
Corporation's ability to record consistent earnings growth through periods of
interest rate volatility and product deregulation. Management and the Board of
Directors monitor the Corporation's liquidity and interest sensitivity positions
at regular meetings to review how changes in interest rates may affect earnings.
Decisions regarding investment and the pricing of loan


                                                                              8
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK   continued

and deposit products are made after analysis of reports designed to measure(
liquidity, rate sensitivity, the Corporation's exposure to changes in net
interest income given various rate scenarios and the economic and competitive
environments.

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

      Management believes that the Corporation's liquidity and interest
sensitivity position at December 31, 2002, remained adequate to meet the
Corporation's primary goal of achieving optimum interest margins while avoiding
undue interest rate risk. The following table presents the Corporation's
interest rate sensitivity analysis as of December 31, 2002.

INTEREST RATE SENSITIVITY ANALYSIS

<TABLE>
<CAPTION>
(dollars in thousands)                                                                At December 31, 2002
-----------------------------------------------------------------------------------------------------------------------------------
                                                                1-180 DAYS   181-365 DAYS    1-5 YEARS    BEYOND 5 YEARS    TOTAL
===================================================================================================================================
<S>                                                            <C>           <C>            <C>            <C>        <C>
Rate-Sensitive Assets:
   Federal funds sold and interest-bearing deposits ........   $   34,968                                               $   34,968
   Investment securities ...................................       27,765    $   12,136     $   85,429     $  216,732      342,062
   Loans ...................................................      850,254       195,160        661,945        318,563    2,025,922
   Federal Reserve and Federal Home Loan Bank stock ........       11,409                                                   11,409
                                                               ----------    ----------     ----------     ----------   ----------
        Total rate-sensitive assets ........................      924,396       207,296        747,374        535,295    2,414,361
                                                               ----------    ----------     ----------     ----------   ----------
Rate-Sensitive Liabilities:
   Interest-bearing deposits ...............................      723,470       494,076        494,077         52,937    1,764,560
   Securities sold under repurchase agreements .............       65,962                       23,632                      89,594
   Other short-term borrowings .............................       10,168                                                   10,168
   Federal Home Loan Bank advances .........................        7,807         7,819         67,398        101,653      184,677
   Trust preferred securities ..............................                                                   53,188       53,188
   Other borrowed funds ....................................       19,300                                                   19,300
                                                               ----------    ----------     ----------     ----------   ----------
        Total rate-sensitive liabilities ...................      826,707       501,895        585,107        207,778    2,121,487
                                                               ----------    ----------     ----------     ----------   ----------

Interest rate sensitivity gap by period ....................   $   97,689    $ (294,599)    $  162,267     $  327,517
Cumulative rate sensitivity gap ............................       97,689      (196,910)       (34,643)       292,874
Cumulative rate sensitivity gap ratio
   at December 31, 2002 ....................................        111.8%         85.2%          98.2%         113.8%
   at December 31, 2001 ....................................        135.4%         97.6%         109.7%         116.9%
</TABLE>

The Corporation had a cumulative negative gap of $196,910,000 in the one-year
horizon at December 31, 2002, just over 7.4 percent of total assets. Net
interest income at financial institutions with negative gaps tends to increase
when rates decrease and decrease as interest rates increase.

      The Corporation places its greatest credence in net interest income
simulation modeling. The GAP/Interest Rate Sensitivity Report is believed by the
Corporation's management to have two major shortfalls. The GAP/Interest Rate
Sensitivity Report fails to precisely gauge how often an interest rate sensitive
product reprices, nor is it able to measure the magnitude of potential future
rate movements.


                                                                              9
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

INTEREST RATE SENSITIVITY ANALYSIS   continued

Net interest income simulation modeling, or earnings-at-risk, measures the
sensitivity of net interest income to various interest rate movements. The
Corporation's asset liability process monitors simulated net interest income
under three separate interest rate scenarios; base, rising and falling.
Estimated net interest income for each scenario is calculated over a 12-month
horizon. The immediate and parallel changes to the base case scenario used in
the model are presented below. The interest rate scenarios are used for
analytical purposes and do not necessarily represent management's view of future
market movements. Rather, these are intended to provide a measure of the degree
of volatility interest rate movements may introduce into the earnings of the
Corporation.

      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 management's 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
management's best estimate of expected future behavior.

      The comparative rising and falling scenarios for the period ended December
31, 2003 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 management in the base
simulation for the period ended December 31, 2003 are as follows:

Driver Rates                      RISING              FALLING
================================================================================
Prime                             200 Basis Points    (50) Basis Points
Federal Funds                     200                 (50)
One-Year T-Bill                   200                 (20)
Two-Year T-Bill                   200                 (59)
Interest Checking                 100                  --
MMIA Savings                      100                  --
First Flex                        100                 (25)
CD's                              200                 (53)
FHLB Advances                     200                 (66)

      Results for the base, rising and falling interest rate scenarios are
listed below, based upon the Corporation's rate sensitive assets at December 31,
2002. 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
===============================================================================
Net Interest Income (dollars in thousands)  $105,138  $113,855   $ 98,793

Variance from base                                    $  8,717   $ (6,345)

Percent of change from base                               8.29%    (6.03)%


                                                                              10
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

EARNING ASSETS

      Earning assets increased $767.4 million during 2002. The table below
reflects the earning asset mix for the years 2002 and 2001 (at December 31).

      Loans grew by $666.0 million while investment securities increased by
$101.7 million. The acquisition of Lafayette combined with increased loan demand
resulted in a 49.0% increase in the Corporation's loan portfolio. In addition,
the increase in investment securities was primarily a result of the acquisition
of Lafayette.

EARNING ASSETS
(dollars in millions)                                            December 31,
================================================================================
                                                                2002       2001
                                                             --------   --------
     Federal funds sold and interest-bearing time deposits   $   35.0   $   38.2
     Securities available for sale .......................      332.9      231.7
     Securities held to maturity .........................        9.1        8.7
     Loans ...............................................    2,025.9    1,359.9
     Federal Reserve and Federal Home Loan Bank stock ....       11.4        8.4
                                                             --------   --------
         Total ...........................................   $2,414.3   $1,646.9
                                                             ========   ========

DEPOSITS AND BORROWINGS

      The table below reflects the level of deposits and borrowed funds (Federal
funds purchased, repurchase agreements, U.S. Treasury demand notes, Federal Home
Loan Bank advances, trust preferred securities and other borrowed funds) based
on year-end levels at December 31, 2002 and 2001.

<TABLE>
<CAPTION>
As of December 31
(dollars in millions)
-----------------------------------------------------------------------------------------------------------------------------------
                         SECURITIES SOLD UNDER       OTHER SHORT-TERM      FEDERAL HOME LOAN      TRUST PREFERRED    OTHER BORROWED
             DEPOSITS    REPURCHASE AGREEMENTS          BORROWINGS           BANK ADVANCES          SECURITIES           FUNDS
===================================================================================================================================
<C>          <C>                 <C>                      <C>                    <C>                  <C>               <C>
2002         $2,036.7            $89.6                    $10.2                  $184.7               $53.2             $19.3
2001          1,421.3             45.6                     16.8                   103.5                                   8.5
</TABLE>


                                                                              11
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

NET INTEREST INCOME

      Net interest income is the primary source of the Corporation's earnings.
It is a function of net interest margin and the level of average earning assets.
The table below reflects the Corporation's asset yields, interest expense, and
net interest income as a percent of average earning assets for the three-year
period ending in 2002.

      In 2002, asset yields decreased 97 basis points (FTE) and interest cost
decreased 112 basis points, resulting in a 15 basis point (FTE) increase in net
interest income. The Corporation aggressively repriced deposits downward in
relation to market interest rates in an effort to mitigate declining asset
yields resulting from a 4.5% decrease in the prime rate in 2001 and an
additional 75 basis point decline in 2002.

<TABLE>
<CAPTION>
(dollars in thousands)
--------------------------------------------------------------------------------------------------------------
            INTEREST INCOME    INTEREST EXPENSE   NET INTEREST INCOME                      NET INTEREST INCOME
           (FTE) as a Percent    as a Percent      (FTE)as a Percent         AVERAGE              On a
               of Average         of Average          of Average             EARNING          Fully Taxable
             Earning Assets      Earning Assets      Earning Assets          ASSETS          Equivalent Basis
==============================================================================================================
<S>                <C>               <C>               <C>               <C>                    <C>
  2002             6.83%             2.44%             4.39%             $2,198,943             $96,599
  2001             7.80              3.56              4.24               1,576,334              66,806
  2000             8.19              4.16              4.03               1,453,795              58,619
</TABLE>

      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.


                                                                              12
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

OTHER INCOME

      The Corporation has placed emphasis on the growth of non-interest income
in recent years by offering a wide range of fee-based services. Fee schedules
are regularly reviewed by a pricing committee to ensure that the products and
services offered by the Corporation are priced to be competitive and profitable.

      Other income in 2002 amounted to $27,077,000 or 46.0 percent higher than
in 2001. The increase of $8,534,000 is primarily attributable to the following
factors:

1.    Service charges on deposit accounts increased $3,601,000 or 62.9 percent
      due to increased number of accounts, price adjustments and approximately
      $3,105,000 of additional service charge income related to the April 1,
      2002 acquisition of Lafayette.

2.    Net realized gains on sales of available-for-sale securities totaled
      $739,000 in 2002, while net realized losses on sales of available-for-sale
      securities totaled $(200,000) during 2001.

3.    Revenues from fiduciary activities increased $829,000 or 15.3 percent due
      primarily to additional fees received related to the acquisition of
      Lafayette.

4.    The Corporation sold its purchase money order business in September of
      2002, resulting in a net gain on sale of $514,000.

5.    Abstract, title insurance and other related income increased $910,000 in
      2002, related to the January 1, 2002 acquisition of Delaware County
      Abstract Company, Inc. and Beebe & Smith Title Insurance Company, Inc.

6.    Gains on sale of mortgage loans included in other income increase by
      $481,000, or 39.1 percent, due to increased mortgage volume. In addition,
      decreasing mortgage loan rates caused an increase in refinancing volume,
      which facilitated an increase in loan sales activity.

      Other income in 2001 amounted to $18,543,000 or 11.5 percent higher than
in 2000. The increase of $1,909,000 is primarily attributable to the following
factors:

1.    Service charges on deposit accounts increased $953,000, or 20.0 percent
      due to increased number of accounts and price adjustments.

2.    Gains on sale of mortgage loans included in other income increased by
      $611,000, or 97.9 percent, due to increased mortgage volume. In addition,
      decreasing mortgage loan interest rates caused an increase in refinancing
      volume, which facilitated an increase in loan sales activity.


                                                                              13
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

OTHER EXPENSES

      Other expenses represent non-interest operating expenses of the
Corporation. Other expenses in 2002 amounted to $71,009,000, an increase of 57.1
percent from the prior year, or $25,814,000.

The following factors account for most of the increase:


1.    Salaries and benefit expense grew $14,439,000, or 58.4 percent, due to
      normal salary increases, staff additions and additional salary and benefit
      cost of $9,785,000 related to the April 1, 2002 acquisition of Lafayette.

2.    Telephone expenses increased by $1,497,000 or 140.9%, due to additional
      telephone costs related to the acquisition of Lafayette. In addition,
      increased service contract charges related to greater usage of telephone
      lines, contributed to this increase.

3.    Equipment expenses increased by $2,188,000 or 48.4%, primarily related to
      the April 1, 2002 acquisition of Lafayette.

4.    Core deposit intangible amortization increased by $907,000, due to
      utilization of the purchase method of accounting for the Corporation
      related to the April 1, 2002 acquisition of Lafayette.

5.    Data processing fees increased by $1,421,000, or 63.4 percent, primarily
      due to increases in processing expenses related to greater usage of
      debit/ATM cards by customers and increases in loans originated and
      processed during 2002.

6.    Net occupancy expenses increased by $903,000 or 33.1%, primarily related
      to the April 1, 2002 acquisition of Lafayette.

      Other expenses amounted to $45,195,000 in 2001, an increase of 12.8
percent from the prior year, or $5,112,000.

Three major areas account for most of the increase:

1.    Salary and benefit expenses grew by $3,293,000, or 15.4 percent, due to
      normal salary increases, staff additions and additional salary cost
      related to the acquisition of Frances Slocum Bank and Trust Company.

2.    Data processing fees increased by $507,000, or 29.2 percent, primarily due
      to increases in processing expenses related to greater usage of debit/ATM
      cards by customers and increases in loans originated and processed during
      the year.

3.    Goodwill and core deposit amortization increased by $786,000, or 87.7
      percent, due to utilization of the purchase method of accounting for the
      Corporation's June 1, 2000 acquisition of Decatur Bank and Trust Company
      and July 1, 2001 acquisition of Frances Slocum Bank and Trust Company.


                                                                              14
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

INCOME TAXES

      The increase in 2002 tax expense of $2,057,000 is attributable primarily
to the acquisition of Lafayette and an increase in pre-tax income of $5,627,000.
The increase in 2001 tax expenses of $1,956,000 is attributable primarily to a
$4,225,000 increase in net pre-tax income. In addition, the effective tax rates
for the periods ending December 31, 2002, 2001 and 2000 were 33.4%, 34.9% and
33.3%, respectively. The 150 basis point decrease is primarily a result of
increases in tax exempt interest income and reduced state taxes, resulting from
the effect of state income apportionment.

ACCOUNTING MATTERS

ACCOUNTING FOR A BUSINESS COMBINATION

      Statement of Financial Accounting Standards ("SFAS") No. 141 requires that
most all business combinations should be accounted for using the purchase method
of accounting; use of the pooling method is prohibited.

      This Statement requires that goodwill be initially recognized as an asset
in the financial statement and measured as the excess of the cost of an acquired
entity over the net of the amounts assigned to identifiable assets acquired and
liabilities assumed. In addition, SFAS No. 141 requires all other intangibles,
such as core deposit intangibles for a financial institution, to be identified.

      The provisions of Statement No. 141 were effective for any business
combination that was initiated after June 30, 2001.

ACCOUNTING FOR GOODWILL

      Under the provisions of SFAS No. 142, goodwill should not be amortized but
should be tested for impairment at the reporting unit level. Impairment test of
goodwill should be done on an annual basis unless events or circumstances
indicate impairment has occurred in the interim period. The annual impairment
test can be performed at any time during the year as long as the measurement
date is used consistently from year to year.

      Impairment testing is a two step process, as outlined within the
statement. If the fair value of goodwill is less than its carrying value, then
the goodwill is deemed impaired and a loss recognized.


                                                                              15
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

      The Corporation adopted these new accounting rules on January 1, 2002. As
a result, the Corporation will not amortize the goodwill it has recorded prior
to June 30, 2001, but will make an annual assessment of any impairment in
goodwill and, if necessary, recognize an impairment loss at that time. The
Corporation had goodwill of $87,640,000 and $26,081,000 at December 31, 2002 and
2001, respectively. Had Statement No. 142 been applied retroactively, the
reported 2001 and 2000 net income would have increased by $1,070,000 and
$724,000, respectively. At December 31, 2002, no impairment loss was identified.

ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS

      SFAS No. 147 became effective October 1, 2002. This standard requires any
intangible assets previously recorded under SFAS No. 72 to be included in the
scope of SFAS No.s 141 and 142. This standard has no immediate impact on the
financial position and results of operations of the Corporation, as the
Corporation did not have any recorded unidentified intangible assets or goodwill
that had continued to be amortized.

ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE-AN AMENDMENT
OF FASB STATEMENT NO. 123

      In December 2002, the Financial Accounting Standards Board issued SFAS No.
148. SFAS No. 148 amends FASB Statement No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123") and provides alternative methods for accounting for a
change by registrants to the fair value method of accounting for stock-based
compensation. Additionally, SFAS No. 148 amends the disclosure requirements of
SFAS 123 to require disclosure in the significant accounting policy footnote of
both annual and interim financial statements of the method of accounting for
stock-based compensation and the related pro-forma disclosures when the
intrinsic value method continues to be used. The statement is effective for
fiscal years ending after December 15, 2002. Adoption of this statement did not
have a material effect on the Corporation's financial position or results of
operations.


                                                                              16
<PAGE>

================================================================================

MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

================================================================================

INFLATION

      Changing prices of goods, services and capital affect the financial
position of every business enterprise. The level of market interest rates and
the price of funds loaned or borrowed fluctuate due to changes in the rate of
inflation and various other factors, including government monetary policy.

      Fluctuating interest rates affect the Corporation's net interest income,
loan volume and other operating expenses, such as employee salaries and
benefits, reflecting the effects of escalating prices, as well as increased
levels of operations and other factors. As the inflation rate increases, the
purchasing power of the dollar decreases. Those holding fixed-rate monetary
assets incur a loss, while those holding fixed-rate monetary liabilities enjoy a
gain. The nature of a financial holding company's operations is such that there
will generally be an excess of monetary assets over monetary liabilities, and,
thus, a financial holding company will tend to suffer from an increase in the
rate of inflation and benefit from a decrease.


                                                                              17
<PAGE>

================================================================================

INDEPENDENT ACCOUNTANTS' REPORT

================================================================================

To the Stockholders and Board of Directors
First Merchants Corporation
Muncie, Indiana

We have audited the accompanying consolidated balance sheets of First Merchants
Corporation as of December 31, 2002 and 2001, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2002. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of First Merchants Corporation as of December 31, 2002 and
2001, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As more fully discussed in Note 7, the Corporation changed its method of
accounting for goodwill in 2002.

                                             BKD, LLP

                                             Indianapolis, Indiana
                                             January 17, 2003


                                                                              18
<PAGE>

================================================================================

CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)                                                                            December 31,
===================================================================================================================================
                                                                                                    2002                   2001
<S>                                                                                             <C>                    <C>
Assets
   Cash and due from banks ..........................................................           $    87,638            $    68,743
   Federal funds sold ...............................................................                31,400                 34,285
                                                                                                -----------            -----------
   Cash and cash equivalents ........................................................               119,038                103,028
   Interest-bearing time deposits ...................................................                 3,568                  3,871
   Investment securities
      Available for sale ............................................................               332,925                231,668
      Held to maturity (fair value of $9,585 and $8,762) ............................                 9,137                  8,654
                                                                                                -----------            -----------
        Total investment securities .................................................               342,062                240,322
   Mortgage loans held for sale .....................................................                21,545                    307
   Loans, net of allowance for loan losses of $22,417 and $15,141....................             1,981,960              1,344,445
   Premises and equipment ...........................................................                38,645                 27,684
   Federal Reserve and Federal Home Loan Bank stock .................................                11,409                  8,350
   Interest receivable ..............................................................                17,346                 12,024
   Core deposit intangibles ............ ............................................                19,577                  6,096
   Goodwill..........................................................................                87,640                 26,081
   Cash surrender value of life insurance............................................                14,309                  6,470
   Other assets .....................................................................                21,588                  8,357
                                                                                                -----------            -----------
        Total assets ................................................................           $ 2,678,687            $ 1,787,035
                                                                                                ===========            ===========

Liabilities
   Deposits
     Noninterest-bearing ............................................................           $   272,128            $   186,987
     Interest-bearing ...............................................................             1,764,560              1,234,264
                                                                                                -----------            -----------
       Total deposits ...............................................................             2,036,688              1,421,251
   Borrowings .......................................................................               356,927                174,404
   Interest payable .................................................................                 6,019                  5,488
   Other liabilities ................................................................                17,924                  6,764
                                                                                                -----------            -----------
       Total liabilities ............................................................             2,417,558              1,607,907


COMMITMENTS AND CONTINGENT LIABILITIES


Stockholders' equity
   Preferred stock, no-par value
      Authorized and unissued -- 500,000 shares
   Common stock, $.125 stated value
      Authorized -- 50,000,000 shares
      Issued and outstanding -- 16,322,748 and 13,303,822 shares ....................                 2,040                  1,663
   Additional paid-in capital .......................................................               116,503                 50,563
   Retained earnings ................................................................               138,110                124,304
   Accumulated other comprehensive income ...........................................                 4,476                  2,598
                                                                                                -----------            -----------
        Total stockholders' equity ..................................................               261,129                179,128
                                                                                                -----------            -----------
        Total liabilities and stockholders' equity ..................................           $ 2,678,687            $ 1,787,035
                                                                                                ===========            ===========
</TABLE>

See notes to consolidated financial statements.


                                                                              19
<PAGE>

================================================================================

CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share data)                                                                Year Ended December 31,
===================================================================================================================================
                                                                                       2002               2001               2000
<S>                                                                                  <C>                <C>               <C>
Interest income
   Loans receivable
     Taxable .............................................................           $129,279           $103,123          $ 95,798
     Tax exempt ..........................................................                638                438               311
   Investment securities
     Taxable .............................................................              9,086             11,207            14,478
     Tax exempt ..........................................................              6,190              4,103             4,587
   Federal funds sold ....................................................                557                899               666
   Deposits with financial institutions ..................................                197                106               103
   Federal Reserve and Federal Home Loan Bank stock ......................                735                559               585
                                                                                     --------           --------          --------
       Total interest income .............................................            146,682            120,435           116,528
                                                                                     --------           --------          --------
Interest expense
   Deposits ..............................................................             39,700             45,856            49,607
   Securities sold under repurchase agreements ...........................              2,060              3,208             4,263
   Federal Home Loan Bank advances .......................................              8,166              6,556             5,315
   Trust preferred securities ............................................              3,324
   Other borrowings ......................................................                509                454             1,361
                                                                                     --------           --------          --------
        Total interest expense ...........................................             53,759             56,074            60,546
                                                                                     --------           --------          --------
Net interest income ......................................................             92,923             64,361            55,982
   Provision for loan losses .............................................              7,174              3,576             2,625
                                                                                     --------           --------          --------

Net interest income
after provision for loan losses ..........................................             85,749             60,785            53,357
                                                                                     --------           --------          --------
Other income
   Fiduciary activities ..................................................              6,258              5,429             4,972
   Service charges on deposit accounts ...................................              9,330              5,729             4,776
   Other customer fees ...................................................              3,918              3,166             3,519
   Net realized gains (losses) on
     sales of available-for-sale securities ..............................                739               (200)             (107)
   Commission income .....................................................              2,203              1,945             1,950
   Other income ..........................................................              4,629              2,474             1,524
                                                                                     --------           --------          --------
        Total other income ...............................................             27,077             18,543            16,634
                                                                                     --------           --------          --------

Other expenses
   Salaries and employee benefits ........................................             39,150             24,711            21,418
   Net occupancy expenses ................................................              3,632              2,729             2,471
   Equipment expenses ....................................................              6,709              4,521             4,299
   Marketing expenses.....................................................              1,495              1,072             1,010
   Outside data processing fees ..........................................              3,664              2,243             1,736
   Printing and office supplies ..........................................              1,597              1,143             1,144
   Goodwill and core deposit amortization.................................              2,589              1,682               896
   Other expenses ........................................................             12,173              7,094             7,109
                                                                                     --------           --------          --------
        Total other expenses .............................................             71,009             45,195            40,083
                                                                                     --------           --------          --------

Income before income tax .................................................             41,817             34,133            29,908
   Income tax expense ....................................................             13,981             11,924             9,968
                                                                                     --------           --------          --------
Net income ...............................................................           $ 27,836           $ 22,209          $ 19,940
                                                                                     ========           ========          ========

Net income per share:
   Basic .................................................................           $   1.79           $   1.71          $   1.59
   Diluted ...............................................................               1.77               1.69              1.58
</TABLE>

See notes to consolidated financial statements.


                                                                              20
<PAGE>

================================================================================

CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,
 (in thousands)                                                                                2002           2001            2000
===================================================================================================================================
<S>                                                                                         <C>            <C>            <C>
Net income ............................................................................     $ 27,836       $ 22,209       $ 19,940
                                                                                             --------       --------       --------
Other comprehensive income, net of tax:
  Unrealized gains on securities available for sale:
     Unrealized holding gains arising during the period,
     net of income tax expense of $2,426, $1,848, $2,610................ ..............        3,639          2,775          3,831
     Less: Reclassification adjustment for gains (losses) included in net income,
       net of income tax (expense) benefit of $(296), $80, $43 ........................          443           (120)           (64)
  Unrealized loss on pension minimum funding liability:
     Unrealized loss arising during the period,
     net of income tax benefit of $879 ................................................       (1,318)
                                                                                            --------       --------       --------
                                                                                               1,878          2,895          3,895
                                                                                            --------       --------       --------
  COMPREHENSIVE INCOME                                                                      $ 29,714       $ 25,104       $ 23,835
                                                                                            ========       ========       ========

<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share data)
-----------------------------------------------------------------------------------------------------------------------------------
                                                        COMMON STOCK
                                                   -----------------------    ADDITIONAL    RETAINED   ACCUMULATED OTHER
                                                      SHARES       AMOUNT   PAID-IN CAPITAL EARNINGS     COMPREHENSIVE       TOTAL
                                                                                                         INCOME (LOSS)
                                                   -----------    --------  --------------  --------- --------------------  -------
<S>                                                <C>           <C>           <C>         <C>            <C>            <C>
Balances, January 1, 2000 .....................    10,936,617    $  1,367      $ 25,481    $ 103,640      $  (4,192)     $ 126,296
  Net income for 2000..........................                                               19,940                        19,940
  Cash dividends ($ .82 per share) ............                                              (10,331)                      (10,331)
  Other comprehensive income, net of tax ......                                                               3,895          3,895
  Stock issued under employee benefit plans ...        26,778           3           478                                        481
  Stock issued under dividend reinvestment
     and stock purchase plan ..................        35,611           5           806                                        811
  Stock options exercised .....................        33,906           4           506                                        510
  Stock redeemed ..............................      (292,000)        (37)       (6,670)          (5)                       (6,712)
  Issuance of stock related to acquisition.....       870,957         109        21,068                                     21,177
  Cash paid in lieu of fractional shares.......          (137)                       (4)                                        (4)
                                                  -----------    --------      --------    ---------      ---------      ---------
Balances, December 31, 2000   .................    11,611,732       1,451        41,665      113,244           (297)       156,063
  Net income for 2001..........................                                               22,209                        22,209
  Cash dividends ($.88 per share)..............                                              (11,127)                      (11,127)
  Other comprehensive income, net of tax ......                                                               2,895          2,895
  Stock issued under employee benefit plans ...        28,466           4           500                                        504
  Stock issued under dividend reinvestment
     and stock purchase plan ..................        35,348           4           799                                        803
  Stock options exercised .....................        19,627           2           223                                        225
  Stock redeemed ..............................      (306,966)        (38)       (6,985)                                    (7,023)
  Issuance of stock related to acquisition.....       677,972          85        14,516                                     14,601
  Five percent (5%) stock dividend.............       604,128          76           (76)
  Cash paid in lieu of fractional shares.......                                                 (22)                           (22)
                                                  -----------    --------      --------    ---------      ---------      ---------
Balances, December 31, 2001                        12,670,307       1,584        50,642      124,304          2,598        179,128
  Net income for 2002..........................                                               27,836                        27,836
  Cash dividends ($.90 per share)..............                                              (13,995)                      (13,995)
  Other comprehensive income, net of tax ......                                                               1,878          1,878
  Stock issued under employee benefit plans ...        35,613           4           654                                        658
  Stock issued under dividend reinvestment
     and stock purchase plan ..................        28,487           5           946                                        951
  Stock options exercised .....................        49,689           6           488                                        494
  Stock redeemed ..............................      (148,405)        (20)       (4,313)                                    (4,333)
  Issuance of stock related to acquisitions....     2,912,869         364        68,183                                     68,547
  Five percent (5%) stock dividend.............       774,188          97           (97)
  Cash paid in lieu of fractional shares.......                                                 (35)                           (35)
                                                  -----------    --------      --------    ---------      ---------      ---------
Balances, December 31, 2002                        16,322,748    $  2,040      $116,503    $ 138,110      $   4,476      $ 261,129
                                                  ===========    ========      ========    =========      =========      =========
</TABLE>

See notes to consolidated financial statements.


                                                                              21
<PAGE>

================================================================================
CONSOLIDATED FINANCIAL STATEMENTS

================================================================================

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS

===================================================================================================================================
                                                                                                 Year Ended December 31,
(in thousands, except share data)                                                   2002               2001               2000
===================================================================================================================================
<S>                                                                             <C>                <C>                <C>
Operating activities:
   Net income .........................................................         $  27,836          $  22,209          $  19,940
   Adjustments to reconcile net income to
     net cash provided by operating activities:
     Provision for loan losses ........................................             7,174              3,576              2,625
     Depreciation .....................................................             4,273              2,984              3,198
     Amortization of goodwill and intangibles .........................             2,444              1,682                896
     Deferred income tax ..............................................              (503)               616               (767)
     Securities amortization, net .....................................               573                  8                 72
     Securities losses (gains), net ...................................              (739)               200                107
     Loss (gain) on sale of premises and equipment ....................                (7)                 2               (105)
     Mortgage loans originated for sale ...............................          (140,584)           (22,705)            (2,111)
     Proceeds from sales of mortgage loans ............................           126,905             22,398              2,172
     Net change in
         Interest receivable ..........................................               763              2,514               (825)
         Interest payable .............................................            (1,318)            (1,727)             1,479
     Other adjustments ................................................            (9,122)              (545)             3,104
                                                                                ---------          ---------          ---------
         Net cash provided by operating activities ....................            17,695             31,212             29,785
                                                                                ---------          ---------          ---------

Investing activities:
   Net change in interest-bearing deposits ............................            10,729             (2,988)             1,330
   Purchases of
     Securities available for sale ....................................          (182,511)           (34,500)           (11,437)
     Securities held to maturity ......................................
   Proceeds from maturities of
     Securities available for sale ....................................           164,273            108,692             49,975
     Securities held to maturity ......................................             4,307              3,612              5,617
   Proceeds from sales of
     Securities available for sale ....................................            21,363                770             14,654
   Net change in loans ................................................          (100,650)           (50,384)           (87,658)
   Purchase of Federal Home Loan Bank stock ...........................              (715)              (592)              (712)
   Purchases of premises and equipment ................................            (4,854)            (2,438)            (4,409)
   Proceeds from sale of fixed assets .................................                75                 37                449
   Net cash received (paid) in acquisition.............................           (12,532)             5,261
   Other investing activities .........................................                                                     280
                                                                                ---------          ---------          ---------
         Net cash provided (used) by investing activities .............          (100,515)            27,470            (31,911)
                                                                                ---------          ---------          ---------

Financing activities:
   Net change in
     Demand and savings deposits ......................................            34,818             55,640                772
     Certificates of deposit and other time deposits ..................           (26,662)           (72,940)            33,268
     Repurchase agreements and other borrowings .......................             7,893                506            (51,385)
   Federal Home Loan Bank advances ....................................            77,900             60,930            199,396
   Repayment of Federal Home Loan Bank advances .......................           (32,047)           (50,613)          (181,510)
   Trust preferred securities..........................................            53,188
   Cash dividends .....................................................           (13,995)           (11,127)           (10,331)
   Stock issued under employee benefit plans ..........................               658                504                481
   Stock issued under dividend reinvestment
     and stock purchase plan ..........................................               951                803                811
   Stock options exercised ............................................               494                225                510
   Stock redeemed .....................................................            (4,333)            (7,023)            (6,712)
   Cash paid in lieu of issuing fractional shares .....................               (35)               (22)                (4)
                                                                                ---------          ---------          ---------
         Net cash provided (used) by financing activities .............            98,830            (23,117)           (14,704)
                                                                                ---------          ---------          ---------
Net change in cash and cash equivalents ...............................            16,010             35,565            (16,830)
Cash and cash equivalents, beginning of year ..........................           103,028             67,463             84,293
                                                                                ---------          ---------          ---------
Cash and cash equivalents, end of year ................................         $ 119,038          $ 103,028          $  67,463
                                                                                =========          =========          =========
Additional cash flows information:
   Interest paid .......................................................         $  53,228          $  56,921          $  58,810
   Income tax paid .....................................................            14,313             12,440              9,544
</TABLE>


See notes to consolidated financial statements.


                                                                              22
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The accounting and reporting policies of First Merchants Corporation
("Corporation"), and its wholly owned subsidiaries, First Merchants Bank, N.A.
("First Merchants"), Madison Community Bank ("Madison"), First United Bank
("First United"), The Randolph County Bank ("Randolph County"), Union County
National Bank ("Union National"), First National Bank ("First National"),
Decatur Bank and Trust Company ("Decatur"), Frances Slocum Bank & Trust Company
("Frances Slocum"), and Lafayette Bank and Trust Company ("Lafayette"),
(collectively the "Banks"), First Merchants Insurance Services, Inc. ("FMIS"),
First Merchants Reinsurance Company ("FMRC"), Indiana Title Insurance Company
("ITIC"), First Merchants Capital Trust I ("FMC Trust I"), First Merchants
Capital Trust II ("FMC Trust II"), and First Merchants Capital Trust III ("FMC
Trust III"), conform to generally accepted accounting principles and reporting
practices followed by the banking industry. The more significant of the policies
are described below.

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

      The Corporation is a financial holding company whose principal activity is
the ownership and management of the Banks and operates in a single significant
business segment. First Merchants, Union National and First National operate
under national bank charters and provide full banking services, including trust
services. As national banks, First Merchants, First National and Union National
are subject to the regulation of the Office of the Comptroller of the Currency
and the Federal Deposit Insurance Corporation ("FDIC"). Madison, First United,
Randolph County, Decatur, Frances Slocum and Lafayette operate under state bank
charters and provide full banking services, including trust services. As state
banks, Madison, First United, Randolph County, Decatur, Frances Slocum and
Lafayette are subject to the regulation of the Department of Financial
Institutions, State of Indiana, and the FDIC.

      The Banks generate commercial, mortgage, and consumer loans and receive
deposits from customers located primarily in north-central and east-central
Indiana and Butler County, Ohio. The Banks' loans are generally secured by
specific items of collateral, including real property, consumer assets and
business assets. Although the Banks have a diversified loan portfolio, a
substantial portion of their debtors' ability to honor their contracts is
dependent upon economic conditions in the automotive and agricultural
industries.


                                                                              23
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

CONSOLIDATION

      The consolidated financial statements include the accounts of the
Corporation and all its subsidiaries, after elimination of all material
intercompany transactions.

INVESTMENT SECURITIES-Debt securities are classified as held to maturity when
the Corporation has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported separately in accumulated other comprehensive income,
net of tax.

Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.

LOANS HELD FOR SALE are carried at the lower of aggregate cost or market. Market
is determined using the aggregate method. Net unrealized losses, if any, are
recognized through a valuation allowance by charges to income based on the
difference between estimated sales proceeds and aggregate cost.

LOANS are carried at the principal amount outstanding. Certain nonaccrual and
substantially delinquent loans may be considered to be impaired. A loan is
impaired when, based on current information or events, it is probable that the
Banks will be unable to collect all amounts due (principal and interest)
according to the contractual terms of the loan agreement. In applying the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 114, the
Corporation considers its investment in one-to-four family residential loans and
consumer installment loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. Interest income is accrued
on the principal balances of loans, except for installment loans with add-on
interest, for which a method that approximates the level yield method is used.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed when
considered uncollectable. Interest income is subsequently recognized only to the
extent cash payments are received. Certain loan fees and direct costs are being
deferred and amortized as an adjustment of yield on the loans.


                                                                              24
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

ALLOWANCE FOR LOAN LOSSES is maintained to absorb losses inherent in the loan
portfolio and is based on ongoing, quarterly assessments of the probable losses
inherent in the loan portfolio. The allowance is increased by the provision for
loan losses, which is charged against current operating results. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance. The Corporation's methodology for assessing the appropriateness of
the allowance consists of three key elements - the determination of the
appropriate reserves for specifically identified loans, historical losses, and
environmental or qualitative factors.

Specific allowances are established in those instances where management has
identified significant conditions or circumstances related to a credit that
management believes indicate the probability that a loss may be incurred. The
loans that are reviewed for specific allowances are generally those internally
classified as substandard, doubtful or loss, including nonaccrual loans, loans
in the process of foreclosure and certain loans past due 90 days or more and
still accruing interest. Additionally, management also specifically reviews any
other loan with a significant loss exposure.

The Corporation's five-year average historical loss experience is used to
estimate an appropriate allowance for those loans not individually reviewed. The
historical loss experience is determined for each type of loan in the portfolio.

There are certain inherent risks in the Corporation's loan portfolio;
accordingly, the Corporation includes certain environmental or qualitative
factors in its determination of the adequacy of the allowance for loan losses.
These factors include national and local economic conditions that could have an
impact of the credit quality of the loan portfolio, lending policies and
procedures, portfolio size and composition, delinquency and non-performing loan
trends, lending management and staff, loan review systems and procedures,
concentration of credit, among other factors. The evaluation of the inherent
loss with respect to these factors is subject to a higher degree of uncertainty
because they are not identified with specific credits.


                                                                              25
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line and declining balance methods
based on the estimated useful lives of the assets. Maintenance and repairs are
expensed as incurred, while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.

FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK are required investments for
institutions that are members of the Federal Reserve Bank ("FRB") and Federal
Home Loan Bank ("FHLB") systems. The required investment in the common stock is
based on a predetermined formula.

INTANGIBLE ASSETS that are subject to amortization, including core deposit
intangibles, are being amortized on both the straight-line and accelerated basis
over periods ranging from 7 to 25 years. Intangible assets are periodically
evaluated as to the recoverability of their carrying value.

GOODWILL is maintained by applying the provisions of SFAS No. 142, which was
adopted by the Corporation on January 1, 2002. Goodwill is reviewed for
impairment annually in accordance with this statement with any loss recognized
through the income statement, at that time.

INCOME TAX in the consolidated statements of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The
Corporation files consolidated income tax returns with its subsidiaries.

STOCK OPTIONS are granted for a fixed number of shares to employees. At December
31, 2002, the Corporation has stock-based employee compensation plans, which are
described more fully in Note 16. The Corporation's stock option plans are
accounted for in accordance with Accounting Principles Board Opinion ("APB") No.
25, Accounting for Stock Issued to Employees, and related interpretations. APB
No. 25 requires compensation expense for stock options to be recognized only if
the market price of the underlying stock exceeds the exercise price on the date
of the grant. Accordingly, the Corporation recognized compensation expense of
$23,000 in 2002, 2001 and 2000, related to specific grants in which the market
price exceeded the exercise price. For all remaining grants, no stock-based
employee compensation cost is reflected in net income, as options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the grant date.


                                                                              26
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 1

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

The following table illustrates the effect on net income and earnings per share
if the Corporation had applied the fair value provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation, to stock-based employee
compensation.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31
                                                                     2002         2001          2000
                                                                --------------------------------------
<S>                                                             <C>           <C>           <C>
Net income, as reported .....................................   $   27,836    $   22,209    $   19,940
Less:  Total stock-based employee compensation
   cost determined under the fair value based
   method, net of income taxes ..............................       (1,006)         (498)         (125)
                                                                ----------    ----------    ----------
Pro forma net income ........................................   $   26,830    $   21,711    $   19,815
                                                                ==========    ==========    ==========

Earnings per share:
   Basic - as reported ......................................   $     1.79    $     1.71    $     1.59
   Basic - pro forma ........................................         1.72          1.67          1.58
   Diluted - as reported ....................................         1.77          1.69          1.58
   Diluted - pro forma ......................................         1.71          1.66          1.57
</TABLE>

EARNINGS PER SHARE have been computed based upon the weighted average common and
common equivalent shares outstanding during each year and have been restated to
give effect to a five percent (5%) stock dividend on its shares of outstanding
common stock distributed to stockholders on September 13, 2002.

NOTE 2

BUSINESS COMBINATIONS

      Effective September 6, 2002, the Corporation acquired Stephenson Insurance
Service, Inc., which was merged into FMIS, a wholly-owned subsidiary of the
Corporation. The Corporation issued 36,276 shares of its common stock at a cost
of $27.47 per share to complete the transaction. This acquisition was deemed to
be an immaterial acquisition.

      On August 28, 2002, the Corporation signed a definitive agreement to
acquire CNBC Bancorp ("CNBC"), Columbus, Ohio. The acquisition will be accounted
for under the purchase method of accounting. Under the terms of the agreement,
the Corporation will exchange 1.01 shares of the Corporation's common stock or
$29.57 in cash for each of the outstanding shares of CNBC. However, no more than
$24,562,000 aggregate cash may be paid in the merger, and there may be
allocations of stock to certain shareholders if this threshold is exceeded. The
transaction is subject to approval by stockholders of CNBC, and appropriate
regulatory agencies. The Corporation anticipates amortizing core deposit
intangibles over ten years. As of December 31, 2002 CNBC had total assets and
shareholders' equity of $331,741,000 and $24,265,000 respectively. To fund a
portion of the cash consideration payable to the stockholders of CNBC, the
Corporation will establish a wholly owned trust subsidiary that will issue and
sell up to $25,000,000 in trust preferred securities of the Corporation. The
preferred securities will have a 30 year maturity and a coupon rate based upon
three-month LIBOR, plus 325 basis points, but LIBOR


                                                                              27
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 2

BUSINESS COMBINATIONS  continued

shall not exceed 8.75% prior to the fifth anniversary of the closing date. The
proceeds from the sale of the preferred securities will be loaned to the
Corporation by the trust subsidiary in exchange for subordinated debentures with
terms that are similar to the preferred securities and will be recorded as debt
in the Corporation's consolidated financial statements. The subordinated
debentures will be the sole asset of the trust subsidiary. Issuance costs will
be amortized over the life of the preferred securities. The Corporation will
guarantee the preferred securities and distributions.

      On April 1, 2002, the Corporation acquired 100% of the outstanding stock
of Lafayette Bancorporation, the holding company of Lafayette, which is located
in Lafayette, Indiana. Lafayette is a state chartered bank with branches located
in central Indiana. Lafayette Bancorporation was merged into the Corporation,
and Lafayette maintained its state charter as a subsidiary of First Merchants
Corporation. The Corporation issued approximately 2,911,712 shares of its common
stock at a cost of $22.36 per share and approximately $50,867,000 in cash to
complete the transaction. As a result of the acquisition, the Corporation has an
opportunity to increase its customer base and continue to increase its market
share. The purchase had a recorded acquisition price of $115,978,000, including
goodwill of $57,893,000 none of which is deductible for tax purposes.
Additionally, core deposit intangibles totaling $16,052,000 were recognized and
will be amortized over 10 years using the 150% declining balance method.

      The combination was accounted for under the purchase method of accounting.
All assets and liabilities were recorded at their fair values as of April 1,
2002. The purchase accounting adjustments are being amortized over the life of
the respective asset or liability. Lafayette's results of operations are
included in the Corporation's consolidated income statement beginning April 1,
2002. The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.

        Investments.......................     $104,717
        Loans.............................      552,016
        Premises and equipment............       10,269
        Core deposit intangibles..........       16,052
        Goodwill..........................       57,893
        Other.............................       64,074
                                               --------
           Total assets acquired..........      805,021
                                               --------
        Deposits..........................      607,281
        Other.............................       81,762
                                               --------
           Total liabilities acquired.....      689,043
                                               --------
           Net assets acquired............     $115,978
                                               ========


                                                                              28
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 2

BUSINESS COMBINATIONS  continued

      The following proforma disclosures, including the effect of the purchase
accounting adjustments, depict the results of operations as though the Lafayette
merger had taken place at the beginning of each period.

                                                             Year Ended
                                                            December 31,
                                                        2002           2001
                                                    -----------    -----------
      Net Interest Income ........................  $   98,855     $   87,090

      Net Income .................................      28,016         28,504
      Per share - combined:
        Basic Net Income..........................        1.69           1.79
        Diluted Net Income........................        1.68           1.78

      Effective January 1, 2002, the Corporation acquired Delaware County
Abstract Company, Inc. and Beebe & Smith Title Insurance Company, Inc., which
were merged into ITIC, a wholly-owned subsidiary of the Corporation. The
Corporation issued approximately 108,919 shares of its common stock at a cost of
$22.38 per share to complete the transaction. ITIC's operations were
subsequently contributed to Indiana Title Insurance Company, LLC in which the
Corporation has a 52.12% ownership interest. This acquisition was deemed to be
an immaterial acquisition.

      On July 1, 2001, the Corporation acquired 100% of the outstanding stock of
Francor Financial, Inc., the holding company of Frances Slocum. Frances Slocum
is a state chartered bank with branches located in east-central Indiana. Francor
Financial, Inc. was merged into the Corporation, and Frances Slocum maintained
its state charter as a subsidiary of First Merchants Corporation. The
Corporation issued 747,465 shares of its common stock at a cost of $20.51 per
share and $14,490,985 in cash to complete the transaction. As a result of the
acquisition, the Corporation has an opportunity to increase its customer base
and continue to increase its market share. The purchase had a recorded
acquisition price of $29,454,000, including goodwill of $7,907,000, none of
which is deductible for tax purposes. Additionally, core deposit intangibles
totaling $4,804,000 were recognized and will be amortized over 10 years using
the 150% declining balance method.

      The combination was accounted for under the purchase method of accounting.
All assets and liabilities were recorded at their fair values as of July 1,
2001. The purchase accounting adjustments are being amortized over the life of
the respective asset or liability. Francor Financial Inc.'s results of
operations are included in the Corporation's consolidated income statement
beginning July 1, 2001.


                                                                              29
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 2

BUSINESS COMBINATIONS  continued

      The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.

       Loans...........................    $ 134,505
       Premises and equipment..........        4,401
       Core deposit intangibles........        4,804
       Goodwill........................        7,907
       Other...........................       34,581
                                           ---------
         Total assets acquired.........      186,198
                                           ---------
       Deposits........................      150,252
       Other...........................        6,492
                                           ---------
         Total liabilities acquired....      156,744
                                           ---------
         Net assets acquired...........    $  29,454
                                           =========

      The following proforma disclosures, including the effect of the purchase
accounting adjustments, depict the results of operations as though the Frances
Slocum merger had taken place at the beginning of each period.

                                                             Year Ended
                                                            December 31,
                                                        2001           2000
                                                    -----------    -----------
      Net Interest Income.........................  $    67,352    $    62,296

      Net Income..................................       21,876         21,438

      Per share - combined:
        Basic Net Income..........................         1.63           1.62
        Diluted Net Income........................         1.62           1.61

      On May 31, 2000, the Corporation acquired Decatur Financial Inc., the
holding company of Decatur. Decatur is a state chartered commercial bank with
branches located in east-central Indiana. Decatur Financial Inc. was merged into
the Corporation through the exchange of 960,230 shares of newly issued common
stock and $12,355,000 of cash. The combination was accounted for under the
purchase method of accounting. Decatur's' results of operations are included in
the Corporation's consolidated income statement beginning June 1, 2000. The
purchase resulted in core deposit intangibles of $2,046,000, which are being
amortized over 10 years using 150% declining balance method. The purchase had a
recorded acquisition price of $33,299,000, including goodwill of $17,040,000.

      The purchase resulted in the Corporation recording net loans of
$89,332,000, held to maturity and available for sale securities of $3,921,000
and $14,132,000 respectively, deposit liabilities of $107,056,000 and borrowings
of $7,218,000. All assets and liabilities were recorded at fair values as of May
31, 2000. The purchase accounting adjustments are being amortized over the life
of the respective asset or liability.


                                                                              30
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 2

BUSINESS COMBINATIONS  continued

      The following proforma disclosures, including the effect of the purchase
accounting adjustments, depict the results of operations as though the Decatur
merger had taken place at the beginning of the period.

                                                     Year Ended
                                                  December 31, 2000
                                                  -----------------
Net Interest Income ..........................        $ 57,849

Net Income ...................................        $ 19,563

Net Income per share - combined:
Basic  .......................................        $   1.48
Diluted  .....................................            1.47

NOTE 3

RESTRICTION ON CASH AND DUE FROM BANKS

      The Banks are required to maintain reserve funds in cash and/or on deposit
with the Federal Reserve Bank. The reserve required at December 31, 2002, was
$33,371,000.


                                                                              31
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 4
<TABLE>
<CAPTION>
INVESTMENT SECURITIES
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                         GROSS             GROSS
                                                                     AMORTIZED         UNREALIZED        UNREALIZED           FAIR
                                                                       COST              GAINS             LOSSES             VALUE
===================================================================================================================================
<S>                                                                    <C>             <C>               <C>                 <C>
Available for sale at December 31, 2002
   U.S. Treasury ..........................................          $    125                                              $    125
   Federal agencies .......................................            27,630          $    814          $      8            28,436
   State and municipal ....................................           135,715             5,787               178           141,324
   Mortgage-backed securities .............................           117,724             2,448                54           120,118
   Other asset-backed securities ..........................             1,000                                                 1,000
   Corporate obligations ..................................            12,101               465                              12,566
   Marketable equity securities ...........................            29,452                20               116            29,356
                                                                     --------          --------          --------          --------
      Total available for sale ............................           323,747             9,534               356           332,925
                                                                     --------          --------          --------          --------

Held to maturity at December 31, 2002
   State and municipal ....................................             9,013               448                               9,461
   Mortgage-backed securities .............................               124                                                   124
                                                                     --------          --------          --------          --------
      Total held to maturity ..............................             9,137               448                               9,585
                                                                     --------          --------          --------          --------
      Total investment securities .........................          $332,884          $  9,982          $    356          $342,510
                                                                     ========          ========          ========          ========


Available for sale at December 31, 2001
   U.S. Treasury ..........................................          $    124                                              $    124
   Federal agencies .......................................            30,808          $    767          $      2            31,573
   State and municipal ....................................            74,776             1,644               215            76,205
   Mortgage-backed securities .............................           100,811             1,710                 1           102,520
   Other asset-backed securities ..........................            10,116               167                              10,283
   Corporate obligations ..................................             3,498               116                               3,614
   Marketable equity securities ...........................             7,472                                 123             7,349
                                                                     --------          --------          --------          --------
      Total available for sale ............................           227,605             4,404               341           231,668
                                                                     --------          --------          --------          --------

Held to maturity at December 31, 2001
   State and municipal ....................................             8,426               166                58             8,534
   Mortgage-backed securities .............................               228                                                   228
                                                                     --------          --------          --------          --------
      Total held to maturity ..............................             8,654               166                58             8,762
                                                                     --------          --------          --------          --------
      Total investment securities .........................          $236,259          $  4,570          $    399          $240,430
                                                                     ========          ========          ========          ========
</TABLE>
      The amortized cost and fair value of securities available for sale and
held to maturity at December 31, 2002, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                                               AVAILABLE FOR SALE               HELD TO MATURITY
                                                                        AMORTIZED COST    FAIR VALUE    AMORTIZED COST   FAIR VALUE
===================================================================================================================================
<S>                                                                        <C>             <C>             <C>             <C>
Maturity distribution at December 31, 2002:
  Due in one year or less..........................................        $ 22,226        $ 22,627        $  1,286        $  1,310
  Due after one through five years ................................          67,198          70,148           4,857           5,120
  Due after five through ten years ................................          46,601          48,562           2,015           2,149
  Due after ten years .............................................          39,546          41,114             855             882
                                                                           --------        --------        --------        --------
                                                                            175,571         182,451           9,013           9,461

  Mortgage-backed securities ......................................         117,724         120,118             124             124
  Other asset-backed securities ...................................           1,000           1,000
  Marketable equity securities ....................................          29,452          29,356
                                                                           --------        --------        --------        --------

    Totals ........................................................        $323,747        $332,925        $  9,137        $  9,585
                                                                           ========        ========        ========        ========
</TABLE>
                                                                              32
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 4

INVESTMENT SECURITIES   continued

      Securities with a carrying value of approximately $136,269,000 and
$106,476,000 were pledged at December 31, 2002 and 2001 to secure certain
deposits and securities sold under repurchase agreements, and for other purposes
as permitted or required by law.

      In addition, all otherwise unpledged securities are pledged as collateral
for Federal Home Loan Bank advances with qualified first mortgage loans.

      Proceeds from sales of securities available for sale during 2002, 2001 and
2000 were $21,363,000, $770,000 and $14,654,000. Gross gains of $739,000 in 2002
and gross losses of $200,000 and $107,000 in 2001 and 2000, were realized on
those sales.

NOTE 5

LOANS AND ALLOWANCE

<TABLE>
<CAPTION>
                                                                                    2002                2001
===============================================================================================================
<S>                                                                             <C>                 <C>
Loans at December 31:

  Commercial and industrial loans ..........................................    $  406,644          $  301,962
  Agricultural production financing and other loans to farmers .............        85,059              29,645
  Real estate loans:
       Construction ........................................................       133,896              58,316
       Commercial and farmland .............................................       401,561             230,233
       Residential .........................................................       746,349             544,028
  Individuals' loans for household and other personal expenditures .........       206,083             179,325
  Tax-exempt loans .........................................................        12,615               7,277
  Other loans ..............................................................        12,170               8,800
                                                                                 ---------           ---------
                                                                                 2,004,377           1,359,586
   Allowance for loan losses................................................       (22,417)            (15,141)
                                                                                 ---------           ---------
       Total loans .........................................................    $1,981,960          $1,344,445
                                                                                 =========           =========
</TABLE>

                                             2002          2001          2000
================================================================================
Allowance for loan losses:
   Balance, January 1 ...............     $ 15,141      $ 12,454      $ 10,128
   Allowance acquired in acquisitions        6,902         2,085         1,413
   Provision for losses .............        7,174         3,576         2,625
   Recoveries on loans ..............        1,313           573           579
   Loans charged off ................       (8,113)       (3,547)       (2,291)
                                          --------      --------      --------
   Balance, December 31 .............     $ 22,417      $ 15,141      $ 12,454
                                          ========      ========      ========


Information on nonaccruing, contractually
past due 90 days or more other than
nonaccruing and restructured loans is
summarized below:                            2002          2001          2000
================================================================================

At December 31:
Non-accrual loans ..................      $14,134        $ 6,327        $2,370

Loans contractually past due 90 days
  or more other than nonaccruing ...        6,676          4,828         2,483

Restructured loans .................        2,508          3,511         3,085


                                                                              33
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 5

LOANS AND ALLOWANCE  continued

      Nonaccruing loans are loans which are reclassified to a nonaccruing status
when in management's judgment the collateral value and financial condition of
the borrower do not justify accruing interest. Interest previously recorded, but
not deemed collectible, is reversed and charged against current income. Interest
income on these loans is then recognized when collected.

      Restructured loans are loans for which the contractual interest rate has
been reduced or other concessions are granted to the borrower, because of a
deterioration in the financial condition of the borrower resulting in the
inability of the borrower to meet the original contractual terms of the loans.

<TABLE>
<CAPTION>
Information on impaired loans is summarized below:                   2002                 2001                 2000
=====================================================================================================================
<S>                                                                <C>                  <C>                  <C>
As of, and for the year ending December 31:
   Impaired loans with an allowance ..........................     $16,901              $10,381              $ 7,862
   Impaired loans for which the discounted
       cash flows or collateral value exceeds the
       carrying value of the loan ............................      27,450               10,780                6,977
                                                                   -------              -------              -------
          Total impaired loans ...............................     $44,351              $21,161              $14,839
                                                                   =======              =======              =======
   Total impaired loans as a percent
       of total loans ........................................        2.19%                1.56%                1.26%

   Allowance for impaired loans (included in the
       Corporation's allowance for loan losses) ..............     $ 7,299              $ 3,251              $ 2,253
   Average balance of impaired loans .........................      49,663               22,327               15,053
   Interest income recognized on impaired loans ..............       3,656                1,538                1,361
   Cash basis interest included above ........................       2,344                1,555                1,080
</TABLE>

NOTE  6

PREMISES AND EQUIPMENT

                                                          2002           2001
================================================================================
Cost at December 31:
   Land ..........................................      $  6,473       $  5,626
   Buildings and leasehold improvements ..........        39,768         26,747
   Equipment .....................................        34,898         26,127
                                                        --------       --------
       Total cost ................................        81,139         58,500
   Accumulated depreciation and amortization .....       (42,494)       (30,816)
                                                        --------       --------
       Net .......................................      $ 38,645       $ 27,684
                                                        ========       ========

      The Corporation is committed under various noncancelable lease contracts
for certain subsidiary office facilities. Total lease expense for 2002, 2001 and
2000 was $1,027,000, $771,000 and $515,000, respectively. The future minimum
rental commitments required under the operating leases in effect at December 31,
2002, expiring at various dates through the year 2013 are as follows for the
years ending December 31:

====================================================
2003  ................................        $  967
2004  ................................           795
2005  ................................           533
2006  ................................           567
2007  ................................           345
After 2007 ...........................           323
                                              ------
Total future minimum obligations              $3,530
                                              ======


                                                                              34
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 7

GOODWILL

      During 2002, the Corporation changed its method of accounting and
financial reporting for goodwill and other intangible assets by adopting the
provisions of SFAS No. 142. Had the new method been applied retroactively, the
previously reported 2001 and 2000 net income would have increased by $1,070,000
and $724,000, respectively. No impairment loss was recorded in 2002.

NOTE 8

CORE DEPOSIT INTANGIBLES

      The carrying basis and accumulated amortization of recognized core deposit
intangibles at December 31 were:

                                                        2002              2001
================================================================================

Gross carrying amount ......................         $ 22,902          $  6,850
Accumulated amortization ...................           (3,325)             (754)
                                                     --------          --------
Core deposit intangibles ...................         $ 19,577          $  6,096
                                                     ========          ========

      Amortization expense for the years ended December 31, 2002, 2001 and 2000,
was $2,571,000, $612,000 and $142,000, respectively. Estimated amortization
expense for each of the following five years is:

            2003 ................................           $2,837
            2004 ................................            2,764
            2005 ................................            2,694
            2006 ................................            2,625
            2007 ................................            2,560


                                                                              35
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 9

DEPOSITS

                                                          2002           2001
================================================================================
Deposits at December 31:

   Demand deposits .............................       $  594,961     $  418,481
   Savings deposits ............................          567,186        366,084
   Certificates and other time deposits
     of $100,000 or more .......................          199,734        192,400
   Other certificates and time deposits ........          674,807        444,286
                                                       ----------     ----------
       Total deposits ..........................       $2,036,688     $1,421,251
                                                       ==========     ==========

=====================================================
Certificates and other time deposits maturing
in years ending December 31:


2003 .......................                 $479,891
2004 .......................                  209,698
2005 .......................                   66,587
2006 .......................                   44,210
2007 .......................                   71,035
After 2007 .................                    3,120
                                             --------
                                             $874,541
                                             ========

NOTE 10

BORROWINGS

                                                             2002         2001
================================================================================
Borrowings at December 31:
   Securities sold under repurchase agreements .......     $ 89,594     $ 45,632
   Federal funds purchased ...........................                    10,500
   U. S. Treasury demand notes .......................                     6,273
   Federal Home Loan Bank advances ...................      184,677      103,499
   Trust preferred securities.........................       53,188
   Other borrowed funds...............................       29,468        8,500
                                                           --------     --------
       Total borrowings ..............................     $356,927     $174,404
                                                           ========     ========

      Securities sold under repurchase agreements consist of obligations of the
Banks to other parties. The obligations are secured by U.S. Treasury, Federal
agency obligations and corporate asset-backed securities. The maximum amount of
outstanding agreements at any month-end during 2002 and 2001 totaled $89,594,000
and $68,546,000, and the average of such agreements totaled $72,791,000 and
$59,365,000.


                                                                              36
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 10

BORROWINGS  continued

Maturities of Federal Home Loan Bank advances and securities sold under
repurchase agreements as of December 31, 2002, are as follows:

<TABLE>
<CAPTION>
                                                        FEDERAL HOME LOAN                           SECURITIES SOLD UNDER
                                                          BANK ADVANCES                             REPURCHASE AGREEMENTS
-----------------------------------------------------------------------------------------------------------------------------------
                                                                    WEIGHTED-AVERAGE                             WEIGHTED-AVERAGE
                                                  AMOUNT              INTEREST RATE              AMOUNT           INTEREST RATE
===================================================================================================================================
<S>                                             <C>                      <C>                   <C>                     <C>
Maturities in years ending December 31:
      2003 ..............                       $ 15,626                 5.10%                 $65,962                 1.07%
      2004 ..............                         18,000                 4.84                   14,382                 5.62
      2005 ..............                         18,500                 4.65                    9,250                 5.64
      2006 ..............                         20,403                 4.95
      2007 ..............                         10,495                 4.38
      After 2007 ........                        101,653                 5.11
                                                --------                                       -------
             Total ......                       $184,677                 4.98%                 $89,594                 2.28%
                                                ========                                       =======
</TABLE>

      The terms of a security agreement with the FHLB require the Corporation to
pledge, as collateral for advances, qualifying first mortgage loans and all
otherwise unpledged investment securities in an amount equal to at least 160
percent of these advances. Advances are subject to restrictions or penalties in
the event of prepayment.

      On April 12, 2002, the Corporation and FMC Trust I (the "Trust") entered
into an Underwriting Agreement with Stifel, Nicolaus & Company, Incorporated and
RBC Dain Rauscher Inc. for themselves and as co-representatives for several
other underwriters (the "Underwriting Agreement"). On April 17, 2002 and
pursuant to the Underwriting Agreement, the Trust issued 1,850,000 8.75%
Cumulative Trust Preferred Securities (liquidation amount $25 per Preferred
Security) (the "Preferred Securities") with an aggregate liquidation value of
$46,250,000. On April 23, 2002 and pursuant to the Underwriting Agreement, the
Trust issued an additional 277,500 Preferred Securities with an aggregate
liquidation value of $6,937,500 to cover over-allotments. The proceeds from the
sale of the Preferred Securities were invested by the Trust in the Corporation's
8.75% Junior Subordinated Debentures due June 30, 2032 (the "Debentures"). The
proceeds from the issuance of the Debentures were used by the Corporation to
fund a portion of the cash consideration payable to the shareholders of
Lafayette Bancorporation in connection with the acquisition of Lafayette. The
Preferred Securities are recorded as borrowings in the Corporation's
consolidated December 31, 2002, balance sheet. Issuance costs are being
amortized over the life of the Preferred Securities. Distributions are paid
quarterly on March 31, June 30, September 30 and December 31 of each year. The
Debentures will mature and the Preferred Securities must be redeemed on June 30,
2032. The Trust has the option of shortening the maturity date to a date not
earlier than June 30, 2007, requiring prior approval of the Board of Governors
of the Federal Reserve System.


                                                                              37
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 10

BORROWINGS  continued

      At December 31, 2002, other borrowed funds included $19,300,000 of an
unsecured revolving credit note payable to the Northern Trust Company with
interest payable monthly based upon the Federal Funds Rate plus .875%. Principal
and remaining interest are due on or before March 31, 2003. The total principal
amount outstanding at any one time may not exceed $25,000,000.

NOTE 11

LOAN SERVICING

      Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The loans are serviced primarily for the Federal
Home Loan Mortgage Corporation, and the unpaid balances totaled $48,773,000,
$37,909,000 and $22,591,000 at December 31, 2002, 2001 and 2000. The amount of
capitalized servicing assets is considered immaterial.

NOTE 12

<TABLE>
<CAPTION>
INCOME TAX
                                                                                          2002              2001             2000
==================================================================================================================================
<S>                                                                                    <C>               <C>              <C>
Income tax expense for the year ended December 31:
  Currently payable:
     Federal ................................................................          $ 11,869          $  9,098         $  9,236
     State ..................................................................             2,615             2,210            1,499
  Deferred:
     Federal ................................................................              (446)              406             (715)
     State ..................................................................               (57)              210              (52)
                                                                                       --------          --------         --------
        Total income tax expense ............................................          $ 13,981          $ 11,924         $  9,968
                                                                                       ========          ========         ========

Reconciliation of federal statutory to actual tax expense:
     Federal statutory income tax at 34% ....................................          $ 14,085          $ 11,539         $ 10,169
     Tax-exempt interest ....................................................            (2,006)           (1,319)          (1,308)
     Graduated tax rates ....................................................               355               312              299
     Effect of state income taxes ...........................................             1,613             1,597              941
     Other ..................................................................               (66)             (205)            (133)
                                                                                       --------          --------         --------
        Actual tax expense .................................................           $ 13,981          $ 11,924         $  9,968
                                                                                       ========          ========         ========
</TABLE>


                                                                              38
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 12

INCOME TAX  continued

      Tax expense (benefit) applicable to security gains and losses for the
years ended December 31, 2002, 2001 and 2000, was $296,000, ($80,000) and
$(43,000), respectively.

      A cumulative net deferred tax asset (liability) is included in the
consolidated balance sheets. The components of the asset (liability) are as
follows:

<TABLE>
<CAPTION>
                                                                                           2002                2001
=====================================================================================================================
<S>                                                                                      <C>                  <C>
Deferred tax asset at December 31:
Assets:
   Differences in accounting for loan losses .............................               $ 8,820              $5,103
   Deferred compensation .................................................                 1,949               1,069
   Other .................................................................                   157                 268
                                                                                          ------              ------
       Total assets ......................................................                10,926               6,440
                                                                                          ------              ------
Liabilities:
   Differences in depreciation methods ...................................                 1,058                 838
   Differences in accounting for loans and securities ....................                 7,072               2,137
   Differences in accounting for loan fees ...............................                   383                 436
   Differences in accounting for pensions
     and other employee benefits .........................................                    86                 315
   State income tax ......................................................                    57                 115
   Net unrealized gain on securities available for sale...................                 2,513               1,464
   Other .................................................................                 1,040                 756
                                                                                          ------              ------
       Total liabilities .................................................                12,209               6,061
                                                                                          ------              ------
       Net deferred tax asset (liability).................................               $(1,283)             $  379
                                                                                          ======               =====
</TABLE>

NOTE 13

COMMITMENTS AND CONTINGENT LIABILITIES

      In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements. The
Corporation's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit and
standby letters of credit is represented by the contractual or notional amount
of those instruments. The Banks use the same credit policies in making such
commitments as they do for instruments that are included in the consolidated
balance sheets.

      Financial instruments whose contract amount represents credit risk as of
December 31, were as follows:

                              2002               2001
                            --------           --------
Commitments
to extend credit            $312,146           $199,656

Standby letters
of credit                     18,124              9,806


                                                                              39
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 13

COMMITMENTS AND CONTINGENT LIABILITIES  continued

      Commitments to extend credit are agreements to lend to a customer, as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Banks upon extension of credit, is based on management's credit
evaluation. Collateral held varies, but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.

      Standby letters of credit are conditional commitments issued by the Banks
to guarantee the performance of a customer to a third party.

      The Corporation and subsidiaries are also subject to claims and lawsuits,
which arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated financial
position of the Corporation.

NOTE 14

STOCKHOLDERS' EQUITY

      National and state banking laws restrict the maximum amount of dividends
that a bank may pay in any calendar year. National and state banks are limited
to the bank's retained net income (as defined) for the current year plus those
for the previous two years. At December 31, 2002, First United, Union National,
Decatur and Frances Slocum, had no retained net profits available for 2003
dividends to the Corporation without prior regulatory approval. The amount at
December 31, 2002, available for 2003 dividends from First Merchants, Madison,
Randolph County, First National and Lafayette to the Corporation totaled
$6,279,000, $758,000, $903,000, $962,000 and $6,245,000, respectively.

      Total stockholders' equity for all subsidiaries at December 31, 2002, was
$320,320,000, of which $300,073,000 was restricted from dividend distribution to
the Corporation.

      The Corporation has a Dividend Reinvestment and Stock Purchase Plan,
enabling stockholders to elect to have their cash dividends on all shares held
automatically reinvested in additional shares of the Corporation's common stock.
In addition, stockholders may elect to make optional cash payments up to an
aggregate of $2,500 per quarter for the purchase of additional shares of common
stock. The stock is credited to participant accounts at fair market value.
Dividends are reinvested on a quarterly basis. At December 31,


                                                                              40
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 14

STOCKHOLDERS' EQUITY  continued

2002, there were 337,020 shares of common stock reserved for purchase under the
plan.

      On August 13, 2002, the Board of Directors of the Corporation declared a
five percent (5%) stock dividend on its outstanding common shares. The new
shares were distributed on September 13, 2002, to holders of record on August
30, 2002.

      On August 14, 2001, the Board of Directors of the Corporation declared a
five percent (5%) stock dividend on its outstanding common shares. The new
shares were distributed on September 24, 2001, to holders of record on September
3, 2001.

NOTE 15

REGULATORY CAPITAL

      The Corporation and Banks are subject to various regulatory capital
requirements administered by the federal banking agencies and are assigned to a
capital category. The assigned capital category is largely determined by three
ratios that are calculated according to the regulations: total risk adjusted
capital, Tier 1 capital, and Tier 1 leverage ratios. The ratios are intended to
measure capital relative to assets and credit risk associated with those assets
and off-balance sheet exposures of the entity. The capital category assigned to
an entity can also be affected by qualitative judgments made by regulatory
agencies about the risk inherent in the entity's activities that are not part of
the calculated ratios.

      There are five capital categories defined in the regulations, ranging from
well capitalized to critically undercapitalized. Classification of a bank in any
of the undercapitalized categories can result in actions by regulators that
could have a material effect on a bank's operations.

      At December 31, 2002, the management of the Corporation believes that it
meets all capital adequacy requirements to which it is subject. The most recent
notifications from the regulatory agencies categorized the Corporation and Banks
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, the Banks must maintain a minimum total
capital to risk-weighted assets, Tier I capital to risk-weighted assets and Tier
I capital to average assets of 10 percent, 6 percent and 5 percent,
respectively. There have been no conditions or events since that notification
that management believes have changed this categorization.


                                                                              41
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 15

REGULATORY CAPITAL  continued

      Actual and required capital amounts and ratios are listed below.

<TABLE>
<CAPTION>
                                                                  2002                                        2001
-----------------------------------------------------------------------------------------------------------------------------------
                                                                       REQUIRED FOR                                REQUIRED FOR
                                                     ACTUAL        ADEQUATE CAPITAL (1)          ACTUAL        ADEQUATE CAPITAL (1)
                                                AMOUNT      RATIO    AMOUNT      RATIO      AMOUNT      RATIO    AMOUNT      RATIO
===================================================================================================================================
December 31
Total Capital (1)(to risk-weighted assets)
<S>                                           <C>          <C>     <C>           <C>      <C>          <C>     <C>           <C>
   Consolidated ......................        $224,967     11.17%  $161,087      8.00%    $159,315     11.75%  $108,514      8.00%
   First Merchants ...................          69,424     11.69     47,493      8.00       70,562     11.69     48,281      8.00
   Madison ...........................          21,040     11.45     14,706      8.00       19,329     11.61     13,320      8.00
   First United ......................           7,429     12.97      4,581      8.00        8,245     13.17      5,009      8.00
   Randolph County ...................           7,616     11.27      5,407      8.00        7,009     11.97      4,684      8.00
   Union County ......................          16,636     12.35     10,778      8.00       17,897     13.50     10,606      8.00
   First National ....................          10,211     11.37      7,182      8.00       10,387     12.34      6,731      8.00
   Decatur ...........................          11,462     11.77      7,789      8.00       11,871     14.41      6,588      8.00
   Frances Slocum ....................          16,259     11.68     11,132      8.00       13,634     10.25     10,638      8.00
   Lafayette .........................          67,912     11.00     49,387      8.00

Tier I Capital (1)(to risk-weighted assets)
   Consolidated ......................        $202,550     10.06%  $ 80,543      4.00%    $144,174     10.63%  $ 54,257      4.00%
   First Merchants ...................          63,776     10.74     23,746      4.00       64,817     10.74     24,140      4.00
   Madison ...........................          18,978     10.32      7,353      4.00       17,852     10.72      6,660      4.00
   First United ......................           6,713     11.72      2,290      4.00        7,546     12.05      2,504      4.00
   Randolph County ...................           6,771     10.02      2,703      4.00        6,277     10.72      2,342      4.00
   Union County ......................          15,202     11.28      5,389      4.00       16,332     12.32      5,303      4.00
   First National ....................           9,324     10.39      3,591      4.00        9,389     11.16      3,366      4.00
   Decatur ...........................          10,242     10.52      3,895      4.00       10,834     13.16      3,294      4.00
   Frances Slocum.....................          14,510     10.43      5,566      4.00       12,007      9.03      5,319      4.00
   Lafayette .........................          61,111      9.90     24,694      4.00
Tier I Capital (1) (to average assets)
   Consolidated ......................        $202,550      7.92%  $102,309      4.00%    $144,174      8.70%  $ 66,298      4.00%
   First Merchants ...................          63,776      8.14     31,327      4.00       64,817      8.17     31,737      4.00
   Madison ...........................          18,978      8.47      8,959      4.00       17,852      8.24      8,667      4.00
   First United ......................           6,713      8.32      3,226      4.00        7,546      9.52      3,171      4.00
   Randolph County ...................           6,771      7.64      3,546      4.00        6,277      7.73      3,250      4.00
   Union County ......................          15,202      7.38      8,239      4.00       16,332      7.94      8,227      4.00
   First National ....................           9,324      8.20      4,547      4.00        9,389      7.93      4,736      4.00
   Decatur ...........................          10,242      7.66      5,350      4.00       10,834      8.40      5,159      4.00
   Frances Slocum.....................          14,510      8.37      6,933      4.00       12,007      7.05      6,809      4.00
   Lafayette .........................          61,111      7.93     30,813      4.00
</TABLE>

(1)   as defined by regulatory agencies

NOTE 16

EMPLOYEE BENEFIT PLANS

      The Corporation's defined-benefit pension plans cover substantially all of
the Corporation's employees. The benefits are based primarily on years of
service and employees' pay near retirement. Contributions are intended to
provide not only for benefits attributed to service-to-date, but also for those
expected to be earned in the future.


                                                                              42
<PAGE>
================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 16

EMPLOYEE BENEFIT PLANS  continued

      The table below sets forth the plans' funded status and amounts recognized
in the consolidated balance sheets at December 31:
                                                                 December 31
                                                               2002       2001
===============================================================================
Change in benefit obligation
     Benefit obligation at beginning of year ............   $ 20,172   $ 16,953
     Obligation acquired in acquisition .................     17,712
     Service cost .......................................      2,007        926
     Interest cost ......................................      2,470      1,269
     Actuarial loss .....................................      3,971      2,048
     Benefits paid ......................................     (1,614)    (1,024)
                                                            --------   --------
     Benefit obligation at end of year ..................     44,718     20,172
                                                            --------   --------
Change in plan assets
     Fair value of plan assets at beginning of year           20,638     23,967
     Fair value of plan assets acquired in acquisition...     15,507
     Actual loss on plan assets .........................     (2,881)    (2,305)
     Benefits paid ......................................     (1,614)    (1,024)
                                                            --------   --------
     Fair value of plan assets at end of year ...........     31,650     20,638
                                                            --------   --------
     Funded (unfunded) status  ..........................    (13,068)       466
     Unrecognized net actuarial loss.....................     12,940        442
     Unrecognized prior service cost ....................      1,986       (107)
     Unrecognized transition asset ......................       (329)       (69)
                                                            --------   --------
     Prepaid benefit cost ...............................      1,529        732
     Additional pension liability .......................     (3,810)
                                                            --------   --------
     Net minimum liability...............................   $ (2,281)  $    732
                                                            ========   ========

Amounts recognized in the balance sheets consist of:
     Prepaid benefit cost ...............................   $  1,529   $    732
     Additional pension liability .......................     (3,810)
     Intangible asset ...................................      1,613
     Deferred taxes .....................................        879
     Accumulated other comprehensive loss ...............      1,318
                                                            --------   --------
Net amount recognized ...................................   $  1,529   $    732
                                                            ========   ========

<TABLE>
<CAPTION>
                                                                  2002       2001       2000
==============================================================================================
<S>                                                             <C>        <C>        <C>
Pension cost (benefit) includes the following components:(1)
   Service cost-benefits earned during the year ............    $ 1,770    $   926    $   714
   Interest cost on projected benefit obligation ...........      2,202      1,269      1,181
   Actual (return) loss on plan assets .....................      2,654      2,305     (2,570)
   Net amortization and deferral ...........................     (5,674)    (4,858)       160
                                                                -------    -------    -------
      Total pension cost (benefit) .........................    $   952    $  (358)   $  (515)
                                                                =======    =======    =======
</TABLE>
(1)   Lafayette components are included beginning as of April 1, 2002.

<TABLE>
<CAPTION>
                                                                  2002       2001       2000
==============================================================================================
<S>                                                               <C>        <C>        <C>
Assumptions used in the accounting as of December 31 were:
      Discount rate ........................................      6.75%      7.11%      7.70%
      Rate of increase in compensation .....................      4.00%      4.00%      4.00%
      Expected long-term rate of return on assets ..........      8.14%      9.00%      9.00%
</TABLE>

      The 1994 Stock Option Plan reserved 520,931 shares of Corporation common
stock for the granting of options to certain employees and non-employee
directors. The exercise price of the shares may not be less than the fair market
value of the shares upon the grant of the option. Options become 100 percent
vested when granted and are fully exercisable generally six months after the
date of the grant, for a period of ten years. There were no shares available for
grant.
                                       43
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 16

EMPLOYEE BENEFIT PLANS  continued

      The 1999 Long-term Equity Incentive Plan reserved 1,323,000 shares of
Corporation common stock for the granting of options to certain employees and
non-employee directors. The maximum number of options granted in any given year
cannot exceed 1.5% of the shares outstanding at the end of the prior fiscal
year. Options, which have a ten year life, become 100 percent vested ranging
from six month to two years and are fully exercisable when vested. There were
939,484 shares available for grant at December 31, 2002.

      The table below is a summary of the status of the Corporation's stock
option plans and changes in those plans as of and for the years ended December
31, 2002, 2001 and 2000. The number of shares and prices have been restated to
give effect to the Corporation's 2002 stock dividend.

<TABLE>
<CAPTION>
Year Ended December 31,                                         2002                       2001                       2000
-----------------------------------------------------------------------------------------------------------------------------------
                                                          WEIGHTED-AVERAGE           WEIGHTED-AVERAGE           WEIGHTED-AVERAGE
      OPTIONS                                        SHARES     EXERCISE PRICE  SHARES     EXERCISE PRICE  SHARES    EXERCISE PRICE
===================================================================================================================================
<S>                                                   <C>            <C>         <C>            <C>         <C>            <C>
Outstanding, beginning of year ................       734,111        $ 18.81     626,943        $ 17.99     626,529        $ 17.74
Granted .......................................       158,819          28.19     136,503          20.69     142,168          19.32
Exercised .....................................       (68,131)         13.38     (25,449)         10.30     (52,812)         14.64
Cancelled .....................................       (22,339)         23.29      (3,886)         20.84     (88,942)         20.26
                                                      -------                    -------                    -------
Outstanding, end of year ......................       802,460        $ 21.01     734,111        $ 18.81     626,943        $ 17.99
                                                      =======                    =======                    =======
Options exercisable at year end ...............       542,627                    494,962                    493,128
Weighted-average fair value of
   options granted during the year ............                      $  7.84                    $  6.00                    $  4.97
</TABLE>

As of December 31, 2002, other information by exercise price range for options
outstanding and exercisable is as follows:

<TABLE>
<CAPTION>
                                     OUTSTANDING                                                      EXERCISABLE
---------------------------------------------------------------------------------          -------------------------------
  EXERCISE PRICE         NUMBER     WEIGHTED-AVERAGE        WEIGHTED-AVERAGE                 NUMBER       WEIGHTED-AVERAGE
      RANGE             OF SHARES    EXERCISE PRICE    REMAINING CONTRACTUAL LIFE          OF SHARES        EXERCISE PRICE
==========================================================================================================================
<S>                      <C>             <C>                    <C>                         <C>                 <C>
$  0.00 - $19.19         329,799         $16.61                 4.7 years                   328,563             $16.67

  20.55 -  26.04         310,001          21.92                 7.2 years                   201,168              22.57

  26.60 -  28.64         162,660          28.20                 9.2 years                    12,896              27.61
                         -------                                                            -------
                         802,460         $21.01                 6.5 years                   542,627             $19.11
                         =======                                                            =======
</TABLE>

      Although the Corporation has elected to follow APB No. 25, SFAS No. 123
requires pro forma disclosures of net income and earnings per share as if the
Corporation had accounted for its employee stock options under that Statement.


                                                                              44
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 16

EMPLOYEE BENEFIT PLANS  continued

      The fair value of each option grant was estimated on the grant date using
an option-pricing model with the following assumptions:

                                        2002           2001           2000


Risk-free interest rates........       4.78%          5.32%          6.01%

Dividend yields.................       3.63%          3.59%          3.38%

Volatility factors of expected
    market price common stock...      31.02%         30.95%         22.86%

Weighted-average expected
    life of the options ........       8.50 years     8.50 years     8.50 years

      Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are shown in Note 1 to the consolidated financial statements.

      The 1999 Employee Stock Purchase Plan enables eligible employees to
purchase the Corporation's common stock. A total of 275,625 shares of the
Corporation's common stock were initially reserved for issuance pursuant to the
plan. The price of the stock to be paid by the employees is determined by the
Corporation's compensation committee, but 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. Participants under the plan purchased 37,394 shares in
2002 at $17.61 per share. The fair value on the purchase date was $28.28.


                                                                              45
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 16

EMPLOYEE BENEFIT PLANS  continued

      At December 31, 2002, there were 195,217 shares of Corporation common
stock reserved for purchase under the plan, and $453,000 has been withheld from
compensation, plus interest, toward the purchase of shares after June 30, 2003,
the end of the annual offering period.

      The Corporation's Employee Stock Purchase Plan is accounted for in
accordance with APB No. 25. Although the Corporation has elected to follow APB
No. 25, SFAS No. 123 requires pro forma disclosures of net income and earnings
per share as if the Corporation had accounted for the purchased shares under
that statement. The pro forma disclosures are included in Note 1 to the
consolidated financial statements and were estimated using an option pricing
model with the following assumptions for 2002, 2001 and 2000, respectively:
dividend yield of 3.63, 3.59, and 3.38 percent; an expected life of one year for
all years; expected volatility of 31.02, 30.95, and 22.86 percent; and risk-free
interest rates of 4.78, 5.32 and 6.01 percent. The fair value of those purchase
rights granted in 2002, 2001 and 2000 was $10.65, $5.36 and $3.82 respectively.

      The Corporation maintains retirement savings 401(k) plans in which
substantially all employees may participate. The Corporation matches employees'
contributions at the rate of 25 to 50 percent for the first 4 to 6 percent of
base salary contributed by participants. The Corporations' expense for the plans
was $315,000 for 2002, $190,000 for 2001 and $182,000 for 2000.

NOTE 17

<TABLE>
<CAPTION>
NET INCOME PER SHARE

==================================================================================================================================
Year Ended December 31,                           2002                           2001                           2000
----------------------------------------------------------------------------------------------------------------------------------
                                       WEIGHTED-AVERAGE PER SHARE     WEIGHTED-AVERAGE PER SHARE     WEIGHTED-AVERAGE PER SHARE
                                      INCOME     SHARES     AMOUNT   INCOME     SHARES     AMOUNT   INCOME     SHARES     AMOUNT
==================================================================================================================================
<S>                                  <C>        <C>          <C>    <C>        <C>          <C>    <C>        <C>          <C>
Basic net income per share:
  Net income available  to
    common stockholders ..........   $27,836    15,585,512   $1.79  $22,209    13,019,984   $1.71  $19,940    12,504,930   $1.59
                                                             =====                           =====                         =====
Effect of dilutive stock options..                 131,146                         93,811                         86,960
                                     -------    ----------          -------    ----------          -------    ----------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions ......   $27,836    15,716,658   $1.77  $22,209    13,113,795   $1.69  $19,940    12,591,890   $1.58
                                     =======    ==========   =====  =======    ==========   =====  =======    ==========   =====
</TABLE>

      Options to purchase 154,483, 117,625 and 228,708 shares of common stock
with weighted average exercise prices of $27.24, $24.76, and $22.62 at December
31, 2002, 2001 and 2000 were excluded from the computation of diluted net income
per share because the options exercise price was greater than the average market
price of the common stock.


                                                                              46
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 18

FAIR VALUES OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:

CASH AND CASH EQUIVALENTS The fair value of cash and cash equivalents
approximates carrying value.

INTEREST-BEARING TIME DEPOSITS The fair value of interest-bearing time deposits
approximates carrying value.

INVESTMENT SECURITIES Fair values are based on quoted market prices.

MORTGAGE LOANS HELD FOR SALE The fair value of mortgages held for sale
approximates carrying values.

LOANS For both short-term loans and variable-rate loans that reprice frequently
and with no significant change in credit risk, fair values are based on carrying
values. The fair value for other loans is estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.

FEDERAL RESERVE AND FEDERAL HOME LOAN BANK STOCK The fair value of FRB and FHLB
stock is based on the price at which it may be resold to the FRB and FHLB.

INTEREST RECEIVABLE/PAYABLE The fair values of interest receivable/payable
approximate carrying values.

CASH SURRENDER VALUE OF LIFE INSURANCE The fair value of cash surrender value of
life insurance approximates carrying value.

DEPOSITS The fair values of noninterest-bearing demand accounts,
interest-bearing demand accounts and savings deposits are equal to the amount
payable on demand at the balance sheet date. The carrying amounts for variable
rate, fixed-term certificates of deposit approximate their fair values at the
balance sheet date. Fair values for fixed-rate certificates of deposit and other
time deposits are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on such time deposits.


                                                                              47
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 18

FAIR VALUES OF FINANCIAL INSTRUMENTS  continued

FEDERAL FUNDS PURCHASED, U.S. TREASURY DEMAND NOTES AND OTHER BORROWED FUNDS

These financial instruments are short-term borrowing arrangements. The rates at
December 31, approximate market rates, thus the fair value approximates carrying
value.

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS, FEDERAL HOME LOAN BANK ADVANCES AND
TRUST PREFERRED SECURITIES

The fair value of the these borrowings is estimated using a discounted cash flow
calculation, based on current rates for similar debt.

OFF-BALANCE SHEET COMMITMENTS

Loan commitments and letters-of-credit generally have short-term, variable-rate
features and contain clauses which limit the Banks' exposure to changes in
customer credit quality. Accordingly, their carrying values, which are
immaterial at the respective balance sheet dates, are reasonable estimates of
fair value.

The estimated fair values of the Corporation's financial instruments are as
follows:

<TABLE>
<CAPTION>
                                                                                   2002                              2001
-----------------------------------------------------------------------------------------------------------------------------------
                                                                        CARRYING           FAIR           CARRYING           FAIR
                                                                         AMOUNT            VALUE           AMOUNT            VALUE
===================================================================================================================================
<S>                                                                  <C>               <C>             <C>               <C>
Assets at December 31:
   Cash and cash equivalents ..................................      $  119,038        $  119,038      $  103,028        $  103,028
   Interest-bearing time deposits .............................           3,568             3,568           3,871             3,871
   Investment securities available for sale ...................         332,925           332,925         231,668           231,668
   Investment securities held to maturity .....................           9,137             9,585           8,654             8,762
   Mortgage loans held for sale ...............................          21,545            21,545             307               307
   Loans ......................................................       1,981,960         2,008,189       1,344,445         1,386,515
   FRB and FHLB stock .........................................          11,409            11,409           8,350             8,350
   Interest receivable ........................................          17,346            17,346          12,024            12,024
   Cash surrender of life insurance............................          14,309            14,309           6,470             6,470

Liabilities at December 31:
   Deposits ...................................................       2,036,688         2,063,474       1,421,251         1,448,336
   Borrowings:
       Securities sold under repurchase agreements ............          89,594            90,138          45,632            45,939
       Federal funds purchased ................................                                            10,500            10,500
       U.S. Treasury demand notes .............................                                             6,273             6,273
       FHLB advances ..........................................         184,677           196,244         103,499           105,955
       Trust preferred securities .............................          53,188            57,655
       Other borrowed funds....................................          29,468            29,468           8,500             8,500
   Interest payable ...........................................           6,019             6,019           5,488             5,488
</TABLE>


                                                                              48
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 19

CONDENSED FINANCIAL INFORMATION   (parent company only)

     Presented below is condensed financial information as to financial
position, results of operations, and cash flows of the Corporation:

CONDENSED BALANCE SHEET
                                                                December 31,
                                                              2002         2001
================================================================================
Assets
   Cash ..............................................     $  4,404     $  3,041
   Investment securities available for sale...........        3,500        3,500
   Investment in subsidiaries ........................      320,309      180,423
   Goodwill ..........................................          448          448
   Other assets ......................................       12,265        1,396
                                                           --------     --------
      Total assets ...................................     $340,926     $188,808
                                                           ========     ========
Liabilities
   Borrowings ........................................     $ 74,132     $  8,500
   Other liabilities .................................        5,665        1,180
                                                           --------     --------
      Total liabilities ..............................       79,797        9,680

Stockholders' equity .................................      261,129      179,128
                                                           --------     --------
      Total liabilities and stockholders' equity .....     $340,926     $188,808
                                                           ========     ========
CONDENSED STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                                                                                        December 31,
                                                                                            2002            2001            2000
===================================================================================================================================
<S>                                                                                      <C>             <C>             <C>
Income
  Dividends from subsidiaries ................................................           $ 22,720        $ 20,245        $ 71,705
  Administrative services fees................................................              6,580           4,133
  Other income ...............................................................                535             269             174
                                                                                         --------        --------        --------
     Total income ............................................................             29,835          24,647          71,879
                                                                                         --------        --------        --------
Expenses
  Amortization of core deposit intangibles,
   goodwill, and fair value adjustments ......................................                 28              66              50
  Interest expense............................................................              3,858              88             788
  Salaries and employee benefits..............................................              7,641           4,767             185
  Net occupancy expenses......................................................              1,527           1,002              11
  Equipment expenses..........................................................              1,447             898              18
  Telephone expenses..........................................................              1,543             547
  Other expenses..............................................................              2,767           1,003             581
                                                                                         --------        --------        --------
     Total expenses ..........................................................             18,811           8,371           1,633
                                                                                         --------        --------        --------
Income before income tax benefit and equity in
undistributed income of subsidiaries .........................................             11,024          16,276          70,246
     Income tax benefit ......................................................              4,336           1,567             496
                                                                                         --------        --------        --------
Income before equity in undistributed income of subsidiaries .................             15,360          17,843          70,742

   Equity in undistributed (distributions in excess of)
    income of subsidiaries ...................................................             12,476           4,366         (50,802)
                                                                                         --------        --------        --------
Net Income ...................................................................           $ 27,836        $ 22,209        $ 19,940
                                                                                         ========        ========        ========
</TABLE>


                                                                              49
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 19

CONDENSED FINANCIAL INFORMATION (parent company only)
<TABLE>
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS
                                                                                    Year Ended December 31,
=====================================================================================================================

                                                                             2002             2001             2000
=====================================================================================================================
<S>                                                                       <C>              <C>              <C>
Operating activities:
   Net income ........................................................    $ 27,836         $ 22,209         $ 19,940
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Amortization ....................................................          28               66               50
     Distributions in excess of (equity in undistributed)
       income of subsidiaries ............... ........................     (12,476)          (4,366)          50,802
     Net change in:
        Other assets .................................................      (6,892)          (1,274)             (36)
        Other liabilities ............................................       4,430             (842)           1,270
                                                                          --------         --------         --------
           Net cash provided by operating activities .................      12,926           15,793           72,026
                                                                          --------         --------         --------
Investing activities:
   Net change in loans ...............................................                                         2,350
   Purchase of securities available for sale..........................                       (3,500)
   Proceeds from sales of securities available for sale ..............
   Investment in subsidiary ..........................................     (51,135)         (14,296)         (14,159)
                                                                          --------         --------         --------
           Net cash used by investing activities .....................     (51,135)         (17,796)         (11,809)
                                                                          --------         --------         --------
Financing activities:
   Cash dividends ....................................................     (13,995)         (11,127)         (10,331)
   Borrowing from affiliates .........................................                                        13,000
   Repayment of borrowings from affiliates ...........................                                       (45,000)
   Borrowings.........................................................      55,832            8,500
   Stock issued under employee benefit plans .........................         658              504              481
   Stock issued under dividend reinvestment
     and stock purchase plan .........................................         951              803              811
   Stock options exercised ...........................................         494              225              510
   Stock redeemed ....................................................      (4,333)          (7,023)          (6,712)
   Cash paid in lieu of issuing fractional shares ....................         (35)             (22)              (4)
                                                                          --------         --------         --------
           Net cash provided (used) by financing activities ..........      39,572           (8,140)         (47,245)
                                                                          --------         --------         --------
Net change in cash ...................................................       1,363          (10,143)          12,972
Cash, beginning of year ..............................................       3,041           13,184              212
                                                                          --------         --------         --------
Cash, end of year ....................................................    $  4,404         $  3,041         $ 13,184
                                                                          ========         ========         ========
</TABLE>
NOTE 20

QUARTERLY RESULTS OF OPERATIONS (unaudited)
<TABLE>
<CAPTION>
The following table sets forth certain quarterly results for the years ended
December 31, 2002 and 2001:
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                   AVERAGE SHARES OUTSTANDING  NET INCOME PER SHARE
   QUARTER            INTEREST    INTEREST    NET INTEREST  PROVISION FOR     NET   --------------------------  -------------------
    ENDED              INCOME      EXPENSE       INCOME      LOAN LOSSES     INCOME      BASIC        DILUTED     BASIC   DILUTED
<S>                  <C>          <C>          <C>           <C>           <C>         <C>           <C>          <C>     <C>
2002:
March ............   $   27,591   $  10,213    $    17,378   $  1,192      $  5,479    13,417,284    13,531,873   $ .41   $ .41
June .............       39,678      14,596         25,082      1,284         7,940    16,306,998    16,472,869     .49     .48
September.........       40,148      14,820         25,328      1,821         7,827    16,265,998    16,404,150     .49     .48
December..........       39,265      14,130         25,135      2,877         6,590    16,312,476    16,411,523     .40     .40
                     ----------   ----------   -----------   --------      --------                               -----   -----
                     $  146,682   $  53,759    $    92,923   $  7,174      $ 27,836    15,585,512    15,716,658   $1.79   $1.77
                     ==========   ==========   ===========   ========      ========                               =====   =====
2001:
March ............   $   30,088   $  15,399    $    14,689   $    653      $  5,106    12,786,906    12,875,153   $ .40   $ .40
June .............       29,267      13,997         15,270        695         5,574    12,626,115    12,710,432     .44     .44
September.........       31,558      14,296         17,262      1,023         6,020    13,346,954    13,444,218     .45     .44
December..........       29,522      12,382         17,140      1,205         5,509    13,310,613    13,421,575     .42     .41
                     ----------   ----------   -----------   --------      --------                               -----   -----
                     $  120,435   $  56,074    $    64,361   $  3,576      $ 22,209    13,019,984    13,113,795   $1.71   $1.69
                     ==========   ==========   ===========   ========      ========                               =====   =====
</TABLE>
                                                                              50
<PAGE>

================================================================================

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)

================================================================================

NOTE 21

SUBSEQUENT EVENT

      Effective January 1, 2003, the Corporation formed Merchants Trust Company,
National Association ("MTC"), a wholly-owned subsidiary of the Corporation,
through a capital contribution totaling approximately $2,038,000. On January 1,
2003, MTC purchased the trust operations of First Merchants, First National and
Lafayette for a fair value acquisition price of $20,687,000. MTC unites the
trust and asset management services of all affiliate banks of the Corporation.
All intercompany transactions related to this purchase by MTC will be eliminated
in the consolidated financial statements of the Corporation.



                                                                              51
<PAGE>

================================================================================

STOCKHOLDER INFORMATION

================================================================================

First Merchants Corporation is a financial holding company headquartered in
Muncie, Indiana. It was organized in September, 1982, as the bank holding
company for Merchants National Bank of Muncie, now First Merchants Bank,
National Association. Since its organization, First Merchants Corporation has
grown to include nine affiliate banks with 69 locations in 18 Indiana counties
and one Ohio county, a multi-line insurance agency, a title insurance company
and a trust company.

Subsidiaries of the Corporation include First Merchants Bank, National
Association in Delaware and Hamilton Counties, The Madison Community Bank in
Madison County, First United Bank in Henry County, The Union County National
Bank of Liberty (with offices in Union, Fayette, Wayne and Oxford (OH)
Counties), The Randolph County Bank, The First National Bank of Portland in Jay
County, Decatur Bank & Trust Company in Adams County, Frances Slocum Bank and
Trust Company (with offices in Wabash, Howard and Miami Counties) and Lafayette
Bank and Trust Company (with offices in Carroll, Jasper, White and Tippecanoe
Counties). The Corporation also operates First Merchants Insurance Services, a
full-service property casualty, personal lines, and healthcare insurer,
headquartered in Muncie, Indiana, and is a majority owner of the Indiana Title
Insurance Company, LLC, a title insurance agency.

Effective January 1, 2003, First Merchants Corporation formed Merchants Trust
Company, National Association. This unites the trust and asset management
services of all affiliate banks of the Corporation and represents one of the
largest trust companies in the state of Indiana, with assets in excess of $1.3
billion. Merchants Trust Company provides a full range of trust and investment
services for individuals, families, businesses, and not-for-profit
organizations. In addition, Merchants Trust Company specializes in turn-key
retirement plans, including pension plans, profit sharing, 401(k) and 403(b)
plans, cross-tested plans, and cash balance plans.

First Merchants Corporation is one of only two Indiana-based companies listed
among America's Finest Companies, an investment guide published by The Staton
Institute. First Merchants continues to receive an A+ rating from Standard &
Poor's for its common stock (NASDAQ symbol FRME) and Blue Ribbon status for all
affiliate banks from independent bank-rating service Veribanc. At the end of
2002, First Merchants Corporation has accomplished 27 years of consecutive
increased earnings.

First Merchants Corporation's operating philosophy is to be client focused,
value driven, plan disciplined, and managed for achievers from both an employee
and shareholder perspective.


                                Corporate Office
                             200 East Jackson Street
                              Muncie, Indiana 47305

                                  765-747-1500
                         http://wwww.firstmerchants.com


                                                                              52
<PAGE>

================================================================================

ANNUAL MEETING, STOCK PRICE & DIVIDEND INFORMATION

================================================================================

First Merchants Corporation currently provides services through 69 offices
located in Adams, Delaware, Carroll, Fayette, Hamilton, Henry, Howard, Boone,
Jasper, Jay, Madison, Miami, Wabash, Wayne, White, Randolph, Tippecanoe and
Union counties in Indiana and Butler County in Ohio.

The 2003 Annual Meeting of Stockholders
of First Merchants Corporation
will be held...

Thursday, April 10, 2003 at 3:30 p.m.

Horizon Convention Center
401 South High Street
Muncie, Indiana

<TABLE>
<CAPTION>
STOCK INFORMATION
                                                                         PRICE PER SHARE
    QUARTER                                      HIGH                              LOW                     DIVIDENDS DECLARED(1)
================================================================================================================================
                                         2002             2001            2002             2001           2002             2001
                                      -------------------------        --------------------------    ---------------------------
<S>                                   <C>              <C>             <C>              <C>          <C>              <C>
First Quarter  .............          $  25.76         $  22.90        $   20.95        $   18.99    $    .22         $    .22
Second Quarter .............             28.71            21.70            24.29            19.72         .22              .22
Third Quarter ..............             28.75            23.57            21.43            19.96         .23              .22
Fourth Quarter .............             25.47            23.78            21.66            21.57         .23              .22
</TABLE>

(1)   The Liquidity section of Management's Discussion & Analysis of Financial
      Condition and Results of Operations and Note 14 to Consolidated Financial
      Statements include discussions regarding dividend restrictions from the
      bank subsidiaries to the Corporation.

The table above lists per share prices and dividend payments during 2002 and
2001. Prices are as reported by the National Association of Securities Dealers.
Automated Quotation - National Market System.

Numbers rounded to nearest cent when applicable.


                                                                              53
<PAGE>

================================================================================

COMMON STOCK LISTING & MARKET MAKERS

================================================================================

COMMON STOCK LISTING

First Merchants Corporation common stock is traded over-the-counter on the
NASDAQ National Market System. Quotations are carried in many daily papers. The
NASDAQ symbol is FRME (Cusip #320817-10-9). At the close of business on January
31, 2003, the number of shares outstanding was 16,323,429. There were 2,890
stockholders of record on that date.

General stockholder inquiries

Stockholders and interested investors may obtain information about the
Corporation upon written request or by calling:

Mr. Brian Edwards
Shareholder Relations Officer
First Merchants Corporation
P. O. Box 792
Muncie, Indiana 47308-0792
765-741-7278
1-800-262-4261 Ext. 7278
Stock transfer agent and registrar
American Stock Transfer & Trust Company
59 Maiden Lane, 1st Floor
New York, NY 10038

MARKET MAKERS

The following firms make a market in First Merchants Corporation stock:

First Tennessee Securities
Geduld, LLC
Keefe, Bruyette & Woods, Inc.
Knight Securities, L.P.
Herzog, Heine, Geduld, Inc.
Howe Barnes Investments, Inc.
Sandler O'Neill & Partners
NatCity Investments, Inc.
RBC Capital Markets
Spear, Leeds, & Kellog
Stifel, Nicolaus & Company, Inc.


                                                                              54
<PAGE>

================================================================================

FORM 10-K AND FINANCIAL INFORMATION

================================================================================

FORM 10-K AND FINANCIAL INFORMATION

First Merchants Corporation, upon request and without charge, will furnish
stockholders, security analysts and investors a copy of Form 10-K filed with the
Securities and Exchange Commission.

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 the
Corporation; that address is http://www.sec.gov

Please contact:
Mr. Mark Hardwick
Senior Vice President
and Chief Financial Officer

First Merchants Corporation
P. O. Box 792
Muncie, Indiana 47308-0792

765-751-1857
1-800-262-4261 Ext. 1857


                                                                              55

<PAGE>

                                  EXHIBIT-21
                         SUBSIDIARIES OF THE REGISTRANT

EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
--------------------------------------------------------------------------------

                                                          State of
Name                                                    Incorporation
----                                                    -------------

First Merchants Bank, National Association (also doing
  business as First Merchants Bank of Hamilton County)......U.S.

The Madison Community Bank...............................Indiana

First United Bank........................................Indiana

The Union County National Bank of Liberty...................U.S.

The Randolph County Bank.................................Indiana

The First National Bank of Portland.........................U.S.

Decatur Bank & Trust Company.............................Indiana

Frances Slocum Bank & Trust Company......................Indiana

Lafayette Bank and Trust Company.........................Indiana

Commerce National Bank......................................U.S.

First Merchants Capital Trust I.........................Delaware

First Merchants Insurance Services, Inc..................Indiana

First Merchants Reinsurance Co. Ltd.....................Providencials Turkes and
                                                        Caicos, Island

Indiana Title Insurance Company..........................Indiana

Indiana Title Insurance Company, LLC.....................Indiana

Wabash Valley Investments, Inc............................Nevada

Wabash Valley, LLC........................................Nevada

Wabash Valley Holdings, Inc...............................Nevada

Merchants Trust Company, National Association...............U.S.

CNBC Retirement Services, Inc...............................Ohio

CNBC Statutory Trust I...............................Connecticut


<PAGE>


                                   EXHIBIT-23
                       CONSENT OF INDEPENDENT ACCOUNTANTS


EXHIBIT 23 - CONSENT OF INDEPENDENT ACCOUNTANTS

We  hereby  consent  to the  incorporation  by  reference  to  the  Registration
Statement on Form S-8,  File Numbers  333-50484,  333-80119 and 333-80117 of our
report dated January 17 2003, on the consolidated  financial statements of First
Merchants Corporation which report is included in the Annual Report on Form 10-K
of First Merchants Corporation.


BKD LLP

Indianapolis, Indiana
March 28, 2003


<PAGE>


                                   EXHIBIT-24
                            LIMITED POWER OF ATTORNEY

EXHIBIT 24--LIMITED POWER OF ATTORNEY

KNOW ALL MEN BY THESE  PRESENTS that the  undersigned  directors and officers of
First  Merchants  Corporation,  an Indiana  corporation,  hereby  constitute and
appoint Mark K. Hardwick, the true and lawful agent and attorney-in-fact  of the
undersigned with full power and authority in said agent and  attorney-in-fact to
sign for the undersigned and in their respective names as directors and officers
of the  Corporation  the  Form  10-K of the  Corporation  to be  filed  with the
Securities  and Exchange  Commission,  Washington,  D.C.,  under the  Securities
Exchange Act of 1934,  as amended,  and to sign any amendment to such Form 10-K,
hereby   ratifying   and   confirming   all  acts   taken  by  such   agent  and
attorney-in-fact, as herein authorized.

Dated: February 11, 2003

/s/ Michael L. Cox                          /s/ Stefan S. Anderson
--------------------------------------      ------------------------------------
    Michael L. Cox  President and               Stefan S. Anderson      Director
                    Chief Executive
                    Officer (Principal
                    Executive Officer)

/s/Mark K. Hardwick                         /s/ Roger M. Arwood
--------------------------------------      ------------------------------------
   Mark K. Hardwick Sr. Vice President          Roger M. Arwood         Director
                    and Chief Financial
                    Officer (Principal
                    Financial and
                    Accounting Officer)     /s/ James F. Ault
                                            ------------------------------------
                                                James F. Ault           Director


                                            /s/ Dennis A. Bieberich
                                            ------------------------------------
                                                Dennis A. Bieberich     Director

                                            /s/ Richard A. Boehning
                                            ------------------------------------
                                                Richard A. Boehning     Director

                                            /s/ Blaine M. Brownell
                                            ------------------------------------
                                                Blaine M. Brownell      Director


                                            ------------------------------------
                                                Frank A. Bracken        Director

                                            /s/ Thomas B. Clark
                                            ------------------------------------
                                                Thomas B. Clark         Director

                                            /s/ Michael L. Cox
                                            ------------------------------------
                                                Michael L. Cox          Director


                                            ------------------------------------
                                                Barry J. Hudson         Director

                                            /s/ Robert T. Jeffares
                                            ------------------------------------
                                                Robert T. Jeffares      Director

                                            /s/ Norman M. Johnson
                                            ------------------------------------
                                                Norman M. Johnson       Director

                                            /s/ George A. Sissel
                                            ------------------------------------
                                                George A. Sissel        Director


                                            ------------------------------------
                                                Robert M. Smitson       Director

                                            /s/ Dr. John E. Worthen
                                            ------------------------------------
                                                Dr. John E. Worthen     Director




<PAGE>


                                  EXHIBIT-99.1
               ACCOUNTANTS' REPORT FOR FIRST MERCHANTS CORPORATION
                          EMPLOYEE STOCK PURCHASE PLAN

EXHIBIT 99.1--FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANTS' REPORT FOR
              FIRST MERCHANTS CORPORATION EMPLOYEE STOCK PURCHASE PLAN
--------------------------------------------------------------------------------

The annual finanial statements and independent accountants' report thereon for
First Merchants Corporation Employee Stock Purchase Plan for the year ending
December 31, 2002, will be filed as an amendment to the 2002 Annual Report on
Form 10-K.


<PAGE>


                                  EXHIBIT-99.2
               CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
                    AS ADOPTED PURSUANT TO SECTION 906 OF THE
                           SARBANES-OXLEY ACT OF 2002


EXHIBIT 99.2--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 annual  report of First  Merchants  Corporation  (the
"Corporation") on Form 10-K for the year  ending  December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"), I
Michael L. Cox,  President  & 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   03/28/03                         by /s/ Michael L. Cox
    ---------------------------            -------------------------------------
                                           Michael L. Cox
                                           President and Chief Executive Officer


In connection  with the annual  report of First  Merchants  Corporation  (the
"Corporation") on Form 10-K for the year  ending  December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"), I
Mark K.  Hardwick,  Senior 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   03/28/03                         by /s/ Mark K. Hardwick
    ---------------------------            -------------------------------------
                                           Mark K. Hardwick
                                           Senior Vice President and
                                           Chief Financial Officer
                                           (Principal Financial and Chief
                                           Accounting Officer)