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, 2003       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.  [ ]

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 $447,502,779 as of the last
business day of the registrant's most recently completed second fiscal quarter
(June 30, 2003).

As of March 11, 2004 there were 18,540,055 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 1, 5, 6, 7, 7A, and 8)
   to Shareholders for the year ended
          December 31, 2003
Portions of the Registrant's
     Definitive Proxy Statement for
     Annual Meeting of Shareholders
      to be held April 22, 2004                 Part III (Items 10 through 14)


Exhibit Index:  Page 31


<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.......................25

  Item 9 -  Changes In and Disagreements With Accountants on
            Accounting and Financial Disclosure...............................25

  Item 9A-  Controls and Procedures...........................................25

Part III

  Item 10- Directors and Executive Officers of the Registrant.................26

  Item 11- Executive Compensation.............................................26

  Item 12- Security Ownership of Certain Beneficial Owners
           and Management and Related Stockholder Matters.....................27

  Item 13- Certain Relationships and Related Transactions.....................27

  Item 14- Principal Accountant Fees and Services.............................27

Part IV

  Item 15- Exhibits, Financial Statement Schedules and
           Reports on Form 8-K................................................28

           Signatures.........................................................30

           Exhibit Index......................................................31


                                                                       Page 2

<PAGE>

                                     PART I

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

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  "believe",
"continue",  "pattern",  "estimate", "project", "intend", "anticipate", "expect"
and similar expressions or future or conditional verbs such as "will",  "would",
"should",  "could",  "might",  "can",  "may",  or  similar  expressions.   These
forward-looking statements include:

     *  statements of 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 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;

     *  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;

     *  acquisitions  of other businesses by the Corporation and integration of
        such acquired businesses;

     *  changes in market, economic, operational, liquidity, credit and interest
        rate risks  associated  with the  Corporation's business; and

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

     Because of these  and other uncertainties,  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 3
<PAGE>

GENERAL

First Merchants  Corporation (the  "Corporation") is a financial holding company
headquartered in Muncie,  Indiana.  The Corporation's  Common Stock is traded on
NASDAQ's  National  Market  System  under the symbol FRME and was  organized  in
September 1982. Since its organization, the Corporation has grown to include ten
affiliate  banks with over 70 locations in 17 Indiana and two Ohio  counties,  a
trust company,  a multi-line  insurance company,  a reinsurance  company,  and a
title  agency.  During  2003,  the  Corporation  formed  (as of January 1, 2003)
Merchants Trust Company, National Association,  a wholly-owned subsidiary of the
Corporation.  In addition,  on March 1, 2003, the Corporation  acquired Commerce
National Bank, a national banking association incorporated in 1991.

The bank subsidiaries of the Corporation  include First merchants Bank, National
Association  in Delaware  and Hamilton  counties;  The Madison  Community  Bank,
National  Association in Madison County; First United Bank, National Association
in Henry County;  The Union County  National  Bank of Liberty with  locations in
Union,  Fayette,  Wayne and Butler (OH)  counties;  The  Randolph  County  Bank,
National Association; The First National Bank of Portland in Jay County; Decatur
Bank & Trust Company,  National Association in Adams County; Frances Slocum Bank
& Trust Company,  National  Association in Wabash,  Howard,  and Miami counties;
Lafayette Bank and Trust Company,  National Association in Tippecanoe,  Carroll,
Jasper, and White Counties; and Commerce National Bank in Franklin County, Ohio.

The Corporation also operates First Merchants Insurance Services, a full-service
property,   casualty,   personal  lines,   and  health  care  insurance   agency
headquartered  in Muncie,  Indiana;  is the majority  owner of the Indiana Title
Insurance Company LLC, a full-service title insurance agency; and operates First
Merchants Reinsurance Co. Ltd., a re-insurance agency.

Merchants Trust Company,  National  Association formed in 2003, 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 $1.5 billion.  Merchants Trust Company, National Association
provides  a full  range  of  trust  and  investment  services  for  individuals,
families, businesses, and not-for-profit organizations.

As of  December  31,  2003,  the  Corporation  had  consolidated  assets of $3.1
billion,  consolidated deposits of $2.4 billion and stockholders' equity of $304
million.  The Corporation is presently engaged in conducting  commercial banking
business through the offices of its ten banking subsidiaries. As of December 31,
2003,  the  Corporation  and its  subsidiaries  had 1,138  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 4
<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 CORPORATION 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  section of this
Form  10-K)  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 5
<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
stockholders' 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, 2003:

                                      Corporation       Regulatory Minimum
                                                            Requirement

Tier 1 Capital:                           9.4%                 4.0%
(to risk-weighted assets)

Total Capital:                           11.6%                 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 were state banks chartered in Indiana and
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 were 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.
Effective   January  1,  2004,  the   Corporation's  six  state  chartered  bank
subsidiaries,  as noted above,  converted  each of their state bank  charters to
national charters.

     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 6
<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, 2003.

     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 7
<PAGE>

FDICIA continued

     As  of  December  31, 2003,  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, 2003, the Corporation's  affiliate banks had a total of $15,556,000
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 8
<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 9
<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,including provisions which became 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   developed   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 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>
                                               2003                           2002                              2001
                                  ------------------------------ ------------------------------  -------------------------------
                                              Interest                       Interest                        Interest
                                   Average    Income/    Average  Average    Income/    Average   Average    Income/    Average
                                   Balance    Balance      Rate   Balance    Balance      Rate    Balance    Expense      Rate
                                  ---------  ---------  ------------------  ---------  --------- ---------  ---------  ---------
<S>                               <C>           <C>       <C>    <C>           <C>       <C>    <C>           <C>          <C>
Assets:
Federal funds sold ............   $   44,243    $    485   1.1%  $   39,239    $    557   1.4%  $   31,820    $    899     2.8%
Interest-bearing deposits......        6,655          76   1.1        2,866         141   4.9        2,060         106     5.1
Federal Reserve and
  Federal Home Loan Bank stock.       13,615         649   4.8       12,327         735   6.0        7,657         559     7.3
Securities: (1)
  Taxable .......................    181,698       6,105   3.4      170,937       9,086   5.3      179,006      11,207     6.3
  Tax-exempt ....................    136,028       9,648   7.1      131,145       9,523   7.3       85,288       6,312     7.4
                                  ----------    --------         ----------    --------         ----------    --------
    Total Securities.............    317,726      15,753   5.0      302,082      18,609   6.2      264,294      17,519     6.6
Mortgage loans held for sale.....     12,294         725   5.9       21,545         503   2.3          481          41     8.5
Loans: (2)
  Commercial ....................  1,387,704      82,183   5.9    1,010,232      66,736   6.6      612,031      49,786     8.1
  Bankers' acceptance and
    Commercial paper purchased...      4,660          61   1.3
  Real estate mortgage...........    517,376      32,100   6.2      484,267      35,704   7.4      404,831      31,908     7.9
  Installment ...................    345,084      26,167   7.6      318,277      26,649   8.4      245,978      21,388     8.7
  Tax-exempt ....................     14,496       1,088   7.5        8,108         725   8.9        7,234         674     9.3
                                  ----------    --------         ----------    --------         ----------    --------
    Total loans .................  2,281,614     142,324   6.2    1,842,429     130,317   7.1    1,270,555     103,797     8.2
                                  ----------    --------         ----------    --------         ----------    --------
    Total earning assets.........  2,663,853     159,287   6.0    2,198,943     150,359   6.8    1,576,386     122,880     7.8
                                  ----------    --------         ----------    --------         ----------    --------
Net unrealized gain (loss) on securities
available for sale...............      7,553                          6,214                          2,608
Allowance for loan losses........    (28,906)                       (20,187)                       (13,736)
Cash and due from banks..........     75,801                         66,510                         42,814
Premises and equipment ..........     39,069                         44,088                         25,265
Other assets ....................    202,825                        110,683                         56,357
                                   ---------                      ---------                      ---------
    Total assets ................ $2,960,195                     $2,406,251                     $1,689,694
                                  ==========                     ==========                     ==========
Liabilities:
  Interest-bearing deposits:
    NOW accounts ................ $  344,933       2,015   0.6%  $  273,126       3,680   1.3%  $  192,573       2,475     1.3%

    Money market deposit accounts    336,669       3,360   1.0      332,811       3,290   1.0      214,087       6,386     3.0
    Savings deposits ............    293,119       1,376   0.5      184,849       2,184   1.2      122,175       2,310     1.9
    Certificates and other
      time deposits .............    988,957      28,107   2.8      838,272      30,546   3.6      655,477      34,655     5.3
                                  ----------    --------         ----------    --------         ----------    --------
  Total interest-bearing
    deposits.....................  1,963,678      34,858   1.8    1,629,058      39,700   2.4    1,184,312      45,826     3.9

Borrowings ......................    381,178      17,530   4.6      277,709      14,060   5.1      171,771      10,248     6.0
                                  ----------    --------         ----------    --------         ----------    --------
  Total interest-bearing
    liabilities..................  2,344,856      52,388   2.2    1,906,767      53,760   2.8    1,356,083      56,074     4.1
Noninterest-bearing deposits.....    293,397                        227,995                        147,318
Other liabilities ...............     28,339                         33,914                         20,061
                                  ----------                     ----------                     ----------
    Total liabilities............  2,666,592                      2,168,676                      1,523,462
Stockholders' equity ............    293,603                        237,575                        166,232
                                  ----------                     ----------                     ----------
    Total liabilities and
     stockholders' equity........ $2,960,195      52,388   2.0(3)$2,406,251      53,760   2.4(3)$1,689,694      56,074     3.6(3)
                                  ==========    --------         ==========    --------         ==========    --------
    Net interest income .........               $106,899                       $ 96,599                       $ 66,806
                                                ========                       ========                       ========
    Net interest margin..........                          4.0                            4.4                              4.2
(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   2003,   2002,   and
        2001.............................
                                                 $3,757                            $3,676                            $2,445
                                                 ======                            ======                            ======
</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>

                                                 2003 Compared to 2002                              2002 Compared to 2001
                                               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 ...............     $    65       $   (135)     $   (70)               $   176       $   (518)     $  (342)
  Interest-bearing deposits ........         127           (248)        (121)                    49             42           91
  Federal Reserve and Federal
    Home Loan Bank stock ...........          72           (158)         (86)                   293           (117)         176
  Securities .......................         924         (3,780)      (2,856)                 2,386         (1,296)       1,090
  Mortgage loans held for sale .....        (288)           510          222                    513            (51)         462
  Loans ............................      29,315        (17,475)      11,840                 40,558        (14,556)      26,002
                                         --------      ---------    ---------               --------      ---------    ---------
  Totals ...........................      30,215        (21,286)       8,929                 43,975        (16,496)      27,479
                                         --------      ---------    ---------               --------      ---------    ---------
Interest expense:
  NOW accounts .....................         794         (2,459)      (1,665)                 1,080            125        1,205
  Money market deposit
    accounts........................          38             32           70                  2,468         (5,564)      (3,096)
  Savings deposits..................         899         (1,707)        (808)                   928         (1,054)        (126)
  Certificates and other
    time deposits...................       4,948         (7,387)      (2,439)                 8,244        (12,353)      (4,109)
  Borrowings........................       4,853         (1,381)       3,472                  5,552         (1,741)       3,811
                                         --------      ---------    ---------               --------      ---------    ---------
    Totals..........................      11,532        (12,902)      (1,370)                18,272        (20,587)      (2,315)
                                         --------      ---------    ---------               --------      ---------    ---------

Change in net interest
  income (fully taxable
  equivalent basis)................      $18,683       $ (8,384)      10,299                $25,703       $  4,091       29,794
                                         ========      =========                            ========      =========


Tax equivalent adjustment
  using marginal rate
  of 35% for 2003, 2002,
 and 2001..........................                                      (80)                                            (1,232)
                                                                   ----------                                         ----------


Change in net interest
  income...........................                                $  10,219                                          $  28,562
                                                                   ==========                                         ==========

</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:
(Dollars in Thousands)
<TABLE>
<CAPTION>
                                                                          Gross            Gross
                                                       Amortized        Unrealized      Unrealized          Fair
                                                         Cost             Gains           Losses            Value
                                                    ----------------  ---------------  --------------  --------------
<S>                                                   <C>               <C>              <C>             <C>
Available for sale at December 31, 2003
   U.S. Treasury ...............................      $  1,498                                           $  1,498
   Federal agencies ............................        38,290          $    523         $     52          38,761
   State and municipal .........................       118,794             6,932               86         125,640
   Mortgage-backed securities ..................       174,208               813            1,817         173,204
   Corporate obligations .......................           500                16                              516
   Marketable equity securities ................         9,237                 4                            9,241
                                                      --------          --------         --------        --------
      Total available for sale .................       342,527             8,288            1,955         348,860
                                                      --------          --------         --------        --------

Held to maturity at December 31, 2003
   State and municipal .........................         7,860               389                            8,249
   Mortgage-backed securities ..................            77                                                 77
                                                      --------          --------         --------        --------
      Total held to maturity ...................         7,937               389                            8,326
                                                      --------          --------         --------        --------
      Total investment securities ..............      $350,464          $  8,677         $  1,955        $357,186
                                                      ========          ========         ========        ========


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
                                                      ========          ========         ========        ========
</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, 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
                                                      ========          ========         ========        ========


<CAPTION>
                                                                              Cost
                                                    ----------------------------------------------------------
                                                          2003                  2002                 2001
                                                          ----                  ----                 ----
<S>                                                     <C>                   <C>                  <C>
Federal Reserve and Federal Home Loan
   Bank stock at December 31:
Federal Reserve Bank stock ....................        $ 2,320               $   493               $  493
Federal Home Loan Bank stock ..................         13,182                10,916                7,857
                                                       -------               -------                -----
    Total .....................................        $15,502               $11,409               $8,350
                                                       =======               =======               ======
</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, 2003 were:

Securities available for sale December 31, 2003:
<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......................          $ 1,498          0.9%
Federal Agencies...................            3,384          4.2        $28,733         3.4%       $ 3,578          2.8%
State and Municipal................           12,355          6.4         28,511         6.7         40,273          6.8
Corporate Obligations..............              516          6.9
                                             -------                     -------                    -------
    Total..........................          $17,753          5.5%       $57,244         5.0%       $43,851          6.5%
                                             =======                     =======                    =======
</TABLE>

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

STATISTICAL DATA (continued)
<TABLE>
<CAPTION>
                                                                            Marketable Equity
                                                                              and Mortgage -
                                             Due After Ten Years            Backed Securities                   Total
                                             -------------------         -----------------------                -----
                                            Amount         Yield*         Amount         Yield*          Amount        Yield*
                                            ------         ------         ------         ------          ------        ------
<S>                                        <C>               <C>       <C>                <C>          <C>              <C>
U.S. Treasury........................                                                                  $  1,498         0.9%
Federal Agencies.....................     $  3,066           2.7%                                        38,761         3.4
State and Municipal..................       44,501           7.5                                        125,640         7.0
Corporate Obligations................                                                                       516         6.9
Marketable Equity Securities.........                                  $   9,241           7.6%           9,241         7.6
Mortgage-backed securities...........                                    173,204           3.4          173,204         3.4
                                          --------                     ---------                       --------
    Total............................     $ 47,567           7.2%      $ 182,445           3.6%        $348,860         4.8%
                                          ========                     =========                       ========
</TABLE>
Securities held to maturity at December 31, 2003:
<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..................     $  1,485           7.6%        $ 4,060          8.0%       $1,086           8.8%

</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..................     $ 1,229            8.7%                                     $ 7,860         8.1%
Mortgage-backed securities...........                                    $    77          8.4%             77         8.4
                                          -------                        -------                      -------
     Total............................    $ 1,229            8.7%        $    77          8.4%        $ 7,937         8.2%
                                          =======                        =======                      =======
</TABLE>
   *Interest  yields on state and municipal  securities are presented on a fully
   taxable equivalent basis using a 35% rate.

The following table shows the  Corporation's  gross  unrealized  losses and fair
value,  aggregated  by  investment  category and length of time that  individual
securities  have been in a continuous  unrealized  loss position at December 31,
2003:
<TABLE>
<CAPTION>
                                                             Less than 12         12 Months or               Total
                                                                Months                Longer
                                                         -------------------------------------------------------------
                                                                     GROSS                GROSS                GROSS
                                                           FAIR    UNREALIZED    FAIR  UNREALIZED    FAIR   UNREALIZED
                                                          VALUE      LOSSES     VALUE    LOSSES      VALUE    LOSSES
                                                         --------   --------    ------   ------    --------   --------
<S>                                                      <C>        <C>         <C>      <C>       <C>        <C>
Federal agencies .....................................   $  7,410   $    (50)   $  747   $   (2)   $  8,157   $    (52)
State and municipal ..................................      2,547        (82)      166       (4)      2,713        (86)
Mortgage-backed securities ...........................     90,148     (1,817)                        90,148     (1,817)
                                                         --------   --------    ------   ------    --------   --------
   Total temporarily impaired investment securities ..   $100,105   $ (1,949)   $  913   $   (6)   $101,018   $ (1,955)
                                                         ========   ========    ======   ======    ========   ========
</TABLE>
Federal Reserve and Federal Home Loan Bank stock at December 31, 2003:
<TABLE>
<CAPTION>
                                           Amount          Yield
<S>                                       <C>               <C>
Federal Reserve Bank Stock...........     $ 2,320           6.0%
Federal Home Loan Bank stock.........      13,182           5.0
                                          -------
    Total............................     $15,502           5.1%
                                          =======
</TABLE>

                                                                        Page 15

<PAGE>

STATISTICAL DATA (continued)

LOAN PORTFOLIO

TYPES OF LOANS

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

                                                    2003               2002              2001              2000             1999
                                                    ----               ----              ----              ----             ----
                                                                                (Dollars in Thousands)
<S>                                                <C>                <C>               <C>               <C>              <C>
Loans at December 31:
  Commercial and
    industrial loans...........................  $  443,140         $  406,644        $  301,962        $  258,405         $224,712
  Agricultural production
    financing and other loans
    to farmers.................................      95,048             85,059            29,645            24,547           21,547
  Real estate loans:
    Construction...............................     149,865            133,896            58,316            45,412           31,996
    Commercial and farmland....................     564,578            401,561           230,233           167,317          150,544
    Residential................................     866,477            746,349           544,028           466,660          380,596
  Individuals' loans for
    household and other
    personal expenditures......................     196,093            206,083           179,325           201,629          181,878
  Tax-exempt loans.............................      16,363             12,615             7,277             6,093            4,070
  Other loans..................................      21,939             12,170             8,800             5,523            3,552
                                                 ----------         ----------        ----------        ----------        ---------
            Total loans........................  $2,353,503         $2,004,377        $1,359,586        $1,175,586         $998,895
                                                 ==========         ==========        ==========        ==========        =========
</TABLE>

Residential  Real Estate Loans Held for Sale at December 31, 2003, 2002,  2001,
2000 and 1999 were $3,043,000, $21,545,000, $307,000, $0 and $61,000.

MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES


Presented  in the table  below are the  maturities  of loans  (excluding  banker
acceptances,  residential real estate and individuals'  loans) outstanding as of
December 31, 2003.  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................  $  328,219        $  86,385           $  28,536          $  443,140
Agricultural production financing
  and other loans to farmers...................      82,631            8,694               3,723              95,048
Real estate - Construction.....................     110,652           31,714               7,499             149,865
Real estate - Commercial and farmland..........     262,545          239,522              62,511             564,578
Tax-exempt loans...............................       7,158            4,282               4,923              16,363
Other loans....................................       8,972           12,775                 192              21,939
                                                 ----------        ---------            ---------         ----------
      Total....................................  $  800,177        $ 383,372            $107,384          $1,290,933
                                                 ==========        =========            =========         ==========

</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..............................          $      96,553               $    104,011
  Variable rate...........................                286,819                      3,373
                                                    -------------               ------------
    Total.................................          $     383,372               $    107,384
                                                    =============               ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                              December 31
                                                  --------------------------------------------------------------------
                                                   2003          2002          2001          2000           1999
                                                   ----          ----          ----          ----           ----
                                                                      (Dollars in Thousands)
<S>                                               <C>           <C>           <C>           <C>            <C>
Nonaccruing loans.........................        $19,453       $14,134       $6,327        $2,370         $1,280
Loans contractually past due 90
  days or more other than
  nonaccruing.............................          6,530         6,676        4,828         2,483          2,826
Restructured loans........................            641         2,508        3,511         3,085            908

</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  $950,000  for  the  year  ended  December  31,  2003,  was
recognized on the nonaccruing and restructured  loans listed in the table above,
whereas  interest income of $1,357,000  would have been  recognized  under their
original loan terms.

Potential problem loans:

Management  has  identified  certain  other  loans  totaling  $70,682,000  as of
December 31, 2003,  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.
                                                                        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>
                                                    2003            2002            2001            2000            1999
                                                    ----            ----            ----            ----            ----
                                                                           (Dollars in Thousands)
<S>                                               <C>             <C>             <C>             <C>             <C>
Allowance for loan losses:
  Balance at January 1....................        $ 22,417        $ 15,141        $ 12,454        $ 10,128        $  9,209

  Chargeoffs:
    Commercial and industrial(1)...........          5,023           4,711           1,688             974             361
    Real estate mortgage(3)................          2,111             800             227              43              40
    Individuals' loans for household and
      other personal expenditures,
      including other loans................          5,005           2,602           1,632           1,274           1,368
                                                  --------        --------        --------        --------        --------
      Total chargeoffs.....................         12,139           8,113           3,547           2,291           1,769
                                                  --------        --------        --------        --------        --------
  Recoveries:
    Commercial and industrial(2)...........          1,002             549             176             171             114
    Real estate mortgage(4)................            421              92              32               1              32
    Individuals' loans for household and
      other personal expenditures,
      including other loans................            588             672             365             407             301
                                                  --------        --------        --------        --------        --------
      Total recoveries.....................          2,011           1,313             573             579             447
                                                  --------        --------        --------        --------        --------

  Net chargeoffs...........................         10,128           6,800           2,974           1,712           1,322
                                                  --------        --------        --------        --------        --------
  Provisions for loan losses...............          9,477           7,174           3,576           2,625           2,241
  Allowance acquired in purchase...........          3,727           6,902           2,085           1,413
                                                  --------        --------        --------        --------        --------
  Balance at December 31...................        $25,493         $22,417         $15,141         $12,454         $10,128
                                                  ========        ========        ========        ========        ========

  (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..........           .44%             .37%             .23%             .16%            .14%



</TABLE>


                                                                        Page 18
<PAGE>

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

The information regarding the analysis of loan loss experience on Page 10 of the
Corporation's  Annual Report to  Stockholders - Financial  Review 2003 under the
caption   "ASSET  QUALITY/PROVISION  FOR LOAN LOSSES" is expressly  incorporated
herein by reference.

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 percent of loans in each category to total loans:
<TABLE>
<CAPTION>
                                                                     2003                            2002
                                                         -------------------------        -------------------------
                                                          Amount          Per Cent         Amount          Per Cent
                                                         --------         --------        --------         --------
                                                                           (Dollars in Thousands)
<S>                                                      <C>                 <C>          <C>                 <C>
Balance at December 31:
  Commercial and industrial(1)................           $ 17,517            29.9%        $ 12,405            31.8%
  Real estate mortgage(2).....................              4,441            60.8            2,875            57.3
  Individuals' loans for household and
    other personal expenditures,
    including other loans.....................              3,435             9.3            7,037            10.9
  Unallocated.................................                100             N/A              100             N/A
                                                         --------           ------        --------           ------
  Totals......................................           $ 25,493           100.0%        $ 22,417           100.0%
                                                         ========           ======        ========           ======


                                                                     2001                            2000
                                                         -------------------------        -------------------------
                                                          Amount          Per Cent         Amount          Per Cent
                                                         --------         --------        --------         --------
                                                                           (Dollars in Thousands)
Balance at December 31:
  Commercial and industrial(1)................           $  6,884            29.2%        $  4,478            28.5%
  Real estate mortgage(2).....................              2,655            56.9            1,554            53.9
  Individuals' loans for household and
    other personal expenditures,
    including other loans.....................              5,502            13.9            4,622            17.6
  Unallocated.................................                100            N/A             1,800            N/A
                                                         --------           ------        --------           ------
  Totals......................................           $ 15,141           100.0%        $ 12,454           100.0%
                                                         ========           ======        ========           ======

                                                                    1999
                                                         -------------------------
                                                          Amount          Per Cent
                                                         --------         --------
                                                           (Dollars in Thousands)
Balance at December 31:
  Commercial and industrial(1)................           $  3,347            28.3%
  Real estate mortgage(2).....................              1,297            53.2
  Individuals' loans for household and
    other personal expenditures,
    including other loans.....................              3,914            18.5
  Unallocated. .... ..........................              1,570            N/A
                                                         --------           ------
  Totals......................................           $ 10,128           100.0%
                                                         ========           ======

  (1) Category also includes  the allowance for loan losses and percent of loans
      for bankers acceptances, loans to financial institutions, tax-exempt
      loans, agricultural production financing and other loans to farmers and
      construction real estate loans.
  (2) Category includes the allowance for loan losses and percent of loans for
      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  between the banks and for the pooling of knowledge,
judgment and experience of the Corporation's affiliate banks.  These  committees
provide  valuable  input to lending  personnel,  act as an  approval  body,  and
monitor the overall quality of the banks' loan portfolios.  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>
                                                                           2003               2002              2001
                                                                     ---------------   ----------------   ---------------
                                                                                    (Dollars in Thousands)
<S>                                                                   <C>                <C>               <C>
As of, and for the year ending December 31:
  Impaired loans with an allowance...................                 $     12,725       $     16,901      $     10,381
  Impaired loans for which the discounted
    cash flows or collateral value exceeds the
    carrying value of the loan.......................                       32,047             27,450            10,780
                                                                      ------------       ------------      ------------

        Total impaired loans.........................                 $     44,772       $     44,351      $     21,161
                                                                      ============       ============      ============

  Allowance for impaired loans (included in the
    Corporation's allowance for loan losses).........                 $      5,728       $      7,299      $      3,251
  Average balance of impaired loans..................                       50,245             49,663            22,327
  Interest income recognized on impaired loans.......                        3,259              3,656             1,538
  Cash basis interest included above.................                        2,714              2,344             1,555
</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  2003,  2002 and 2001 are  presented  within  the
"Distribution of Assets,  Liabilities and Stockholders'  Equity,  Interest Rates
and Interest Differential" table on page 11 of this Form 10-K.

As of December  31,  2003,  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..........     $105,020         $ 43,759           $ 39,965         $ 91,066          $279,810
Per cent.......................           37%              16%                14%              33%              100%

</TABLE>
RETURN ON EQUITY AND ASSETS

The information  regarding return on equity and assets is presented on page 2 of
the  Corporation's  Annual Report to Stockholders - Financial  Review 2003 under
the  caption  "Five - Year  Summary of  Selected  Financial  Data" is  expressly
incorporated herein by reference.

SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
                                                                     2003                2002                2001
                                                              -----------------   -----------------   ------------------
                                                                                (Dollars in Thousands)
<S>                                                               <C>                 <C>                 <C>
Balance at December 31:
  Securities sold under repurchase
    agreements (short-term portion)........                       $  71,095           $  65,962           $  22,732
  Federal funds purchased..................                                                                  10,500
  U.S. Treasury demand notes...............                                                                   6,273
                                                                  ---------           ---------           ---------

          Total short-term borrowings......                       $  71,095           $  65,962           $  39,505
                                                                  =========           =========           =========
</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>
                                                                       2003                2002                2001
                                                                 -----------------   -----------------   -----------------
                                                                                   (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)..............                   1.4%                1.1%                3.3%
    Total short-term borrowings.....................                   1.4                 1.1                 2.4

Weighted average interest rate during the year:
    Securities sold under repurchase
        agreements (short-term portion).............                    .9%                1.4%                3.7%
    Total short-term borrowings.....................                    .9                 1.3                 4.0

Highest amount outstanding at any month end
during the year:
    Securities sold under repurchase
        agreements (short-term portion).............             $  69,396           $  54,375           $  17,750
    Total short-term borrowings.....................               113,618              67,984              46,195

Average amount outstanding during the year:
    Securities sold under repurchase
        agreements (short-term portion).............             $  51,780           $  41,241           $  14,036
    Total short-term borrowings.....................                59,719              49,886              22,126


</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 69 banking offices
operated by the  Corporation's  affiliate  banks, 55 are owned by the respective
banks and 14 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, 2003 was $39,639,000.

--------------------------------------------------------------------------------
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 2003 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. The officers are elected by the Board of Directors of
the  Corporation  for a term of one (1)  year or  until  the  election  of their
successors.  There are no arrangements  between any officer and any other person
pursuant to which he was selected as an officer.
<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
59                                          Corporation                              Corporation since April 1999;
                                                                                     President First Merchants from
                                                                                     April 1999 to September 2000;
                                                                                     President and Chief Operating Officer,
                                                                                     Corporation since August 1998 and from
                                                                                     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
52                                          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
54                                          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,
63                                          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
33                                          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  on  pages  58 and 59 of the  Corporation's  Annual  Report  to
Stockholders - Financial Review 2003 under the captions  "Annual Meeting,  Stock
Price  &  Dividend   Information"  and  "Common  Stock  Listing",  is  expressly
incorporated herein by reference.

On May 1, 2003, the Corporation issued 2,134  unregistered  shares of its common
stock  pursuant  to a Merger  Agreement  dated  September  6, 2002,  between the
Corporation and Stephenson  Insurance  Service,  Inc.  ("SIS").  The Corporation
issued the  unregistered  shares to the sole  shareholder  of SIS, at a value of
$23.56 per share,  in exchange  for all the common stock of SIS. The issuance by
the  Corporation  of its shares of common  stock were not  registered  under the
Securities Act of 1933, as amended  ("Securities  Act").  The shares were issued
pursuant to the exemption  contemplated  in Section 4 (2) of the Securities Act,
for transactions not involving a public offering.

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

The information on page 2 of the  Corporation's  Annual Report to Stockholders -
Financial Review 2003 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 pages 3 through 21 of the  Corporation's  Annual  Report to
Stockholders - Financial Review 2003 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.
--------------------------------------------------------------------------------
The  information  on pages 12 through 15 of the  Corporation's  Annual Report to
Stockholders - Financial Review 2003 under the caption "Management's  Discussion
& Analysis of Financial  Condition and Results of Operations" within the section
"Interest   Sensitivity  and  Disclosures   About  Market  Risk",  is  expressly
incorporated herein by reference.

                                                                        Page 24
<PAGE>

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

Pages 22  through  57 of the  Corporation's  Annual  Report  to  Stockholders  -
Financial Review 2003, 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,  2003,  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.

ITEM 9A.   CONTROLS AND PROCEDURES
--------------------------------------------------------------------------------
At the end of the period covered by 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
it's  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 changes in the Corporation's internal controls over financial
reporting  identified in connection  with the evaluation  referenced  above that
occurred  during the  Corporation's  last fiscal  quarter  that have  materially
affected,  or is  reasonably  likely to  materially  affect,  the  Corporation's
internal control over financial reporting.

                                                                        Page 25
<PAGE>
                                    PART III

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

The  information  in the  Corporation's  Proxy  Statement  dated  March 5,  2004
furnished to its  stockholders  in connection  with an annual meeting to be held
April 22, 2004 (the "2004 Proxy  Statement"),  under the  captions  "ELECTION OF
DIRECTORS",  "COMMITTEES OF THE BOARD" 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.

The Corporation has adopted a Code of Ethics that applies to its Chief Executive
Officer,  Chief  Operating  Officer,  Chief  Financial  Officer,  Controller and
Treasurer.  It is part of the  Corporation's  Code of  Business  Conduct,  which
applies to all employees and directors of the Corporation and its affiliates.  A
copy of the Code of Ethics may be  obtained,  free of charge,  by writing to the
General  Counsel of First  Merchants  Corporation  at 200 East  Jackson  Street,
Muncie,  IN  47305.  In  addition,  the  Code of  Ethics  is  maintained  on the
Corporation's web site, which can be accessed at http://www.firstmerchants.com.

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

The information in the Corporation's  2004 Proxy Statement,  under the captions,
"COMPENSATION OF DIRECTORS",  "COMPENSATION OF EXECUTIVE OFFICERS",  "COMMITTEES
OF THE  BOARD-Compensation  and Human Resources Committee Interlocks and Insider
Participation",  "COMMITTEES  OF  THE  BOARD-Compensation  and  Human  Resources
Committee Report on Executive Compensation" and "PERFORMANCE GRAPH" is expressly
incorporated herein by reference.

                                                                       Page 26
<PAGE>

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

The information in the Corporation's  2004 Proxy Statement,  under the captions,
"SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT" and "EQUITY
COMPENSATION PLAN INFORMATION," is expressly incorporated herein by reference.

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

The information in the  Corporation's  2004 Proxy  Statement,  under the caption
"INTEREST OF  MANAGEMENT  IN CERTAIN  TRANSACTIONS,"  is expressly  incorporated
herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------------------------------------------------

The information in the  Corporation's  2004 Proxy  Statement,  under the caption
"INDEPENDENT PUBLIC ACCOUNTANTS", is expressly incorporated herein by reference.

                                                                        Page 27
<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, 2003 and 2002
                 Consolidated statements of income,
                      years ended December 31, 2003,
                      2002 and 2001
                 Consolidated statements of comprehensive income,
                      years ended December 31, 2003, 2002 and 2001
                 Consolidated statements of stockholders' equity,
                      years ended December 31, 2003, 2002 and 2001
                 Consolidated statements of cash flows,
                      years ended December 31, 2003,
                      2002 and 2001
                 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:
-----------                           ------------------------

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

   2.2         Undertaking by First Merchants Corporation to furnish
               supplementally to the Commission upon request the Disclosure
               Letters referenced in the Merger Agreement.  (Incorporated by
               reference to Exhibit 2.2 to First Merchants Corporation's Form
               10-Q for the quarter ended September 30, 2003.)

    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 (2)

   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)



                                                                        Page 28
<PAGE>

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

       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)

       10f         First Merchants Corporation change of Control Agreement with
                   Roger M. Arwood dated February 11, 2003.  (Incorporated by
                   reference to registrant's Form 10-Q for quarter ended March
                   31, 2003)(1)

       10g         First Merchants Corporation Change of Control Agreement with
                   Larry R. Helms dated February 11, 2003.  (Incorporated by
                   reference to registrant's Form 10-Q for quarter ended March
                   31, 2003)(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 February 11, 2003.  (Incorporated by reference to
                   registrant's Form 10-Q for quarter ended March 31, 2003)(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.  (Incorporated by reference to registrant's
                   registration statement on Form S-8 (see File No.333-111374)
                   effective on December 19, 2003)(1)

       13          Annual Report to Stockholders-Financial Review 2003  (except
                   for the pages and information  expressly  incorporated by
                   reference in this Form 10-K, the Annual Report to
                   Stockholders-Financial Review 2003 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)

       31.1        Certification of Chief Executive Officer Pursuant to Section
                   302 of the Sarbanes - Oxley Act of 2002(2)

       31.2        Certification of Chief Financial Officer Pursuant to Section
                   302 of the Sarbanes - Oxley Act of 2002(2)

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



       (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 29
<PAGE>
(b) Reports on Form 8-K:

A report on Form 8-K,  dated  October  22,  2003,  was filed on October 22, 2003
under report items number 9 and 7, concerning the Press Release announcing third
quarter 2003 earnings.

Under report item number 7, the following exhibit was included in this Form 8-K.

(c) Exhibit

         (99.1)  Press Release, dated October 22, 2003, issued by First
                 Merchants Corportation

                                   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 15th day of March,
2004.

                                               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  15th day of March, 2004.

/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*                       /s/ Barry J. Hudson*
------------------------------------       ------------------------------------
    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/ Thomas D. McAuliffe*
------------------------------------       ------------------------------------
   Richard A. Boehning      Director           Thomas D. McAuliffe     Director


------------------------------------       ------------------------------------
    Blaine M. Brownell      Director           George A. Sissel        Director


------------------------------------       ------------------------------------
    Frank A. Bracken        Director           Robert M. Smitson       Director

/s/ Thomas B. Clark*
------------------------------------       ------------------------------------
    Thomas B. Clark         Director           Dr. John E. Worthen     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 15, 2004

                                                                       Page 30

<PAGE>



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

   (a)3.   Exhibits:

      Exhibit No:                          Description of Exhibit:

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

   2.2         Undertaking by First Merchants Corporation to furnish
               supplementally to the Commission upon request the Disclosure
               Letters referenced in the Merger Agreement.  (Incorporated by
               reference to Exhibit 2.2 to First Merchants Corporation's Form
               10-Q for the quarter ended September 30, 2003.)

    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 (2)

   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 31
<PAGE>


   10f         First Merchants Corporation change of Control Agreement with
               Roger M. Arwood dated February 11, 2003.  (Incorporated by
               reference to registrant's Form 10-Q for quarter ended March 31,
               2003)(1)

   10g         First Merchants Corporation Change of Control Agreement with
               Larry R. Helms dated February 11, 2003.  (Incorporated by
               reference to registrant's Form 10-Q for quarter ended March 31,
               2003)(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 February 11, 2003.  (Incorporated by reference to
               registrant's Form 10-Q for quarter ended March 31, 2003)(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.  (Incorporated by reference to registrant's
               registration statement on Form S-8 (see File No. 333-111374)
               effective on December 19, 2003)(1)

   13          Annual Report to Stockholders-Financial Review 2003  (except
               for the pages and information  expressly  incorporated by
               reference in this Form 10-K, the Annual Report to
               Stockholders-Financial Review 2003 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)

   31.1        Certification of Chief Executive Officer Pursuant to Section
               302 of the Sarbanes - Oxley Act of 2002(2)

   31.2        Certification of Chief Financial Officer Pursuant to Section
               302 of the Sarbanes - Oxley Act of 2002(2)

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



   (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 32

<PAGE>
                                   EXHIBIT-3b

                                    BYLAWS OF
                           FIRST MERCHANTS CORPORATION


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

                                    ARTICLE I

         Section 1.        Name.
         ---------         ----
The name of the Corporation is First Merchants Corporation.

         Section 2.        Principal  Office and Resident Agent.
         ---------         ------------------------------------
The post office address of the principal office of the Corporation is 200 East
Jackson Street, Muncie, Indiana 47305, and the name of its Resident Agent in
charge of such office is Larry R. Helms.

         Section 3. Seal. The seal of the Corporation shall be circular in form
and mounted upon a metal die, suitable for impressing the same upon paper. About
the upper periphery of the seal shall appear the words "First Merchants
Corporation" and about the lower periphery thereof the word "Muncie, Indiana".
In the center of the seal shall appear the word "Seal".

                                   ARTICLE II

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

                                   ARTICLE III

                                  Capital Stock

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

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

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



<PAGE>

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

         Section 5. Certificate for Shares. Each holder of capital stock of the
Corporation shall be entitled to a stock certificate, signed by the President or
a Vice President and the Secretary or any Assistant Secretary of the
Corporation, with the seal of the Corporation thereto affixed, stating the name
of the registered holder, the number of shares represented by such certificate,
the par value of each share of stock or that such shares of stock are without
par value, and that such shares are fully paid and nonassessable. If such shares
are not fully paid, the certificates shall be legibly stamped to indicate the
per cent which has been paid, and as further payments are made, the certificate
shall be stamped accordingly.

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

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

         Section 7. Transfer of Shares. The shares of capital stock of the
Corporation shall be transferable only on the books of the Corporation upon
surrender of the certificate or certificates representing the same, properly
endorsed by the registered holder or by his duly authorized attorney or
accompanied by proper evidence of succession, assignment or authority to
transfer.


<PAGE>

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

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

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

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

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




<PAGE>

                                   ARTICLE IV

                            Meetings of Shareholders

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

         Section 2. Annual Meeting. The annual meeting of shareholders for the
election of Directors, and for the transaction of such other business as may
properly come before the meeting, shall be held on the third Tuesday in April of
each year, if such day is not a holiday, and if a holiday, then on the first
following day that is not a holiday, or in lieu of such day may be held on such
other day as the Board of Directors may set by resolution, but not later than
the end of the fifth month following the close of the fiscal year of the
Corporation. Failure to hold the annual meeting at the designated time shall not
work any forfeiture or a dissolution of the Corporation, and shall not affect
otherwise valid corporate acts.

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

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



<PAGE>



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

         Section 6.        Voting at Meetings.

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

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

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

         Section 7. Voting List. The Corporation or its transfer agent shall
make, at least five (5) days before each election of directors, a complete list
of the shareholders entitled by the Articles of Incorporation, as now or
hereafter amended, to vote at such election, arranged in alphabetical order,
with the address and number of shares so entitled to vote held by each, which
list shall be on file at the principal office of the Corporation and subject to
inspection by any shareholder. Such list shall be produced and kept open at the
time and place of election and subject to the inspection of any shareholder
during the holding of such election. The original stock register or transfer
book, or a duplicate thereof kept in the State of Indiana, shall be the only
evidence as to who are the shareholders entitled to examine such list or the
stock ledger or transfer book or to vote at any meeting of the shareholders.



<PAGE>



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

         Section 9. Nominations for Director. Nominations for election to the
Board of Directors may be made by the Board of Directors or by an shareholder of
any outstanding class of capital stock of the Corporation entitled to vote for
the election of directors. Nominations, other than those made by or on behalf of
the existing management of the Corporation, shall be made in writing and shall
be delivered or mailed to the President of the Corporation not less than ten
(10) days nor more than fifty (50) days prior to any meeting of shareholders
called for the election of Directors. Such notification shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the total number of shares of capital stock of the
Corporation that will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the number of shares of
capital stock of the Corporation owned by the notifying shareholder. Nominations
not made in accordance herewith may, in his discretion, be disregarded by the
chairman of the meeting, and upon his instructions, the vote tellers may
disregard all votes cast for each such nominee.

                                    ARTICLE V

                               Board of Directors

         Section 1. Election, Number and Term of Office. The number of Directors
of the Corporation to be elected by the holders of the shares of stock entitled
by the Articles of Incorporation to elect Directors shall be sixteen (16) unless
changed by amendment of this Section by a two-thirds (2/3) vote of the Board of
Directors.

         The Directors shall be divided into three (3) classes as nearly equal
in number as possible, all Directors to serve three (3) year terms except as
provided in the third paragraph of this Section. One class shall be elected at
each annual meeting of the shareholders, by the holders of the shares of stock
entitled by the Articles of Incorporation to elect Directors. Unless the number
of Directors is changed by amendment of this Section, Classes I and II shall
each have five (5) Directors, and Class III shall have six (6) Directors. No
decrease in the number of Directors shall have the effect of shortening the term
of any incumbent Director.

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



<PAGE>


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

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

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

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

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

         Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the President, or by not less than a
majority of the members of the Board of Directors. Notice of the time and place,
either within or without the State of Indiana, of a special meeting shall be
served upon or telephoned to each Director at least twenty-four (24) hours, or
mailed, telegraphed or cabled to each Director at his usual place of business or
residence at least forty-eight (48) hours, prior to the time of the meeting.
Directors, in lieu of such notice, may sign a written waiver of notice either
before the time of the meeting, at the meeting or after the meeting. Attendance
by a Director in person at any special meeting shall constitute a waiver of
notice.



<PAGE>



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

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

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

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

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

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


<PAGE>



         Section 10. Fixing of Record Date to Determine Shareholders Entitled to
Receive Corporate Benefits. The Board of Directors may fix a day and hour not
exceeding fifty (50) days preceding the date fixed for payment of any dividend
or for the delivery of evidence of rights, or for the distribution of other
corporate benefits, or for a determination of shareholders for any other
purpose, as a record time for the determination of the shareholders entitled to
receive any such dividend, rights or distribution, and in such case only
shareholders of record at the time so fixed shall be entitled to receive such
dividend, rights or distribution. If no record date is fixed for the
determination of shareholders entitled to receive payment of a dividend, the end
of the day on which the resolution of the Board of Directors declaring such
dividend is adopted shall be the record date for such determination.

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

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

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



<PAGE>



         During the intervals between meetings of the Board of Directors, any
executive committee so appointed, unless expressly provided otherwise by law or
these Bylaws, shall have and may exercise all the authority of the Board of
Directors, including, but not limited to, the authority to issue and sell or
approve any contract to issue or sell, securities or shares of the Corporation
or designate the terms of a series or class of securities or shares of the
Corporation. The terms which may be affixed by the executive committee include,
but are not limited to, the price, dividend rate, and provisions of redemption,
a sinking fund, conversion, voting, or preferential rights or other features of
securities or class or series of a class of shares. Such committee may have full
power to adopt a final resolution which sets forth these terms and to authorize
a statement of such terms to be filed with the Secretary of State. However, such
executive committee shall not have the authority to declare dividends or
distributions, amend the Articles of Incorporation or the Bylaws, approve a plan
of merger or consolidation, even if such plan does not require shareholder
approval, reduce earned or capital surplus, authorize or approve the
reacquisition of shares unless pursuant to a general formula or method specified
by the Board of Directors, or recommend to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof.

         The Board of Directors may, in its discretion, constitute and appoint
other committees, in addition to an executive committee, to assist in the
management and control of the affairs of the Corporation, with responsibilities
and powers appropriate to the nature of the several committees and as provided
by the Board of Directors in the resolution of appointment or in subsequent
resolutions and directives. Such committees may include, but are not limited to,
an audit committee and a compensation and human resources committee.

         No member of any committee appointed by the Board of Directors shall
continue to be a member thereof after he ceases to be a Director of the
Corporation. However, where deemed in the best interests of the Corporation, to
facilitate communication and utilize special expertise, directors of the
Corporation's affiliated banks and corporations may be appointed to serve on
such committees, as "affiliate representatives." Such affiliate representatives
may attend and participate fully in meetings of such committees, but they shall
not be entitled to vote on any matter presented to the meeting nor shall they be
counted for the purpose of determining whether a quorum exists. The calling and
holding of meetings of any such committee and its method of procedure shall be
determined by the Board of Directors. To the extent permitted by law, a member
of the Board of Directors, and any affiliate representative, serving on any such
committee shall not be liable for any action taken by such committee if he has
acted in good faith and in a manner he reasonably believes is in the best
interests of the Corporation. A member of a committee may participate in a
meeting of the committee by means of a conference telephone or similar
communications equipment by which all members participating in the meeting can
communicate with each other, and participation by these means constitutes
presence in person at the meeting.

                                   ARTICLE VI

                                    Officers

         Section 1. Principal Officers. The principal officers of the
Corporation shall be a Chairman of the Board, Vice Chairman of the Board, a
President, one (1) or more Vice Presidents, a Treasurer and a Secretary. The
Corporation may also have, at the discretion of the Board of Directors, such
other subordinate officers as may be appointed in accordance with the provisions
of these Bylaws. Any two (2) or more offices may be held by the same person,
except the duties of President and Secretary shall not be performed by the same
person. No person shall be eligible for the office of Chairman of the Board,
Vice Chairman of the Board, or President who is not a Director of the
Corporation.

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


<PAGE>


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

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

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

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

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

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

         Section 9. President. The President, who shall be chosen from among the
Directors, shall be the chief executive officer of the Corporation and as such
shall have general supervision of the affairs of the Corporation, subject to the
control of the Board of Directors. He shall be an ex officio member of all
standing committees. In the absence or disability of the Chairman of the Board
and Vice Chairman of the Board, the President shall preside at all meetings of
shareholders and at all meetings of the Board of Directors. Subject to the
control and direction of the Board of Directors, the President may enter into
any contract or execute and deliver any instrument in the name and on behalf of
the Corporation. In general, he shall perform all duties and have all powers
incident to the office of President, as herein defined, and all such other
duties and powers as, from time to time, may be assigned to him by the Board of
Directors.



<PAGE>


         Section 10. Vice Presidents. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President and Executive Vice President, perform the
duties and exercise the powers of the President. They shall perform such other
duties and have such other powers as the President or the Board of Directors may
from time to time assign.

         Section 11. Treasurer. The Treasurer shall have charge and custody of,
and be responsible for, all funds and securities of the Corporation and shall
deposit all such funds in the name of the Corporation in such banks or other
depositories as shall be selected by the Board of Directors. He shall upon
request exhibit at all reasonable times his books of account and records to any
of the Directors of the Corporation during business hours at the office of the
Corporation where such books and records shall be kept; shall render upon
request by the Board of Directors a statement of the condition of the finances
of the Corporation at any meeting of the Board of Directors or at the annual
meeting of the shareholders; shall receive, and give receipt for, moneys due and
payable to the Corporation from any source whatsoever; and in general, shall
perform all duties incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the President or the Board of
Directors. The Treasurer shall give such bond, if any, for the faithful
discharge of his duties as the Board of Directors may require.

         Section 12. Secretary. The Secretary shall keep or cause to be kept in
the books provided for that purpose the minutes of the meetings of the
shareholders and of the Board of Directors; shall duly give and serve all
notices required to be given in accordance with the provisions of these Bylaws
and by the Act; shall be custodian of the records and of the seal of the
Corporation and see that the seal is affixed to all documents, the execution of
which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these Bylaws; and, in general, shall perform
all duties incident to the office of Secretary and such other duties as may,
from time to time, be assigned to him by the President or the Board of
Directors.

         Section 13. Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors, and the salaries of any
subordinate officers may be fixed by the President.

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



<PAGE>


                                   ARTICLE VII

                                 Indemnification

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

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

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

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

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



<PAGE>


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

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

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

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

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

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

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

                                  ARTICLE VIII

                                   Amendments

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

<PAGE>

                                   EXHIBIT-13
               ANNUAL REPORT TO STOCKHOLDERS-FINANCIAL REVIEW 2003

EXHIBIT 13--ANNUAL REPORT TO STOCKHOLDERS - FINANCIAL REVIEW 2003

================================================================================
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                                         22

CONSOLIDATED
FINANCIAL STATEMENTS                                                    23

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS                                                    27

ANNUAL MEETING, STOCK PRICE & DIVIDEND INFORMATION                      58

COMMON STOCK LISTING                                                    59

FORM 10-K, FINANCIAL INFORMATION AND CODE OF ETHICS                     60

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


                                       1
<PAGE>

================================================================================
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
================================================================================

<TABLE>
<CAPTION>
(in thousands, except share data)                  2003         2002         2001         2000         1999
                                                ==========   ==========   ==========   ==========   ==========
<S>                                             <C>          <C>          <C>          <C>          <C>
Operations (4)
Net Interest Income
     Fully Taxable Equivalent (FTE) Basis ....  $  106,899   $   96,599   $   66,806   $   58,619   $   56,513
Less Tax Equivalent Adjustment ...............       3,757        3,676        2,445        2,637        2,948
                                                ----------   ----------   ----------   ----------   ----------
Net Interest Income ..........................     103,142       92,923       64,361       55,982       53,565
Provision for Loan Losses ....................       9,477        7,174        3,576        2,625        2,241
                                                ----------   ----------   ----------   ----------   ----------
Net Interest Income
     After Provision for Loan Losses .........      93,665       85,749       60,785       53,357       51,324
Total Other Income ...........................      35,902       27,077       18,543       16,634       14,573
Total Other Expenses .........................      91,279       71,009       45,195       40,083       36,710
                                                ----------   ----------   ----------   ----------   ----------
     Income Before Income Tax Expense ........      38,288       41,817       34,133       29,908       29,187
Income Tax Expense ...........................      10,717       13,981       11,924        9,968       10,099
                                                ----------   ----------   ----------   ----------   ----------
Net Income ...................................  $   27,571   $   27,836   $   22,209   $   19,940   $   19,088
                                                ==========   ==========   ==========   ==========   ==========

Per share data (1)(4)
Basic Net Income .............................  $     1.51   $     1.70   $     1.63   $     1.51   $     1.37
Diluted Net Income ...........................        1.50         1.69         1.61         1.50         1.36
Cash Dividends Paid (2) ......................         .90          .86          .84          .78          .72
December 31 Book Value .......................       16.42        15.24        12.82        11.61         9.98
December 31 Market Value (Bid Price) .........       25.51        21.67        21.78        19.54        22.08

Average balances (4)
Total Assets .................................  $2,960,195   $2,406,251   $1,689,694   $1,532,691   $1,397,230
Total Loans (5) ..............................   2,281,614    1,842,429    1,270,555    1,104,013      935,716
Total Deposits ...............................   2,257,075    1,857,053    1,331,631    1,209,015    1,073,074
Securities Sold Under Repurchase Agreements
     (long-term portion) .....................                   66,535       44,394       53,309       56,181
Total Federal Home Loan Bank Advances ........     166,733      155,387      103,941       80,008       57,062
Total Trust Preferred Securities .............      56,521       37,379
Total Stockholders' Equity ...................     293,603      237,575      166,232      141,446      149,727

Year-end balances (4)
Total Assets .................................  $3,076,812   $2,678,687   $1,787,035   $1,621,063   $1,474,048
Total Loans (5) ..............................   2,356,546    2,025,922    1,359,893    1,175,586      998,956
Total Deposits ...............................   2,362,101    2,036,688    1,421,251    1,288,299    1,147,203
Securities Sold Under Repurchase Agreements
(long-term portion) ..........................                   23,632       32,500       32,500       35,000
Total Federal Home Loan Bank Advances ........     212,779      184,677      103,499       93,182       73,514
Total Trust Preferred Securities .............      57,188       53,188
Total Stockholders' Equity ...................     303,965      261,129      179,128      156,063      126,296

Financial ratios (4)
Return on Average Assets .....................         .93%        1.16%        1.31%        1.30%        1.37%
Return on Average Stockholders' Equity .......        9.39        11.72        13.36        14.10        12.75
Average Earning Assets to Total Assets .......       89.99        91.38        93.29        94.85        94.77
Allowance for Loan Losses as % of Total Loans         1.08         1.11         1.11         1.06         1.01
Dividend Payout Ratio ........................       60.00        50.89        52.17        52.00        52.94
Average Stockholders' Equity to Average Assets        9.92         9.87         9.84         9.23        10.72
Tax Equivalent Yield on Earning Assets (3) ...        5.98         6.83         7.80         8.19         7.81
Cost of Supporting Liabilities ...............        1.97         2.44         3.56         4.16         3.54
Net Interest Margin on Earning Assets ........        4.01         4.39         4.24         4.03         4.27
</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.

(5)  Includes loans held for sale.


                                       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 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

     Generally accepted accounting principles require management to apply
significant judgment to certain accounting, reporting and disclosure matters.
Management must use assumptions and estimates to apply those principles where
actual measurement is not possible or practical. For a complete discussion of
the Corporation's significant accounting policies, see the notes to the
consolidated financial statements (pages 27 to 31) and discussion throughout
this Annual Report. Below is a discussion of the Corporation's critical
accounting policies. These policies are critical because they are highly
dependent upon subjective or complex judgments, assumptions and estimates.
Changes in such estimates may have a significant impact on the Corporation's
financial statements. Management has reviewed the application of these policies
with the Corporation's Audit Committee.

     Allowance for Loan Losses. The allowance for loan losses represents
management's estimate of probable losses inherent in the Corporation's loan
portfolio. In determining the appropriate amount of the allowance for loan
losses, management makes numerous assumptions, estimates and assessments.

     The Corporation's strategy for credit risk management includes conservative
credit policies and underwriting criteria for all loans, as well as an overall
credit limit for each customer significantly below legal lending limits. The
strategy also emphasizes diversification on a geographic, industry and customer
level, regular credit quality reviews and management reviews of large credit
exposures and loans experiencing deterioration of credit quality.

     The Corporation's allowance consists of three components: probable losses
estimated from individual reviews of specific loans, probable losses estimated
from historical loss rates, and probable losses resulting from economic,
environmental, qualitative or other deterioration above and beyond what is
reflected in the first two components of the allowance.

     Larger commercial loans that exhibit probable or observed credit weaknesses
are subject to individual review. Where appropriate, reserves are allocated to
individual loans based on management's estimate of the borrower's ability to
repay the loan given the availability of collateral, other sources of cash flow
and legal options available to the Corporation. Included in the review of
individual loans are those that are impaired as provided in SFAS No. 114,
Accounting by Creditors for Impairment of a Loan. Any allowances for impaired
loans are measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate or fair value of the underlying
collateral. The Corporation evaluates the collectibility of both principal and
interest when assessing the need for a loss accrual. Historical loss rates are
applied to other commercial loans not subject to specific reserve allocations.



                                        4
<PAGE>

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

CRITICAL ACCOUNTING POLICIES continued

     Homogenous loans, such as consumer installment and residential mortgage
loans are not individually risk graded. Rather, credit scoring systems are used
to assess credit risks. Reserves are established for each pool of loans using
loss rates based on a five year average net charge-off history by loan category.

     Historical loss rates for commercial and consumer loans may be adjusted for
significant factors that, in management's judgment, reflect the impact of any
current conditions on loss recognition. Factors which management considers in
the analysis include the effects of the national and local economies, trends in
the nature and volume of loans (delinquencies, charge-offs and nonaccrual
loans), changes in mix, asset quality trends, risk management and loan
administration, changes in the internal lending policies and credit standards,
collection practices and examination results from bank regulatory agencies and
the Corporation's internal loan review.

     An unallocated reserve, primarily based on the factors noted above, is
maintained to recognize the imprecision in estimating and measuring loss when
evaluating reserves for individual loans or pools of loans. Allowances on
individual loans and historical loss rates are reviewed quarterly and adjusted
as necessary based on changing borrower and/or collateral conditions and actual
collection and charge-off experience.

     The Corporation's primary market areas for lending are north-central and
east-central Indiana and Columbus, Ohio. When evaluating the adequacy of
allowance, consideration is given to this regional geographic concentration and
the closely associated effect changing economic conditions have on the
Corporation's customers.

     The Corporation has not substantively changed any aspect of its overall
approach in the determination of the allowance for loan losses. There have been
no material changes in assumptions or estimation techniques as compared to prior
periods that impacted the determination of the current period allowance.


                                        5
<PAGE>

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

CRITICAL ACCOUNTING POLICIES continued

     Valuation of Securities. The Corporation's available-for-sale security
portfolio is reported at fair value. The fair value of a security is determined
based on quoted market prices. If quoted market prices are not available, fair
value is determined based on quoted prices of similar instruments.
Available-for-sale and held-to-maturity securities are reviewed quarterly for
possible other-than-temporary impairment. The review includes an analysis of the
facts and circumstances of each individual investment such as the length of time
the fair value has been below cost, the expectation for that security's
performance, the credit worthiness of the issuer and the Corporation's ability
to hold the security to maturity. A decline in value that is considered to be
other-than temporary is recorded as a loss within other operating income in the
consolidated statements of income.

     Pension. The Corporation provides pension benefits to its employees. In
accordance with applicable accounting rules, the Corporation does not
consolidate the assets and liabilities associated with the pension plan.
Instead, the Corporation recognizes a prepaid asset for contributions the
Corporation has made to the pension plan in excess of pension expense. The
measurement of the prepaid asset and the annual pension expense involves
actuarial and economic assumptions.

     The assumptions used in pension accounting relate to the expected rate of
return on plan assets, the rate of increase in salaries, the interest-crediting
rate, the discount rate, and other assumptions. See Note 16 "Employee Benefit
Plans" in the Annual Report for the specific assumptions used by the
Corporation.

     The annual pension expense for the Corporation is currently most sensitive
to the discount rate. Each 25 basis point reduction in the 2004 discount rate of
6.25 percent would increase the Corporation's 2004 pension expense by
approximately $180,000. In addition, each 25 basis point reduction in the 2004
expected rate of return of 8.0 percent would increase the Corporation's 2004
pension expense by approximately $45,000.

     Goodwill and Intangibles. For purchase acquisitions, the Company is
required to record the assets acquired, including identified intangible assets,
and the liabilities assumed at their fair value, which in many instances
involves estimates based on third party valuations, such as appraisals, or
internal valuations based on discounted cash flow analyses or other valuation
techniques that may include estimates of attrition, inflation, asset growth
rates or other relevant factors. In addition, the determination of the useful
lives for which an intangible asset will be amortized is subjective.


                                        6
<PAGE>

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

CRITICAL ACCOUNTING POLICIES continued

     Goodwill and indefinite-lived assets recorded must be reviewed for
impairment on an annual basis, as well as on an interim basis if events or
changes indicate that the asset might be impaired. An impairment loss must be
recognized for any excess of carrying value over fair value of the goodwill or
the indefinite-lived intangible with subsequent reversal of the impairment loss
being prohibited. The tests for impairment fair values are based on internal
valuations using management's assumptions of future growth rates, future
attrition, discount rates, multiples of earnings or other relevant factors. The
resulting estimated fair values could have a significant impact on the carrying
values of goodwill or intangibles and could result in impairment losses being
recorded in future periods.

RESULTS OF OPERATIONS

     As of December 31, 2003 total assets totaled $3,076,812,000, an increase of
$398,125,000. Of this amount, loans increased $349,126,000, investments
increased $14,735,000, intangibles, including goodwill, increased $35,506,000
and cash value of life insurance increased by $23,618,000. The addition of
Commerce National Bank on March 1, 2003 accounted for $298,702,000 in loan
growth, $12,500,000 in investment growth and most of the increase in
intangibles.

     Absent Commerce National Bank, total loans increased by $50,424,000.
Positive growth of commercial and commercial real estate loans of $73,436,000
was significantly mitigated by declines in installment loans and residential
real estate loans of $12,166,000 and $9,776,000, respectively.

     The Corporation also completed the purchase of $23 million in Bank Owned
Life Insurance (BOLI) during May, 2003. The BOLI yield is 8.34 percent on a
fully tax equivalent basis, adjustable annually. The tax-free investment was
used to offset the cost of current employee benefit programs, as detailed in
Note 16.

     Net income for 2003 totaled $27,571,000, down from $27,836,000 in 2002. The
$265,000 decrease is attributable to several factors, including compression of
the net interest margin, increased provision for loan losses and increased
noninterest 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 $1.50, a 11.2
percent decrease from $1.69 reported for 2002.

     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, improved net
interest margin and the elimination of goodwill amortization. However, these
factors were mitigated by increased provisions 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


                                        7
<PAGE>

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

RESULTS OF OPERATIONS continued

Results of Operations. Diluted earnings per share totaled $1.69, a 5.0
percent increase from $1.61 reported for 2001.

     Return on equity was 9.39 percent in 2003, 11.72 percent in 2002 and 13.36
percent in 2001. Return on assets was .93 percent in 2003, 1.16 percent in 2002
and 1.31 percent in 2001.

CAPITAL

     The Corporation's regulatory capital continues to exceed regulatory "well
capitalized" standards. Tier I regulatory capital consists primarily of total
stockholders' equity and trust-preferred securities, less non-qualifying
intangible assets and unrealized net securities gains. The Corporation's Tier I
capital to average assets ratio was 7.38 percent and 7.92 percent at December
31, 2003 and 2002, respectively. In addition, at December 31, 2003, the
Corporation had a Tier I risk-based capital ratio of 9.40 percent and total
risk-based capital ratio of 11.60 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.

     The Corporation's GAAP capital ratio, defined as total stockholders' equity
to total assets, equaled 9.88 percent as of December 31, 2003, up from 9.75
percent in 2002. When the Corporation acquires other companies, GAAP capital
increases by the entire amount of the purchase price. Additional GAAP capital
resulting from the purchase of CNBC Bancorp and Commerce National Bank, acquired
on March 1,2003, totaled $55,729,000, and was reduced by cash used for
consideration totaling $24,562,000 per Note 2.

     The Corporation's tangible capital ratio, defined as total stockholders'
equity less intangibles net of tax to total assets less intangibles net of tax,
equaled 5.78 percent as of December 31, 2003 down from 6.25 percent in 2002.

     Management believes that all of the above capital ratios are meaningful
measurements for evaluating the safety and soundness of the Corporation.
Additionally, management believes the following table is also meaningful when
considering performance measures of the Corporation. The table details and
reconciles tangible earnings per share, return on tangible capital and tangible
assets to traditional GAAP measures.


                                        8
<PAGE>

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

CAPITAL continued
                                                    December 31,
(Dollars in Thousands)                           2003          2002
                                             ===========    ===========
Average Goodwill ..........................  $   107,232    $    67,391
Average Core Deposit Intangible (CDI) .....       24,393         16,906
Average Deferred Tax on CDI ...............       (8,951)        (6,249)
                                             -----------    -----------
  Intangible Adjustment ...................  $   122,674    $    78,048
                                             ===========    ===========

Average Shareholders' Equity (GAAP Capital)  $   293,603    $   261,129
Intangible Adjustment .....................     (122,674)       (78,048)
                                             -----------    -----------
  Average Tangible Capital ................  $   170,929    $   183,081
                                             ===========    ===========

Average Assets ............................  $ 2,960,195    $ 2,406,251
Intangible Adjustment .....................     (122,674)       (78,048)
                                             -----------    -----------
  Average Tangible Assets .................  $ 2,837,521    $ 2,328,203
                                             ===========    ===========

Net Income ................................  $    27,571    $    27,836
CDI Amortization, net of tax ..............        2,341          1,619
                                             -----------    -----------
  Tangible Net Income .....................  $    29,912    $    29,455
                                             ===========    ===========

Diluted Earnings per Share ................  $      1.50    $      1.69
Diluted Tangible Earnings per Share .......  $      1.63    $      1.78

Return on Average GAAP Capital ............         9.39%         11.72%
Return on Average Tangible Capital ........        17.50%         16.09%

Return on Average Assets ..................         0.93%          1.16%
Return on Average Tangible Assets .........         1.05%          1.27%

ASSET QUALITY/PROVISION FOR LOAN LOSSES

     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 primarily 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, 2003, non-performing loans totaled $26,624,000, an increase
of $3,306,000, as noted in the table on the following page. This increase was
primarily due to one loan totaling $5,000,000, related to declining collateral
values of this borrower being placed on non-accrual status during 2003. Loans 90
days past due other than non-accrual and restructured loans decreased by
$2,013,000.

     At December 31, 2003, impaired loans totaled $44,772,000, an increase of
$421,000 from year end 2002. At December 31, 2003, an allowance for losses was
not deemed necessary for impaired loans totaling $32,047,000, but an allowance
of $5,728,000 was recorded for the remaining balance of impaired loans of
$12,725,000 and is included in the Corporation's allowance for loan losses. The
average balance of impaired loans for 2003 was $50,245,000.


                                        9
<PAGE>

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

ASSET QUALITY/PROVISION FOR LOAN LOSSES continued

     At December 31, 2003, the allowance for loan losses was $25,493,000, an
increase of $3,076,000 from year end 2002. As a percent of loans, the allowance
was 1.08 percent at December 31, 2003 and 1.11 percent at December 31, 2002.

     The provision for loan losses in 2003 was $9,477,000, an increase of
$2,303,000 from $7,174,000 in 2002. The Corporation's allowance for loan losses
reflects increased non-performing loans, increased specific reserves and
increased impaired loans, resulting in increased provision expense. The
provision expense increase was primarily attributable to declining collateral
values of a single commercial borrower, 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.

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,
                                              2003      2002
                                            =======   =======
Non-accrual loans ........................  $19,453   $14,134

Loans contractually
  past due 90 days or more
  other than non-accruing ................    6,530     6,676

Restructured loans .......................      641     2,508
                                            -------   -------

  Total ..................................  $26,624   $23,318
                                            =======   =======

The table below presents loan loss experience for the years indicated

(Dollars in Thousands)                            2003      2002      2001
                                                =======   =======   =======
Allowance for loan losses:
  Balance at January 1 .......................  $22,417   $15,141   $12,454
                                                -------   -------   -------
  Chargeoffs .................................   12,139     8,113     3,547
  Recoveries .................................    2,011     1,313       573
                                                -------   -------   -------
  Net chargeoffs .............................   10,128     6,800     2,974
  Provision for loan losses ..................    9,477     7,174     3,576
  Allowance acquired in acquisitions .........    3,727     6,902     2,085
                                                -------   -------   -------
  Balance at December 31 .....................  $25,493   $22,417   $15,141
                                                =======   =======   =======
Ratio of net chargeoffs during the period to
  average loans outstanding during the period       .44%      .37%      .23%

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


                                       10
<PAGE>

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

LIQUIDITY continued

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, 2003, total borrowings from the FHLB were
$212,779,000. 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, 2003, was $197,273,000. The
principal source of asset-funded liquidity is investment securities classified
as available-for-sale, the market values of which totaled $348,860,000 at
December 31, 2003, an increase of $15,935,000 or 4.8 percent over 2002.
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 $1,485,000 at
December 31, 2003. 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 and commitments under
operating leases.

     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, 2003 are as follows:

                                              At December 31,
(Dollars in thousands)                             2003
                                                 ==========

Amounts of commitments:
Loan commitments to extend credit .........      $  481,771
Standby letters of credit .................          25,242
                                                 ----------
                                                 $  507,013
                                                 ==========

     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.


                                       11
<PAGE>

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

LIQUIDITY continued

     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 borrowing
arrangements at December 31, 2003 are as follows:

<TABLE>
<CAPTION>
                                        2004     2005      2006     2007        2008     2009       Total
(Dollars in thousands)                                                                 and after
                                      ========  =======   =======  =======   ========  =========   ========
<S>                                   <C>       <C>       <C>      <C>       <C>       <C>         <C>
Operating leases                      $  1,563  $ 1,447   $ 1,327  $ 1,112   $    916  $   3,255   $  9,620
Trust preferred securities                                                                57,188     57,188
Securities sold under
  repurchase agreements                 71,095                                                       71,095
Federal Home Loan Bank Advances         22,750   24,500    23,882   14,495     17,464    109,688    212,779
Subordinated debentures,
  revolving credit lines and
  term loans                            10,594                                            30,000     40,594
                                      --------  -------   -------  -------   --------  ---------   --------
Total                                 $106,002  $25,947   $25,209  $15,607   $ 18,380  $ 200,131   $391,276
                                      ========  =======   =======  =======   ========  =========   ========
</TABLE>

     The Corporation's purchase obligations have no material impact in its cash
flow or liquidity and, accordingly, has not been included in the above 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 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, 2003, 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, 2003.


                                       12
<PAGE>

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

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK continued

<TABLE>
<CAPTION>
(dollars in thousands)                                                    At December 31, 2003
                                                       --------------------------------------------------------------
                                                                        181-365                   BEYOND
                                                       1-180 DAYS        DAYS       1-5 YEARS    5 YEARS     TOTAL
                                                       ===========    ==========    ==========   ========   =========
<S>                                                    <C>            <C>           <C>          <C>        <C>
Rate-Sensitive Assets:
  Federal funds sold and interest-bearing deposits     $    40,556                                          $  40,556
  Investment securities ..........................          36,876    $   24,045    $  136,084   $159,792     356,797
  Loans ..........................................       1,012,808       326,043       870,082    147,613   2,356,546
  Federal Reserve and Federal Home Loan Bank stock          15,502                                             15,502
                                                       -----------    ----------    ----------   --------   ---------
     Total rate-sensitive assets ....................    1,105,742       350,088     1,006,166    307,405   2,769,401
                                                       -----------    ----------    ----------   --------   ---------
Rate-Sensitive Liabilities:
  Interest-bearing deposits ......................       1,411,925       224,461       383,135      4,379   2,023,900
  Securities sold under repurchase agreements ....          71,095                                             71,095
  Federal Home Loan Bank advances ................           7,750        15,000        80,341    109,688     212,779
  Trust preferred securities .....................                                                 57,188      57,188
  Other short-term borrowings ....................           1,514                                              1,514
  Other borrowed funds ...........................          10,594                                 30,000      40,594
                                                       -----------    ----------    ----------   --------   ---------
     Total rate-sensitive liabilities ...............    1,502,878       239,461       463,476    201,255   2,407,070
                                                       -----------    ----------    ----------   --------   ---------

Interest rate sensitivity gap by period ........       $  (397,136)    $ 110,627    $  542,690   $106,150
Cumulative rate sensitivity gap ................          (397,136)     (286,509)      256,181    362,331
Cumulative rate sensitivity gap ratio
  at December 31, 2003 ...........................            73.6%         83.6%        111.6%     115.1%
  at December 31, 2002 ...........................           111.8%         85.2%         98.2%     113.8%
</TABLE>

The Corporation had a cumulative negative gap of $286,509,000 in the one-year
horizon at December 31, 2003, just over 9.3 percent of total assets.

     The Corporation places its greatest credence in net interest income
simulation modeling. The above 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


                                       13
<PAGE>

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

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK continued

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 ending December
31, 2004 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, 2004 are as follows:

Driver Rates                RISING                    FALLING
=========================================================================
Prime                       200 Basis Points          (200) Basis Points
Federal Funds               200                       (100)
One-Year T-Bill             200                       (138)
Two-Year T-Bill             200                       (194)
Interest Checking           100                        (14)
MMIA Savings                100                        (24)
First Flex                  100                        (24)
CD's                        200                        (59)
FHLB Advances               200                       (117)

     Results for the base, rising and falling interest rate scenarios are listed
below. 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)   $100,873  $102,792   $ 87,217

Variance from base                                     $  1,919   $(13,655)

Percent of change from base                                1.90%    (13.54)%

     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)


                                       14
<PAGE>

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

INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK continued

     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)%

EARNING ASSETS

     Earning assets increased approximately $355 million during 2003. The table
below reflects the earning asset mix for the years 2003 and 2002 (at December
31).

     Loans grew by $349.2 million, while investment securities increased by
$14.8 million. $298.7 million of the increase in loans and $12.5 million of the
increase in investment securities are attributable to the March 1, 2003
acquisition of CNBC Bancorp. Excluding increases related to this acquisition,
loans increased by $50.5 million and investments increased by $2.3 million.

EARNING ASSETS
(dollars in millions)                                            December 31,
                                                           ====================
                                                             2003        2002
                                                           --------  ----------
  Federal funds sold and interest-bearing time deposits    $   40.6  $     35.0
  Securities available for sale .......................       348.9       332.9
  Securities held to maturity .........................         7.9         9.1
  Mortgage loans held for sale ........................         3.0        21.5
  Loans ...............................................     2,353.6     2,004.4
  Federal Reserve and Federal Home Loan Bank stock ....        15.5        11.4
                                                           --------  ----------
     Total ............................................    $2,769.5  $  2,414.3
                                                           ========  ==========


                                       15
<PAGE>

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

DEPOSITS AND BORROWINGS

     The table below reflects the level of deposits and borrowed funds
(repurchase agreements, Federal Home Loan Bank advances, trust preferred
securities, subordinated debentures and other borrowed funds) based on year-end
levels at December 31, 2003 and 2002.

(Dollars in Millions)                                    December 31,
                                                       2003       2002
                                                    ---------  ---------
Deposits .........................................  $ 2,362.1  $ 2,036.7
Securities sold under repurchase agreements ......       71.1       89.6
Federal Home Loan Bank advances ..................      212.8      184.7
Trust preferred securities .......................       57.2       53.2
Subordinated debentures, revolving credit lines
   and term loans ................................       40.6       19.3
Other borrowed funds .............................        1.5       10.2

     The Corporation has continued to leverage its capital position with Federal
Home Loan Bank advances, as well as, repurchase agreements which are pledged
against acquired investment securities as collateral for the borrowings. Trust
preferred securities are classified as Tier I Capital and the Subordinated
Debenture of $25,000,000 is classified as Tier II Capital when computing risk
based capital ratios due to the long-term nature of the investment. The interest
rate risk is included as part of the Corporation's interest simulation discussed
in Management's Discussion and Analysis under the headings "LIQUIDITY" and
"INTEREST SENSITIVITY AND DISCLOSURES ABOUT MARKET RISK".

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 2003.

     In 2003, asset yields decreased 85 basis points (FTE) and interest cost
decreased 47 basis points, resulting in a 38 basis point (FTE) decrease in net
interest income.


(Dollars in Thousands)                               December 31,
                                           2003        2002         2001
                                        ----------   ----------   ----------
Net Interest Income ...............     $  103,142   $   92,923   $   64,361

FTE Adjustment ....................     $    3,757   $    3,676   $    2,445

Net Interest Income
  On a Fully Taxable Equivalent Basis   $  106,899   $   96,599   $   66,806

Average Earning Assets ............     $2,663,853   $2,198,943   $1,576,334

Interest Income (FTE) as a Percent
  of Average Earning Assets .......           5.98%        6.83%        7.80%

Interest Expense as a Percent
  of Average Earning Assets .......           1.97%        2.44%        3.56%

Net Interest Income (FTE) as a Percent
  of Average Earning Assets                   4.01%        4.39%        4.24%

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.


                                       16
<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 2003 amounted to $35,902,000 or 32.6 percent higher than in
2002.  The increase of $8,825,000 is primarily attributable to the following
factors:

1.       Gains on sales of mortgage loans included in other income increased by
         $4,676,000 due to increased mortgage volume during most of 2003. In
         addition, decreasing mortgage loan rates during the first three
         quarters of 2003 caused an increase in refinancing volume, which
         facilitated an increase in loan sales activity.

2.       Service charges on deposit accounts increased $1,775,000 or 19.0
         percent due to increased number of accounts, price adjustments and
         approximately $742,000 of additional service charge income related to
         April 1, 2002 acquisition of Lafayette.

3.       Life insurance proceeds included in other income were $535,000 for
         2003, compared to $0 for the same period last year.

4.       Insurance commissions increased by $465,000 or 21.1 percent primarily
         as a result of the September 6, 2002 acquisition of Stephenson
         Insurance Services, Inc.

5.       Revenues from fiduciary activities increased $478,000 or 7.6 percent
         due primarily to the additional fees related to the acquisition of
         Lafayette.

     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.


                                       17
<PAGE>

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

OTHER INCOME continued

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 EXPENSES

     Other expenses represent non-interest operating expenses of the
Corporation. Other expenses amounted to $91,279,000 in 2003, an increase of 28.5
percent from the prior year, or $20,270,000. The following factors account for
most of the increase:

1.       Salaries and benefit expense grew $11,334,000 or 29.0 percent, due to
         normal salary increases, staff additions and additional salary cost
         related to the April 1, 2002 acquisition of Lafayette and the March
         1, 2003 acquisition of Commerce National.

2.       Net occupancy expenses increased by $1,262,000 or 34.7 percent
         primarily due to the acquisitions of Lafayette and Commerce
         National.

3.       Equipment expense increased by $1,364,000 or 20.3 percent primarily
         due to the acquisitions of Lafayette and Commerce National.

4.       Core deposit intangible amortization increased by $1,111,000, due to
         the acquisitions of Lafayette and Commerce National.

5.       Prepayment penalties for early prepayment of FHLB advances totaled
         $340,000 for 2003 and no such penalties were incurred during 2002.

6.       Investment securities writedowns totaling $615,000 were incurred in
         2003, resulting from other-than-temporary losses being recognized on
         two securities.


                                       18
<PAGE>

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

OTHER EXPENSES continued

     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 percent, 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 percent,
         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 percent,
         primarily related to the April 1, 2002 acquisition of Lafayette.

INCOME TAXES

     Income tax expense totaling $10,717,000 for 2003 decreased by $3,264,000
from 2002. The lower expense in 2003 primarily resulted from the Corporation's
tax-exempt investment income on securities and loans, income tax credits
generated from investments in affordable housing projects, income generated by
subsidiaries domiciled in a state with no state or local income tax, increases
in tax exempt earnings from bank-owned life insurance contracts and reduced
state taxes, resulting from the effect of state income apportionment.

     The increase in 2002 tax expense of $2,057,000, as compared to the 2001 tax
expense, is attributable primarily to the acquisition of Lafayette and an
increase in pre-tax income of $5,627,000.

     In addition, the effective tax rates for the periods ending December 31,
2003, 2002 and 2001 were 28.0 percent, 33.4 percent and 34.9 percent,
respectively. The 54 basis point decrease is primarily a result of the same
factors discussed above regarding the 2003 tax expense.


                                       19
<PAGE>

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

ACCOUNTING MATTERS

     In December of 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 132 (revised 2003), "Employers' Disclosures about
Pensions and Other Postretirement Benefits". The Statement requires companies to
provide additional pension disclosures in the notes to their financial
statements, including, among others, details of pension plan assets by category,
such as equity, debt and real estate; a description of investment policies and
strategies; and target allocation percentages, or target ranges, for these asset
categories. In addition, information concerning projections of future benefit
payments and estimates of employer contributions to their pension plans are
required to be disclosed. The Statement is effective for fiscal years ending
after December 15, 2003, and was adopted by the Corporation on December 31,
2003.

     In May of 2003, Statement of Financial Accounting Standards No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" was issued and was originally effective for financial
instruments entered into or modified after May 31, 2003. The FASB's Staff
Position 150-3 deferred indefinitely the guidance in SFAS No. 150 on certain
mandatorily redeemable noncontrolling interests. This statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a
liability. The Corporation currently classifies its obligated mandatory
redeemable capital securities and cumulative trust preferred securities as
liabilities. Therefore, this pronouncement has no impact on the Corporation's
financial statements.

     In January of 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an Interpretation of Accounting Research Bulletin
No. 51", and in December 2003, the FASB deferred certain effective dates of
Interpretation No. 46. For all variable interest entities other than special
purpose entities, the revised Interpretation is effective for periods ending
after March 15, 2004. For variable interest entities meeting the definition of
special purpose entities under earlier accounting rules, the Interpretation
remains effective for periods ending after December 31, 2003. The Interpretation
requires the consolidation of entities in which an enterprise absorbs a majority
of the entity's expected losses, receives a majority of the entity's expected
residual returns, or both, as a result of ownership, contractual or other
financial interests in the entity. Currently, entities are generally
consolidated by an enterprise when it has a controlling interest through
ownership of a majority voting interest in the entity. The Corporation is
currently studying the impact of this Interpretation on its investments in trust
preferred securities, but believes the effect of the adoption will not have a
material impact on the results of operations, financial position or cash flows
of the Corporation.


                                       20
<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.


                                       21
<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, 2003 and 2002, 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, 2003. 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, 2003 and
2002, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2003, 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 23, 2004


                                       22
<PAGE>

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

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

(in thousands, except share data)                                        December 31,
                                                                   =======================
                                                                      2003          2002
<S>                                                                <C>          <C>
Assets
  Cash and due from banks ......................................   $   77,112   $   87,638
  Federal funds sold ...........................................       32,415       31,400
                                                                   ----------   ----------
  Cash and cash equivalents ....................................      109,527      119,038
  Interest-bearing time deposits ...............................        8,141        3,568
  Investment securities
    Available for sale .........................................      348,860      332,925
    Held to maturity (fair value of $8,326 and $9,585) .........        7,937        9,137
                                                                   ----------   ----------
      Total investment securities ..............................      356,797      342,062
  Mortgage loans held for sale .................................        3,043       21,545
  Loans, net of allowance for loan losses of $25,493 and $22,417    2,328,010    1,981,960
  Premises and equipment .......................................       39,639       38,645
  Federal Reserve and Federal Home Loan Bank stock .............       15,502       11,409
  Interest receivable ..........................................       16,840       17,346
  Core deposit intangibles .....................................       24,044       19,577
  Goodwill .....................................................      118,679       87,640
  Cash value of life insurance .................................       37,927       14,309
  Other assets .................................................       18,663       21,588
                                                                   ----------   ----------
      Total assets .............................................   $3,076,812   $2,678,687
                                                                   ==========   ==========

Liabilities
  Deposits
    Noninterest-bearing ........................................   $  338,201   $  272,128
    Interest-bearing ...........................................    2,023,900    1,764,560
                                                                   ----------   ----------
      Total deposits ...........................................    2,362,101    2,036,688
  Borrowings ...................................................      383,170      356,927
  Interest payable .............................................        4,680        6,019
  Other liabilities ............................................       22,896       17,924
                                                                   ----------   ----------
      Total liabilities ........................................    2,772,847    2,417,558

COMMITMENTS AND CONTINGENT LIABILITIES

Stockholders' equity
  Preferred stock, no-par value
    Authorized and unissued -- 500,000 shares
  Common stock, $.125 stated value
    Authorized -- 50,000,000 shares
    Issued and outstanding -- 18,512,834 and 17,138,885 shares .        2,314        2,142
  Additional paid-in capital ...................................      150,310      116,401
  Retained earnings ............................................      149,096      138,110
  Accumulated other comprehensive income .......................        2,245        4,476
                                                                   ----------   ----------
      Total stockholders' equity ...............................      303,965      261,129
                                                                   ----------   ----------
      Total liabilities and stockholders' equity ...............   $3,076,812   $2,678,687
                                                                   ==========   ==========
</TABLE>

See notes to consolidated financial statements


                                       23
<PAGE>

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

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

(in thousands, except share data)                        Year Ended December 31,
                                                     ===============================
                                                       2003       2002        2001
<S>                                                  <C>        <C>        <C>
Interest income
  Loans receivable
    Taxable ......................................   $141,236   $129,279   $ 103,123
    Tax exempt ...................................        707        638         438
  Investment securities
    Taxable ......................................      6,105      9,086      11,207
    Tax exempt ...................................      6,270      6,190       4,103
  Federal funds sold .............................        487        557         899
  Deposits with financial institutions ...........         76        197         106
  Federal Reserve and Federal Home Loan Bank stock        649        735         559
                                                     --------   --------   ---------
      Total interest income ......................    155,530    146,682     120,435
                                                     --------   --------   ---------
Interest expense
  Deposits .......................................     34,858     39,700      45,856
  Securities sold under repurchase agreements ....      1,521      2,060       3,208
  Federal Home Loan Bank advances ................      9,439      8,166       6,556
  Trust preferred securities .....................      4,931      3,324
  Other borrowings ...............................      1,639        509         454
                                                     --------   --------   ---------
      Total interest expense .....................     52,388     53,759      56,074
                                                     --------   --------   ---------
Net interest income ..............................    103,142     92,923      64,361
  Provision for loan losses ......................      9,477      7,174       3,576
                                                     --------   --------   ---------

Net interest income
after provision for loan losses ..................     93,665     85,749      60,785
                                                     --------   --------   ---------
Other income
  Fiduciary activities ...........................      6,736      6,258       5,429
  Service charges on deposit accounts ............     11,105      9,330       5,729
  Other customer fees ............................      4,124      3,918       3,166
  Net realized gains (losses) on
    sales of available-for-sale securities .......        950        739        (200)
  Commission income ..............................      2,668      2,203       1,945
  Earnings on cash surrender value
    of life insurance ............................      1,347        689         385
  Net gains and fees on sales of loans ...........      6,388      1,712       1,235
  Other income ...................................      2,584      2,228         854
                                                     --------   --------   ---------
      Total other income .........................     35,902     27,077      18,543
                                                     --------   --------   ---------

Other expenses
  Salaries and employee benefits .................     50,484     39,150      24,711
  Net occupancy expenses .........................      4,894      3,632       2,729
  Equipment expenses .............................      8,073      6,709       4,521
  Marketing expenses .............................      1,797      1,495       1,072
  Outside data processing fees ...................      4,118      3,664       2,243
  Printing and office supplies ...................      1,706      1,597       1,143
  Goodwill and core deposit amortization .........      3,704      2,589       1,682
  Other expenses .................................     16,503     12,173       7,094
                                                     --------   --------   ---------
      Total other expenses .......................     91,279     71,009      45,195
                                                     --------   --------   ---------

Income before income tax .........................     38,288     41,817      34,133
  Income tax expense .............................     10,717     13,981      11,924
                                                     --------   --------   ---------
Net income .......................................   $ 27,571   $ 27,836   $  22,209
                                                     ========   ========   =========

Net income per share:
  Basic ..........................................   $   1.51   $   1.70   $    1.63
  Diluted ........................................       1.50       1.69        1.61
</TABLE>

See notes to consolidated financial statements


                                       24
<PAGE>
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
================================================================================

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
Year Ended December 31,
 (in thousands)                                                                      2003        2002       2001
                                                                                   ========    ========   ========
<S>                                                                                <C>         <C>        <C>
Net income .....................................................................   $ 27,571    $ 27,836   $ 22,209
                                                                                   --------    --------   --------
Other comprehensive income (loss), net of tax:
  Unrealized gains (losses) on securities available for sale:
    Unrealized holding gains (losses) arising during the period,
    net of income tax (expense) benefit of $1,465, $(2,426), $(1,848) ..........     (2,197)      3,639      2,775
    Less: Reclassification adjustment for gains (losses) included in net income,
      net of income tax (expense) benefit of $(380), $(296), $80 ...............        570         443       (120)
  Unrealized loss on pension minimum funding liability:
    Unrealized loss arising during the period,
    net of income tax benefit of $357 and $879 .................................       (536)     (1,318)
                                                                                   --------    --------   --------
                                                                                     (2,231)      1,878      2,895
                                                                                   --------    --------   --------
COMPREHENSIVE INCOME                                                               $ 25,340    $ 29,714   $ 25,104
                                                                                   ========    ========   ========
</TABLE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                       COMMON STOCK         ADDITIONAL               ACCUMULATED
                                                    ---------------------    PAID-IN   RETAINED        OTHER
                                                      SHARES      AMOUNT     CAPITAL    EARNINGS   COMPREHENSIVE     TOTAL
                                                                                                    INCOME (LOSS)
                                                    ----------   --------    --------   --------   -------------   ----------
<S>                                                 <C>           <C>        <C>        <C>         <C>            <C>
Balances, January 1, 2001                           11,611,732    $ 1,451    $ 41,665   $113,244    $       (297)  $  156,063
  Net income for 2001 ...........................                                         22,209                       22,209
  Cash dividends ($.84 per share) ...............                                        (11,127)                     (11,127)
  Other comprehensive income (loss),
    net of tax ..................................                                                          2,895        2,895
  Stock issued under employee benefit plans .....       28,466          4         500                                     504
  Stock issued under dividend reinvestment
    and stock purchase plan .....................       35,348          4         799                                     803
  Stock options exercised .......................       19,627          2         223                                     225
  Stock redeemed ................................     (306,966)       (38)     (6,985)                                 (7,023)
  Issuance of stock related to acquisition ......      677,972         85      14,516                                  14,601
  Five percent (5%) stock dividend ..............      604,128         76        (76)
  Cash paid in lieu of fractional shares ........                                            (22)                         (22)
                                                    ----------   --------    --------   --------   -------------   ----------
Balances, December 31, 2001                         12,670,307      1,584      50,642    124,304           2,598      179,128
  Net income for 2002 ...........................                                         27,836                       27,836
  Cash dividends ($.86 per share) ...............                                        (13,995)                     (13,995)
  Other comprehensive income (loss),
    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
  Net income for 2003 ...........................                                         27,571                       27,571
  Cash dividends ($.90 per share) ...............                                        (16,557)                     (16,557)
  Other comprehensive income (loss),
    net of tax ..................................                                                         (2,231)      (2,231)
  Stock issued under employee benefit plans .....       39,747          5         814                                     819
  Stock issued under dividend reinvestment
    and stock purchase plan .....................       48,168          6       1,218                                   1,224
  Stock options exercised .......................       66,513          8       1,183                                   1,191
  Stock redeemed ................................      (17,915)        (2)       (486)                                   (488)
  Issuance of stock related to acquisition ......    1,173,996        147      31,188                                  31,335
  Five percent (5%) stock dividend ..............      879,577        110        (110)
  Cash paid in lieu of fractional shares ........                                            (28)                         (28)
                                                    ----------   --------    --------   --------   -------------   ----------
Balances, December 31, 2003                         18,512,834   $  2,314    $150,310   $149,096    $      2,245   $  303,965
                                                    ==========   ========    ========   ========    ============   ==========
</TABLE>

See notes to consolidated financial statements.

                                       25
<PAGE>

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                           ===================================
(in thousands, except share data)                            2003         2002         2001
                                                           =========    =========    =========
<S>                                                        <C>          <C>          <C>
Operating activities:
  Net income ...........................................   $  27,571    $  27,836    $  22,209
  Adjustments to reconcile net income to
    net cash provided by operating activities:
    Provision for loan losses ..........................       9,477        7,174        3,576
    Depreciation and amortization ......................       4,769        4,273        2,984
    Mortgage loans originated for sale .................    (212,243)    (140,584)     (22,705)
    Proceeds from sales of mortgage loans ..............     230,745      126,905       22,398
    Net change in
        Interest receivable ............................       1,368          763        2,514
        Interest payable ...............................      (1,695)      (1,318)      (1,727)
    Other adjustments ..................................       5,677       (7,354)       1,963
                                                           ---------    ---------    ---------
        Net cash provided by operating activities             65,669       17,695       31,212
                                                           ---------    ---------    ---------

Investing activities:
  Net change in interest-bearing deposits ..............      (4,573)      10,729       (2,988)
  Purchases of
    Securities available for sale ......................    (260,467)    (182,511)     (34,500)
  Proceeds from maturities of
    Securities available for sale ......................     174,003      164,273      108,692
    Securities held to maturity ........................                    4,307        3,612
  Proceeds from sales of
    Securities available for sale ......................      58,245       21,363          770
  Net change in loans ..................................     (56,825)    (100,650)     (50,384)
  Net cash received (paid) in acquisition ..............      (7,793)     (12,532)       5,261
  Other adjustments ....................................      (6,355)      (5,494)      (2,993)
                                                           ---------    ---------    ---------
        Net cash provided (used) by investing activities    (103,765)    (100,515)      27,470
                                                           ---------    ---------    ---------

Cash flows from financing activities:
  Net change in
    Demand and savings deposits ........................      39,400       34,818       55,640
    Certificates of deposit and other time deposits           14,476      (26,662)     (72,940)
    Borrowings .........................................     (11,452)     106,934       10,823
  Cash dividends .......................................     (16,557)     (13,995)     (11,127)
  Stock issued under employee benefit plans ............         819          658          504
  Stock issued under dividend reinvestment
    and stock purchase plan ............................       1,224          951          803
  Stock options exercised ..............................       1,191          494          225
  Stock redeemed .......................................        (488)      (4,333)      (7,023)
  Cash paid in lieu of issuing fractional shares .......         (28)         (35)         (22)
                                                           ---------    ---------    ---------
        Net cash provided (used) by financing activities      28,585       98,830      (23,117)
                                                           ---------    ---------    ---------
Net change in cash and cash equivalents ................      (9,511)      16,010       35,565
Cash and cash equivalents, beginning of year ...........     119,038      103,028       67,463
                                                           ---------    ---------    ---------
Cash and cash equivalents, end of year .................   $ 109,527    $ 119,038    $ 103,028
                                                           =========    =========    =========
Additional cash flows information:
  Interest paid ........................................   $  53,727    $  53,228    $  56,921
  Income tax paid ......................................      13,952       14,313       12,440
</TABLE>

See notes to consolidated financial statements.



                                       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

     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"), Lafayette Bank and Trust Company ("Lafayette"), and Commerce
National Bank ("Commerce National"), (collectively the "Banks"), Merchants Trust
Company, National Association ("MTC"), First Merchants Insurance Services, Inc.
("FMIS"), First Merchants Reinsurance Company ("FMRC"), Indiana Title Insurance
Company ("ITIC"), CNBC Retirement Services, Inc. ("CRS, Inc."), First Merchants
Capital Trust I ("FMC Trust I"), and CNBC Statutory Trust I ("CNBC Trust I"),
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, First National and Commerce
National operate under national bank charters and provide full banking services,
including trust services. As national banks, First Merchants, Union National,
First National and Commerce 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 operated 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 were subject to the regulation of
the Department of Financial Institutions, State of Indiana, and the FDIC.
Effective January 1, 2004, the Corporation's six state bank subsidiaries, as
noted above, converted each of their state bank charters to national bank
charters.

     The Banks generate commercial, mortgage, and consumer loans and receive
deposits 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 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.


                                       27
<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 held in the Corporation's portfolio 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.


                                       28
<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
economic, environmental or qualitative factors.

Larger commercial loans that exhibit probable or observed credit weaknesses are
subject to individual review. Where appropriate, reserves are allocated to
individual loans based on management's estimate of the borrower's ability to
repay the loan given the availability of collateral, other sources of cash flow
and legal options available to the Corporation. Included in the review of
individual loans are those that are impaired as provided in SFAS No. 114. Any
allowances for impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
fair value of the underlying collateral. The Corporation evaluates the
collectibility of both principal and interest when assessing the need for a loss
accrual. Historical loss rates are applied to other commercial loans not subject
to specific reserve allocations.

Homogenous loans, such as consumer installment and residential mortgage loans
are not individually risk graded. Rather, credit scoring systems are used to
assess credit risks. Reserves are established for each pool of loans using loss
rates based on a five year average net charge-off history by loan category.

Historical loss rates for commercial and consumer loans may be adjusted for
significant factors that, in management's judgment, reflect the impact of any
current conditions on loss recognition. Factors which management considers in
the analysis include the effects of the national and local economies, trends in
the nature and volume of loans (delinquencies, charge-offs and nonaccrual
loans), changes in mix, asset quality trends, risk management and loan
administration, changes in the internal lending policies and credit standards,
collection practices and examination results from bank regulatory agencies and
the Corporation's internal loan review.

An unallocated reserve, primarily based on the factors noted above, is
maintained to recognize the imprecision in estimating and measuring loss when
evaluating reserves for individual loans or pools of loans. Allowances on
individual loans and historical loss rates are reviewed quarterly and adjusted
as necessary based on changing borrower and/or collateral conditions and actual
collection and charge-off experience.


                                       29
<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 10 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. The
Corporation's stock-based employee compensation plans 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 $12,000 in 2003
and $23,000 in 2002 and 2001, 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.


                                       30
<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.

                                                      Year Ended December 31
                                                     2003     2002       2001
                                                   -------   -------   -------
Net income, as reported ........................   $27,571   $27,836   $22,209
Add: Total stock-based employee compensation
   cost included in reported net income, net
   of income taxes .............................        12        23        23
Less: Total stock-based employee compensation
   cost determined under the fair value based
   method, net of income taxes .................    (1,034)   (1,029)     (521)
                                                   -------   -------   -------
Pro forma net income                               $26,549   $26,830   $21,711
                                                   =======   =======   =======

Earnings per share:
   Basic - as reported .........................   $  1.51   $  1.70   $  1.63
   Basic - pro forma ...........................   $  1.46   $  1.64   $  1.59
   Diluted - as reported .......................   $  1.50   $  1.69   $  1.61
   Diluted - pro forma .........................   $  1.45   $  1.63   $  1.58

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 12, 2003.

NOTE 2

BUSINESS COMBINATIONS

     On March 1, 2003, the Corporation acquired 100 percent of the outstanding
stock of CNBC Bancorp, the holding company of Commerce National, CRS, Inc. and
CNBC Trust I. Commerce National is a national chartered bank located in
Columbus, Ohio. CNBC Bancorp was merged into the Corporation, and Commerce
National maintained its national charter as a wholly-owned subsidiary of the
Corporation. CRS, Inc. and the CNBC Trust I are also maintained as wholly-owned
subsidiaries of the Corporation. The Corporation issued approximately 1,225,242
shares of its common stock and approximately $24,562,000 in cash to complete the
transaction. As a result of the acquisition, the Corporation will have an
opportunity to increase its customer base and continue to increase its market
share. The purchase had a recorded acquisition price of $55,729,000, including
goodwill of $30,291,000 none of which is deductible for tax purposes.
Additionally, core deposit intangibles totaling $8,171,000 were recognized and
are being amortized over 10 years using the 150 percent declining balance
method.


                                       31
<PAGE>

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

NOTE 2

BUSINESS COMBINATIONS continued

     The combination was accounted for under the purchase method of accounting.
All assets and liabilities were recorded at their fair values as of March 1,
2003. The purchase accounting adjustments are being amortized over the life of
the respective asset or liability. Commerce National's results of operations are
included in the Corporation's consolidated income statement beginning March 1,
2003. The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition.

     Investments ...................  $ 12,500
     Loans .........................   298,702
     Premises and equipment ........     1,293
     Core deposit intangibles ......     8,171
     Goodwill ......................    30,291
     Other .........................    20,789
                                      --------
       Total assets acquired .......   371,746
                                      --------
     Deposits ......................   271,537
     Other .........................    44,480
                                      --------
       Total liabilities acquired ..   316,017
                                      --------
       Net assets acquired .........  $ 55,729
                                      ========

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

                                          Year Ended
                                          December 31,
                                        2003       2002
                                      --------   --------
     Net Interest Income ...........  $104,797   $102,641

     Net Income ....................    23,601     29,454

     Per Share - combined:
       Basic Net Income ............      1.28       1.67
       Diluted Net Income ..........      1.27       1.66

     Effective January 1, 2003, the Corporation formed 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 have been eliminated in the consolidated financial
statements of the Corporation.


                                       32
<PAGE>

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

NOTE 2

BUSINESS COMBINATIONS continued

     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 38,090 shares of its common stock at
a cost of $26.16 per share to complete the transaction. This acquisition was
deemed to be an immaterial acquisition.

     On April 1, 2002, the Corporation acquired 100 percent of the outstanding
stock of Lafayette Bancorporation, the holding company of Lafayette, which is
located in Lafayette, Indiana. Lafayette was a state chartered bank with
branches located in central Indiana. Lafayette Bancorporation was merged into
the Corporation, and Lafayette maintained its bank charter as a subsidiary of
First Merchants Corporation. The Corporation issued approximately 3,057,298
shares of its common stock at a cost of $21.30 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 are being amortized over 10 years using the 150 percent 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
                                      --------


                                       33
<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                    1.61        1.71
      Diluted Net Income                  1.60        1.70

     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 114,365 shares of its common stock at a cost of
$21.31 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 percent ownership interest. This acquisition was deemed
to be an immaterial acquisition.

     On July 1, 2001, the Corporation acquired 100 percent of the outstanding
stock of Francor Financial, Inc., the holding company of Frances Slocum.
Frances Slocum was a state chartered bank with branches located in east-central
Indiana. Francor Financial, Inc. was merged into the Corporation, and Frances
Slocum maintained its bank charter as a subsidiary of First Merchants
Corporation. The Corporation issued 784,838 shares of its common stock at a cost
of $19.53 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 are being amortized over 10
years using the 150 percent 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.


                                       34
<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 2001.

                                       Year Ended
                                      December 31,

                                          2001
                                       ---------
     Net Interest Income               $  67,352

     Net Income                           21,876

     Per share - combined:
       Basic Net Income                     1.55
       Diluted Net Income                   1.54

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, 2003, was
$15,092,000.


                                       35
<PAGE>

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

NOTE 4

INVESTMENT SECURITIES

<TABLE>
<CAPTION>
                                                 ------------------------------------------
                                                             GROSS        GROSS
                                                AMORTIZED  UNREALIZED  UNREALIZED   FAIR
                                                   COST      GAINS       LOSSES     VALUE
                                                 ========   ========    ========   ========
<S>                                              <C>        <C>         <C>        <C>
Available for sale at December 31, 2003
  U.S. Treasury .............................    $  1,498                          $  1,498
  Federal agencies ..........................      38,290   $    523    $     52     38,761
  State and municipal .......................     118,794      6,932          86    125,640
  Mortgage-backed securities ................     174,208        813       1,817    173,204
  Corporate obligations .....................         500         16                    516
  Marketable equity securities ..............       9,237          4                  9,241
                                                 --------   --------    --------   --------
    Total available for sale ................     342,527      8,288       1,955    348,860
                                                 --------   --------    --------   --------

Held to maturity at December 31, 2003
  State and municipal .......................       7,860        389                  8,249
  Mortgage-backed securities ................          77                                77
                                                 --------   --------    --------   --------
    Total held to maturity ..................       7,937        389                  8,326
                                                 --------   --------    --------   --------
    Total investment securities .............    $350,464   $  8,677    $  1,955   $357,186
                                                 ========   ========    ========   ========


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
                                                 ========   ========    ========   ========
</TABLE>

     Certain investments in debt securities are reported in the financial
statements at an amount less than their historical cost. The historical cost of
these investments totaled $102,973,000 at December 31, 2003. Total fair value of
these investments at December 31, 2003, was $101,018,000, which is approximately
28.3 percent of the Corporation's available-for-sale and held-to-maturity
investment portfolio. These declines primarily resulted from recent increases in
market interest rates and failure of certain investments to maintain consistent
credit quality ratings (or meet projected earnings targets).

     Based on evaluation of available evidence, including recent changes in
market interest rates, credit rating information and information obtained from
regulatory filings, management believes the declines in fair value for these
securities are temporary.

     Should the impairment of any of these securities become
other-than-temporary, the cost basis of the investment will be reduced and the
resulting loss recognized in net income in the period the other-than-temporary
impairment is identified.


                                       36
<PAGE>

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

NOTE 4

INVESTMENT SECURITIES continued

     The following table shows the Corporation's gross unrealized losses and
fair value, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position at December 31,
2003:

<TABLE>
<CAPTION>
                                                             Less than 12         12 Months or               Total
                                                                Months                Longer
                                                         -------------------------------------------------------------
                                                                     GROSS                GROSS                GROSS
                                                           FAIR    UNREALIZED    FAIR  UNREALIZED    FAIR   UNREALIZED
                                                          VALUE      LOSSES     VALUE    LOSSES      VALUE    LOSSES
                                                         --------   --------    ------   ------    --------   --------
<S>                                                      <C>        <C>         <C>      <C>       <C>        <C>
Federal agencies .....................................   $  7,410   $    (50)   $  747   $   (2)   $  8,157   $    (52)
State and municipal ..................................      2,547        (82)      166       (4)      2,713        (86)
Mortgage-backed securities ...........................     90,148     (1,817)                        90,148     (1,817)
                                                         --------   --------    ------   ------    --------   --------
   Total temporarily impaired investment securities ..   $100,105   $ (1,949)   $  913   $   (6)   $101,018   $ (1,955)
                                                         ========   ========    ======   ======    ========   ========
</TABLE>

     The amortized cost and fair value of securities available for sale and held
to maturity at December 31, 2003, 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    FAIR    AMORTIZED  FAIR
                                                         COST        VALUE     COST     VALUE
                                                        ========   ========   ======   ======
<S>                                                     <C>        <C>        <C>      <C>
Maturity distribution at December 31, 2003:
  Due in one year or less ...........................   $ 17,557   $ 17,753   $1,485   $1,493
  Due after one through five years ..................     55,723     57,244    4,060    4,243
  Due after five through ten years ..................     41,274     43,851    1,086    1,247
  Due after ten years ...............................     44,528     47,567    1,229    1,266
                                                        --------   --------   ------   ------
                                                         159,082    166,415    7,860    8,249

  Mortgage-backed securities ........................    174,208    173,204       77       77
  Marketable equity securities ......................      9,237      9,241
                                                        --------   --------   ------   ------

     Totals .........................................   $342,527   $348,860   $7,937   $8,326
                                                        ========   ========   ======   ======
</TABLE>

     Securities with a carrying value of approximately $158,474,000 and
$136,269,000 were pledged at December 31, 2003 and 2002 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 2003, 2002 and
2001 were $58,245,000, $21,363,000 and $770,000. Gross gains of $950,000 and
$739,000 in 2003 and 2002 and gross losses of $200,000 in 2001, were realized on
those sales. In addition, losses of $615,000 were recorded during 2003 due to a
permanent decline in the values of two securities.


                                       37
<PAGE>

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

NOTE 5

LOANS AND ALLOWANCE

<TABLE>
<CAPTION>
                                                                         2003          2002
                                                                     ===========   ===========
<S>                                                                  <C>           <C>
Loans at December 31:
  Commercial and industrial loans ................................   $   443,140   $   406,644
  Agricultural production financing and other loans to farmers ...        95,048        85,059
  Real estate loans:
       Construction ..............................................       149,865       133,896
       Commercial and farmland ...................................       564,578       401,561
       Residential ...............................................       866,477       746,349
  Individuals' loans for household and other personal expenditures       196,093       206,083
  Tax-exempt loans ...............................................        16,363        12,615
  Other loans ....................................................        21,939        12,170
                                                                     -----------  ------------
                                                                       2,353,503     2,004,377
Allowance for loan losses ........................................       (25,493)      (22,417)
                                                                     -----------  ------------
        Total loans ..............................................   $ 2,328,010   $ 1,981,960
                                                                     ===========   ===========
</TABLE>


                                       2003       2002       2001
                                     ========   ========   ========
Allowance for loan losses:
  Balance, January 1 ............... $ 22,417   $ 15,141   $ 12,454
  Allowance acquired in acquisitions    3,727      6,902      2,085
  Provision for losses .............    9,477      7,174      3,576

  Recoveries on loans ..............    2,011      1,313        573
  Loans charged off ................  (12,139)    (8,113)    (3,547)
                                     --------   --------   --------
  Balance, December 31 ............. $ 25,493   $ 22,417   $ 15,141
                                     ========   ========   ========

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


                                       2003     2002      2001
                                     =======   =======   =======
At December 31:
Non-accrual loans .................. $19,453   $14,134   $ 6,327

Loans contractually past due 90 days
 or more other than nonaccruing ....   6,530     6,676     4,828

Restructured loans .................     641     2,508     3,511
                                     -------   -------   -------
   Total non-performing loans ...... $26,624   $23,318   $14,666
                                     =======   =======   =======


                                       38
<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:       2003       2002       2001
                                                        =======    =======    =======
<S>                                                     <C>        <C>        <C>
As of, and for the year ending December 31:
   Impaired loans with an allowance .................   $12,725    $16,901    $10,381
   Impaired loans for which the discounted
      cash flows or collateral value exceeds the
      carrying value of the loan ....................    32,047     27,450     10,780
                                                        -------    -------    -------
        Total impaired loans ........................   $44,772    $44,351    $21,161
                                                        =======    =======    =======
  Total impaired loans as a percent
      of total loans ................................      1.90%      2.19%      1.56%

   Allowance for impaired loans (included in the
      Corporation's allowance for loan losses) ......   $ 5,728    $ 7,299    $ 3,251
   Average balance of impaired loans ................    50,245     49,663     22,327
   Interest income recognized on impaired loans .....     3,259      3,656      1,538
   Cash basis interest included above ...............     2,714      2,344      1,555
</TABLE>

NOTE 6

PREMISES AND EQUIPMENT

                                                2003        2002
                                              ========    ========
Cost at December 31:
   Land ....................................  $  7,463    $  6,473
   Buildings and leasehold improvements ....    40,308      39,768
   Equipment ...............................    38,777      34,898
                                              --------    --------
       Total cost ..........................    86,548      81,139
   Accumulated depreciation and amortization   (46,909)    (42,494)
                                              --------    --------
       Net .................................  $ 39,639    $ 38,645
                                              ========    ========

     The Corporation is committed under various noncancelable lease contracts
for certain subsidiary office facilities. Total lease expense for 2003, 2002
and 2001 was $1,629,000, $1,027,000, and $771,000, respectively. The future
minimum rental commitments required under the operating leases in effect at
December 31, 2003, expiring at various dates through the year 2013 are as
follows for the years ending December 31:

                                     ======
2004 .............................   $1,563
2005 .............................    1,447
2006 .............................    1,327
2007 .............................    1,112
2008 .............................      916
After 2008 .......................    3,255

Total future minimum obligations     $9,620
                                     ======


                                       39
<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 net income would have increased by $1,070,000. No impairment loss
was recorded in 2003 and 2002.

     The changes in the carrying amount of goodwill are as follows:

                              2003      2002
                            ========   =======
Balance, January 1 ......   $ 87,640   $26,081
Goodwill acquired .......     30,291    60,122
Adjustments to previously
  acquired goodwill .....        748     1,437
                            --------   -------
Balance, December 31 ....   $118,679   $87,640
                            ========   =======
NOTE 8

CORE DEPOSIT INTANGIBLES

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

                                2003         2002
                              ========    ========
Gross carrying amount ......  $ 31,073    $ 22,902
Accumulated amortization ...    (7,029)     (3,325)

   Core deposit intangibles   $ 24,044    $ 19,577
                              ========    ========

     Amortization expense for the years ended December 31, 2003, 2002 and 2001,
was $3,704,000, $2,571,000 and $612,000, respectively. Estimated amortization
expense for each of the following five years is:

     2004 ............  $3,348
     2005 ............   3,064
     2006 ............   3,013
     2007 ............   3,013
     2008 ............   3,013


                                       40
<PAGE>

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

NOTE 9

DEPOSITS

                                            2003         2002
                                         ==========   ==========
Deposits at December 31:

  Demand deposits ....................   $  706,202   $  594,961
  Savings deposits ...................      643,328      567,186
  Certificates and other time deposits
    of $100,000 or more ..............      279,810      199,734
  Other certificates and time deposits      732,761      674,807
                                         ----------   ----------
       Total deposits ...............    $2,362,101   $2,036,688
                                         ==========   ==========

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

2004 ...............   $  619,528
2005 ...............      188,247
2006 ...............       82,929
2007 ...............       77,822
2008 ...............       40,122
After 2008 .........        3,923
                       ----------
                       $1,012,571
                       ==========

NOTE 10

BORROWINGS

                                                        2003       2002
                                                      ========   ========
Borrowings at December 31:
  Securities sold under repurchase agreements ...     $ 71,095   $ 89,594
  Federal Home Loan Bank advances ...............      212,779    184,677
  Trust preferred securities ....................       57,188     53,188
  Subordinated debentures, revolving credit
    and term loans ..............................       40,594     19,300
  Other borrowed funds ..........................        1,514     10,168
                                                      --------   --------
      Total borrowings ..........................     $383,170   $356,927
                                                      ========   ========

     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 2003 and 2002 totaled $74,969,000
and $89,594,000, and the average of such agreements totaled $70,354,000 and
$72,791,000 during 2003 and 2002.


                                       41
<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, 2003, 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:

    2004 ..................................   $ 22,750           4.36%      $71,095           1.44%
    2005 ..................................     24,500           3.77
    2006 ..................................     23,882           4.80
    2007 ..................................     14,495           4.28
    2008 ..................................     17,464           4.36
    After 2008 ............................    109,688           5.10
                                              --------                      -------
          Total ...........................   $212,779           4.72%      $71,095           1.44%
                                              ========                      =======
</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.

     Trust Preferred Securities. On April 12, 2002, the Corporation and First
Merchants Capital 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 percent 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 percent 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, 2003 and
2003, balance sheets. 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.


                                       42
<PAGE>

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

NOTE 10

BORROWINGS continued

     As part of the March 1, 2003, acquisition of CNBC Bancorp ("CNBC"),
referenced in Note 2 to the consolidated financial statements, the Corporation
assumed $4.0 million of 10.20 percent fixed rate obligated mandatory redeemable
capital securities issued in February 2001 through a subsidiary trust of CNBC as
part of a pooled offering. The Corporation may redeem them, in whole or in part,
at its option commencing February 22, 2011, at a redemption price of 105.10
percent of the outstanding principal amount and, thereafter, at a premium which
declines annually. On or after February 22, 2021, the securities may be redeemed
at face value with prior approval of the Board of Governors of the Federal
Reserve System. The securities are recorded as borrowings in the Corporation's
consolidated December 31, 2003, balance sheet and treated as Tier 1 Capital for
regulatory capital purposes.

Subordinated Debentures, Revolving Credit Lines and Term Loans. On December 31,
2003, borrowings included $40,594,000 which represents the outstanding balance
of a Loan and Subordinated Debenture Loan Agreement ("Agreement") entered into
with LaSalle Bank, N.A. on March 25, 2003. The Agreement includes three credit
facilities:

          The Term Loan of  $5,000,000 matures on March 25, 2010.  Interest is
          calculated at a floating rate equal to the lender's prime rate or
          LIBOR plus 1.50 percent. The Term Loan is secured by 100 percent of
          the common stock of First Merchants Bank, N.A. and 100 percent of the
          common stock of Lafayette Bank and Trust Company. The Agreement
          contains several restrictive covenants, including the maintenance of
          various capital adequacy levels, asset quality and profitability
          ratios, and certain restrictions on dividends and other indebtedness.

          The Revolving Loan had a balance of $10,594,000 at December 31, 2003.
          Interest is payable quarterly based on LIBOR plus 1 percent. Principal
          and interest are due on or before March 23, 2004. The total principal
          amount outstanding at any one time may not exceed $20,000,000.  The
          Revolving Loan is secured by 100 percent of the common stock of First
          Merchants Bank, N.A. and 100 percent of the common stock of Lafayette
          Bank and Trust Company. The Agreement contains several restrictive
          covenants, including the maintenance of various capital adequacy
          levels, asset quality and profitability ratios, and certain
          restrictions on dividends and other indebtedness.

          The Subordinated Debt of $25,000,000 is unsecured and matures on
          March 25, 2010.  Interest is calculated at a floating rate equal to,
          at the Corporation's option, either the lender's prime rate or LIBOR
          plus 2.50 percent.  The Subordinated Debentures are treated as Tier 2
          capital for regulatory capital purposes.


                                       43
<PAGE>

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

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 $105,865,000,
$90,346,000 and $71,640,000 at December 31, 2003, 2002 and 2001. The amount of
capitalized servicing assets is considered immaterial.

NOTE 12

INCOME TAX

<TABLE>
<CAPTION>
                                                               2003        2002        2001
                                                             ========    ========    ========
<S>                                                          <C>         <C>         <C>
Income tax expense for the year ended December 31:
  Currently payable:
     Federal ............................................... $  9,475    $ 11,869    $  9,098
     State .................................................    1,569       2,615       2,210
  Deferred:
     Federal ...............................................     (597)       (446)        406
     State .................................................      270         (57)        210
                                                             --------    --------    --------
        Total income tax expense ........................... $ 10,717    $ 13,981    $ 11,924
                                                             ========    ========    ========

Reconciliation of federal statutory to actual tax expense:
     Federal statutory income tax at 34% ................... $ 13,030    $ 14,085    $ 11,539
     Tax-exempt interest ...................................   (2,198)     (2,006)     (1,319)
     Graduated tax rates ...................................      289         355         312
     Effect of state income taxes ..........................    1,213       1,613       1,597
     Earnings on life insurance ............................     (512)       (133)        (78)
     Tax credits ...........................................     (317)       (293)       (330)
     Other .................................................     (788)        360         203
                                                             --------    --------    --------
        Actual tax expense ................................. $ 10,717    $ 13,981    $ 11,924
                                                             ========    ========    ========
</TABLE>

     Tax expense (benefit) applicable to security gains and losses for the years
ended December 31, 2003, 2002 and 2001, was $380,000, $296,000 and ($80,000),
respectively.

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

                                                           2003         2002
                                                         ========    ========
Deferred tax liability at December 31:
Assets:
   Differences in accounting for loan losses .........   $ 11,305    $  8,820
   Deferred compensation ..............................     2,514       1,949
   State income tax ...................................        18
   Other ..............................................       135         157
                                                         --------    --------
       Total assets ...................................    13,972      10,926
                                                         --------    --------
Liabilities:
   Differences in depreciation methods ................     3,061       1,058
   Differences in accounting for loans and securities .     9,905       7,072
   Differences in accounting for loan fees ............       715         383
   Differences in accounting for pensions
     and other employee benefits ......................       861          86
   State income tax ...................................                    57
   Net unrealized gain on securities available for sale     2,123       2,513
   Other ..............................................     1,102       1,040
                                                         --------    --------
       Total liabilities ..............................    17,767      12,209
                                                         --------    --------
       Net deferred tax liability .....................  $ (3,795)   $ (1,283)
                                                         ========    ========


                                       44
<PAGE>

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

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:

                       2003            2002
                     --------        --------
Commitments
to extend credit     $481,771        $312,146

Standby letters
of credit              25,242          18,124

     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.


                                       45
<PAGE>

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

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, 2003, First Merchants, First United,
Union National and Decatur had no retained net profits available for 2004
dividends to the Corporation without prior regulatory approval. The amount at
December 31, 2003, available for 2004 dividends from Madison, Randolph County,
First National, Frances Slocum, Lafayette and Commerce National to the
Corporation totaled $1,245,000, $583,000, $238,000, $1,624,000, $8,213,000 and
$3,653,000, respectively.

     Total stockholders' equity for all subsidiaries at December 31, 2003, was
$385,061,000, of which $360,651,000 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, 2003, there were
326,061 shares of common stock reserved for purchase under the plan.

     On August 15, 2003, 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 12, 2003, to holders of record on August
29, 2003.

     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.


                                       46
<PAGE>

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

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, 2003, 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.


                                       47
<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>
                                                                    2003                                   2002
                                                 --------------------------------------  --------------------------------------
                                                                       REQUIRED FOR                            REQUIRED FOR
                                                       ACTUAL       ADEQUATE CAPITAL (1)      ACTUAL       ADEQUATE CAPITAL (1)
                                                  AMOUNT    RATIO     AMOUNT     RATIO    AMOUNT   RATIO     AMOUNT      RATIO
                                                 ========   =====   ========     =====   ========   =====   =========    =====
<S>                                              <C>        <C>      <C>         <C>     <C>        <C>      <C>          <C>
December 31
Total Capital (1)(to risk-weighted assets)
   Consolidated ...........................      $266,488   11.60%   $183,793    8.00%   $224,967   11.17%   $161,087     8.00%
   First Merchants ........................        67,425   11.08      48,667    8.00      69,424   11.69      47,493     8.00
   Madison ................................        21,682   10.71      16,198    8.00      21,040   11.45      14,706     8.00
   First United ...........................         6,679   10.95       4,882    8.00       7,429   12.97       4,581     8.00
   Randolph County ........................         8,023   11.20       5,731    8.00       7,616   11.27       5,407     8.00
   Union County ...........................        15,679   11.37      11,032    8.00      16,636   12.35      10,778     8.00
   First National .........................        10,643   12.25       6,951    8.00      10,211   11.37       7,182     8.00
   Decatur ................................        11,273   11.84       7,616    8.00      11,462   11.77       7,789     8.00
   Frances Slocum .........................        18,173   15.19       9,571    8.00      16,259   11.68      11,132     8.00
   Lafayette ..............................        70,401   11.32      49,765    8.00      67,912   11.00      49,387     8.00
   Commerce National ......................        36,698   12.31      23,851    8.00

Tier I Capital (1)(to risk-weighted assets)
   Consolidated ...........................      $215,995    9.40%   $ 91,896    4.00%   $202,550   10.06%   $ 80,543     4.00%
   First Merchants ........................        59,858    9.84      24,334    4.00      63,776   10.74      23,746     4.00
   Madison ................................        19,473    9.62       8,099    4.00      18,978   10.32       7,353     4.00
   First United ...........................         5,985    9.81       2,441    4.00       6,713   11.72       2,290     4.00
   Randolph County ........................         7,160   10.00       2,865    4.00       6,771   10.02       2,703     4.00
   Union County ...........................        14,067   10.20       5,516    4.00      15,202   11.28       5,389     4.00
   First National .........................         9,750   11.22       3,476    4.00       9,324   10.39       3,591     4.00
   Decatur ................................        10,268   10.79       3,808    4.00      10,242   10.52       3,895     4.00
   Frances Slocum .........................        16,669   13.93       4,785    4.00      14,510   10.43       5,566     4.00
   Lafayette ..............................        64,982   10.45      24,883    4.00      61,111    9.90      24,694     4.00
   Commerce National ......................        27,472    9.21      11,926    4.00

Tier I Capital (1) (to average assets)
   Consolidated ...........................      $215,995    7.38%   $117,110    4.00%  $ 202,550    7.92%   $102,309     4.00%
   First Merchants ........................        59,858    7.37      32,475    4.00      63,776    8.14      31,327     4.00
   Madison ................................        19,473    8.07       9,658    4.00      18,978    8.47       8,959     4.00
   First United ...........................         5,985    6.99       3,426    4.00       6,713    8.32       3,226     4.00
   Randolph County ........................         7,160    7.89       3,632    4.00       6,771    7.64       3,546     4.00
   Union County ...........................        14,067    7.30       7,709    4.00      15,202    7.38       8,239     4.00
   First National .........................         9,750    8.53       4,571    4.00       9,324    8.20       4,547     4.00
   Decatur ................................        10,268    7.61       5,400    4.00      10,242    7.66       5,350     4.00
   Frances Slocum .........................        16,669   10.52       6,341    4.00      14,510    8.37       6,933     4.00
   Lafayette ..............................        64,982    8.02      32,397    4.00      61,111    7.93      30,813     4.00
   Commerce National ......................        27,472    7.78      14,133    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.


                                       48
<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, using measurement dates of
September 30, 2003 and 2002.

                                                                December 31
                                                             2003        2002
                                                           ========    ========
Change in benefit obligation
     Benefit obligation at beginning of year ............  $ 44,718    $ 20,172
     Obligation acquired in acquisition .................                17,712
     Service cost .......................................     1,564       2,007
     Interest cost ......................................     2,617       2,470
     Actuarial (gain) loss ..............................    (1,667)      3,971
     Benefits paid ......................................    (1,653)     (1,614)
                                                           --------    --------
     Benefit obligation at end of year ..................    45,579      44,718
                                                           --------    --------
Change in plan assets
     Fair value of plan assets at beginning of year .....    31,650      20,638
     Fair value of plan assets acquired in acquisition ..                15,507
     Actual return (loss) on plan assets ................     3,876      (2,881)
     Benefits paid ......................................    (1,653)     (1,614)
     Employer contributions .............................        67
                                                           --------    --------
     Fair value of plan assets at end of year ...........    33,940      31,650
                                                           --------    --------
     Unfunded status ....................................   (11,639)    (13,068)
     Unrecognized net actuarial loss ....................     9,656      12,940
     Unrecognized prior service cost ....................     1,834       1,986
     Unrecognized transition asset ......................      (178)       (329)
                                                           --------    --------
     Prepaid benefit cost (liability) ...................      (327)      1,529
     Additional pension liability .......................    (4,924)     (3,810)
                                                           --------    --------
     Net minimum liability ..............................  $ (5,251)   $ (2,281)
                                                           ========    ========

Amounts recognized in the balance sheets consist of:
     Prepaid benefit cost (liability) ...................  $   (327)   $  1,529
     Additional pension liability .......................    (4,924)     (3,810)
     Intangible asset ...................................     1,834       1,613
     Deferred taxes .....................................     1,236         879
     Accumulated other comprehensive loss ...............     1,854       1,318
                                                           --------    --------
Net amount recognized ...................................  $   (327)   $  1,529
                                                           ========    ========

     At December 31, 2003 and 2002, the plans' accumulated benefit obligation
totaled $39,192,000 and $33,929,000. The Corporation's planned contributions to
its defined-benefit pension plans in 2004 total $3,314,000, of which $2,108,000
is required and $1,206,000 is discretionary.

     At September 30, 2003 the plans' assets were allocated 67 percent to equity
securities, 25 percent to debt securities, and 8 percent to real estate and
other plan assets. The targeted allocation for those categories of plan assets
are 40 to 80 percent, 20 to 60 percent, and 0 to 15 percent, respectively.


                                       49
<PAGE>

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

NOTE 16

EMPLOYEE BENEFIT PLANS continued

<TABLE>
<CAPTION>
                                                                2003      2002(1)  2001
                                                              =======   =======    ======
<S>                                                           <C>       <C>       <C>
Pension cost (benefit) includes the following components:
    Service cost-benefits earned during the year ...........  $ 1,564   $ 1,770   $   926
    Interest cost on projected benefit obligation ..........    2,617     2,202     1,269
    Actual (return) loss on plan assets ....................   (3,876)    2,654     2,305
    Net amortization and deferral ..........................    1,617    (5,674)   (4,858)
                                                              -------   --------  -------
        Total pension cost (benefit) .......................  $ 1,922   $   952   $  (358)
                                                              =======   =======    ======
</TABLE>

(1) Lafayette components are included beginning as of April 1, 2002.

<TABLE>
<CAPTION>
                                                                2003       2002      2001
                                                               =====      =====     =====
<S>                                                             <C>        <C>       <C>
Assumptions used in the accounting as of December 31 were:
      Discount rate ........................................    6.25%      6.75%     7.11%
      Rate of increase in compensation .....................    4.00%      4.00%     4.00%
      Expected long-term rate of return on assets ..........    8.00%      8.14%     9.00%
</TABLE>

     The above assumptions used to measure benefit obligations as of the plan's
measurement date were the same assumptions used to determine the net benefit
cost.

     At September 30, 2003, the Corporation based its estimate of the expected
long-term rate of return on analysis of the historical returns of the plans and
current market information available. The plans' investment strategies are to
provide for preservation of capital with an emphasis on long-term growth without
undue exposure to risk. The assets of the plans' are invested in accordance with
the plans' Investment Policy Statement, subject to strict compliance with ERISA
and any other applicable statutes.

     The plans' risk management practices include quarterly evaluations of
investment managers, including reviews of compliance with investment manager
guidelines and restrictions; ability to exceed performance objectives; adherence
to the investment philosophy and style; and ability to exceed the performance of
other investment managers. The evaluations are reviewed by management with
appropriate follow-up and actions taken, as deemed necessary. The Investment
Policy Statement generally allows investments in cash and cash equivalents, real
estate, fixed income debt securities and equity securities, and specifically
prohibits investments in derivatives, options, futures, private placements,
short selling, non-marketable securities and purchases of non-investment grade
bonds.

     At December 31, 2003 the maturities of the plans' debt securities ranged
from 59 days to 5.6 years, with a weighted average maturity of 2.5 years.

     The 1994 Stock Option Plan reserved 546,978 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. No shares remain available for
grant under the 1994 Plan.


                                       50
<PAGE>

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

NOTE 16

EMPLOYEE BENEFIT PLANS continued

     This number does not include shares remaining available for future issuance
under the 1999 Long-term Equity Incentive Plan, which was approved by the
Corporation's shareholders at the 1999 annual meeting. The aggregate number of
shares that are available for grants under that Plan in any calendar year is
equal to the sum of: (a) 1 percent of the number of common shares of the
Corporation outstanding as of the last day of the preceding calendar year; plus
(b) the number of shares that were available for grants, but not granted, under
the Plan in any previous year; but in no event will the number of shares
available for grants in any calendar year exceed 1.5 percent of the number of
common shares of the Corporation outstanding as of the last day of the preceding
calendar year. The 1999 Long-term Equity Incentive Plan will expire in 2009.

     In December 2003, the Corporation's board of directors approved the 2004
Employee Stock Purchase Plan ("2004 Plan"). The 2004 Plan includes terms that
are substantially the same as the 1999 Plan. Implementation of the 2004 Plan is
subject to approval by stockholders of the Corporation.

     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, 2003, 2002 and 2001.

<TABLE>
<CAPTION>

Year Ended December 31,                                      2003                       2002                    2001
                                                   -----------------------   -----------------------   ------------------------
                                                      WEIGHTED-AVERAGE          WEIGHTED-AVERAGE           WEIGHTED-AVERAGE
                                                                  EXERCISE                  EXERCISE                   EXERCISE
        OPTIONS                                    SHARES          PRICE     SHARES          PRICE     SHARES            PRICE
                                                   =======        =======    =======        =======    =======          =======
<S>                                                <C>            <C>        <C>            <C>        <C>              <C>
Outstanding, beginning of year ..............      842,583        $ 19.89    770,817        $ 17.91    658,290          $ 17.13
Granted .....................................      166,629          23.46    166,760          26.85    143,328            19.70
Exercised ...................................      (69,672)         16.93    (71,538)         12.74    (26,721)            9.81
Cancelled ...................................      (12,116)         22.27    (23,456)         22.18     (4,080)           19.85
                                                   -------                   -------                   -------
Outstanding, end of year ....................      948,996        $ 20.71    842,583        $ 19.89    770,817          $ 17.91
                                                   =======                   =======                   =======
Options exercisable at year end .............      653,040                   569,758                   519,710
Weighted-average fair value of
   options granted during the year ..........                     $  5.99                   $  7.47                     $  5.71
</TABLE>

As of December  31, 2003,  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>
$  11.18 - $19.65        384,297          $16.48                  3.9 years              384,187           $16.48

   19.73 -  23.46        332,948           21.71                  8.2 years              167,763            20.01

   23.99 -  27.28        231,751           26.28                  7.2 years              101,090            25.49
                         -------                                                         -------
                         948,996          $20.71                  6.2 years              653,040           $18.79
                         =======                                                         =======
</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.


                                       51
<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:

                                        2003          2002          2001

Risk-free interest rates ..........     3.55%         4.78%         5.32%

Dividend yields ...................     3.65%         3.63%         3.59%

Volatility factors of expected
    market price common stock .....    31.29%        31.02%        30.95%

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 289,406 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 41,734 shares in
2003 at $19.64 per share. The fair value on the purchase date was $23.46.

     At December 31, 2003, there were 163,244 shares of Corporation common stock
reserved for purchase under the plan. $487,000 has been withheld from
compensation, plus interest, toward the purchase of shares during the current
offering period expiring on June 30, 2004.


                                       52
<PAGE>

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

NOTE 16

EMPLOYEE BENEFIT PLANS continued

     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 2003, 2002 and 2001, respectively:
dividend yield of 3.65, 3.63, and 3.59 percent; an expected life of one year for
all years; expected volatility of 31.29, 31.02, and 30.95 percent; and risk-free
interest rates of 3.55, 4.78, and 5.32 percent. The fair value of those purchase
rights granted in 2003, 2002 and 2001 was $4.81, $10.14, and $5.10 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 Corporation's expense for the plans
was $600,000 for 2003, $315,000 for 2002, and $190,000 for 2001.

     The Corporation maintains supplemental executive retirement and other
nonqualified retirement plans for the benefit of certain directors and officers.
Under the plans, the Corporation agrees to pay retirement benefits that are
actuarially determined based upon plan participants' compensation amounts and
years of service. Accrued benefits payable totaled $2,511,000 and $2,133,000 at
December 31, 2003 and 2002. Benefit plan expense was $485,000, $436,000 and
$375,000 for 2003, 2002 and 2001.

     The Corporation maintains post-retirement benefit plans that provide health
insurance benefits to retirees. The plans allow retirees to be carried under the
Corporation's health insurance plan, generally from ages 55 to 65. The retirees
pay most of the premiums due for their coverage, with amounts paid by retirees
ranging from 70 to 100 percent of the premiums payable. The accrued benefits
payable under the plans totaled $1,043,000 and $801,000 at December 31, 2003 and
2002. Post-retirement plan expense totaled $240,000, $19,000 and $18,000 for the
years ending December 31, 2003, 2002 and 2001.

     On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. The Act introduces a
prescription drug benefit under Medicare Part D, as well as a federal subsidy to
sponsors of retiree health care benefit plans that provide benefits at least
actuarially equivalent to Medicare Part D. In accordance with FASB Staff
Position 106-1, the Corporation has not reflected the effects of the Act on the
measurements of plan benefit obligations and periodic benefit costs and
accompanying notes. Specific authoritative guidance on the accounting for the
federal subsidy is pending and that guidance, when issued, may require the
Corporation to change previously reported information. Corporation to change
previously reported information.


                                       53
<PAGE>

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

NOTE 17

NET INCOME PER SHARE

<TABLE>
<CAPTION>
                                        =======================================================================================
Year Ended December 31,                             2003                          2002                          2001
                                        ---------------------------   --------------------------  -----------------------------
                                        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                 $27,571  18,233,855  $1.51    $27,836  16,364,788  $1.70   $22,209   13,670,983   $1.63
                                                             =====                         =====                          =====
Effect of dilutive stock options                    137,575                       137,703                        98,502
                                        -------  ----------           -------  ----------          -------   ----------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions             $27,571  18,371,400  $1.50    $27,836  16,502,491  $1.69   $22,209   13,769,485   $1.61
                                        =======  ==========  =====    =======  ==========  =====   =======   ==========   =====
</TABLE>

     Options to purchase 233,658, 162,207, and 123,506 shares of common stock
with weighted average exercise prices of $24.01, $25.94, and $23.58 at December
31, 2003, 2002 and 2001 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.

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.


                                       54
<PAGE>

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

NOTE 18

FAIR VALUES OF FINANCIAL INSTRUMENTS continued

CASH VALUE OF LIFE INSURANCE The fair value of cash 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.

BORROWINGS

The fair value of borrowings is estimated using a discounted cash flow
calculation, based on current rates for similar debt, except for short-term and
adjustable rate borrowing arrangements. At December 31, the fair value for these
instruments approximates carrying value.

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>
                                                                       2003                      2002
                                                           --------------------------   -------------------------
                                                             CARRYING        FAIR        CARRYING        FAIR
                                                              AMOUNT         VALUE        AMOUNT        VALUE
                                                           ===========    ===========   ===========   ===========
<S>                                                        <C>            <C>           <C>           <C>
Assets at December 31:
    Cash and cash equivalents .........................    $   109,527    $   109,527   $   119,038   $   119,038
    Interest-bearing time deposits ....................          8,141          8,141         3,568         3,568
    Investment securities available for sale ..........        348,860        348,860       332,925       332,925
    Investment securities held to maturity ............          7,937          8,326         9,137         9,585
    Mortgage loans held for sale ......................          3,043          3,043        21,545        21,545
    Loans .............................................      2,328,010      2,383,666     1,981,960     2,008,189
    FRB and FHLB stock ................................         15,502         15,502        11,409        11,409
    Interest receivable ...............................         16,840         16,840        17,346        17,346
    Cash value of life insurance ......................         37,927         37,927        14,309        14,309

Liabilities at December 31:
    Deposits ..........................................      2,362,101      2,378,669     2,036,688     2,063,474
    Borrowings:
        Securities sold under repurchase agreements ...         71,095         71,139        89,594        90,138
        FHLB advances .................................        212,779        239,251       184,677       196,244
        Trust preferred securities ....................         57,188         62,719        53,188        57,655
        Other borrowed funds ..........................         42,108         42,108        29,468        29,468
    Interest payable ..................................          4,680          4,680         6,019         6,019
</TABLE>


                                       55
<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 SHEETS

                                                         December 31,
                                                      2003        2002
                                                    ====================
Assets
   Cash ..........................................  $  3,235    $  4,404
   Investment securities available for sale ......     3,500       3,500
   Investment in subsidiaries ....................   391,241     320,309
   Goodwill ......................................       448         448
   Other assets ..................................    10,500      12,265
                                                    --------    --------
     Total assets ................................  $408,924    $340,926
                                                    ========    ========
Liabilities
   Borrowings ....................................  $ 99,550    $ 74,132
   Other liabilities .............................     5,409       5,665
                                                    --------    --------
     Total liabilities ...........................   104,959      79,797

Stockholders' equity .............................   303,965     261,129
                                                    --------    --------
     Total liabilities and stockholders' equity ..  $408,924    $340,926
                                                    ========    ========

CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                            2003        2002        2001
                                                                          ========    ========    ========
<S>                                                                       <C>         <C>         <C>
Income
  Dividends from subsidiaries .......................................     $ 45,445    $ 22,720    $ 20,245
  Administrative services fees from subsidiaries ....................       10,849       6,580       4,133
  Other income ......................................................          472         535         269
                                                                          --------    --------    --------
     Total income ...................................................       56,766      29,835      24,647
                                                                          --------    --------    --------
Expenses
  Amortization of core deposit intangibles,
   goodwill, and fair value adjustments .............................           26          28          66
  Interest expense ..................................................        6,463       3,858          88
  Salaries and employee benefits ....................................        9,531       7,641       4,767
  Net occupancy expenses ............................................        1,869       1,527       1,002
  Equipment expenses ................................................        1,955       1,447         898
  Telephone expenses ................................................        1,571       1,543         547
  Other expenses ....................................................        3,730       2,767       1,003
                                                                          --------    --------    --------
     Total expenses .................................................       25,145      18,811       8,371
                                                                          --------    --------    --------
Income before income tax benefit and equity in
undistributed income of subsidiaries ................................       31,621      11,024      16,276
     Income tax benefit .............................................        5,577       4,336       1,567
                                                                          --------    --------    --------
Income before equity in undistributed income of subsidiaries ........       37,198      15,360      17,843

    Equity in undistributed (distributions in excess of)
     income of subsidiaries .........................................       (9,627)     12,476       4,366
                                                                          --------    --------    --------
Net Income ..........................................................     $ 27,571    $ 27,836    $ 22,209
                                                                          ========    ========    ========
</TABLE>


                                       56
<PAGE>
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(table dollar amounts in thousands, except share data)
================================================================================

NOTE 19

CONDENSED FINANCIAL INFORMATION (parent company only)

CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                    ==============================
                                                                      2003       2002        2001
                                                                    ========   ========   ========
<S>                                                                 <C>        <C>        <C>
Operating activities:
   Net income ...................................................   $ 27,571   $ 27,836   $ 22,209
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Amortization ...............................................         26         28         66
     Distributions in excess of (equity in undistributed)
       income of subsidiaries ...................................     (9,627)   (12,476)    (4,366)
     Net change in:
        Other assets ............................................      2,406     (6,892)    (1,274)
        Other liabilities .......................................         (6)     4,430       (842)
                                                                    --------    -------   --------
          Net cash provided by operating activities .............     20,370     12,926     15,793
                                                                    --------    -------   --------
Investing activities:
   Purchase of securities available for sale ....................                           (3,500)
   Investment in subsidiary .....................................    (25,858)   (51,135)   (14,296)
                                                                    --------    -------   --------
          Net cash used by investing activities .................    (25,858)   (51,135)   (17,796)
                                                                    --------    -------   --------
Financing activities:
   Cash dividends ...............................................    (16,557)   (13,995)   (11,127)
   Borrowings ...................................................     47,594     55,832      8,500
   Repayment of borrowings ......................................    (29,550)
   Stock issued under employee benefit plans ....................        819        658        504
   Stock issued under dividend reinvestment
     and stock purchase plan ....................................      1,339        951        803
   Stock options exercised ......................................      1,191        494        225
   Stock redeemed ...............................................       (489)    (4,333)    (7,023)
   Cash paid in lieu of issuing fractional shares ...............        (28)       (35)       (22)
                                                                    --------    -------   --------
          Net cash provided (used) by financing activities ......      4,319     39,572     (8,140)
                                                                    --------    -------   --------
Net change in cash ..............................................     (1,169)     1,363    (10,143)
Cash, beginning of year .........................................      4,404      3,041     13,184
                                                                    --------    -------   --------
Cash, end of year ...............................................   $  3,235   $  4,404   $  3,041
                                                                    ========   ========   ========
</TABLE>

NOTE 20

QUARTERLY RESULTS OF OPERATIONS (unaudited)

The following table sets forth certain quarterly results for the years ended
December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                                ------------------------------------------------
                                                                                 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
   2003:
<S>                <C>          <C>         <C>           <C>           <C>        <C>          <C>          <C>        <C>
March ..........   $    38,981  $   12,971  $    26,010   $   4,601     $  5,658   17,565,405   17,675,633   $ .32      $ .32
June ...........        39,554      13,599       25,955       2,123        8,745   18,392,925   18,519,155     .48        .48
September ......        38,959      13,085       25,874       1,706        7,349   18,466,678   18,622,306     .40        .39
December .......        38,036      12,733       25,303       1,047        5,819   18,497,612   18,666,079     .31        .31
                   -----------  ----------  -----------   ---------     --------                             -----      -----
                   $   155,530  $   52,388  $   103,142   $   9,477     $ 27,571   18,233,855   18,371,400   $1.51      $1.50
                   ===========  ==========  ===========   =========     ========                             =====      =====
2002:
March ..........   $    27,591  $   10,213  $    17,378   $   1,192     $  5,479   14,088,149   14,208,467   $ .39      $ .39
June ...........        39,678      14,596       25,082       1,284        7,940   17,122,348   17,296,513     .46        .46
September ......        40,148      14,820       25,328       1,821        7,827   17,079,298   17,224,358     .47        .46
December .......        39,265      14,130       25,135       2,877        6,590   17,128,100   17,232,099     .38        .38
                   -----------  ----------  -----------   ---------     --------                             -----      -----
                   $   146,682  $   53,759  $    92,923   $   7,174     $ 27,836   16,364,788   16,502,491   $1.70      $1.69
                   ===========  ==========  ===========   =========     ========                             =====      =====
</TABLE>


                                       57
<PAGE>

================================================================================
ANNUAL MEETING, STOCK PRICE & DIVIDEND INFORMATION
================================================================================

The 2004 Annual Meeting of Stockholders of First Merchants Corporation will be
held...

Thursday, April 22, 2004 at 3:30 p.m.

Horizon Convention Center
401 South High Street
Muncie, Indiana

STOCK INFORMATION

<TABLE>
<CAPTION>
                                                PRICE PER SHARE
QUARTER                               HIGH                             LOW               DIVIDENDS DECLARED(1)
                           ==========================     =========================      ======================
                             2003             2002           2003            2002          2003          2002
                           --------        ---------      ---------      ----------      ----------   ---------
<S>                        <C>             <C>            <C>            <C>             <C>          <C>
First Quarter ........     $  23.15        $   24.53      $   21.29      $    19.95      $   .22      $   .21
Second Quarter .......        24.56            27.34          21.72           23.13          .22          .21
Third Quarter ........        27.25            27.38          23.47           20.41          .23          .22
Fourth Quarter .......        27.22            24.26          25.00           20.63          .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 2003 and
2002. Prices are as reported by the National Association of Securities Dealers.
Automated Quotation - National Market System.

Numbers rounded to nearest cent when applicable.


                                       58
<PAGE>

================================================================================
COMMON STOCK LISTING
================================================================================

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 February
6, 2004, the number of shares outstanding was 18,535,682. There were 3,149
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


                                       59
<PAGE>

================================================================================
FORM 10-K, FINANCIAL INFORMATION AND CODE OF ETHICS
================================================================================

FORM 10-K, FINANCIAL INFORMATION AND CODE OF ETHICS

The 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

The Corporation has adopted a Code of Ethics that applies to its Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, Controller
and Treasurer. It is part of the Corporation's Code of Business Conduct, which
applies to all employees and directors of the Corporation and its affiliates. A
copy of the Code of Ethics may be obtained, free of charge, by writing to the
General Counsel of First Merchants Corporation at 200 East Jackson Street,
Muncie, IN 47305. In addition, the Code of Ethics is maintained on the
Corporation's web site, which can be accessed at http://www.firstmerchants.com.

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

                                       60

<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, National Association............U.S.

First United Bank, National Association.....................U.S.

The Union County National Bank of Liberty...................U.S.

The Randolph County Bank, National Association..............U.S.

The First National Bank of Portland.........................U.S.

Decatur Bank & Trust Company, National Association..........U.S.

Frances Slocum Bank & Trust Company, National Association...U.S.

Lafayette Bank and Trust Company, National Association......U.S.

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

FMB Portfolio Management, Inc...........................Delaware

UCNB Portfolio Management, Inc..........................Delaware

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  333-111374,  333-50484,  333-80119  and
333-80117 of our report dated  January 23 2004,  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 15, 2004


<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 10, 2004

/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


                                            ------------------------------------
                                                Blaine M. Brownell      Director


                                            ------------------------------------
                                                Frank A. Bracken        Director

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

                                            /s/ Michael L. Cox
                                            ------------------------------------
                                                Michael L. Cox          Director

                                            /s/ Barry J. Hudson
                                            ------------------------------------
                                                Barry J. Hudson         Director

                                            /s/ Robert T. Jeffares
                                            ------------------------------------
                                                Robert T. Jeffares      Director

                                            /s/ Norman M. Johnson
                                            ------------------------------------
                                                Norman M. Johnson       Director

                                            /s/ Thomas D. McAuliffe
                                            ------------------------------------
                                                Thomas D. McAuliffe     Director


                                            ------------------------------------
                                                George A. Sissel        Director


                                            ------------------------------------
                                                Robert M. Smitson       Director


                                            ------------------------------------
                                                Dr. John E. Worthen     Director
<PAGE>
                                  EXHIBIT-31.1

                           FIRST MERCHANTS CORPORATION

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

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

I, Michael L. Cox,  President  and Chief  Executive  Officer of First  Merchants
Corporation, 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 report;

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

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

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

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

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

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

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

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

Date: March 15, 2004                    /s/Michael L. Cox
                                        ----------------------------------------
                                           Michael L. Cox
                                           President and Chief Executive Officer

<PAGE>
                                  EXHIBIT-31.2

                           FIRST MERCHANTS CORPORATION

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

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

I, Mark K. Hardwick,  Senior Vice President and Chief Financial Officer of First
Merchants Corporation, 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 report;

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

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

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

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

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

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

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

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

Date: March 15, 2004                    /s/Mark K. Hardwick
                                        ----------------------------------------
                                           Mark K. Hardwick
                                           Senior Vice President and
                                           Chief Financial Officer
                                           (Principal Financial  and Chief
                                           Accounting Officer)

<PAGE>


                                  EXHIBIT-32

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

In  connection  with the  annual  report  of First  Merchants  Corporation  (the
"Corporation")  on Form 10-K for the period  ending  December  31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"), I
Michael L. Cox,  President and Chief Executive  Officer of the  Corporation,  do
hereby certify,  in accordance with 18 U.S.C.  Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date  03/15/04                          by /s/ Michael L. Cox
    ---------------------------            -------------------------------------
                                           Michael L. Cox
                                           President and Chief Executive Officer

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



In  connection  with the  annual  report  of First  Merchants  Corporation  (the
"Corporation")  on Form 10-K for the period  ending  December  31, 2003 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  03/15/04                          by /s/ Mark K. Hardwick
    ---------------------------            -------------------------------------
                                           Mark K. Hardwick
                                           Senior Vice President and
                                           Chief Financial Officer
                                           (Principal Financial and Chief
                                           Accounting Officer)

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



<PAGE>
                                  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, 2003, will be filed as an amendment to the 2003 Annual Report on
Form 10-K.