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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, 2000 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 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 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 $ as of March 6, 2000. As of March 15,2001 there were 11,588,443 outstanding common shares, without par value, of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Documents Into Which Incorporated 2000 Annual Report to Stockholders Part II (Items 5, 6, 7, 7A, and 8) Definitive Proxy Statement for Annual Meeting of Shareholders to be held April 11, 2001 Part III (Items 10 through 13) Exhibit Index: Page 24

FORM 10-K TABLE OF CONTENTS Form 10-K Page Number Part I Item 1 - Business............................................................3 Item 2 - Properties.........................................................21 Item 3 - Legal Proceedings..................................................21 Item 4 - Submission of Matters to a Vote of Security Holders................21 Supplemental Information - Executive Officers of the Registrant.............22 Part II Item 5 - Market For the Registrant's Common Equity and Related Stockholder Matters.......................................23 Item 6 - Selected Financial Data...........................................23 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations...............................23 Item 7A- Quantitative and Qualitative Disclosures about Market Risk........23 Item 8 - Financial Statements and Supplementary Data.......................23 Item 9 - Changes In and Disagreements With Accountants on Accounting and Financial Disclosures..............................23 Part III Item 10- Directors and Executive Officers of the Registrant.................23 Item 11- Executive Compensation.............................................23 Item 12- Security Ownership of Certain Beneficia Owners and Management..............................................23 Item 13- Certain Relationships and Related Transactions.....................24 Part IV Item 14- Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................24 Signatures....................................................................26 Page 2

PART I ITEM 1. BUSINESS - -------------------------------------------------------------------------------- GENERAL First Merchants Corporation (the "Corporation") was incorporated under Indiana law on September 20, 1982, as the bank holding company for First Merchants Bank, National Association ("First Merchants"), a national banking association incorporated in 1893. Prior to December 16, 1991, First Merchants' name was The Merchants National Bank of Muncie. On November 30, 1988, the Corporation acquired Pendleton Banking Company ("Pendleton"), a state chartered commercial bank organized in 1872. On July 31, 1991, the Corporation acquired First United Bank ("First United"), a state chartered commercial bank organized in 1882. On August 1, 1996, the Corporation acquired The Union County National Bank of Liberty ("Union County"), a national banking association incorporated in 1872. On October 2, 1996, the Corporation acquired The Randolph County Bank ("Randolph County"), a state chartered commercial bank founded in 1865. On April 1, 1998, Pendleton acquired the Muncie office of Insurance and Risk Management, Inc., which was renamed, on April 1, 1998, First Merchants Insurance Services, Inc. On April 1, 1999, the Corporation acquired The First National Bank of Portland ("First National"), a national banking association incorporated in 1904. On April 21, 1999, the Corporation acquired Anderson Community Bank ("Anderson"), a state charted commercial bank founded in 1995. Pendleton and Anderson were combined on April 21, 1999, to form Madison Community Bank ("Madison"). Decatur Bank and Trust Company ("Decatur")a state chartered commrcial bank organized in was acquired on June 1, 2000. On January 19, 2000, First Merchants Reinsurance Company was formed to underwrite accident, health and credit life insurance. As of December 31, 2001, the Corporation had consolidated assets of $1.621 billion, consolidated deposits of $1.288 billion and stockholders' equity of $156.1 million. The Corporation is headquartered in Muncie, Indiana, and is presently engaged in conducting commercial banking business through the offices of its seven banking subsidiaries. As of December 31, 2000, the Corporation and its subsidiaries had 619 full-time equivalent employees. Through its subsidiaries, the Corporation offers a broad range of financial services, including: accepting time and transaction deposits; making consumer, commercial, agri-business and real estate mortgage loans; issuing credit cards; renting safe deposit facilities; providing personal and corporate trust services; and providing other corporate services, letters of credit, repurchase agreements and personal and commercial lines insurance. Acquisition Policy and Pending Transactions The Corporation anticipates that it will continue its policy of geographic expansion through consideration of acquisitions of additional financial institutions. Management of the Corporation periodically engages in reviewing and analyzing potential acquisitions. At the present time, management of the Corporation has signed definitive agreements with Francor Financial, Inc. regarding its affiliation with the Corporation. See note 2 on page 29 of exhibit 13. Page 3

- -------------------------------------------------------------------------------- COMPETITION The Corporation's banking subsidiaries are located in Adams, Delaware, Fayette, Hamilton, Henry, Jay, Madison, Wayne, Randolph, and Union counties in Indiana and Butler county in Ohio. In addition to the competition provided by the lending and deposit gathering subsidiaries of national manufacturers, retailers, insurance companies and investment brokers, the banking subsidiaries compete vigorously with other banks thrift institutions, credit unions and finance companies located within their service areas. REGULATION AND SUPERVISION OF FIRST MERCHANTS AND SUBSIDIARIES BANK HOLDING COMPANY REGULATION First Merchants is registered as a bank holding company and is subject to the regulations of the Federal Reserve Board ("Federal Reserve") under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Bank holding companies are required to file periodic reports with and are subject to periodic examination by the Federal Reserve. The Federal Reserve has issued regulations under the BHC Act requiring a bank holding company to serve as a source of financial and managerial strength to its subsidiary banks. Thus, it is the policy of the Federal Reserve that, a bank holding company should stand ready to use its resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity. Additionally, under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a bank holding company is required to guarantee the compliance of any subsidiary bank that may become "undercapitalized" (as defined in the FDICIA) with the terms of any capital restoration plan filed by such subsidiary with its appropriate federal banking agency up to the lesser of (i) an amount equal to 5% of the institution's total assets at the time the institution became undercapitalized, or (ii) the amount that is necessary (or would have been necessary) to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with such capital restoration plan. 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 prohibits First Merchants from doing any of the following without the prior approval of the Federal Reserve: 1. Acquiring direct or indirect control of more than 5% of the outstanding shares of any class of voting stock or substantially all of the assets of any bank or savings association. 2. Merging or consolidating with another bank holding company. 3. Engaging in or acquiring ownership or control of more than 5% of the outstanding shares of any class of voting stock of any company engaged in a nonbanking business unless such business is determined by the Federal Reserve to be closely related to banking. The BHC Act does not place territorial restrictions on such nonbanking-related activities. Page 4

CAPITAL ADEQUACY GUIDELINES FOR BANK HOLDING COMPANIES Bank holding companies are required to comply with the Federal Reserve's risk-based capital guidelines. These guidelines require a minimum ratio of capital to risk-weighted assets of 8% (including certain off-balance sheet activities such as standby letters of credit). At least half of the total required capital must be "Tier 1 capital," consisting principally of common shareholders' equity, noncumulative perpetual preferred stock, a limited amount of cumulative perpetual preferred stock and minority interest in the equity accounts of consolidated subsidiaries, less certain goodwill items. The remainder may consist of a limited amount of subordinate debt and intermediate-term preferred stock, certain hybrid capital instruments and other debt securities, cumulative perpetual preferred stock, and a limited amount of the general loan loss allowance. In addition to the risk-based capital guidelines, the Federal Reserve has adopted a Tier 1 (leverage) capital ratio under which the bank holding company 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, 2000: Corporation Regulatory Minimum Requirement Tier 1 Capital: 11.7% 4.0% Total Capital: 12.7% 8.0% BANK REGULATION First Merchants Bank, National Association, The Union County National Bank, and The First National Bank of Portland are national banks and are supervised, regulated and examined by the Office of the Comptroller of the Currency (the "OCC"). First United Bank, The Madison Community Bank, The Randolph County Bank and Decatur Bank and Trust Company are state banks chartered in Indiana and are supervised, regulated and examined by the Indiana Department. In addition, four of First Merchants' subsidiaries, The Madison Community Bank, First United Bank, The Randolph County Bank and Decatur Bank and Trust Company, are supervised and regulated by the FDIC. Each regulator has the authority to issue cease-and-desist orders if it determines that activities of the bank regularly represent an unsafe and unsound banking practice or a violation of law. Both federal and state law extensively regulate various aspects of the banking business such as reserve requirements, truth-in-lending and truth-in-savings disclosure, equal credit opportunity, fair credit reporting, trading in securities and other aspects of banking operations. Current federal law also requires banks, among other things, to make deposited funds available within specified time periods. Page 5

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 First Merchants' affiliate banks exceed the risk-based capital guidelines of the FDIC and/or the OCC as of December 31, 2000. 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. FDICIA 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 become "critically undercapitalized," make any payment of principal or interest on certain subordinated debt or extend credit for a highly leveraged transaction or enter into any transaction outside the ordinary course of business. In addition, "critically undercapitalized" institutions are subject to appointment of a receiver or conservator. Page 6

FDICIA continued As of December 31, 2000, 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 First Merchants' 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. Effective January 1, 1997, the annual insurance premiums on bank deposits insured by the BIF and the SAIF vary between $0.00 per $100 of deposits for banks classified in the highest capital and supervisory evaluation categories to $0.27 per $100 of deposits for banks classified in the lowest capital and supervisory evaluation categories. 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 FDIC established the FICO assessment rates effective January 1, 1997 at $0.013 per $100 annually for BIF-assessable deposits and $0.0648 per $100 annually for SAIF-assessable deposits. The FICO assessments do not vary depending upon a depository institution's capitalization or supervisory evaluations. 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) bank holding companies such as First Merchants is permitted to acquire banks and bank holding companies located in any state; (ii) any bank that is a subsidiary of a bank holding company is permitted to receive deposits, renew time deposits, close loans, service loans and receive loan payments as an agent for any other bank subsidiary of that holding company; and (iii) banks are permitted to acquire branch offices outside their home states by merging with out-of-state banks, purchasing branches in other states, and establishing de novo branch offices in other states. Page 7

FINANCIAL SERVICES MODERNIZATION ACT On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999 (the "Financial Services Modernization Act"). The general effect of the Financial Services Modernization Act is to establish 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, First Merchants would be able to provide securities and insurance services. Furthermore, under this legislation, First Merchants would be 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 First Merchants Corporation's application to become a Financial Holding Company effective September 13, 2000. ADDITIONAL MATTERS In addition to the matters discussed above, First Merchants' 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 First Merchants and its affiliate banks in particular would be affected thereby. Page 8

- -------------------------------------------------------------------------------- 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. 2000 1999 1998 ------------------------------- ------------------------------ ------------------------------ Interest Interest Interest Average Income/ Average Average Income/ Average Average Income/ Average Balance Expense Rate Balance Balance Rate Balance Expense Rate --------- --------- --------- --------- --------- --------- ---------- --------- --------- (Dollars in Thousands) Assets: Federal funds sold ........ $ 9,938 $ 666 6.7% $ 14,369 $ 657 4.6% $ 23,236 $ 1,026 4.4% Interest-bearing deposits...... 1,807 103 5.7 1,105 59 5.3 654 30 4.6 Federal Reserve and Federal Home Loan Bank stock. 6,456 585 9.1 5,121 446 8.7 4,322 398 9.2 Securities: (1) Taxable ....................... 235,745 14,478 6.1 256,424 15,459 6.0 189,285 11,596 6.1 Tax-exempt .................... 95,836 7,057 7.4 111,437 8,066 7.2 100,304 7,547 7.5 ---------- -------- ---------- -------- ---------- -------- Total Securities............. 331,581 22,889 6.9 367,861 23,525 6.4 289,589 19,143 6.6 Mortgage loans held for sale..... 75 8 10.7 125 15 12.0 773 98 12.7 Loans: (2) Commercial .................... 492,793 45,373 9.2 415,840 35,616 8.6 379,897 33,902 8.9 Bankers' acceptance and Commercial paper purchased... 371 18 4.9 1,366 67 4.9 Real estate mortgage........... 372,104 29,795 8.0 332,670 26,604 8.0 320,194 26,484 8.3 Installment ................... 233,189 20,622 8.8 183,095 16,113 8.8 165,349 15,420 9.3 Tax-exempt .................... 5,852 478 8.2 3,615 358 9.9 3,511 360 10.3 ---------- -------- ---------- -------- ---------- -------- Total loans ................. 1,103,938 96,276 8.7 935,591 78,709 8.4 870,317 76,233 8.8 ---------- -------- ---------- -------- ---------- -------- Total earning assets......... $1,453,795 $119,165 8.2 $1,324,172 $103,411 7.8 $1,188,981 $ 96,928 8.2 ---------- -------- ---------- -------- ---------- -------- Net unrealized gain (loss) on securities Available for sale............... (13,421) (47) 3,041 Allowance for loan losses........ (11,570) (10,821) (8,769) Cash and due from banks.......... 39,250 36,873 31,015 Premises and equipment .......... 22,349 19,794 18,706 Other assets .................... 42,308 27,259 21,249 --------- --------- --------- Total assets ................ $1,532,711 $1,397,230 $1,254,223 ========== ========== ========== Liabilities: Interest-bearing deposits: NOW accounts ................ $ 168,773 $ 2,920 1.7% $ 152,268 $ 2,642 1.7% $ 145,224 $ 2,977 2.1% Money market deposit accounts 193,932 9,000 4.6 177,091 6,804 3.8 146,745 5,921 4.0 Savings deposits ............ 98,988 2,477 2.5 95,344 2,399 2.5 91,842 2,388 2.6 Certificates and other time deposits ............. 612,605 35,210 5.7 518,624 26,694 5.1 519,625 28,587 5.5 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing deposits................. 1,074,298 49,607 4.6 943,327 38,539 4.1 903,436 39,873 4.4 Borrowings ...................... 169,869 10,939 6.4 154,839 8,359 5.4 78,737 4,592 5.8 ---------- -------- ---------- -------- ---------- -------- Total interest-bearing liabilities.................. 1,244,167 60,546 4.9 1,098,166 46,898 4.3 982,173 44,465 4.5 Noninterest-bearing deposits..... 134,717 129,747 113,193 Other liabilities ............... 12,381 19,590 10,805 ---------- ---------- ---------- Total liabilities............ 1,391,265 1,247,503 1,106,171 Stockholders' equity ............ 141,446 149,727 148,052 ---------- ---------- ---------- Total liabilities and stockholders' Equity........ $1,532,711 60,546 4.2(3)$1,397,230 46,898 3.5(3)$1,254,223 44,465 3.7(3) ========== -------- ========== -------- ========== -------- Net interest income ......... $ 58,619 4.0 $ 56,513 4.3 $ 52,463 4.4 ======== ======== ======== (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 1998, 1999, and 2000............................. $2,637 $2,948 $2,767 ====== ====== ====== Page 9

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. 2000 Compared to 1999 1999 Compared to 1998 Increase (Decrease) Due To Increase (Decrease) Due To ----------------------------------------- --------------------------------------- Volume Rate Total Volume Rate Total ------ ---- ----- ------ ---- ----- (Dollars in Thousands on Fully Taxable Equivalent Basis) Interest income: Federal funds sold ............... $ (240) $ 249 $ 9 $ (404) $ 35 $ (369) Interest-bearing deposits ........ (32) 76 44 23 6 29 Federal Reserve and Federal Home Loan Bank stock ........... 120 19 139 70 (22) 48 Securities ....................... (2,271) 281 (1,990) 5,024 (642) 4,382 Mortgage loans held for sale ..... (5) (2) (7) (78) (5) (83) Loans ............................ 14,593 2,966 17,559 5,569 (3,093) 2,476 -------- --------- --------- -------- --------- --------- Totals ........................... 12,165 3,589 15,754 10,204 (3,721) 6,483 -------- --------- --------- -------- --------- --------- Interest expense: NOW accounts ..................... 286 (8) 278 139 (474) (335) Money market deposit accounts........................ 689 1,507 2,196 1,177 (294) 883 Savings deposits.................. 91 (13) 78 89 (78) 11 Certificates and other time deposits................... 5,181 3,335 8,516 (55) (1,838) (1,893) Borrowings........................ 864 1,716 2,580 4,132 (365) 3,767 -------- --------- --------- -------- --------- --------- Totals.......................... 7,111 (6,537) 13,648 5,482 (3,049) 2,433 -------- --------- --------- -------- --------- --------- Change in net interest income (fully taxable equivalent basis)................ $ 5,054 $ (2,948) $ 2,106 $ 4,722 $ (672) $ 4,050 ======== ========= ======== ========= Tax equivalent adjustment using marginal rate of 35% for 1998, 1999, and 2000.......................... 311 (181) ---------- ---------- Change in net interest income........................... $ 2,417 $ 3,869 ========== ========== Page 10

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: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------------- --------------- -------------- -------------- (Dollars in Thousands) Available for sale at December 31, 2000: U.S. Treasury.............................. $ 2,997 $ 2,997 Federal agencies........................... 55,403 $ 268 $ 155 55,516 State and municipal........................ 81,370 1,045 103 82,312 Mortgage-backed securities................. 127,907 139 922 127,124 Other asset-backed securities ............ 19,924 10 148 19,786 Corporate obligations .................... 7,238 9 395 6,852 Marketable equity securities............... 1,277 134 1,143 -------- -------- -------- -------- Total available for sale................ 296,116 1,471 1,857 295,730 -------- -------- -------- -------- Held to maturity at December 31, 2000: U.S. Treasury............................... 250 250 State and municipal......................... 11,645 131 36 11,740 Mortgage-backed securities.................. 338 338 -------- -------- -------- -------- Total held to maturity................... 12,233 131 36 12,328 -------- -------- -------- -------- Total investment securities.............. $308,349 $ 1,602 $ 1,893 $308,058 ======== ======== ======== ======== Available for sale at December 31, 1999: U.S. Treasury.............................. $ 7,337 $ 3 $ 72 $ 7,268 Federal agencies........................... 61,215 50 1,199 60,066 State and municipal........................ 94,598 568 945 94,221 Mortgage-backed securities................. 141,673 58 4,332 137,399 Other asset-backed securities ............ 21,773 758 21,015 Corporate obligations .................... 9,082 4 140 8,946 Marketable equity securities............... 915 162 753 --------- -------- ------- -------- Total available for sale................ 336,593 683 7,608 329,668 --------- -------- ------- -------- Held to maturity at December 31, 1999: U.S. Treasury............................... 250 2 248 State and municipal......................... 13,243 77 13 13,307 Mortgage-backed securities.................. 311 1 1 311 Other asset-backed securities............... 499 81 418 --------- -------- ------- -------- Total held to maturity................... 14,303 78 97 14,284 --------- -------- ------- -------- Total investment securities.............. $ 350,896 $ 761 $ 7,705 $343,952 ========= ======== ======= ======== Page 11

- -------------------------------------------------------------------------------- STATISTICAL DATA (continued) Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------- -------------- -------------- ------------ Available for sale at December 31, 1998: U.S. Treasury............................... $ 22,275 $ 120 $ 22,395 Federal agencies............................ 61,605 627 $ 32 62,200 State and municipal......................... 93,198 2,778 21 95,955 Mortgage-backed securities.................. 128,610 440 198 128,852 Other asset-backed securities............... 265 1 11 255 Corporate obligations....................... 18,624 143 8 18,759 Marketable equity securities................ 1,200 108 1,092 --------- -------- ------- -------- Total available for sale................. 325,777 4,109 378 329,508 --------- -------- ------- -------- Held to maturity at December 31, 1998: U.S. Treasury............................... 249 4 253 Federal agencies............................ 500 1 501 State and municipal......................... 18,335 370 1 18,704 Mortgage-backed securities.................. 864 3 867 Other asset-backed securities............... 1,761 2 27 1,736 --------- -------- ------- -------- Total held to maturity................... 21,709 380 28 22,061 --------- -------- ------- -------- Total investment securities.............. $ 347,486 $ 4,489 $ 406 $351,569 ========= ======== ======= ======== Cost ---------------------------------------------------------- 2000 1999 1998 ---- ---- ---- Federal Reserve and Federal Home Loan Bank stock at December 31: Federal Reserve Bank stock .................... $ 493 $ 493 $ 493 Federal Home Loan Bank stock .................. 6,691 5,365 3,962 ----- ----- ------ Total ..................................... $7,185 $5,858 $4,455 ====== ====== ====== 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, 2000 were: Securities available for sale December 31, 2000: Within 1 Year 1-5 Years 5-10 Years ------------- --------- ---------- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ U.S. Treasury...................... $ 2,997 5.7% Federal Agencies................... 18,713 5.7 $22,589 6.3% $12,252 6.6% State and Municipal................ 15,873 6.4 37,243 7.0 17,886 7.9 Corporate Obligations.............. 2,753 6.4 4,099 6.7 ------- ------- ------- Total.......................... $40,336 6.0% $63,931 6.8% $30,138 7.2% ======= ======= ======= Page 12

- -------------------------------------------------------------------------------- STATISTICAL DATA (continued) Marketable Equity, Mortgage and Other Due After Ten Years Asset-Backed Securities Total ------------------- ----------------------- ----- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ U.S. Treasury........................ $ 2,997 5.7% Federal Agencies..................... $ 1,962 7.1% 55,516 6.2 State and Municipal.................. 11,310 7.8 82,312 7.1 Corporate Obligations................ 6,852 6.5 Marketable Equity Security........... $ 1,143 5.0% 1,143 5.0 Mortgage-backed securities........... 127,124 6.5 127,124 6.5 Other asset-backed securities........ 19,786 6.5 19,786 6.5 -------- --------- -------- Total............................ $ 13,272 7.7% $ 148,053 6.5% $295,730 6.6% ======== ========= ======== Securities held to maturity at December 31, 1999: Within 1 Year 1-5 Years 5-10 Years ------------- --------- ---------- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ U.S. Treasury........................ 250 5.4% State and Municipal.................. $ 3,013 6.3 $ 5,473 8.1% $2,401 8.0% -------- ------- ------ Total............................ $ 3,263 6.2% $ 5,473 8.1% $2,401 8.0% ======== ======= ====== Mortgage and other Due After Ten Years Asset-backed Total ------------------- ------------ ----- Amount Yield* Amount Yield* Amount Yield* ------ ------ ------ ------ ------ ------ U.S. Treasury........................ $ 250 5.4% State and Municipal.................. $ 758 8.9% 11,645 7.6 Mortgage-backed securities........... $ 338 8.0% 338 8.0 ------- ------- ------- Total............................ $ 758 8.9% $ 338 8.0% $12,233 7.6% ======= ======= ======= *Interest yields on state and municipal securities are presented on a fully taxable equivalent basis using a 35% rate. Federal Reserve and Federal Home Loan Bank stock at December 31, 2000: Amount Yield Federal Reserve Bank Stock........... $ 493 6.0% Federal Home Loan Bank stock......... 6,691 8.3 ------- Total............................ $7,185 8.1% ======= Page 13

STATISTICAL DATA (continued) LOAN PORTFOLIO TYPES OF LOANS The loan portfolio at the dates indicated is presented below: 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands) Loans at December 31: Commercial and industrial loans........................... $ 258,405 $224,712 $188,841 $178,696 $157,317 Bankers acceptances and loans to financial institutions.................. 900 705 625 Agricultural production financing and other loans to farmers................................. 24,547 21,547 21,951 16,764 18,906 Real estate loans: Construction............................... 45,412 31,996 31,719 22,710 14,533 Commercial and farmland.................... 167,317 150,544 137,671 142,394 133,435 Residential................................ 466,660 380,596 361,611 331,405 290,705 Individuals' loans for Household and other Personal expenditures...................... 201,629 181,906 143,075 139,620 126,718 Tax-exempt loans............................. 6,093 4,070 2,652 2,598 1,643 Other loans.................................. 5,523 3,552 2,073 3,782 1,672 ---------- --------- --------- --------- --------- 1,175,586 998,923 890,493 838,674 745,554 Unearned interest on loans................... (28) (137) (487) (1,364) ---------- --------- --------- --------- --------- Total loans........................ $1,175,586 $998,895 $890,356 $838,187 $744,190 ========== ========= ========= ========= ========= Residential Real Estate Loans Held for Sale at December 31, 2000, 1999, 1998, 1997, and 1996 were $0, $61,000, $775,800, $471,400 and $284,020. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES Presented in the table below are the maturities of loans (excluding commercial real estate, banker acceptances, farmland, residential real estate and individuals' loans) outstanding as of December 31, 2000. Also presented are the amounts due after one year classified according to the sensitivity to changes in interest rates. Maturing Within 1-5 Over 1 Year Years 5 Years Total -------------- --------------- -------------- ------------ (Dollars in Thousands) Commercial and industrial loans................ $ 185,980 $ 48,087 $ 24,338 $ 258,405 Agricultural production financing And other loans to farmers................... 21,148 2,750 649 24,547 Real estate - Construction..................... 33,824 10,979 609 45,412 Tax-exempt loans............................... 443 3,485 2,165 6,093 Other loans.................................... 1,492 4,017 14 5,523 ---------- --------- --------- ---------- Total.................................... $ 242,887 $ 69,318 $ 27,775 $ 339,980 ========== ========= ========= ========== Page 14

STATISTICAL DATA (continued) Maturing --------------------------------------------------- 1 - 5 Over Years 5 Years ----- ------- (Dollars in Thousands) Loans maturing after one Year with: Fixed rates............................. $ 43,242 $ 27,346 Variable rate........................... 26,076 429 ------------- ------------ Total................................. $ 69,318 $ 27,775 ============= ============ RISK ELEMENTS December 31 -------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands) Nonaccruing loans......................... $2,370 $1,280 $1,073 $2,146 $3,547 Loans contractually past due 90 days or more other than nonaccruing............................. 2,465 2,327 2,334 2,034 1,790 Restructured loans........................ 3,085 908 1,110 469 1,766 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 $302,000 for the year ended December 31, 2000, was recognized on the nonaccruing and restructured loans listed in the table above, whereas interest income of $308,000 would have been recognized under their original loan terms. Potential problem loans: Management has identified certain other loans totaling $10,635,000 as of December 31, 2000, not included in the risk elements table, or impaired loan table, about which there are doubts as to the borrowers' ability to comply with present repayment terms. The Banks generate commercial, mortgage and consumer loans from customers located primarily in central and east central Indiana and Butler County, Ohio. The Banks' loans are generally secured by specific items of collateral, including real property, consumer assets, and business assets. Although the Banks have 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. Page 15

STATISTICAL DATA (continued) - ---------------- SUMMARY OF LOAN LOSS EXPERIENCE The following table summarizes the loan loss experience for the years indicated. 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- (Dollars in Thousands) Allowance for loan losses: Balance at January 1.................... $ 10,128 $ 9,209 $ 8,429 $ 8,010 $ 7,702 Chargeoffs: Commercial............................. 974 361 794 543 873 Real estate mortgage................... 43 40 44 31 14 Installment............................ 1,274 1,368 1,393 1,375 945 -------- -------- ------- ------- ------- Total chargeoffs..................... 2,291 1,769 2,231 1,949 1,832 -------- -------- ------- ------- ------- Recoveries: Commercial............................. 171 114 325 364 106 Real estate mortgage................... 1 32 20 1 7 Installment............................ 407 301 294 268 237 -------- -------- ------- ------- ------- Total recoveries..................... 579 447 639 633 350 -------- -------- ------- ------- ------- Net chargeoffs........................... 1,712 1,322 1,592 1,316 1,482 -------- -------- ------- ------- ------- Provisions for loan losses............... 2,625 2,241 2,372 1,735 1,790 Allowance acquired in purchase........... 1,413 -------- -------- ------- ------- ------- Balance at December 31................... $12,454 $10,128 $ 9,209 $ 8,429 $ 8,010 ======== ======== ======= ======= ======= Ratio of net chargeoffs during the period to average loans outstanding during the period.......... .16% .14% .18% .16% .21% Peer Group................................ .18% .21% .26% .29% .26% Page 16

STATISTICAL DATA (continued) - ---------------- Allocation of the Allowance for Loan Losses at December 31: Presented below is an analysis of the composition of the allowance for loan losses and per cent of loans in each category to total loans: 2000 1999 ------------------------------ ------------------------------ Amount Per Cent Amount Per Cent -------- -------- -------- -------- (Dollars in Thousands) Balance at December 31: commercial, financial and agricultural.............................. $ 4,400 24.7% $ 3,344 24.6% Real estate - construction.................. 78 3.9 3 3.2 Real estate - mortgage...................... 1,554 53.9 1,297 53.2 Installment................................. 4,612 17.6 3,909 18.6 Tax-exempt loans............................ 10 .5 5 .4 Unallocated................................. 1,800 N/A 1,570 N/A -------- ------ -------- ------ Totals...................................... $ 12,454 100.0% $ 10,128 100.0% ======== ====== ======== ====== 1998 1997 ------------------------------ ------------------------------ Amount Per Cent Amount Per Cent -------- -------- -------- --------- (Dollars in Thousands) Balance at December 31: commercial, financial and agricultural.............................. $ 2,950 23.7% $ 3,226 23.4% Real estate - construction.................. 4 3.6 4 2.7 Real estate - mortgage...................... 1,313 56.1 1,319 56.5 Installment................................. 3,509 16.3 2,117 17.1 Tax-exempt loans............................ 5 .3 5 .3 Unallocated................................. 1,428 N/A 1,758 N/A -------- ------ -------- ------ Totals...................................... $ 9,209 100.0% $ 8,429 100.0% ======== ====== ======== ====== 1996 ------------------------------ Amount Per Cent -------- -------- (Dollars in Thousands) Balance at December 31: commercial, financial and agricultural.............................. $ 3,537 23.5% Real estate - construction.................. 4 2.0 Real estate - mortgage.. .................. 1,259 57.0 Installment................................. 1,906 17.3 Tax-exempt loans............................ 19 .2 Unallocated. .... .......................... 1,285 N/A -------- ------ Totals...................................... $ 8,010 100.0% ======== ====== Page 17

STATISTICAL DATA (continued) - ---------------- Loan Loss Chargeoff Procedures The Banks have weekly meetings at which loan delinquencies, maturities and problems are reviewed. The Board of Directors receive and review reports on loans monthly. The Executive Committee of First Merchants' Board meets bimonthly to approve or disapprove all new loans in excess of $1,000,000 and the Board reviews all commercial loans in excess of $50,000 which were made or renewed during the preceding month. Madison's and First United's loan committees, consisting of all loan officers and the president, meet as required to approve or disapprove any loan which is in excess of an individual loan officer's lending limit. The Loan/Discount Committee of Union County's Board meets monthly to approve or disapprove all loans to borrowers with aggregate loans in excess of $300,000. The Loan Committee of Randolph County's Board meets weekly to approve or disapprove any loan which is in excess of an individual loan officer's lending limit. All chargeoffs are approved by the 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: 2000 1999 1998 --------------- ---------------- --------------- (Dollars in Thousands) For the year ending December 31: Impaired loans with an allowance................... $ 7,862 $ 2,742 $ 2,105 Impaired loans for which the discounted cash flows or collateral value exceeds the carrying value of the loan....................... 6,977 4,398 6,982 ------------ ------------ ----------- Total impaired loans......................... $ 14,839 $ 7,140 $ 9,087 ============ ============ =========== Allowance for impaired loans (included in the Corporation's allowance for loan losses)......... $ 2,253 $ 1,061 $ 795 Average balance of impaired loans.................. 15,053 8,770 8,881 Interest income recognized on impaired loans....... 1,361 705 873 Cash basis interest included above................. 1,080 637 745 Page 18

- -------------------------------------------------------------------------------- STATISTICAL DATA (continued) DEPOSITS The following table shows the average amount of deposits and average rate of interest paid thereon for the years indicated. 2000 1999 1998 ------------------------- ------------------------ ------------------------- Amount Rate Amount Rate Amount Rate ------------ --------- ------------ --------- ------------ -------- (Dollars in Thousands) Balance at December 31: Noninterest bearing deposits....... $ 134,717 $ 129,747 $ 113,193 NOW accounts....................... 168,773 1.7% 152,268 1.7% 145,224 2.1% Money market deposit accounts.... 193,932 4.6 177,091 3.8 146,745 4.0 Savings deposits................... 98,988 2.5 95,344 2.5 91,842 2.6 Certificates of deposit and other time deposits.............. 612,605 5.7 518,624 5.1 519,625 5.5 ---------- ---------- ----------- Total deposits................. $1,209,015 4.1% $1,073,074 3.6% $ 1,016,629 3.9% ========== ========== =========== As of December 31, 2000, certificates of deposit and other time deposits of $100,000 or more mature as follows: Maturing ------------------------------------------------- 3 Months 3-6 6-12 Over 12 or less Months Months Months Total ------------- -------------- -------------- -------------- -------------- (Dollars in Thousands) Certificates of deposit and other time deposits.......... $ 74,194 $ 38,434 $ 48,469 $ 35,313 $199,410 Per cent....................... 40% 19% 24% 17% 100% RETURN ON EQUITY AND ASSETS 2000 1999 1998 ---------------- ----------------- ----------------- Return on assets (net income divided by average total assets).......................... 1.30% 1.37% 1.43% Return on equity (net income divided by average equity)................................. 14.10 12.75 12.09 Dividend payout ratio (dividends per share divided by net income per share).......... 51.43 53.16 52.03 Equity to assets ratio (average equity divided by average total assets)............... 9.23 10.72 11.80 Page 19

STATISTICAL DATA (continued) - ---------------- SHORT-TERM BORROWINGS 2000 1999 1998 ----------------- ----------------- ---------------- (Dollars in Thousands) Balance at December 31: Securities sold under repurchase agreements (short-term portion)........ $ 31,956 $ 15,271 $ 11,598 Federal funds purchased.................. 975 28,885 15,170 U.S. Treasury demand notes............... 4,968 9,506 2,629 --------- --------- --------- Total short-term borrowings......... $ 37,899 $ 53,662 $ 29,397 ========= ========= ========= 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: 2000 1999 1998 ----------------- ----------------- ----------------- (Dollars in Thousands) Weighted average interest rate on outstanding balance at December 31: Securities sold under repurchase agreements(short-term portion).............. 6.2% 4.7% 5.1% Total short-term borrowings..................... 5.6 5.3 5.3 Weighted average interest rate during the year: Securities sold under repurchase Agreements (short-term portion)............. 5.6% 4.5% 5.1% Total short-term borrowings..................... 5.0 4.5 5.0 Highest amount outstanding at any month end During the year: Securities sold under repurchase Agreements (short-term portion)............. $ 14,505 $ 19,700 $ 27,002 Total short-term borrowings..................... 56,099 55,893 67,968 Average amount outstanding during the year: Securities sold under repurchase Agreements (short-term portion)............. $ 12,116 $ 17,696 $ 24,526 Total short-term borrowings..................... 33,165 36,157 44,467 Page 20

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. This building and eight branch buildings are owned by First Merchants; four remaining branches of First Merchants are located in leased premises. The principal offices of Madison are located at 19 West 10th Street, Anderson, Indiana. Madison also operates branches. All of Madison's properties are owned by Madison and are located in Madison County, Indiana. Two automated dispensers are located in Madison County, Indiana. The principal offices of First United are located at 790 West Mill Street, Middletown, Indiana. First United also operates two branches. All of First United's properties are owned by First United and are located in Henry County, Indiana. The principal office of Randolph County is located at 122 West Washington Street, Winchester, Indiana. This building is owned by Randolph County and is located in Randolph County, Indiana. The principal office of Union County is located at 107 West Union, Liberty, Indiana. Union County also operates five branches. One of Union County's branches is located in Union County, one branch is located in Wayne County, two branches are located in Fayette County and one branch is located in Butler County, Ohio. The principal office of Decatur is located at 520 North 13th Street, Decatur, Indiana. Decatur also operates three branches. All of Decatur's properties are located in Adams County, Indiana. None of the properties owned by the banks are subject to any major encumbrances. The net investment of the Corporation and subsidiaries in real estate and equipment at December 31, 2000 was $23,868,000. - -------------------------------------------------------------------------------- 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. 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 2000 to a vote of security holders, through the solicitation of proxies or otherwise. Page 21

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 are listed below. 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 56 Corporation and First Merchants Corporation since April 1999; President First Merchants from April 1999 to September 2000; President and Chief Operating Officer, Corporation since August 1998 and May, 1994 to April 1999 respectively; President and Chief Operating Officer, First Merchants from April, 1996 to April 1999; Director, Corporation and First Merchants since December, 1984 Roger M. Arwood Executive Vice President, Corporation President and chief Executive Officer First 49 and President and CEO First Merchants Merchants since September 2000, Bank of since September 19, 2000 America from 1983 to February 2000. Executive Vice President of the Corporation and First Merchants since February of 2000; Executive Vice President, Larry R. Helms Executive Vice President, Corporation Executive Vice President, Corporation 60 and First Merchants since September since September 2000; Senior Vice President 2000; General Counsel and Secretary, General Counsel, Corporation 1982 to September Corporation 2000 Corporation since 1990 and Secretary since January 1, 1997; Senior Vice President, First Merchants since January 1979; Director of First United Bank since 1991 and Pendleton Banking Company since 1992 James L. Thrash Senior Vice President, Corporation Senior Vice President and Chief 51 and First Merchants; Chief Financial Financial Officer of the Corporation Officer, Corporation since 1990; Senior Vice President, First Merchants since 1990 Roy A. Eon Senior Vice President of Operations Senior Vice President One Valley Bancorp; 49 and Technology, Corporation and First Senior Vice President and National Manager of Merchants since January 8, 2001 Deposit Operations, Banc One Corporation; Senior Vice President State Operations Manager for Kentucky, Banc One Corporation. Page 22

PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. - -------------------------------------------------------------------------------- The information required under this item is incorporated by reference to page 41 of the Corporation's 2000 Annual Report to Stockholders under the caption "Stockholder Information," Exhibit 13. ITEM 6. SELECTED FINANCIAL DATA. - -------------------------------------------------------------------------------- The information required under this item is incorporated by reference to page 2 of the Corporation's 2000 Annual Report to Stockholders - Financial Review under the caption "Five-Year Summary of Selected Financial Data," Exhibit 13. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - -------------------------------------------------------------------------------- The information required under this item is incorporated by reference to page 3 through 10 of the Corporation's 2000 Annual Report to Stockholders - Financial Review under the caption "Management's Discussion and Analysis," Exhibit 13. ITEM 7A. QUNTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. - -------------------------------------------------------------------------------- The information required under this item is incorporated by reference to page 5 and 19 of the Corporation's 2000 Annual Report to Stockholders - Financial Review under the caption "Management's Discussion and Analysis," Exhibit 13. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. - -------------------------------------------------------------------------------- The financial statements and supplementary data required under this item are incorporated herein by reference to pages 11 through 39 of the Corporation's 2000 Annual Report to Stockholders - Financial Review, Exhibit 13. 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, 2000, 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 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. - -------------------------------------------------------------------------------- The information required under this item relating to directors is incorporated by reference to the Corporation's 2000 Proxy Statement furnished to its stockholders in connection with an annual meeting to be held April 11, 2001 (The "2000 Proxy Statement"), under the caption "Election of Directors," which Proxy Statement has been filed with the Commission. 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. ITEM 11. EXECUTIVE COMPENSATION. - -------------------------------------------------------------------------------- The information required under this item is incorporated by reference to the Corporation's 2000 Proxy Statement, under the captions, "Compensation of Directors" and "Compensation of Executive Officers," which Proxy Statement has been filed with the Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. - -------------------------------------------------------------------------------- The information required under this item is incorporated by reference to the Corporation's 2000 Proxy Statement, under the caption, "Security Ownership of Certain Beneficial Owners and Management," which Proxy Statement has been filed with the Commission. Page 23

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. - -------------------------------------------------------------------------------- The information required under this item is incorporated by reference to the Corporation's 2000 Proxy Statement, under the caption "Interest of Management in Certain Transactions," which Proxy Statement has been filed with the Commission. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. - -------------------------------------------------------------------------------- Exhibit 13 Page Number -------------------- (a) 1. Financial Statements: Independent auditor's report.................................11 Consolidated balance sheet at December 31, 2000 and 1999..............................12 Consolidated statement of income, years ended December 31, 2000, 1999 and 1998...........................................13 Consolidated statement of comprehensive income, Years ended December 31, 2000, 1999, and 1998...........14 Consolidated statement of cash flows, years ended December 31, 2000, 1999 and 1998...........................................15 Notes to consolidated financial statements.............................................16-39 (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 Exhibit: - ----------- ----------------------- 3a First Merchants Corporation Articles of Incorporation and the Articles and amendment thereto is incorporated by reference to registrant's Form 10-Q for quarter ended June 30, 1999. 3b First Merchants Corporation Bylaws and amendments thereto is incorporated by reference to registrant's Form 10-Q for quarter ended June 30, 1997. 10a First Merchants Corporation and First Merchants Bank, National Association Management Incentive Plan is incorporated by reference to registrant's Form 10-K for year ended December 31, 1996. 10b First Merchants Bank, National Association Unfunded Deferred Compensation Plan, as amended is incorporated by reference to registrant's Form 10-K for year ended December 31, 1996. 10c First Merchants Corporation 1994 Stock Option Plan is incorporated by reference to Registrant's Form 10-K for year ended December 31, 1993. Page 24

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued) - -------------------------------------------------------------------------------- 10d First Merchants Corporation Change of Control Agreements are incorporated by reference to registrant's Form 10-Q for quarter ended June 30, 1999. 10e First Merchants Corporation Unfunded Deferred Compensation Plan is incorporated by reference to registrant's Form 10-K for year ended December 31, 1996 10f First Merchants Corporation Supplemental Executive Retirement Plan and amendments thereto is incorporated by reference to registrant's Form 10-K for year ended December 31, 1997. 10g First Merchants Corporation 1999 Long-term Equity Incentive Plan is incorporated by reference to registrant's registration statement on Form S-8 (see File No. 333-80117) effective on June 7, 1999. 13 2000 Annual Report to Stockholders (except for the Pages and information thereof expressly incorporated by reference in this Form 10-K, the Annual Report to Stockholders is provided solely for the information of the Securities and Exchange Commission and is not deemed "filed" as part of this Form 10-K) 21 Subsidiaries of Registrant 23 Consent of Independent Auditors 24 Limited Power of Attorney 27 Financial Data Schedule, year ended December 31, 2000 99.1 Financial statements and independent auditor's report for First Merchants Corporation Employee Stock Purchase Plan (b) Reports on Form 8-K: None Page 25

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 30th day of March, 2001. 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 and on the dates indicated. KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of First Merchants Corporation, an Indiana corporation, hereby constitute and appoint James L. Thrash, 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 13, 2001 /s/ Michael L. Cox /s/ Stefan S. Anderson - ------------------------------ ----------------------------------- Michael L. Cox Officer Stefan S. Anderson Director /s/ James L. Thrash /s/ Roger M. Arwood - ------------------------------ ------------------------------------ James L. Thrash Officer Roger M. Arwood Director /s/ James F. Ault ------------------------------------ James F. Ault Director /s/ Dennis A. Bieberich ------------------------------------ Dennis A. Bieberich Director /s/ Frank A. Bracken ------------------------------------ Frank A. Bracken Director /s/ Thomas B. Clark ------------------------------------ Thomas B. Clark Director /s/ Michael L. Cox ------------------------------------ Michael L. Cox Director /s/ Barry Hudson ------------------------------------ Barry Hudson Director /s/ Norman M. Johnson ------------------------------------ Norman M. Johnson Director /s/ George A. Sissel ------------------------------------ George A. Sissel Director ------------------------------------ Robert M. Smitson Director /s/ John E. Worthen ------------------------------------ John E. Worthen Director * By James L. Thrash as Attorney-in Fact pursuant to a limited Power of Attorney executed by the directors listed above, which Power of Attorney has been filed with the Securities and Exchange Commission. By /s/ James L. Thrash ------------------------------ James L. Thrash As Attorney-in-Fact March Page 26

INDEX TO EXHIBITS - -------------------------------------------------------------------------------- (a) 3. Exhibits: Exhibit No: Description of Exhibit: 10.1 First Merchants Corporation Management Incentive Compensation Program 10.5 First Merchants Corporation Change of Control Agreements 13 2000 Annual Report to Stockholders (Except for the Pages and information thereof expressly incorporated by reference in this Form 10-K, the Annual Report to Stockholders is provided solely for the information of the Securities and Exchange Commission and is not deemed "filed" as part of this Form 10-K.) 21 Subsidiaries of Registrant 23 Consent of Independent Auditors 24 Limited Power of Attorney 99.1 Financial statements and independent auditor's report for First Merchants Corporation Employee Stock Purchase Plan Page 27

Senior Management Incentive Compensation Program Adopted May 22, 2000 Amended February 7, 2001 I. Purpose The Board of Directors of the Corporation has established an executive compensation program, which is designed to provide incentives to executive officers to achieve short-term and long-term corporate strategic management goals, with the ultimate objective of obtaining a superior return on the shareholders' investment. The purpose of restructuring the plan is to: (1) incorporate modern incentive plan techniques; (2) simplify administration of the plan; (3) incorporate executive retention features; and (4) to more closely align the interests of executives with those of shareholders. II. Administration This plan will be administered solely by the Compensation Committee of FMC with supporting documentation and recommendations provided by the Chief Executive Officer (CEO) of FMC. The Committee will annually review the targets for applicability and competitiveness. III. Covered Individuals by Title and Position Description A. Chief Executive Officer of FMC; B. Chief Executive Officer of FMB with Holding Company responsibilities; C. Executive Vice President (EVP) of FMB with Holding Company responsibilities; D. Administrative Officers of FMB with Holding Company responsibilities; E. Division Heads of FMB with Holding Company responsibilities; F. Division Heads of FMB as determined by the CEO; G. Affiliate Bank CEO; and H. Non-Bank Affiliate CEOs. IV. Supporting Recommendation In support of this calendar year, it is recommended that future grants of Incentive Stock Options and Non-Qualified Stock Options will have the vesting date extended from six months to two years. This time extension will add an element of retention in the officer's employment arrangement. Voluntary termination or termination for cause, excluding retirement, death or disabuility6, prior to vesting will cause options to be canceled. V. Implementation of New Plan To avoid an unintended reduction in benefit and to allow the Corporation to effectively implement and "grow into" this restructured plan, it is recommended that the first year award, inclusive of deferred stock units, to carryover participants be not less than an amount that would have been earned by applying the formulas and schedules in effect for the calendar year 1999.

VI. Implementation Parameters A. Payouts to participants on the earnings component will be determined by changes in "operating earnings" (net income plus or minus non-operating items including goodwill amortization). FMC CEO earnings component payouts will be determined by changes in FMC EPS calculated on both GAAP and "cash basis". B. As the restructured plan is implemented, an averaging technique incorporated in the old plan will be used. To calculate the payouts in year one of the new plan, the average of the prior two year payouts will weight 40% and the current year will weight at 60%. In year two, and each year thereafter, the weighting will be 60% for the current year and 40% for the prior year. C. Each participant, except the CEO of FMC and CEO of FMB, will have an incentive bonus based on 70% of performance standards for the respective group and 30% based on individual benchmarks as determined by the CEO. D. To further the purpose of executive retention, two-thirds of the bonus will be paid in cash at the end of the plan year and one-third in deferred stock units payable two years after date of grant, unless the deferred component is less than $1,000 in which event the entire bonus will be paid in cash. When paid, the value of the deferred stock units will be equal to the fair market value of First Merchants Corporation stock on that date plus accumulated dividends. Termination for cause or voluntary termination, excluding retirement, death or disability, prior to vesting will cancel these deferred stock units. E. Participants may elect to defer all or part of the cash bonus to be paid at a future time determined by participant. Such deferral elections must be made no later than November 30 of each year and will be credited quarterly an interest factor equivalent to the current five-year Treasury bond.

VII. Plan Structure All payouts will be determined from the attached schedules of percentage change in EPS (Section VIII, B) and ROE attainment (Section VIII, C). A. CEO of FMC 1. Target bonus of 45% of base compensation 2. A weighting of % change in: a. Operating EPS at 40% b. Diluted GAAP EPS at 30%; and c. 30% based on a target ROE of 15%. B. CEO of FMB 1. Target bonus of 40% of base compensation 2. A weight of % change in a. FMB operating earnings at 70%; and b. FMC operating earnings at 30%. C. EVP of FMB with Holding Company responsibilities 1. Target bonus of 30% of base compensation 2. A weighting of % change in: a. FMB operating earnings at 50%; b. FMC operating earnings at 20%; and c. Personal objectives at 30%. D. FMB Administrative Officers with Holding Company responsibilities 1. Target bonus of 25% of base compensation 2. A weighting of % change in: a. FMB operating earnings at 50%; b. FMC operating earnings at 20%; and c. Personal objectives at 30%. E. Division Heads of FMB with Holding Company responsibilities 1. Target bonus of 15% of base compensation 2. A weighting of % change in: a. FMB operating earnings at 50%; b. FMC operating earnings at 20%; and c. Personal objectives at 30% F. Division Heads of FMB 1. Target bonus of 10% of base compensation 2. A weighting of % change in: a. FMB operating earnings at 70%; and b. Personal objectives at 30% G. Affiliate Bank CEOs 1. Target bonus of 25% of base compensation 2. A weighting of % change in: a. Affiliate bank operating earnings at 50%; b. FMC operating earnings at 20%; and c. Personal objectives at 30%. H. Non-Bank Affiliate CEOs 1. Target bonus of 25% of base compensation 2. A weighting of % change in: a. Affiliate operating earnings at 70%; and b. Personal objectives at 30%. I. President - FMBHC 1. Target bonus of 25% of base compensation 2. Weighting % as follows: a. 50% on attainment of $20 million in deposits at 12/31/01 b. 20% on attainment of pre-tax loss of no more than $450,000 c. Personal objectives at 30%. J. Division Heads of FMBHC as determined by CEO 1. Target bonus of 10% of base compensation 2. A weighting of % change in: a. FMBHC operating EPS at 70%; and b. Personal objectives at 30%.

VIII. Supporting Parameters A. Individual components are weighted consistently at 30%. They will consist of three objectives selected by each supervisor and employee and weighted at 10% each. These objectives must be measurable with both beginning points and standards targets cited. Partial completion of objectives will not qualify for pay out. B. Schedule Determining both Operating earnings and EPS and GAAP earnings and EPS Payouts for Year 2000: Operating Earnings % Change* Payout % <3% 0% 3% 30% 4% 40% 5% 50% 6% 60% 7% 70% 8% 80% 9% 90% Target 10% 100% 12% 120% 14% 140% 16% 160% 18% 180% 20% 200% *Operating earnings adds back charges for amortization of goodwill and other non-operating expenses as determined by the Committee. C. Schedule Determining ROE Payouts Operating ROE* Payout % <10% 0% 10% 10% 11% 20% 12% 40% 13% 60% 14% 80% Target 15% 100% 16% 120% 17% 140% 18% 160% 19% 180% 20% 200% *Operating earnings adds back charges for amortization of goodwill and other non-operating expenses as determined by the Committee.

Approved by the Compensation Committee: May 22, 2000 (original approval) February 7, 2001 (amended)

CHANGE OF CONTROL AGREEMENT This Agreement is made and entered into this _____ day of ______________, 1999, by and between First Merchants Corporation, an Indiana corporation (hereinafter referred to as "Corporation"), and First Merchants Bank, National Association (hereinafter referred to as "Bank"), a wholly-owned subsidiary of the Corporation, both with their principal offices located at 200 East Jackson Street, Muncie, Indiana, and ______________ (hereinafter referred to as "Executive"), of Muncie, Indiana. WHEREAS, the Corporation and the Bank consider the continuance of proficient and experienced management to be essential to protecting and enhancing the best interests of the Corporation, the Bank, and the Corporation's shareholders; and WHEREAS, the Corporation and the Bank desire to assure the continued services of the Executive on behalf of the Corporation and the Bank; and WHEREAS, the Corporation and the Bank recognize that if faced with a proposal for a Change of Control, as hereinafter defined, the Executive will have a significant role in helping the Board of Directors assess the options and advising the Board of Directors on what is in the best interests of the Corporation, the Bank, and the Corporation's shareholders; and it is necessary for the Executive to be able to provide this advice and counsel without being influenced by the uncertainties of the Executive's own situation; and WHEREAS, the Corporation and the Bank desire to provide fair and reasonable benefits to the Executive on the terms and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and undertakings herein contained and the continued employment of the Executive by the [Corporation] [Bank] as _____________________________________, the Corporation, the Bank, and the Executive, each intending to be legally bound, covenant and agree as follows: 1. TERM OF AGREEMENT. This Agreement shall continue in effect through December 31, 1999; provided, however, that commencing on December 31, 1999 and each December 31 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than October 31, 1999 or October 31 immediately preceding any December 31 thereafter, the Corporation or the Bank shall have given the Executive notice that it does not wish to extend this Agreement; and provided further, that if a Change of Control of the Corporation or the Bank, as defined in Section 2, shall have occurred during the original or extended term of this Agreement, this Agreement shall continue in effect for a period of not less than twenty-four (24) months beyond the month in which such Change of Control occurred.

2. DEFINITIONS. For purposes of this Agreement, the following definitions shall apply: A. CAUSE: "Cause" shall mean: (1) professional incompetence; (2) willful misconduct; (3) personal dishonesty; (4) breach of fiduciary duty involving personal profit; (5) intentional failure to perform stated duties; (6) willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or final cease and desist orders; and (7) any intentional material breach of any term, condition or covenant of this Agreement. B. CHANGE OF CONTROL: "Change of Control" shall mean: (1) any person (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ["Exchange Act"]), other than the Corporation, is or becomes the Beneficial Owner (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the Corporation or the Bank representing twenty-five percent (25%) or more of the combined voting power of the Corporation's or the Bank's then outstanding securities; (2) persons constituting a majority of the Board of Directors of the Corporation or the Bank were not directors of the respective Board for at least the twenty-four (24) preceding months; (3) the stockholders of the Corporation or the Bank approve a merger or consolidation of the Corporation or the Bank with any other corporation, other than (a) a merger or consolidation which would result in the voting securities of the Corporation or the Bank outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the

combined voting power of the voting securities of the Corporation or the Bank or such surviving entity outstanding immediately after such a merger or consolidation, or (b) a merger or consolidation effected to implement a recapitalization of the Corporation or the Bank (or similar transaction) in which no person acquires fifty percent (50%) or more of the combined voting power of the Corporation's or the Bank's then outstanding securities; or (4) the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or the Bank or an agreement for the sale or disposition by the Corporation or the Bank of all or substantially all of the Corporation's or the Bank's assets. C. DATE OF TERMINATION: "Date of Termination" shall mean the date stated in the Notice of Termination (as hereinafter defined) or thirty (30) days from the date of delivery of such notice, as hereinafter defined, whichever comes first. D. DISABILITY: "Disability" shall mean the definition of such term as used in the disability policy then in effect for the Corporation or the Bank, and a determination of full disability by the Corporation or the Bank; provided that in the event there is no disability insurance then in force, "disability" shall mean incapacity due to physical or mental illness which will have caused the Executive to have been unable to perform his duties with the Corporation and/or the Bank on a full time basis for one hundred eighty (180) consecutive calendar days. E. NOTICE OF TERMINATION: "Notice of Termination" shall mean a written notice, communicated to the other parties hereto, which shall indicate the specific termination provisions of this Agreement relied upon and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provisions so indicated. F. RETIREMENT: "Retirement" shall mean termination of employment by the Executive in accordance with the Corporation's or the Bank's normal retirement policy generally applicable to its salaried employees in effect at the time of a Change of Control. 3. Termination. A. GENERAL. If any of the events described in Section 2 constituting a Change in Control of the Corporation or the Bank shall have occurred, the Executive shall be entitled to the benefits described in Section 4 upon the subsequent termination of the Executive's employment during the term of this

Agreement, unless such termination is (a) because of the death or Disability of the Executive, (b) by the Corporation or the Bank for Cause, or (c) by the Executive other than on account of Constructive Termination (as hereinafter defined). B. If, following a Change of Control, the Executive's employment shall be terminated for Cause, the Corporation and/or the Bank shall pay him his salary through the Date of Termination at the rate in effect on the date of the Notice of Termination, and the Corporation and the Bank shall have no further obligations under this Agreement. If, following a Change of Control, the Executive's employment shall be terminated as a result of death or Disability, compensation to the Executive shall be made pursuant to the Corporation's and the Bank's then existing policies on death or Disability, and the Corporation and the Bank shall have no further obligations under this Agreement. If, following a Change of Control, the Executive's employment is terminated by and at the request of the Executive as a result of Retirement, compensation to the Executive shall be made pursuant to the Corporation's and the Bank's normal retirement policy generally applicable to its salaried employees at the time of the Change of Control, and the Corporation and the Bank shall have no further obligations under this Agreement. C. CONSTRUCTIVE TERMINATION. The Executive shall be entitled to terminate his employment upon the occurrence of Constructive Termination. For purposes of this Agreement, "Constructive Termination" shall mean, without the Executive's express written consent, the occurrence, after a Change of Control of the Corporation or the Bank, of any of the following circumstances: (1) the assignment to the Executive of any duties inconsistent (unless in the nature of a promotion) with the position in the Corporation or the Bank that the Executive held immediately prior to the Change of Control of the Corporation or the Bank, or a significant adverse reduction or alteration in the nature or status of the Executive's position, duties or responsibilities or the conditions of the Executive's employment from those in effect immediately prior to such Change of Control; (2) a reduction in the Executive's annual base salary, as in effect immediately prior to the Change of Control of the Corporation or the Bank or as the same may be adjusted from time to time, except for across-the-board salary reductions similarly affecting all management personnel of the Corporation or the Bank;

(3) the Bank and/or the Corporation requires the Executive to e relocated anywhere other than their offices in Muncie, Indiana; (4) the taking of any action to deprive the Executive of any material fringe benefit enjoyed by him at the time of the Change of Control, or the failure to provide him with the number of paid vacation days to which he is entitled on the basis of years of service with the Corporation and/or the Bank and in accordance with the Corporation's or the Bank's normal vacation policy in effect at the time of the Change of Control; (5) the failure to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Corporation's or the Bank's life insurance, medical, health and accident, or disability plans in which the Executive was participating at the time of the Change of Control of the Corporation or the Bank, or the taking of any action which would directly or indirectly materially reduce any of such benefits; or (6) the failure of the Corporation or the Bank to continue this Agreement in effect, or to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof. 4. COMPENSATION UPON TERMINATION. Following a Change of Control, if his employment by the Corporation or the Bank shall be terminated by the Executive on account of Constructive Termination or by the Corporation or the Bank other than for Cause, death, Disability, or Retirement (by and at the request of the Executive), then the Executive shall be entitled to the benefits provided below: A. No later than the fifth day following the Date of Termination, the Corporation or the Bank shall pay to the Executive his full base salary through the Date of Termination, at the rate in effect at the time Notice of Termination is given, plus all other amounts to which the Executive is entitled under any incentive, bonus or other compensation plan of the Corporation or the Bank in effect at the time such payments are due; B. In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination, no later than the fifth day following the Date of Termination, the Corporation or the Bank shall pay to the Executive a lump sum severance payment, in cash, equal to ________ (____) times the sum of (a) the Executive's annual base salary rate as in effect on the date of the

Notice of Termination, and (b) the largest bonus received by he Executive during the two (2) years immediately preceding the Date of Termination under the Corporation's Management Incentive Plan covering the Executive; C. During the period beginning with the Executive's Date of Termination and continuing until the earlier of (a) the second anniversary of such Date of Termination, or (b) Executive's sixty-fifth (65th) birthday, the Corporation or the Bank shall arrange to provide the Executive with life, disability, accident and health insurance benefits substantially similar to those which the Executive was receiving immediately prior to he Notice of Termination and shall pay the same percentage of the cost of such benefits as the Corporation or the Bank was paying on the Executive's behalf on the date of such Notice; D. In lieu of shares of common stock of the Corporation ("Corporation Shares") issuable upon the exercise of outstanding options ("Options"), if any, granted to the Executive under any Corporation stock option plan (which Options shall be cancelled upon the making of the payment referred to below), the Executive shall receive an amount in cash equal to the product of (a) the excess of the higher of the closing price of Corporation Shares as reported on the NASDAQ National Market System, the American Stock Exchange or the New York Stock Exchange, wherever listed, on or nearest the Date of Termination or the highest per share price for Corporation Shares actually paid in connection with any Change of Control of the Corporation, over the per share exercise price of each Option held by the Executive (whether or not then fully exercisable), times (b) the number of Corporation Shares covered by each such Option; E. If the payments or benefits, if any, received or to be received by the Executive (whether under this Agreement or under any other plan, arrangement, or agreement between the Executive and the Corporation or the Bank), in connection with termination or Constructive Termination of the Executive's employment following a Change of Control, constitute an "excess parachute payment" within the meaning ofss.280G of the Internal Revenue Code ("Code"), the Corporation or the Bank shall pay to the Executive, no later than the fifth day following the Date of Termination, an additional amount (as determined by the Corporation's independent public accountants) equal to the excise tax, if any, imposed on the "excess parachute payment" underss.4999 of the Code; provided, however, if the amount of such excise tax is finally determined to be more or less than the amount paid to the Executive hereunder, the Corporation or the Bank (or the Executive if the finally determined amount is less than the original amount paid) shall pay the difference between the amount originally paid and the finally determined

amount to the other party no later than the fifth day following the date such final determination is made; F. The Corporation or the Bank shall pay to the Executive all reasonable legal fees and expenses incurred by the Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement), unless the decision-maker in any proceeding, contest, or dispute arising hereunder makes a formal finding that the Executive did not have a reasonable basis for instituting such proceeding, contest, or dispute; G. The Corporation or the Bank shall provide the Executive with individual out- placement services in accordance with the general custom and practice generally accorded to an executive of the Executive's position. 5. SUCCESSORS; BINDING AGREEMENT. A. The Corporation or the Bank shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation or the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation or the Bank would be required to perform it if no such succession had taken place. Failure of the Corporation or the Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Corporation or the Bank in the same amount and on the same terms to which the Executive would be entitled hereunder if the Executive terminates his employment on account of Constructive Termination following a Change of Control of the Corporation or the Bank, except that for the purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, "the Corporation or the Bank" shall mean the Corporation or the Bank and any successor to their business and/or assets as aforesaid which assumes and agrees to perform this Agreement, by operation of law or otherwise. B. This Agreement shall inure to the benefit of and be enforceable by the Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive should die while any amount would still be payable to the Executive hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the

devisee, legatee or other designee or, if there is no such designee, to his estate. 6. GUARANTEE BY CORPORATION AND BANK. In consideration of the value of the continued employment of the Executive by the Corporation or the Bank, and the benefits derived by the Corporation and the Bank from the Executive's employment by the Corporation or the Bank, the Corporation and the Bank hereby unconditionally and fully guarantee and endorse the obligations of the other hereunder, and agree to be fully bound by the terms of this Agreement in the event that the other fails to perform, honor, or otherwise complete fully its obligations hereunder. 7. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and such officer as may be specifically designated by the Corporation. No waiver by either party hereto at the time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar of dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Indiana without regard to its conflicts of law principles. All references to a section of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such section. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Corporation and the Bank under Section 4 shall survive the expiration of the term of this Agreement. 8. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

10. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three (3) arbitrators in Muncie, Indiana in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that the Executive shall be entitled to seek specific performance of his right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto; and any prior agreement of the parties hereto in respect of the subject matter contained herein is hereby terminated and cancelled. IN WITNESS WHEREOF, the Corporation and the Bank have caused this Agreement to be executed by their duly authorized officers, and the Executive has hereunder subscribed his name, this _______ day of ______________________, 1999. "CORPORATION" "EXECUTIVE" FIRST MERCHANTS CORPORATION By ______________________________ By ______________________________ Stefan S. Anderson, __________________ Chairman of the Board "BANK" FIRST MERCHANTS BANK, NATIONAL ASSOCIATION By ______________________________ Stefan S. Anderson, Chairman of the Board SCHEDULE A TO FIRST MERCHANTS CORPORATION CHANGE OF CONTROL AGREEMENT The Corporation's Change of Control Agreement covering Roger M. Arwood, Larry R. Helms, Jack L. Demaree, and Roy A. Eon are all in the form of Exhibit 10.1. The multiples of the executives' annual base salaries are as follows: Roger M. Arwood 299 percent, Jack L. Demaree 200 percent, Larry R. Helms 200 percent, and Roy A.Eon 200 percent.


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Financial Review

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FIVE-YEAR SUMMARY OF
SELECTED FINANCIAL DATA                                                     2


MANAGEMENT'S
DISCUSSION & ANALYSIS                                                       3


INDEPENDENT AUDITOR'S REPORT                                               11


CONSOLIDATED
FINANCIAL STATEMENTS                                                       12


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS                                                       16


STOCKHOLDER INFORMATION                                                    40

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

FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA

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 (in thousands, except share data)                               2000           1999           1998           1997           1996
====================================================================================================================================
                                                                                                          
Operations
Net Interest Income
     Fully Taxable Equivalent (FTE) Basis ...............    $   58,619     $   56,513     $   52,463     $   49,403     $   45,431
Less Tax Equivalent Adjustment ..........................         2,637          2,948          2,767          2,611          2,312
                                                             ----------     ----------     ----------     ----------     ----------
Net Interest Income .....................................        55,982         53,565         49,696         46,792         43,119
Provision for Loan Losses ...............................         2,625          2,241          2,372          1,735          1,790
                                                             ----------     ----------     ----------     ----------     ----------
Net Interest Income
     After Provision for Loan Losses ....................        53,357         51,324         47,324         45,057         41,329
Total Other Income ......................................        16,634         14,573         12,880         10,146          9,317
Total Other Expenses ....................................        40,083         36,710         32,741         30,016         27,596
                                                             ----------     ----------     ----------     ----------     ----------
     Income Before Income Tax Expense ...................        29,908         29,187         27,463         25,187         23,050
Income Tax Expense ......................................         9,968         10,099          9,556          8,704          8,006
                                                             ----------     ----------     ----------     ----------     ----------
Net Income ..............................................    $   19,940     $   19,088     $   17,907     $   16,483     $   15,044
                                                             ==========     ==========     ==========     ==========     ==========

Per share data (1)
Basic Net Income ........................................    $     1.76     $     1.59     $     1.50     $     1.40     $     1.29
Diluted Net Income ......................................          1.75           1.58           1.48           1.38           1.27
Cash Dividends Paid (2) .................................           .90            .84            .77            .69            .59
December 31 Book Value ..................................         13.44          11.55          12.85          11.95          11.10
December 31 Market Value (Bid Price) ....................         22.63          25.56          26.00          24.33          16.83

Average balances
Total Assets ............................................    $1,532,691     $1,397,230     $1,254,223     $1,151,081     $1,079,816
Total Loans .............................................     1,104,013        935,716        870,317        799,430        698,417
Total Deposits ..........................................     1,209,015      1,073,074      1,016,629        825,808        778,096
Securities Sold Under Repurchase Agreements
     (long-term portion) ................................        68,732         62,686         37,238
Total Federal Home Loan Bank Advances ...................        80,008         57,062         30,742         19,746          9,192
Total Stockholders' Equity ..............................       141,446        149,727        148,052        135,958        125,907

Year-end balances
Total Assets ............................................    $1,621,063     $1,474,048     $1,362,527     $1,181,359     $1,112,672
Total Loans .............................................     1,175,586        998,895        890,356        838,658        744,474
Total Deposits ..........................................     1,288,299      1,147,203      1,085,952        976,972        918,876
Securities Sold Under Repurchase Agreements
      (long-term portion) ...............................        32,500         35,000         48,836
Total Federal Home Loan Bank Advances ...................        93,182         73,514         47,067         25,500         10,150
Total Stockholders' Equity ..............................       156,063        126,296        153,891        141,794        130,250

Financial ratios
Return on Average Assets ................................          1.30%          1.37%          1.43%          1.43%          1.39%
Return on Average Stockholders' Equity (3) ..............         14.10          12.75          12.09          12.12          11.95
Average Earning Assets to Total Assets ..................         94.85          94.77          94.80          94.62          94.39
Allowance for Loan Losses as % of Total Loans ...........          1.06           1.01           1.03           1.01           1.08
Dividend Payout Ratio ...................................         51.43          53.16          52.03          50.00          46.46
Average Stockholders' Equity to Average Assets ..........          9.23          10.72          11.80          11.81          11.66
Tax Equivalent Yield on Earning Assets (4) ..............          8.19           7.81           8.15           8.34           8.10
Cost of Supporting Liabilities ..........................          4.16           3.54           3.74           3.80           3.64
Net Interest Margin on Earning Assets ...................          4.03           4.27           4.41           4.54           4.46


(1)  Restated for 3-for-2 stock split distributed October, 1998.

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

(3)  Average stockholders' equity is computed by averaging the last five
     quarters ending balance.

(4)  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.





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

MANAGEMENT'S DISCUSSION & ANALYSIS

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

The Corporation's financial data for periods prior to mergers, which were
accounted for as pooling of interests, has been restated.

RESULTS OF OPERATIONS

     Net income for the year 2000 reached $19,940,000, up from $19,088,000 in
1999.  Diluted  earnings per share totaled  $1.75,  a 10.8%  increase over $1.58
reported  for 1999.  Cash basis  earnings  per share were $1.81,  an increase of
13.1%  over the 1999  level of  $1.60.  In  2000,  First  Merchants  Corporation
("Corporation") recorded the twenty-fifth consecutive year of improvement in net
income on both an aggregate and per share basis.

     Return on equity was 14.10 percent in 2000, up from 1999 and 1998 figures
of 12.75 percent and 12.09 percent.

     Return on assets was 1.30 percent in 2000, 1.37 percent in 1999 and 1.43
percent in 1998.

CAPITAL

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

     The Corporation's Tier I capital to average assets ratio was 8.7 percent at
year-end  2000,  and 9.2 percent at December 31, 1999. At December 31, 2000, the
Corporation  had a Tier I  risk-based  capital  ratio  of  11.7  percent,  total
risk-based  capital ratio of 12.7 percent,  and a leverage ratio of 8.7 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 has an employee stock purchase plan and an employee stock
option plan. Activity under these plans is described in Note 14 to the
Consolidated Financial Statements. The transactions under these plans have not
had a material effect on the Corporation's capital position.





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

MANAGEMENT'S DISCUSSION & ANALYSIS

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

ASSET QUALITY/PROVISION FOR LOAN LOSSES

     The Corporation's asset quality and loan loss experience have consistently
been  superior  to that of its peer  group,  as  summarized  in the table on the
following  page.  Asset  quality  has been a major  factor in the  Corporation's
ability to generate consistent profit improvement.

     The allowance for loan losses is maintained through the provision for loan
losses, which is a charge against earnings.

     The amount provided for loan losses and the determination of the adequacy
of the  allowance  are  based on a  continuous  review  of the  loan  portfolio,
including an internally  administered  loan "watch" list and an independent loan
review  provided  by an  outside  accounting  firm.  The  evaluation  takes into
consideration  identified credit problems,  as well as the possibility of losses
inherent in the loan portfolio that are not specifically identified.

     At December 31, 2000, non-performing loans totaled $7,920,000, an increase
of $3,405,000. Impaired loans included in the table below totaled $1,900,000.

     At December 31, 2000, impaired loans totaled $14,839,000, an increase of
$7,699,000.  The  increase  was  primarily  attributable  to two loans  totaling
$5,525,000.  One loan totaling  $4,040,000 is current and is not included in the
non-performing  asset  table  below  but  has a  specific  reserve  of  $595,000
allocated  to the loan due to  inadequate  cash flow.  The second loan  totaling
$1,485,000 is collateral  dependant with no reserve. An allowance for losses was
not deemed necessary for impaired loans totaling $6,977,000, but an allowance of
$2,253,000  was  recorded  for  the  remaining  balance  of  impaired  loans  of
$7,862,000. The average balance of impaired loans for 2000 was $15,053,000.

     At December 31, 2000, the allowance for loan losses was $12,454,000, up
$2,326,000 from year end 1999. As a percent of loans, the allowance was 1.06
percent, up from 1.01 percent at year-end 1999.

     The provision for loan losses in 2000 was $2,625,000, up $384,000 or 17%
from $2,241,000 in 1999.

The following table summarizes the risk elements for the Corporation.


(dollars in thousands)                                         December31,
- --------------------------------------------------------------------------------
                                                           2000            1999
================================================================================

Non-accrual loans ..............................          $2,370          $1,280

Loans contractually
   past due 90 days or more
   other than non-accruing .....................           2,465           2,327

Restructured loans .............................           3,085             908
                                                          ------          ------

   Total .......................................          $7,920          $4,515
                                                          ======          ======



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

MANAGEMENT'S DISCUSSION & ANALYSIS

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

The table below presents loan loss experience for the years indicated and
compares the Corporation's loss experience to that of its peer group.



(Dollars in Thousands)                                                                2000                1999                1998
====================================================================================================================================
                                                                                                                   

Allowance for loan losses:
    Balance at January 1 ...............................................            $10,128             $ 9,209             $ 8,429
                                                                                    -------             -------             -------
    Chargeoffs .........................................................              2,291               1,769               2,231
    Recoveries .........................................................                579                 447                 639
                                                                                    -------             -------             -------
    Net chargeoffs .....................................................              1,712               1,322               1,592
    Provision for loan losses ..........................................              2,625               2,241               2,372
    Allowance acquired in acquisition...................................              1,413
                                                                                    -------             -------             -------
    Balance at December 31 .............................................            $12,454             $10,128             $ 9,209
                                                                                    =======             =======             =======
   Ratio of net chargeoffs during the period to
     average loans outstanding during the period .......................               .16%                .14%                .18%
   Peer Group ..........................................................                NA                 .29%                .26%


LIQUIDITY, 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 ensure that changes in interest rates will not adversely
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.

     The Corporation's liquidity and interest sensitivity position at December
31, 2000, remained adequate to meet the Corporation's  primary goal of achieving
optimum  interest  margins while  avoiding  undue  interest rate risk. The table
below  presents  the  Corporation's  interest  rate  sensitivity  analysis as of
December 31, 2000.






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

MANAGEMENT'S DISCUSSION & ANALYSIS

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


INTEREST RATE SENSITIVITY ANALYSIS
(dollars in thousands)                                                                At December 31, 2000
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                1-180 DAYS   181-365 DAYS    1-5 YEARS    BEYOND 5 YEARS     TOTAL
====================================================================================================================================
                                                                                                           
Rate-Sensitive Assets:
   Federal funds sold and interest-bearing deposits .........   $   15,783                                                $   15,783
   Investment securities ....................................       71,246    $   53,741     $  143,131     $   39,845       307,963
   Loans ....................................................      403,634       107,434        509,733        154,785     1,175,586
   Federal Reserve and Federal Home Loan Bank stock .........        7,185                                                     7,185
                                                                ----------    ----------     ----------     ----------    ----------
        Total rate-sensitive assets .........................      497,848       161,175        652,864        194,630     1,506,517
                                                                ----------    ----------     ----------     ----------    ----------
Rate-Sensitive Liabilities:
   Interest-bearing deposits ................................      486,294       278,891        365,464            597     1,131,246
   Securities sold under repurchase agreements ..............       12,156        19,800         32,500                       64,456
   Other short-term borrowings ..............................        5,943                                                     5,943
   Federal Home Loan Bank advances ..........................       23,719        26,631         29,121         13,711        93,182
                                                                ----------    ----------     ----------     ----------    ----------
        Total rate-sensitive liabilities ....................      528,112       325,322        427,085         14,308     1,294,827
                                                                ----------    ----------     ----------     ----------    ----------

Interest rate sensitivity gap by period .....................   $  (30,264)   $ (164,147)    $  225,779     $  180,322
Cumulative rate sensitivity gap .............................      (30,264)     (194,411)        31,368        211,960
Cumulative rate sensitivity gap ratio
   at December 31, 2000 .....................................         94.3%         77.2%         102.4%         116.3%
   at December 31, 1999 .....................................         72.9 %        69.5%          98.1%         115.0%

The Corporation had a cumulative negative gap of $195,294,000 in the one-year
horizon at December 31, 2000, just over 12.2 percent of total assets. Net
interest income at financial institutions with negative gaps tends to increase
when rates decrease and decrease as interest rates increase.


     The Corporation places its greatest credence in net interest income
simulation modeling. The GAP/Interest Rate Sensitivity Report is known 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.

     The Corporation's asset liability process monitors simulated net interest
income under three separate interest rate scenarios; rising (rate shock),
falling (rate shock) and flat. Net interest income is simulated over an 18-month
horizon.  By policy,  the difference  between the best  performing and the worst
performing  rate  scenarios  are not allowed to show a variance  greater  than 5
percent.

     Assumed interest rate changes are simulated to move incrementally over 18
months. The total rate movement (beginning point minus ending point) to
noteworthy interest rate indexes are as follows:

                                 RISING              FALLING
================================================================================
Prime                             200 Basis Points   (200)Basis Points
Federal Funds                     200                (200)
90-Day T-Bill                     200                (200)
One-Year T-Bill                   200                (200)
Three-Year T-Bill                 200                (200)
Five-Year T-Note                  200                (200)
Ten-Year T-Note                   200                (200)
Interest Checking                  67                 (67)
MMIA Savings                      200                (200)
Money Market Index                200                (200)
Regular Savings                    67                 (67)




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

MANAGEMENT'S DISCUSSION & ANALYSIS

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

Results for the flat, rising (rate shock), and falling (rate shock) interest
rate scenarios are listed below. The net interest income shown represents
cumulative net interest income over an 18-month time horizon. Balance sheet
assumptions are the same under both scenarios:

                                             FLAT/BASE      RISING     FALLING
================================================================================
Net Interest Income (dollars in thousands)    $ 57,657    $ 55,554    $ 57,713

Change vs. Flat/Base Scenario                             $ (2,104)   $     55

Percent Change                                              -3.65%        .10%

EARNING ASSETS

     Earning assets increased $130.7 million during 2000. The table below
reflects the earning asset mix for the years 2000 and 1999 (at December 31).

     Loans grew by $176.7 million while investment securities declined by $36.1
million. The acquisition of Decatur Bank & Trust Company combined with increased
loan demand resulted in a 17.7% increase in the Corporations loan portfolio. The
decline in investment  securities  was the result of the  Corporation  partially
funding  it's  loan  growth,  and cash  portion  of the  acquisition  and  stock
repurchases with investment run off.

EARNING ASSETS
(dollars in millions)                                              December 31,
================================================================================
                                                                2000       1999
                                                             --------   --------
     Federal funds sold and interest-bearing time deposits   $   15.8   $   27.1
     Securities available for sale .......................      295.7      329.7
     Securities held to maturity .........................       12.2       14.3
     Loans ...............................................    1,175.6      998.9
     Federal Reserve and Federal Home Loan Bank stock ....        7.2        5.8
                                                             --------   --------
         Total ...........................................   $1,506.5   $1,375.8
                                                             ========   ========

DEPOSITS AND BORROWINGS

     The table below reflects the level of deposits and borrowed funds (Federal
funds purchased, repurchase agreements, U.S. Treasury demand notes and Federal
Home Loan Bank advances) based on year-end levels at December 31, 2000 and 1999.



As of December 31                                                                           (dollars in millions)
- ------------------------------------------------------------------------------------------------------------------
                                     SECURITIES SOLD UNDER           OTHER SHORT-TERM          FEDERAL HOME LOAN
                    DEPOSITS         REPURCHASE AGREEMENTS               BORROWINGS              BANK ADVANCES
==================================================================================================================
                                                                                            

2000                $1,288.3                 $64.5                         $ 5.9                        $93.2

1999                $1,147.2                 $78.0                         $38.4                        $73.5






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

MANAGEMENT'S DISCUSSION & ANALYSIS
================================================================================

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 2000.

     In 2000, asset yields increased 38 basis points (FTE) and interest cost
increased 62 basis points, resulting in a 24 basis point (FTE) decline in net
interest income.



 (dollars in thousands)
- --------------------------------------------------------------------------------------------------------------
            INTEREST INCOME    INTEREST EXPENSE   NET INTEREST INCOME                      NET INTEREST INCOME
           (FTE) as a Percent    as a Percent      (FTE)as a Percent         AVERAGE              On a
               of Average         of Average          of Average             EARNING          Fully Taxable
             Earning Assets      Earning Assets      Earning Assets          ASSETS          Equivalent Basis
==============================================================================================================
                                                                                 

  2000             8.19%             4.16%             4.03%             $1,453,795             $58,619
  1999             7.81              3.54              4.27               1,324,172              56,513
  1998             8.15              3.74              4.41               1,188,981              52,463

     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.

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 2000 amounted to $16,634,000 or 14.1 percent higher than in
1999.  The increase of  $2,061,000  is primarily  attributable  to the following
factors:

1.   Other customer fees increased $430,000, or 13.9 percent, due to increased
     fees from electronic card usage and price adjustments.

2.   Commission income increased $421,000, or 27.5 percent, due to
     increased sales initiatives in 2000.

3.   Revenues from fiduciary activity grew $372,000, or 8.1 percent, due to
     strong new business activity and markets.

4.   Service charges on deposit accounts increased $326,000 or 7.3 percent due
     to increased number of accounts and price adjustments.

5.   Other income increased $876,000, or 135.2 percent due primarily to
     $209,000 of new revenue resulting from First Merchants Reinsurance
     Company and a $147,000 gain on sale of a Bank building in 2000.



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

MANAGEMENT'S DISCUSSION & ANALYSIS

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

OTHER INCOME  continued

     Other income in 1999 amounted to $14,573,000 or 13.1 percent higher than in
1998.  The increase of  $1,693,000  is primarily  attributable  to the following
factors:

1.   Service charges on deposit accounts increased $744,000 or 20.1 percent due
     to increased number of accounts and price adjustments.

2.   Other customer fees increased $462,000, or 17.6 percent, due to increased
     fees from electronic card usage and price adjustments.

3.   Commission income increased $455,000, or 42.4 percent, due to the
     acquisition of the Muncie office of Insurance & Risk Management, Inc.,
     renamed First Merchants Insurance Services, on April 1, 1998.

4.   Revenues from fiduciary activity grew $391,000, or 9.3 percent, due to
     strong new business activity and markets.

5.   Other income decreased $489,000, or 43.0 percent due primarily to a
     $442,000 gain on sale of a Bank building in 1998.

The Corporation's emphasis to increase revenue from non-interest income resulted
in a 13.1% rise for 1999 to $14.6 million,  following a double-digit increase in
1998.

OTHER EXPENSES

     Total "other expenses" represent non-interest operating expenses of the
Corporation. Those expenses amounted to $40,083,000 in 2000, an increase of 9.2
percent from the prior year, or $3,373,000.

Three major areas account for most of the increase:
1.   Salary and benefit expenses, which account for over one-half of the
     Corporation's non-interest operating expenses, grew by $1,598,000, or 8.1
     percent, due to normal salary increases and staff additions and the
     additional salary cost related to Decatur Bank and Trust Company.
2.   Equipment expenses increased $584,000, or 15.7 percent, reflecting the
     Corporation's capital investments in it's operation center and it's efforts
     to improve efficiency and provide electronic service delivery to its
     customers.

Total "other expenses" in 1999 amounted to $36,710,000, an increase of 12.1
percent from the prior year, or $3,969,000.

Three major areas account for most of the increase:
1.   Salary and benefit expenses, which account for over one-half of the
     Corporation's non-interest operating expenses, grew by $1,514,000, or 8.3
     percent, due to normal salary increases and staff additions.
2.   Non-recurring merger related costs in 1999 were $804,000 representing just
     over 5 cents per share.
3.   Equipment expenses increased $552,000, or 17.5 percent, reflecting the
     Corporation's efforts to improve efficiency and provide electronic service
     delivery to its customers.




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

MANAGEMENT'S DISCUSSION & ANALYSIS

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

INCOME TAXES

     The decrease in 2000 tax expense of $131,000 is attributable primarily to
decreased state taxes as a result of changes in the state tax laws. The increase
in 1999 tax  expense of  $543,000  is  attributable  primarily  to a  $1,724,000
increase in net pre-tax  income,  mitigated  somewhat by a $336,000  increase in
tax-exempt income and increased tax credits of $204,000.

ACCOUNTING MATTERS

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     During 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
This Statement  requires companies to record derivatives on the balance sheet at
their  fair  value.  Statement  No.  133 also  acknowledges  that the  method of
recording a gain or loss depends on the use of the derivative.

     The new Statement applies to all entities. If hedge accounting is elected
by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge.

     Statement No. 133 amends Statement No. 52 and supersedes Statements No. 80,
105 and 119.  Statement No. 107 is amended to include the disclosure  provisions
about the concentrations of credit risk from Statement No. 105. Several Emerging
Issues Task Force consensuses are also changed or nullified by the provisions of
Statement No. 133.

     Statement No. 133 was originally effective for all fiscal years beginning
after June 15, 1999 and was amended.  It is now  effective  for all fiscal years
beginning  after June 15, 2000 and is not expected to have a material  impact on
the   operations  of  the   Corporation.   The  Statement  may  not  be  applied
retroactively to financial statements of prior periods.

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 bank holding company's  operations is such that there will
be an excess of monetary  assets over monetary  liabilities,  and,  thus, a bank
holding  company  will tend to suffer from an increase in the rate of  inflation
and benefit from a decrease.



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

INDEPENDENT AUDITOR'S REPORT

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

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

We have audited the accompanying  consolidated  balance sheet of First Merchants
Corporation  and  subsidiaries as of December 31, 2000 and 1999, 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,
2000. 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.

The  consolidated  financial  statements as of December 31, 1999 and for the two
years then ended have been restated to reflect the pooling-of-interests with Jay
Financial  Corporation and Anderson Community Bank as described in Note 2 to the
consolidated  financial  statements.   We  did  not  audit  the  1998  financial
statements of Jay  Financial  Corporation  and Anderson  Community  Bank,  which
statements reflect total revenues of $15,588,000 for the year ended December 31,
1998.  Those  statements  were audited by other auditors whose reports have been
furnished to us and our opinion,  insofar as it relates to the amounts  included
for First  Merchants  Corporation  as of December 31, 1999 and for the two years
then ended, is based solely on the report of the other auditors.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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  and the  reports  of other  auditors  the
consolidated  financial  statements  described  above  present  fairly,  in  all
material  respects,  the  consolidated  financial  position  of First  Merchants
Corporation  and  subsidiaries as of December 31, 2000 and 1999, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 2000, in conformity with generally accepted accounting
principles.

                                             OLIVE LLP

                                             Indianapolis, Indiana
                                             January 22, 2001, except for
                                             note 19 as to which the date
                                             is February 8, 2001









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

CONSOLIDATED FINANCIAL STATEMENTS

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


CONSOLIDATED BALANCE SHEET
(in thousands, except share data)                                                                            December 31,
====================================================================================================================================
                                                                                                                  

                                                                                                    2000                   1999
Assets
   Cash and due from banks ...........................................................           $    52,563            $    58,893
   Federal funds sold ................................................................                14,900                 25,400
                                                                                                 -----------            -----------
   Cash and cash equivalents .........................................................                67,463                 84,293
   Interest-bearing time deposits ....................................................                   883                  1,730
   Investment securities
      Available for sale .............................................................               295,730                329,668
      Held to maturity (fair value of $12,328 and $14,284) ...........................                12,233                 14,303
                                                                                                 -----------            -----------
        Total investment securities ..................................................               307,963                343,971
   Mortgage loans held for sale ......................................................                                           61
   Loans, net of allowance for loan losses of $12,454 and $10,128.....................             1,163,132                988,767
   Premises and equipment ............................................................                23,868                 20,073
   Federal Reserve and Federal Home Loan Bank stock ..................................                 7,185                  5,858
   Interest receivable ...............................................................                13,135                 11,279
   Core deposit intangibles and goodwill .............................................                21,055                  2,885
   Cash surrender value of life insurance.............................................                 6,312                  3,227
   Other assets ......................................................................                10,067                 11,904
                                                                                                 -----------            -----------
        Total assets .................................................................           $ 1,621,063            $ 1,474,048
                                                                                                 ===========            ===========

Liabilities
   Deposits
     Noninterest-bearing .............................................................           $   157,053            $   140,547
     Interest-bearing ................................................................             1,131,246              1,006,656
                                                                                                 -----------            -----------
           Total deposits ............................................................             1,288,299              1,147,203
   Borrowings ........................................................................               163,581                189,862
   Interest payable ..................................................................                 6,335                  4,599
   Other liabilities .................................................................                 6,785                  6,088
                                                                                                 -----------            -----------
           Total liabilities .........................................................             1,465,000              1,347,752


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 -- 11,611,732 and 10,936,617 shares .....................                 1,451                  1,367
   Additional paid-in capital ........................................................                41,665                 25,481
   Retained earnings .................................................................               113,244                103,640
   Accumulated other comprehensive loss   ............................................                  (297)                (4,192)
                                                                                                 -----------            -----------
        Total stockholders' equity ...................................................               156,063                126,296
                                                                                                 -----------            -----------
        Total liabilities and stockholders' equity ...................................           $ 1,621,063            $ 1,474,048
                                                                                                 ===========            ===========


See notes to consolidated financial statements.


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

CONSOLIDATED FINANCIAL STATEMENTS

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



CONSOLIDATED STATEMENT OF INCOME
(in thousands, except share data)                                                                Year Ended December 31,
====================================================================================================================================
                                                                                                                  
                                                                                       2000               1999               1998
Interest income
   Loans receivable
     Taxable .............................................................           $ 95,798           $ 78,366           $ 75,971
     Tax exempt ..........................................................                311                233                234
   Investment securities
     Taxable .............................................................             14,478             15,459             11,596
     Tax exempt ..........................................................              4,587              5,243              4,906
   Federal funds sold ....................................................                666                657              1,026
   Deposits with financial institutions ..................................                103                 59                 30
   Federal Reserve and Federal Home Loan Bank stock ......................                585                446                398
                                                                                     --------           --------           --------
       Total interest income .............................................            116,528            100,463             94,161
                                                                                     --------           --------           --------
Interest expense
   Deposits ..............................................................             49,607             38,539             39,873
   Securities sold under repurchase agreements ...........................              4,263              4,273              2,015
   Federal Home Loan Bank advances .......................................              5,315              3,260              1,923
   Other borrowings ......................................................              1,361                826                654
                                                                                     --------           --------           --------
        Total interest expense ...........................................             60,546             46,898             44,465
                                                                                     --------           --------           --------
Net interest income ......................................................             55,982             53,565             49,696
   Provision for loan losses .............................................              2,625              2,241              2,372
                                                                                     --------           --------           --------

Net interest income
after provision for loan losses ..........................................             53,357             51,324             47,324
                                                                                     --------           --------           --------
Other income
   Fiduciary activities ..................................................              4,972              4,600              4,209
   Service charges on deposit accounts ...................................              4,776              4,450              3,706
   Other customer fees ...................................................              3,519              3,089              2,627
   Net realized gains (losses) on
     sales of available-for-sale securities ..............................               (107)               257                127
   Commission income .....................................................              1,950              1,529              1,074
   Other income ..........................................................              1,524                648              1,137
                                                                                     --------           --------           --------
        Total other income ...............................................             16,634             14,573             12,880
                                                                                     --------           --------           --------

Other expenses
   Salaries and employee benefits ........................................             21,418             19,820             18,306
   Net occupancy expenses ................................................              2,471              2,139              2,064
   Equipment expenses ....................................................              4,299              3,715              3,163
   Marketing expense .....................................................              1,010                869                903
   Deposit insurance expense .............................................                240                129                125
   Outside data processing fees ..........................................              1,736              1,647              1,465
   Printing and office supplies ..........................................              1,144              1,275                984
   Merger-related expenses ...............................................                                   804
   Goodwill and core deposit amortization.................................                896                223                214
   Other expenses ........................................................              6,869              6,089              5,517
                                                                                     --------           --------           --------
        Total other expenses .............................................             40,083             36,710             32,741
                                                                                     --------           --------           --------

Income before income tax .................................................             29,908             29,187             27,463
   Income tax expense ....................................................              9,968             10,099              9,556
                                                                                     --------           --------           --------
Net income ...............................................................           $ 19,940           $ 19,088           $ 17,907
                                                                                     ========           ========           ========

Net income per share:
   Basic .................................................................           $   1.76           $   1.59           $   1.50
   Diluted ...............................................................               1.75               1.58               1.48


See notes to consolidated financial statements.


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

CONSOLIDATED FINANCIAL STATEMENTS

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



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31,
 (in thousands)                                                                                2000            1999           1998
====================================================================================================================================
                                                                                                                  
Net income .............................................................................     $ 19,940       $ 19,088       $ 17,907
                                                                                             --------       --------       --------
Other comprehensive income, net of tax:
  Unrealized gains (loss) on securities available for sale:
     Unrealized holding gains (loss) arising during the period,
     net of income tax (expense) benefit of $(2,610), $4,258,$(499) ....................        3,831         (6,249)           731
  Less: Reclassification adjustment for gains (loss) included in net income,
      net of income tax (expense) benefit of  $43, $(103), $(51)........................          (64)           154             76
                                                                                             --------       --------       --------
                                                                                                3,895         (6,403)           655
                                                                                             --------       --------       --------
  COMPREHENSIVE INCOME                                                                       $ 23,835       $ 12,685       $ 18,562

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


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY



(in thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
                                                        COMMON STOCK
                                                   -----------------------    ADDITIONAL    RETAINED   ACCUMULATED OTHER
                                                      SHARES       AMOUNT   PAID-IN CAPITAL EARNINGS     COMPREHENSIVE       TOTAL
                                                                                                         INCOME (LOSS)
                                                   -----------    --------  --------------  --------- --------------------  -------
                                                                                                        
Balances, January 1, 1998.......................     7,910,448    $  1,054     $  30,238    $ 108,947      $   1,556      $ 141,795
  Net income for 1998 ..........................                                               17,907                        17,907
  Cash dividends ($ .77 per share) .............                                               (7,934)                       (7,934)
  Other comprehensive income, net of tax .......                                                                 655            655
  Stock issued under employee benefit plans . ..        14,471           2           383                                        385
  Stock issued under dividend reinvestment
     and stock purchase plan ...................        19,092           2           677                                        679
  Stock options exercised ......................        52,460          19           463                                        482
  Stock redeemed ...............................        (2,000)                      (72)                                       (72)
  Three-for-two stock split ....................     3,981,769         420          (420)
  Cash paid in lieu of issuing fractional shares          (285)                       (6)                                        (6)
                                                   -----------    --------      --------    ---------      ---------      ---------
Balances, December 31, 1998 ....................    11,975,955       1,497        31,263      118,920          2,211        153,891
  Net income for 1999...........................                                               19,088                        19,088
  Cash dividends ($ .84 per share) .............                                               (9,759)                       (9,759)
  Other comprehensive loss, net of tax   .......                                                              (6,403)        (6,403)
  Stock issued under employee benefit plans ....        20,870           3           454                                        457
  Stock issued under dividend reinvestment
     and stock purchase plan ...................        30,227           4           718                                        722
  Stock options exercised ......................        55,234           6           265                                        271
  Stock redeemed ...............................    (1,145,669)       (143)       (7,384)     (24,609)                      (32,136)
  Tax benefit of stock dispositions ............                                     165                                        165
                                                   -----------    --------      --------    ---------      ---------      ---------
Balances, December 31, 1999 ....................    10,936,617       1,367        25,481      103,640         (4,192)       126,296
  Net income for 2000...........................                                               19,940                        19,940
  Cash dividends ($ .90 per share) .............                                              (10,331)                      (10,331)
  Other comprehensive income, net of tax .......                                                               3,895          3,895
  Stock issued under employee benefit plans ....        26,778           3           478                                        481
  Stock issued under dividend reinvestment
     and stock purchase plan ...................        35,611           5           806                                        811
  Stock options exercised ......................        33,906           4           506                                        510
  Stock redeemed ...............................      (292,000)        (37)       (6,670)          (5)                       (6,712)
  Issuance of stock related to acquisition......       870,957         109        21,068                                     21,177
  Cash paid in lieu of fractional shares........          (137)                       (4)                                        (4)
                                                   -----------    --------      --------    ---------      ---------      ---------
Balances, December 31, 2000   ..................    11,611,732    $  1,451      $ 41,665    $ 113,244      $    (297)     $ 156,063
                                                   ===========    ========      ========    =========      =========      =========


See notes to consolidated financial statements.



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

CONSOLIDATED FINANCIAL STATEMENTS

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



CONSOLIDATED STATEMENT OF CASH FLOWS
====================================================================================================================================
                                                                                                 Year Ended December 31,
(in thousands, except share data)                                                    2000                 1999                1998
====================================================================================================================================
                                                                                                                 
Operating activities:
   Net income ..........................................................          $  19,940           $  19,088           $  17,907
   Adjustments to reconcile net income to
     net cash provided by operating activities:
     Provision for loan losses .........................................              2,625               2,241               2,372
     Depreciation and amortization .....................................              3,198               2,517               2,394
     Amortization of goodwill and intangibles ..........................                896                 232                 214
     Deferred income tax ...............................................               (767)             (1,122)                153
     Securities amortization, net ......................................                 72                 358                 221
     Securities losses (gains), net ....................................                107                (257)               (127)
     Gain on sale of premises and equipment ............................               (105)                 (4)               (442)
     Mortgage loans originated for sale ................................             (2,111)             (6,179)            (10,251)
     Proceeds from sales of mortgage loans .............................              2,172               6,894               9,946
     Net change in
         Interest receivable ...........................................               (825)               (482)               (448)
         Interest payable ..............................................              1,479                 465                  37
     Other adjustments .................................................              3,104               1,932              (2,535)
                                                                                  ---------           ---------           ---------
         Net cash provided by operating activities .....................             29,785              25,683              19,441
                                                                                  ---------           ---------           ---------

Investing activities:
   Net change in interest-bearing deposits .............................              1,330                (722)               (524)
   Purchases of
     Securities available for sale .....................................            (11,437)           (148,210)           (193,728)
     Securities held to maturity .......................................                                 (2,667)                (90)
   Proceeds from maturities of
     Securities available for sale .....................................             49,975             120,509              88,439
     Securities held to maturity .......................................              5,617               7,226              14,325
   Proceeds from sales of
     Securities available for sale .....................................             14,654              19,627               7,394
   Net change in loans .................................................            (87,658)           (109,861)            (53,761)
   Acquisition of insurance subsidiary .................................                                                     (1,254)
   Purchase of Federal Home Loan Bank stock ............................               (712)             (1,403)               (402)
   Purchases of premises and equipment .................................             (4,409)             (3,679)             (5,231)
   Proceeds from sale of fixed assets ..................................                449                  56               1,347
   Other investing activities ..........................................                280                                    (645)
                                                                                  ---------           ---------           ---------
         Net cash used by investing activities .........................            (31,911)           (119,124)           (144,130)
                                                                                  ---------           ---------           ---------

Financing activities:
   Net change in
     Demand and savings deposits .......................................                772              17,411              16,439
     Certificates of deposit and other time deposits ...................             33,268              43,840              92,541
     Repurchase agreements and other borrowings ........................            (51,385)             49,713              37,656
   Federal Home Loan Bank advances .....................................            199,396             314,500              27,657
   Repayment of Federal Home Loan Bank advances ........................           (181,510)           (288,054)             (6,089)
   Cash dividends ......................................................            (10,331)             (9,759)             (7,934)
   Stock issued under employee benefit plans ...........................                481                 457                 385
   Stock issued under dividend reinvestment
     and stock purchase plan ...........................................                811                 722                 679
   Stock options exercised .............................................                510                 271                 482
   Stock redeemed ......................................................             (6,712)            (32,136)                (72)
   Cash paid in lieu of issuing fractional shares ......................                 (4)                                     (6)
                                                                                  ---------           ---------           ---------
         Net cash provided (used) by financing activities ..............            (14,704)             96,965             161,738
                                                                                  ---------           ---------           ---------
Net change in cash and cash equivalents ................................            (16,830)              3,524              37,049
Cash and cash equivalents, beginning of year ...........................             84,293              80,769              43,720
                                                                                  ---------           ---------           ---------
Cash and cash equivalents, end of year .................................          $  67,463           $  84,293           $  80,769
                                                                                  =========           =========           =========
Additional cash flows information:
   Interest paid .......................................................          $  58,810           $  46,433           $  45,678
   Income tax paid .....................................................              9,544              10,157               9,861


See notes to consolidated financial statements.


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

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

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

CONSOLIDATION

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



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

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


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

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

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

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



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

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.  The  allowance  is based on ongoing,  quarterly  assessments  of the
probable  estimated  losses  inherent in the loan  portfolio.  The  allowance is
increased by the provision  for loan losses,  which is charged  against  current
period  operating  results and  decreased  by the amount of  chargeoffs,  net of
recoveries.  The Banks'  methodology  for assessing the  appropriateness  of the
allowance consists of several key elements, which include the formula allowance,
specific allowances for identified problem loans, and the unallocated allowance.

The formula  allowance is  calculated  by applying  loss factors to  outstanding
loans and certain  unused  commitments,  in each case based on the internal risk
grade of such loans,  pools of loans, or commitments.  Changes in risk grades of
both  performing  and  nonperforming  loans  affect  the  amount of the  formula
allowance.  Loss factors are based on our historical  loss experience and may be
adjusted for  significant  factors that, in management's  judgement,  affect the
collectibility of the portfolio as of the evaluation date.

Specific  allowances are  established  in cases where  management has identified
significant  conditions  or  circumstances  related to a credit that  management
believes indicate the probability that a loss has been incurred in excess of the
amount determined by the application of the formula allowance.

The  unallocated  allowance  is based upon  management's  evaluation  of various
conditions,  the effects of which are not directly measured in the determination
of the formula and specific allowances. The evaluation of the inherent loss with
respect to these conditions is subject to a higher degree of uncertainty because
they are not  identified  with specific  credits.  The  conditions  evaluated in
connection with the unallocated  allowance may include existing general economic
and business  conditions  affecting the Banks' key lending areas, credit quality
trends,  collateral values,  loan volumes and  concentrations,  seasoning of the
loan portfolio,  specific industry conditions within portfolio segments,  recent
loss experience in particular segments of the portfolio, duration of the current
business  cycle,  bank  regulatory  examination  results,  and  findings  of  an
independent third party conducting reviews of the loan portfolio.


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

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 are being amortized on both the straight-line and accelerated
basis over  periods  ranging  from 7 to 25 years.  Such assets are  periodically
evaluated as to the recoverability of their carrying value.

INCOME TAX in the consolidated  statement 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 accounts for and will continue to account for stock option grants in
accordance  with APB Opinion No. 25,  Accounting  for Stock Issued to Employees,
and  accordingly,  recognizes  compensation  expense for the stock option grants
which have been granted  with an exercise  price less than the fair value of the
shares at the date of grant.

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  three-for-two  stock split  distributed  to  stockholders  on
October 23, 1998.



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

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

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

NOTE 2

BUSINESS COMBINATIONS

On May 31, 2000, the Corporation acquired Decatur Financial Inc., the holding
company of Decatur Bank and Trust Company.  Decatur Bank and Trust Company is a
state chartered commercial bank with branches located in east-central Indiana.
Decatur  Financial Inc. was merged into the Corporation  through the exchange of
870,957  shares of newly  issued  common  stock  and  $12,355,000  of cash.  The
combination was accounted for under the purchase method of accounting. Decaturs'
results of  operations  are included in the  Corporation's  consolidated  income
statement  beginning  June 1,  2000.  The  purchase  resulted  in  core  deposit
intangible  of  $2,046,000  to be amortized  over 10 years using 150%  declining
balance  method.  Goodwill  of  $17,040,000  will be  amortized  over  20  years
straight-line.

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

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

                                                     Year Ended
                                                    December 31
                                               ----------------------
                                                  2000         1999
                                               ---------    ---------
Net Interest Income:.......................... $ 57,849     $  57,557

Net Income:................................... $ 19,563     $  19,474

Net Income per share - combined:
Basic  ....................................... $   1.63     $    1.51
Diluted  .....................................     1.62          1.50


On April 1, 1999, the Corporation  issued 1,098,795 shares of it common stock in
exchange  for  all of the  outstanding  shares  of  Jay  Financial  Corporation,
Portland,  Indiana.  At December 31, 1998, Jay Financial  Corporation  had total
assets and shareholders'  equity of $114,895,000 and $14,903,000,  respectively.
The  transaction  was  accounted  for under the  pooling-of-interests  method of
accounting.




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

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

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

NOTE 2

Business Combinations  continued

On April 21, 1999, the Corporation  issued 810,642 shares of its common stock in
exchange for all of the outstanding shares of Anderson Community Bank, Anderson,
Indiana.  At December 31,  1998,  Anderson  Community  Bank had total assets and
shareholders'   equity  of  $77,984,000   and  $7,740,000,   respectively.   The
transaction  was  accounted  for  under  the   pooling-of-interests   method  of
accounting.  The financial information contained herein reflects the mergers and
reports  the  financial  condition  and  results  of  operations  as though  the
Corporations had been combined as of January 1, 1998. Separate operating results
of Jay Financial  Corporation and Anderson  Community Bank for the periods prior
to the merger were as follows:




                                                                              1999                    1998
                                                                                            
Net interest income:
   First Merchants Corporation .............................              $   50,175              $   41,678
   Jay Financial Corporation ...............................                   2,250                   4,824
   Anderson Community Bank .................................                   1,140                   3,194
                                                                          ----------              ----------
     Combined ..............................................              $   53,565              $   49,696
                                                                          ==========              ==========
Net income:
   First Merchants Corporation .............................              $   17,934              $   15,399
   Jay Financial Corporation ...............................                     703                   1,431
   Anderson Community Bank .................................                     451                   1,077
                                                                          ----------              ----------
     Combined ..............................................              $   19,088              $   17,907
                                                                          ==========              ==========
Net income per share:
  Basic:
   First Merchants Corporation .............................              $     1.49              $     1.29
   Jay Financial Corporation ...............................                     .06                     .12
   Anderson Community Bank .................................                     .04                     .09
                                                                          ----------              ----------
     Combined ..............................................              $     1.59              $     1.50
                                                                          ==========              ==========
  Diluted:
   First Merchants Corporation .............................              $     1.48              $     1.27
   Jay Financial Corporation ...............................                     .06                     .12
   Anderson Community Bank .................................                     .04                     .09
                                                                          ----------              ----------
     Combined ..............................................              $     1.58              $     1.48
                                                                          ==========              ==========


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, 2000, was
$17,170,000.


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

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

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

NOTE 4

INVESTMENT SECURITIES


                                                                                         GROSS             GROSS
                                                                     AMORTIZED         UNREALIZED        UNREALIZED           FAIR
                                                                       COST              GAINS             LOSSES             VALUE
====================================================================================================================================
                                                                                                                

Available for sale at December 31, 2000
   U.S. Treasury ...........................................          $  2,997                                              $  2,997
   Federal agencies ........................................            55,403          $    268          $    155            55,516
   State and municipal .....................................            81,370             1,045               103            82,312
   Mortgage-backed securities ..............................           127,907               139               922           127,124
   Other asset-backed securities ...........................            19,924                10               148            19,786
   Corporate obligations ...................................             7,238                 9               395             6,852
   Marketable equity securities ............................             1,277                                 134             1,143
                                                                      --------          --------          --------          --------
      Total available for sale .............................           296,116             1,471             1,857           295,730
                                                                      --------          --------          --------          --------

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


Available for sale at December 31, 1999
   U.S. Treasury ...........................................          $  7,337          $      3          $     72          $  7,268
   Federal agencies ........................................            61,215                50             1,199            60,066
   State and municipal .....................................            94,598               568               945            94,221
   Mortgage-backed securities ..............................           141,673                58             4,332           137,399
   Other asset-backed securities ...........................            21,773                                 758            21,015
   Corporate obligations ...................................             9,082                 4               140             8,946
   Marketable equity securities ............................               915                                 162               753
                                                                      --------          --------          --------          --------
      Total available for sale .............................           336,593               683             7,608           329,668
                                                                      --------          --------          --------          --------

Held to maturity at December 31, 1999
   U.S. Treasury ...........................................               250                                   2               248
   State and municipal .....................................            13,243                77                13            13,307
   Mortgage-backed securities ..............................               311                 1                 1               311
   Other asset-backed securities ...........................               499                                  81               418
                                                                      --------          --------          --------          --------
      Total held to maturity ...............................            14,303                78                97            14,284
                                                                      --------          --------          --------          --------
      Total investment securities ..........................          $350,896          $    761          $  7,705          $343,952
                                                                      ========          ========          ========          ========




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

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

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

NOTE 4

INVESTMENT SECURITIES   continued
     The amortized cost and fair value of securities available for sale and held
to maturity  December  31,  2000,  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.



- ------------------------------------------------------------------------------------------------------------------------------------
                                                                               AVAILABLE FOR SALE               HELD TO MATURITY
                                                                         AMORTIZED COST    FAIR VALUE    AMORTIZED COST   FAIR VALUE
====================================================================================================================================
                                                                                                                
Maturity distribution at December 31, 2000:
  Due in one year or less...........................................        $ 40,338        $ 40,336        $  3,263        $  3,208
  Due after one through five years .................................          63,806          63,931           5,473           5,574
  Due after five through ten years .................................          29,675          30,138           2,401           2,435
  Due after ten years ..............................................          13,189          13,272             758             773
                                                                            --------        --------        --------        --------
                                                                             147,008         147,677          11,895          11,990

  Mortgage-backed securities .......................................         127,907         127,124             338             338
  Other asset-backed securities ....................................          19,924          19,786
  Marketable equity securities .....................................           1,277           1,143
                                                                            --------        --------        --------        --------

    Totals .........................................................        $296,116        $295,730        $ 12,233        $ 12,328
                                                                            ========        ========        ========        ========


     Securities with a carrying value of approximately $149,266,000 and
$161,462,000  were  pledged  at  December  31,  2000 and 1999 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 2000, 1999 and
1998 were $14,654,000,  $19,627,000 and $7,394,000.  Gross losses of $107,000 in
2000 and gross gains of $257,000 and $127,000 in 1999 and 1998 were  realized on
those sales.


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

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

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

NOTE 5

LOANS AND ALLOWANCE


                                                                                2000               1999
==========================================================================================================
                                                                                          
Loans at December 31:
  Commercial and industrial loans ..........................................$  258,405          $  224,712
  Agricultural production financing and other loans to farmers .............    24,547              21,547
  Real estate loans:
       Construction ........................................................    45,412              31,996
       Commercial and farmland .............................................   167,317             150,544
       Residential .........................................................   466,660             380,596
  Individuals' loans for household and other personal expenditures .........   201,629             181,906
  Tax-exempt loans .........................................................     6,093               4,070
  Other loans ..............................................................     5,523               3,552
                                                                             ---------           ---------
                                                                             1,175,586             998,923
   Unearned interest on loans ..............................................                           (28)
   Allowance for loan losses................................................   (12,454)            (10,128)
                                                                             ---------           ---------
       Total loans .........................................................$1,163,132           $ 988,767
                                                                             =========           =========


                                        2000          1999           1998
==========================================================================
Allowance for loan losses:
   Balance, January 1 .............. $ 10,128      $  9,209       $  8,429
   Allowance acquired in acquisition    1,413
   Provision for losses ............    2,625         2,241          2,372
   Recoveries on loans .............      579           447            639
   Loans charged off ...............   (2,291)       (1,769)        (2,231)
                                     --------      --------       --------
   Balance, December 31 ............ $ 12,454      $ 10,128       $  9,209
                                     ========      ========       ========


Information on impaired loans is summarized below:                   2000               1999               1998
================================================================================================================
                                                                                                 
As of, and for the year ending December 31:
   Impaired loans with an allowance ..........................     $ 7,862             $2,742             $2,105
   Impaired loans for which the discounted
       cash flows or collateral value exceeds the
       carrying value of the loan ............................       6,977              4,398              6,982
                                                                   -------             ------             ------
          Total impaired loans ...............................     $14,839             $7,140             $9,087
                                                                   =======             ======             ======
   Allowance for impaired loans (included in the
       Corporation's allowance for loan losses) ..............     $ 2,253             $1,061             $  795
   Average balance of impaired loans .........................      15,053              8,770              8,881
   Interest income recognized on impaired loans ..............       1,361                705                873
   Cash basis interest included above ........................       1,080                637                745



     The Banks have entered into transactions with certain directors, executive
officers, significant stockholders, and their affiliates or associates ("related
parties").  Such  transactions  were made in the ordinary  course of business on
substantially  the same  terms  and  conditions,  including  interest  rates and
collateral,  as those  prevailing at the same time for  comparable  transactions
with other  customers,  and did not, in the opinion of management,  involve more
than normal credit risk or present other unfavorable features.

The aggregate amount of loans, as defined, to such related parties is as
follows:

Balances, January 1, 2000 ........  $28,518
New loans,
   including renewals.............   17,897
Payments, etc.,
   including renewals.............    9,158
                                    -------
Balances, December 31, 2000 ......  $37,257
                                    =======




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

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

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

NOTE  6

PREMISES AND EQUIPMENT
                                                    2000           1999
================================================================================
Cost at December 31:
   Land ..........................................      $  4,020       $  3,442
   Buildings and leasehold improvements ..........        21,662         18,949
   Equipment .....................................        24,284         20,393
                                                        --------       --------
       Total cost ................................        49,966         42,784
   Accumulated depreciation and amortization .....       (26,098)       (22,711)
                                                        --------       --------
       Net .......................................      $ 23,868       $ 20,073
                                                        ========       ========

The  Corporation is committed  under various  noncancelable  lease contracts for
certain  subsidiary  office  facilities.  Total lease expense for 2000, 1999 and
1998 was $515,000,  $336,000,  and $250,000,  respectively.  The future  minimum
rental commitments required under the operating leases in effect at December 31,
2000,  expiring  at various  dates  through the year 2013 are as follows for the
years ending December 31:

====================================================
2001  ................................        $  337
2002  ................................           334
2003  ................................           309
2004  ................................           277
2005  ................................           229
After 2005 ...........................         1,041
                                              ------
Total future minimum obligations              $2,527
                                              ======

NOTE  7

DEPOSITS

                                                    2000            1999
================================================================================
Deposits at December 31:

   Demand deposits .............................       $  354,911     $  300,309
   Savings deposits ............................          299,868        283,249
   Certificates and other time deposits
     of $100,000 or more .......................          199,410        197,658
   Other certificates and time deposits ........          434,110        365,987
                                                       ----------     ----------
       Total deposits ..........................       $1,288,299     $1,147,203
                                                       ==========     ==========


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


2001 .......................                 $464,842
2002 .......................                   99,600
2003 .......................                   41,769
2004 .......................                   12,033
2005 .......................                   14,818
After 2005 .................                      458
                                             --------
                                             $633,520
                                             ========



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

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

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

NOTE  8

BORROWINGS

                                                      2000        1999
================================================================================
Borrowings at December 31:
   Securities sold under repurchase agreements .......     $ 64,456     $ 77,957
   Federal funds purchased ...........................          975       28,885
   U. S. Treasury demand notes .......................        4,968        9,506
   Federal Home Loan Bank advances ...................       93,182       73,514
                                                           --------     --------
       Total borrowings ..............................     $163,581     $189,862
                                                           ========     ========

     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 2000 and 1999 totaled $80,489,000
and  $91,261,000,  and the average of such  agreements  totaled  $69,953,000 and
$78,877,000.

Maturities  of  Federal  Home Loan  Bank  advances  and  securities  sold  under
repurchase agreements as of December 31, 2000, are as follows:



                                                        FEDERAL HOME LOAN                           SECURITIES SOLD UNDER
                                                          BANK ADVANCES                             REPURCHASE AGREEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                    WEIGHTED-AVERAGE                             WEIGHTED-AVERAGE
                                                  AMOUNT              INTEREST RATE              AMOUNT           INTEREST RATE
====================================================================================================================================
                                                                                                           
Maturities in years ending December 31:

      2001 ..............                        $50,350                 6.71%                 $31,956                 6.19%
      2002 ..............                         19,790                 6.98                    9,600                 5.49
      2003 ..............                          4,000                 6.04                   13,800                 5.80
      2004 ..............                          1,000                 6.83                    9,100                 5.68
      2005 ..............                          1,500                 6.70
      After 2005 ........                         16,542                 6.00
                                                 -------                                       -------
             Total ......                        $93,182                 6.61%                 $64,456                 5.93%
                                                 =======                                       =======


     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.

NOTE  9

LOAN SERVICING

     Mortgage loans serviced for others are not included in the accompanying
consolidated  balance  sheet.  The loans are serviced  primarily for the Federal
Home Loan Mortgage  Corporation  and the unpaid  balances  totaled  $22,591,000,
$22,769,000 and $15,541,000 at December 31, 2000, 1999 and 1998.

     The Corporation has adopted SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and  Extinguishments of Liabilities.  The adoption
of this  statement  has had no material  impact on the  Corporation's  financial
condition and results of operations for all years presented.


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

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

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

NOTE  10

INCOME TAX


                                                                                         2000              1999              1998
====================================================================================================================================
                                                                                                                  
Income tax expense, for the year ended December 31:
  Currently payable:
     Federal .................................................................          $  9,236         $  8,491          $  7,269
     State ...................................................................             1,499            2,730             2,134
  Deferred:
     Federal .................................................................              (715)            (939)              138
     State ...................................................................               (52)            (183)               15
                                                                                        --------         --------          --------
        Total income tax expense .............................................          $  9,968         $ 10,099          $  9,556
                                                                                        ========         ========          ========

Reconciliation of federal statutory to actual tax expense:
     Federal statutory income tax at 34% .....................................          $ 10,169         $  9,924          $  9,338
     Tax-exempt interest .....................................................            (1,308)          (1,555)           (1,424)
     Graduated tax rates .....................................................               299              291               173
     Effect of state income taxes ............................................               941            1,656             1,418
     Other ...................................................................              (133)            (217)               51
                                                                                        --------         --------          --------
   Actual tax expense ........................................................          $  9,968         $ 10,099          $  9,556
                                                                                        ========         ========          ========



Tax expense (benefit) applicable to security gains and losses for the years
ended December 31, 2000, 1999 and 1998, was $(43,000), $103,000, and $51,000,
respectively.

A cumulative net deferred tax asset is included in other assets. The components
of the asset are as follows:


                                                                                           2000                1999
====================================================================================================================
                                                                                                        
Deferred tax asset at December 31:
Assets:
   Differences in accounting for loan losses .............................                $5,110              $4,429
   Deferred compensation .................................................                   923                 668
   Differences in accounting for pensions
     and other employee benefits .........................................                                        33
   Net unrealized loss on securities available for sale ..................                    88               2,736
   Other .................................................................                   217                 138
                                                                                          ------              ------
       Total assets ......................................................                 6,338               8,004
                                                                                          ------              ------
Liabilities:
   Differences in depreciation methods ...................................                   754                 896
   Differences in accounting for loans and securities ....................                   173                 305
   Differences in accounting for loan fees ...............................                   413                 336
   Differences in accounting for pensions
     and other employee benefits .........................................                   177
   State income tax ......................................................                   256                 238
   Other .................................................................                   455                 238
                                                                                          ------              ------
       Total liabilities .................................................                 2,228               2,013
                                                                                          ------              ------
       Net deferred tax asset ............................................                $4,110              $5,991
                                                                                          ======              ======



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

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

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

NOTE 11

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
Banks' 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 sheet.

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

                              2000               1999
                            --------           --------
Commitments
to extend credit            $220,613           $228,598

Standby letters
of credit                      6,558              6,031

     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.



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

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

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

NOTE  12

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, 2000, the Banks' had no retained net
profits available for 2001 dividends to the Corporation without prior regulatory
approval.

     Total stockholders' equity for all subsidiaries at December 31, 2000, was
$143,903,000, of which $141,943,000 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
and 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, 2000,
there were 439,588 shares of common stock reserved for purchase under the plan.

     On August 11, 1998, the Board of Directors of the Corporation declared a
three-for-two stock split on its common shares. The new shares were distributed
on October 23, 1998, to holders of record on October 16, 1998.

NOTE 13

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, 2000, 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



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

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

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

NOTE 13

REGULATORY CAPITAL   continued

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.

     Actual and required capital amounts and ratios are listed below.



                                                                  2000                                      1999
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                       REQUIRED FOR                                 REQUIRED FOR
                                                      ACTUAL        ADEQUATE CAPITAL (1)           ACTUAL       ADEQUATE CAPITAL (1)
                                                AMOUNT      RATIO    AMOUNT      RATIO     AMOUNT      RATIO       AMOUNT    RATIO
====================================================================================================================================
                                                                                                     
December 31
Total Capital (1)(to risk-weighted assets)
   Consolidated ......................        $147,609     12.72%  $ 92,814      8.00%    $137,714     13.71%  $ 80,378      8.00%
   First Merchants ...................          62,220     10.92     45,600      8.00       86,350     14.90     46,323      8.00
   Madison ...........................          19,860     12.24     12,979      8.00       24,267     16.40     11,826      8.00
   First United ......................           7,982     11.49      5,560      8.00        8,797     13.90      5,053      8.00
   Randolph County ...................           6,665     10.46      5,096      8.00       10,819     19.70      4,404      8.00
   Union County ......................          17,867     13.21     10,821      8.00       20,646     15.60     10,594      8.00
   First National ....................           9,386     11.12      6,750      8.00       16,030     21.20      6,049      8.00
   Decatur ...........................          10,678     12.37      6,904      8.00

Tier I Capital (1)(to risk-weighted assets)
   Consolidated ......................        $135,155     11.65%  $ 46,407      4.00%    $127,586     12.70%  $ 40,189      4.00%
   First Merchants ...................          57,403     10.07     22,800      4.00       82,009     14.20     23,161      4.00
   Madison ...........................          18,094     11.15      6,489      4.00       22,509     15.20      5,913      4.00
   First United ......................           7,306     10.51      2,780      4.00        8,196     13.00      2,527      4.00
   Randolph County ...................           5,868      9.21      2,548      4.00       10,128     18.40      2,202      4.00
   Union County ......................          16,227     12.00      5,411      4.00       19,124     14.40      5,297      4.00
   First National ....................           8,331      9.87      3,375      4.00       15,085     20.00      3,024      4.00
   Decatur ...........................           9,593     11.12      3,452      4.00

Tier I Capital (1) (to average assets)
   Consolidated ......................        $135,155      8.72%  $ 62,023      4.00%    $127,586      9.15%  $ 55,773      4.00%
   First Merchants ...................          57,403      7.47     30,742      4.00       82,009     10.20     32,310      4.00
   Madison ...........................          18,094      8.80      8,228      4.00       22,509     11.60      7,773      4.00
   First United ......................           7,306      8.12      3,597      4.00        8,196     10.50      3,119      4.00
   Randolph County ...................           5,868      7.13      3,293      4.00       10,128     14.90      2,723      4.00
   Union County ......................          16,227      7.26      8,946      4.00       19,124      8.80      8,728      4.00
   First National ....................           8,331      7.30      4,562      4.00       15,085     14.40      4,198      4.00
   Decatur ...........................           9,593      7.49      5,123      4.00


(1)      as defined by regulatory agencies

NOTE 14

EMPLOYEE BENEFIT PLANS

     The Corporation's defined-benefit pension plans cover substantially all of
the Banks' 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.


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

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

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

NOTE 14

EMPLOYEE BENEFIT PLANS  continued

     The table below sets forth the plans' funded status and amounts recognized
in the consolidated balance sheet at December 31:

                                                            December 31
                                                         2000        1999
===========================================================================
Change in benefit obligation
     Benefit obligation at beginning of year ......    $ 15,806   $ 16,319
     Service cost .................................         714        737
     Interest cost ................................       1,181      1,081
     Actuarial (gain) loss ........................         180     (1,542)
     Benefits paid ................................        (928)      (789)
                                                       --------   --------
     Benefit obligation at end of year ............      16,953     15,806
                                                       --------   --------
Change in plan assets
     Fair value of plan assets at beginning of year      22,325     19,243
     Actual return of plan assets .................       2,570      3,871
     Benefits paid ................................        (928)      (789)
                                                       --------   --------
     Fair value of plan assets at end of year .....      23,967     22,325
                                                       --------   --------
     Funded status ................................       7,014      6,519
     Unrecognized net actuarial gain ..............      (6,315)    (6,184)
     Unrecognized prior service cost ..............        (119)      (132)
     Unrecognized transition asset ................        (206)      (344)
                                                       --------   --------
     Prepaid (accrued) benefit cost ...............    $    374   $   (141)
                                                       ========   ========



                                                                 2000        1999        1998
===============================================================================================
                                                                              
Pension benefit includes the following components:
   Service cost-benefits earned during the year ............    $   714    $   737     $   688
   Interest cost on projected benefit obligation ...........      1,181      1,081       1,044
   Actual return on plan assets ............................     (2,570)    (3,871)     (1,038)
      Net amortization and deferral ........................        160      1,915        (946)
                                                                -------    -------     -------
      Total pension benefit ................................    $  (515)   $  (138)    $  (252)
                                                                =======    =======     =======


                                                                  2000        1999        1998
===============================================================================================
Assumptions used in the accounting as of December 31 were:
      Discount rate ........................................      7.70%       7.68%       6.77%
      Rate of increase in compensation .....................      4.00%       4.00%       4.00%
      Expected long-term rate of return on assets ..........      9.00%       9.00%       9.00%


On March 31, 1994,  stockholders  approved the 1994 Stock Option Plan, reserving
472,500  shares of  Corporation  common  stock for the  granting  of  options to
certain employees and non-employee  directors.  The exercise price of the shares
may not be less than the fair  market  value of the shares upon the grant of the
option. Options become 100 percent vested when granted and are fully exercisable
generally  six months  after the date of the  grant,  for a period of ten years.
There were no shares available for grant at December 31, 1999.



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

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

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

NOTE 14

EMPLOYEE BENEFIT PLANS  continued

On April 14, 1999,  stockholders  approved the 1999 Long-term  Equity  Incentive
Plan, reserving 1,542,328 shares of Corporation common stock for the granting of
options to certain employees and non-employee  directors.  The maximum number of
options  granted in any given year cannot exceed 1.5% of the shares  outstanding
at the end of the prior fiscal year.  Options,which have a ten year life, become
100 percent vested ranging from six month to two years and are fully exercisable
when vested.  There were  1,329,128  shares  available for grant at December 31,
2000.

     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, 2000, 1999 and 1998. The number of shares and prices have been restated to
give effect to the Corporation's 1998 stock split.



Year Ended December 31,                                         2000                       1999                      1998
- ------------------------------------------------------------------------------------------------------------------------------------

                                                           WEIGHTED-AVERAGE           WEIGHTED-AVERAGE          WEIGHTED-AVERAGE
       OPTIONS                                        SHARES     EXERCISE PRICE  SHARES    EXERCISE PRICE    SHARES  EXERCISE PRICE
====================================================================================================================================
                                                                                                        
Outstanding, beginning of year ................       568,281        $ 19.56     497,004       $ 17.62      471,037       $ 14.59
Granted .......................................       121,200          21.30     136,400         22.21      113,915         25.83
Exercised .....................................       (47,902)         16.14     (63,848)         9.81      (87,086)        11.96
Cancelled .....................................       (80,673)         22.33      (1,275)        24.58         (862)        28.71
                                                      -------                    -------                    -------
Outstanding, end of year ......................       560,906        $ 19.83     568,281       $ 19.56      497,004       $ 17.62
                                                      =======                    =======                    =======
Options exercisable at year end ...............       434,601                    443,006                    397,221
Weighted-average fair value of
   options granted during the year ............                      $  5.48                   $  5.77                    $  5.48


As of December 31, 2000,  other  information by exercise price range for options
outstanding and exercisable is as follows:


                                    OUTSTANDING                                                      EXERCISABLE
- ---------------------------------------------------------------------------------          -------------------------------
  EXERCISE PRICE         NUMBER     WEIGHTED-AVERAGE        WEIGHTED-AVERAGE                 NUMBER       WEIGHTED-AVERAGE
      RANGE             OF SHARES    EXERCISE PRICE    REMAINING CONTRACTUAL LIFE          OF SHARES        EXERCISE PRICE
==========================================================================================================================
                                                                                                 
$  0.00 - $16.56         197,497         $13.89                 3.9 years                   194,347             $14.11

  16.67 -  22.75         259,950          21.39                 8.4 years                   137,745              21.45

  23.69 -  30.44         103,459          27.25                 7.9 years                   102,509              27.28
                         -------                                                            -------
                         560,906         $19.83                 6.7 years                   434,601             $19.54
                         =======                                                            =======


     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 Company recognized compensation expense of $23,000 in 2000 and
$35,000 in 1999. No compensation expense was required to be recognized in 1998.

     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.


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

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

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

NOTE 14

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:

                                        2000           1999          1998


Risk-free interest rates........       6.01%          5.72%          5.45%

Dividend yields.................       3.38%          3.23%          3.25%

Volatility factors of expected
    market price common stock...      22.86%         21.98%         17.19%

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 on the right:

                                       2000          1999         1998

Net Income
     As reported.................... $19,940       $19,088       $17,907
     Pro Forma......................  19,481        18,661        17,147
Earnings per share
   Basic:
     As reported....................   $1.76         $1.59       $  1.50
     Pro forma......................    1.72          1.55          1.44
   Diluted:
     As reported....................   $1.75         $1.58       $  1.48
     Pro forma......................    1.71          1.54          1.42


     In 1999, the stockholders approved the 1999 Employee Stock Purchase Plan,
enabling eligible employees to purchase the Corporation's  common stock. A total
of 250,000  shares of the  Corporation's  common stock are 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
26,778 in 2000 at $17.98 per  share.  The fair  value on the  purchase  date was
$21.16.



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

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

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

NOTE 14

EMPLOYEE BENEFIT PLANS  continued

     At December 31, 2000, there were 223,222 shares of Corporation common stock
reserved  for purchase  under the plan,  and  $263,000  has been  withheld  from
compensation,  plus interest, toward the purchase of shares after June 30, 2001,
the end of the annual offering period.

The  Corporation's  Employee  Stock Purchase Plan is accounted for in accordance
with APB No. 25. Although the Corporation has elected to follow APB No. 25, SFAS
No. 123 requires pro forma  disclosures  of net income and earnings per share as
if the Corporation had accounted for the purchased  shares under that statement.
The pro forma  disclosures  are  included in the table above and were  estimated
using an option pricing model with the following  assumptions for 2000, 1999 and
1998, respectively:  dividend yield of 3.38, 3.23, and 3.25 percent; an expected
life of one year for all years;  expected  volatility of 22.86, 21.98, and 17.19
percent;  and risk-free interest rates of 6.01, 5.72 and 5.45 percent.  The fair
value of those purchase rights granted in 2000,  1999 and 1998 was $4.01,  $4.50
and $12.69 respectively.

     The Banks and FMIS have retirement savings 401(k) plans in which
substantially all employees may participate. The Banks and FMIS match employees'
contributions  at the rate of 25-50  percent  for the first 5-6  percent of base
salary contributed by participants.  The Corporations' expense for the plans was
$182,000 for 2000, $191,000 for 1999 and $178,000 for 1998.

NOTE  15

NET INCOME PER SHARE


====================================================================================================================================
Year Ended December 31,                           2000                          1999                          1998
- -------------------------------------------------------------------------------------------------------------------------------
                                       WEIGHTED-AVERAGE PER SHARE    WEIGHTED-AVERAGE PER SHARE     WEIGHTED-AVERAGE PER SHARE
                                      INCOME     SHARES     AMOUNT  INCOME     SHARES    AMOUNT    INCOME      SHARES    AMOUNT
===============================================================================================================================
                                                                                               
Basic net income per share:
  Net income available  to
    common stockholders ..........   $19,940    11,342,340   $1.76  $19,088   12,008,152   $1.59   $ 17,907  11,922,879   $1.50
Effect of dilutive stock options .                  78,832   =====               108,756   =====                164,287   =====
                                     -------    ----------          -------   ----------           --------  ----------
Diluted net income per share:
  Net income available to
    common stockholders
    and assumed conversions ......   $19,940    11,421,172   $1.75  $19,088   12,116,908   $1.58   $ 17,907  12,087,166   $1.48
                                     =======    ==========   =====  =======   ==========   =====   ========  ==========   =====



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

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

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

NOTE 16

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.

INTEREST  RECEIVABLE/PAYABLE  The fair  values  of  interest  receivable/payable
approximate carrying values.

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.

CASH SURRENDER VALUE OF LIFE INSURANCE The fair value of cash surrender value of
life insurance approximates carrying value.

DEPOSITS   The   fair   values   of    noninterest-bearing    demand   accounts,
interest-bearing  demand  accounts and savings  deposits are equal to the amount
payable on demand at the balance sheet date.  The carrying  amounts for variable
rate,  fixed-term  certificates of deposit  approximate their fair values at the
balance sheet date. Fair values for fixed-rate certificates of deposit and other
time


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

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

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

NOTE 16

FAIR VALUES OF FINANCIAL INSTRUMENTS   continued

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.

FEDERAL FUNDS PURCHASED AND U.S. TREASURY DEMAND NOTES

These financial instruments are short-term borrowing arrangements.  The rates at
December 31, approximate market rates, thus the fair value approximates carrying
value.

Securities sold under repurchase agreements and Federal home loan bank advances

The fair value of the these borrowings is estimated using a discounted cash flow
calculation, based on current rates for similar debt.

Off-balance sheet commitments

Loan commitments and letters-of-credit generally have short-term, variable-rate
features and contain clauses which limit the Banks' exposure to changes in
customer credit quality. Accordingly, their carrying values, which are
immaterial at the respective balance sheet dates, are reasonable estimates of
fair value.

The estimated  fair values of the  Corporation's  financial  instruments  are as
follows:


                                                                                    2000                              1999
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                        CARRYING           FAIR           CARRYING            FAIR
                                                                         AMOUNT            VALUE           AMOUNT             VALUE
====================================================================================================================================
                                                                                                              
Assets at December 31:
   Cash and cash equivalents ...................................      $   67,463        $   67,463       $   84,293       $   84,293
   Interest-bearing time deposits ..............................             883               883            1,730            1,730
   Investment securities available for sale ....................         295,730           295,730          329,668          329,668
   Investment securities held to maturity ......................          12,233            12,328           14,303           14,284
   Mortgage loans held for sale ................................                                                 61               61
   Loans .......................................................       1,163,132         1,157,723          988,767          983,147
   FRB and FHLB stock ..........................................           7,185             7,185            5,858            5,858
   Interest receivable .........................................          13,135            13,135           11,279           11,279
   Cash surrender of life insurance.............................           6,312             6,312            3,227            3,227

Liabilities at December 31:
   Deposits ....................................................       1,288,299         1,286,762        1,147,203        1,145,134
   Borrowings:
       Securities sold under repurchase agreements .............          64,456            64,558           77,957           76,739
       Federal funds purchased .................................             975               975           28,885           28,885
       U.S. Treasury demand notes ..............................           4,968             4,968            9,506            9,506
       FHLB advances ...........................................          93,182            92,387           73,514           73,093
   Interest payable ............................................           6,335             6,335            4,599            4,599





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

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

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

NOTE  17

CONDENSED FINANCIAL INFORMATION   (parent company only)

     Presented below is condensed financial information as to financial
position, results of operations, and cash flows of the Corporation:

CONDENSED BALANCE SHEET
                                                                December 31,
                                                              2000       1999
===============================================================================
Assets
   Cash ..............................................     $ 13,184     $    212
   Loans to affiliates ...............................                     2,350
   Investment in subsidiaries ........................      143,903      155,460
   Goodwill ..........................................          485          535
   Other assets ......................................          378          356
                                                           --------     --------
      Total assets ...................................     $157,950     $158,913
                                                           ========     ========
Liabilities
   Borrowings from affiliates ........................                  $ 32,000
   Other liabilities .................................     $  1,887          617
                                                           --------     --------
      Total liabilities ..............................        1,887       32,617

Stockholders' equity .................................      156,063      126,296
                                                           --------     --------
      Total liabilities and stockholders' equity .....     $157,950     $158,913
                                                           ========     ========

CONDENSED STATEMENT OF INCOME


                                                                                                         December 31,
                                                                                            2000            1999              1998
====================================================================================================================================
                                                                                                                  
Income
  Dividends from subsidiaries ................................................           $ 71,705        $  9,894          $  7,980
  Gain on sale of available-for-sale securities ..............................                                 98
  Other income ...............................................................                174             112               112
                                                                                         --------        --------          --------
     Total income ............................................................             71,879          10,104             8,092
                                                                                         --------        --------          --------
Expenses
  Amortization of core deposit intangibles,
   goodwill, and fair value adjustments ......................................                 50              43                71
  Business combination expenses ..............................................                                804                36
  Interest expence............................................................                788
  Other expenses .............................................................                795             834               551
                                                                                         --------        --------          --------
     Total expenses ..........................................................              1,633           1,681               658
                                                                                         --------        --------          --------
Income before income tax benefit and equity in
undistributed income of subsidiaries .........................................             70,246           8,423             7,434
     Income tax benefit ......................................................               (496)           (321)             (216)
                                                                                         --------        --------          --------
Income before equity in undistributed income of subsidiaries .................             70,742           8,744             7,650

   Equity in undistributed (distributions in excess of)
    income of subsidiaries ...................................................            (50,802)         10,344            10,257
                                                                                         --------        --------          --------
Net Income ...................................................................           $ 19,940        $ 19,088          $ 17,907
                                                                                         ========        ========          ========



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

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

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

NOTE 17

CONDENSED FINANCIAL INFORMATION (parent company only)

CONDENSED STATEMENT OF CASH FLOWS


                                                                                    Year Ended December 31,
====================================================================================================================

                                                                             2000             1999            1998
====================================================================================================================
                                                                                                   
Operating activities:
   Net income ........................................................    $ 19,940         $ 19,088         $ 17,907
   Adjustments to reconcile net income to net cash
     provided by operating activities:
     Amortization ....................................................          50               43               44
     Distributions in excess of (equity in undistributed)
       income of subsidiaries ............... ........................      50,802          (10,344)         (10,257)
     Security gains ..................................................                          (98)
     Net change in:
        Other assets .................................................         (36)             (53)            (115)
        Other liabilities ............................................       1,270              349              154
                                                                          --------         --------         --------
           Net cash provided by operating activities .................      72,026            8,985            7,733
                                                                          --------         --------         --------
Investing activities:
   Security purchased with an agreement to resell to an affiliate ....                                         2,000
   Net change in loans ...............................................       2,350             (850)          (1,500)
   Proceeds from sales of securities available for sale ..............                          383
   Investment in subsidiary ..........................................     (14,159)                           (1,729)
   Other investing activities ........................................                           55             (272)
                                                                          --------         --------         --------
           Net cash used by investing activities .....................     (11,809)            (412)          (1,501)
                                                                          --------         --------         --------
Financing activities:
   Cash dividends ....................................................     (10,331)          (9,759)          (7,934)
   Borrowing from affiliates .........................................      13,000           32,000
   Repayment of borrowings from affiliates ...........................     (45,000)
   Stock issued under employee benefit plans .........................         481              457              385
   Stock issued under dividend reinvestment
     and stock purchase plan .........................................         811              722              679
   Stock options exercised ...........................................         510              271              482
   Stock redeemed ....................................................      (6,712)         (32,136)             (72)
   Cash paid in lieu of issuing fractional shares ....................          (4)                               (6)
                                                                          --------         --------         --------
           Net cash used by financing activities .....................     (47,245)          (8,445)          (6,466)
                                                                          --------         --------         --------
Net change in cash ...................................................      12,972              128             (234)
Cash, beginning of year ..............................................         212               84              318
                                                                          --------         --------         --------
Cash, end of year ....................................................    $ 13,184         $    212         $     84
                                                                          ========         ========         ========



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

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

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

NOTE 18

QUARTERLY RESULTS OF OPERATIONS (unaudited)


The following table sets forth certain quarterly results for the years ended
December 31, 2000 and 1999:
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                    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
                                                                                               
2000:
March ............   $   26,574   $  13,301    $    13,273   $    479      $  4,820    10,904,050    11,007,394   $ .44   $ .44
June .............       28,097      14,307         13,790        665         5,003    11,091,226    11,158,772     .45     .45
Sept .............       30,616      16,202         14,414        603         5,275    11,688,699    11,761,020     .45     .45
Dec ..............       31,241      16,736         14,505        878         4,842    11,680,372    11,762,705     .42     .41
                     ----------   ----------   -----------   --------      --------                               -----   -----
                     $  116,528   $  60,546    $    55,982   $  2,625      $ 19,940    11,342,340    11,421,172   $1.76   $1.75
                     ==========   ==========   ===========   ========      ========                               =====   =====

1999:
March ............   $   23,770   $   10,931   $    12,839   $    505      $  4,643    11,978,451    12,098,414   $ .39   $ .38
June .............       24,916       11,453        13,463        522         4,649    12,004,475    12,101,757     .39     .39
Sept .............       25,380       11,804        13,576        590         4,863    12,043,381    12,146,080     .40     .40
Dec ..............       26,397       12,710        13,687        624         4,933    12,005,285    12,125,563     .41     .41
                     ----------   ----------   -----------   --------      --------                               -----   -----
                     $  100,463   $   46,898   $    53,565   $  2,241      $ 19,088    12,008,152    12,116,908   $1.59   $1.58
                     ==========   ==========   ===========   ========      ========                               =====   =====


NOTE 19

SUBSEQUENT EVENTS

On February 8, 2001, the  Corporation  signed a definitive  agreement to acquire
Francor Financial,  Inc., Wabash, Indiana. The acquisition will be accounted for
under the purchase method of accounting.  Under the terms of the agreement,  the
Corporation  will issue 1,191,000 shares of its common stock in exchange for all
of the common stock of Francor  Financial,  Inc. The  transaction  is subject to
approval by stockholders of Francor Financial,  Inc., and appropriate regulatory
agencies.  The Corporation  anticipates amortizing core deposit intangibles over
eight years and goodwill  over twenty  years.  As of December 31, 2000,  Francor
Financial,  Inc., had total assets and shareholders'  equity of $165,009,000 and
$18,393,000 respectively.



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

STOCKHOLDER INFORMATION

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

First  Merchants  Corporation,  a  financial  holding  company  based in Muncie,
Indiana,  was  organized in  September  of 1982 as the bank holding  company for
Merchants  National Bank of Muncie,  now First  Merchants  Bank,  N.A. Since its
organization,  First Merchants  Corporation has grown to include seven affiliate
banks, multi-line insurance agency and an offshore reinsurance company with over
40 locations in ten Indiana counties and one Ohio county.

Affiliates  include First Merchants Bank,  First Merchants  Insurance  Services,
Madison Community Bank in Madison County, First United Bank in Henry County, the
Randolph  County Bank,  First National Bank of Portland,  Union County  National
Bank,  and  Decatur  Bank  &  Trust   Company.   The  Company  also  operates  a
"non-chartered" branch affiliate, First Merchants Bank-Hamilton County with five
locations.

The Corporation's  Trust Division,  which operates through First Merchants Bank,
is one of the ten largest trust  departments in Indiana with fiduciary assets in
excess of $1.4 billion dollars at market value through year-end 2000.

First Merchants  Corporation is one of only two  Indiana-based  companies listed
among America's  Finest  Companies,  an investment guide published by The Staton
Institute.  The  Corporation  completed its 25th  consecutive  year of increased
earnings at the end of 2000.

In addition,  the Corporation  continues to receive an A+ rating from Standard &
Poor's for it's common stock (NASDAQ symbol FRME) and Blue Ribbon status for all
affiliate banks from independent bank-rating service Veribanc.

First Merchants' operating  philosophy is to be customer focused,  value driven,
plan disciplined and managed for achievers from both an employee and shareholder
perspective.


                                Corporate Office
                             200 East Jackson Street
                              Muncie, Indiana 47305

                                  765-747-1500
                         http://www.firstmerchants.com



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

ANNUAL MEETING

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

First Merchants  Corporation currently provides services through offices located
in Adams, Delaware,  Fayette, Hamilton, Henry, Jay, Madison, Wayne, Randolph and
Union counties in Indiana and Butler county in Ohio.

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

Wednesday, April 11, 2001 at 3:30 p.m.

Horizon Convention Center
401 South High Street
Muncie, Indiana

STOCK INFORMATION



                                            PRICE PER SHARE
    QUARTER                                      HIGH                               LOW                         DIVIDENDS DECLARED
====================================================================================================================================
                                         2000             1999             2000             1999             2000             1999
                                     --------------------------        --------------------------        ---------------------------
                                                                                                         
First Quarter  .............          $  26.63        $   26.13        $   19.88        $   21.50        $    .220         $    .200
Second Quarter .............             22.88            24.75            18.50            21.50             .220              .200
Third Quarter ..............             23.00            25.69            19.25            22.25             .230              .200
Fourth Quarter .............             23.88            29.25            21.75            21.88             .230              .200



The table above lists per share  prices and  dividend  payments  during 2000 and
1999. Prices are as reported by the National  Association of Securities Dealers.
Automated Quotation - National Market System.

Numbers rounded to nearest cent when applicable.

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 December
31, 2000,  the number of shares  outstanding  was  11,611,732.  There were 2,146
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. Douglas B. Harris
Vice President
Investor Services & Bank Investments

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

First Merchants Bank, N.A.
Corporate Trust Department
P. O. Box 792
Muncie, Indiana 47308-0792


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STOCK PRICE & DIVIDEND INFORMATION

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MARKET MAKERS
The following firms make a market in First Merchants Corporation stock:

Robert W. Baird & Co., Inc.
Keefe, Bruyette & Woods, Inc.
Knight Securities, L.P.
Herzog, Heine, Geduld, Inc.
Howe, Barnes & Johnson, Inc.
McDonald and Company
NatCity Investments, Inc.
Sherwood Securities Corp.
Spear, Leads, and Kellog

FORM 10-K AND FINANCIAL INFORMATION

First Merchants Corporation, upon request and without charge, will furnish
stockholders, security analysts and investors a copy of Form 10-K filed with the
Securities and Exchange Commission.

The  Securities  and  Exchange  Commission  maintains  a Web site that  contains
reports,  proxy  and  information  statements  and other  information  regarding
registrants  that  file  electronically  with  the  commission,   including  the
Corporation; that address is http://www.sec.gov

Please contact:
Mr. James Thrash
Senior Vice President
and Chief Financial Officer

First Merchants Corporation
P. O. Box 792
Muncie, Indiana 47308-0792

765-747-1390
1-800-262-4261 Ext. 1390

EXHIBIT 21--SUBSIDIARIES OF THE REGISTRANT
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                                                          State of
Name                                                    Incorporation
- ----                                                    -------------
                                                     

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

Madison Community Bank..................................Indiana

First United Bank.......................................Indiana

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

The Randolph County Bank................................Indiana

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

Decatur Bank and Trust Company..........................Indiana

Exhibit 23 - Consent of Independent Accountants We hereby consent to the incorporation by reference to the Registration Statement on Form S-8, File Numbers 333-50484, 333-80119, 333-80117 and 033-54065 of our report dated January 22, 2001, except for Note 19 as to which the date is February 8, 2001, 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. Olive LLP Indianapolis, Indiana March 26, 2001 Consent of Crowe, Chizek and Company LLP The Board of Directors First Merchants Corporation We consent to the inclusion in the December 31, 2000 Annual Report on Form 10-K of First Merchants Corporation of our reports dated January 8, 1999, on Jay Financial Corporation, and January 15, 1999, on Anderson Community Bank, relating to the statements of income, changes in shareholders' equity and cash flows of those organizations for the year ended December 31, 1998. We also consent to the incorporation by reference in the registration statements of First Merchants Corporation on Form S-8 (File No. 33-28900 and 33-28901) of our reports dated January 8, 1999, on Jay Financial Corporation, and January 15, 1999, on Anderson Community Bank, relating to the statements of income, changes in shareholders' equity and cash flows of those organizations for the year ended December 31, 1998, which reports are included in the December 31, 2000 annual report on Form 10-K of First Merchants Corporation. Crowe, Chizek and Company LLP Indianapolis, Indiana April 2, 2001 Report of Independent Auditors Board of Directors and Shareholders Jay Financial Corporation Portland, Indiana We have audited the consolidated statements of income, changes in shareholders' equity and cash flows of Jay Financial Corporation for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Jay Financial Corporation for the year ended December 31, 1998, in conformity with generally accepted accounting principles. We have not audited the consolidated financial statements of Jay Financial Corporation for any period subsequent to December 31, 1998. /s/Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP Indianapolis, Indiana January 8, 1999

Report of Independent Auditors Board of Directors and Shareholders Anderson Community Bank Anderson, Indiana We have audited the statements of income, changes in shareholders' equity and cash flows of Anderson Community Bank for the year ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Anderson Community Bank for the year ended December 31, 1998, in conformity with generally accepted accounting principles. We have not audited the consolidated financial statements of Anderson Community Bank for any period subsequent to December 31, 1998. /s/Crowe, Chizek and Company Crowe, Chizek and Company Indianapolis, Indiana January 15, 1999

EXHIBIT 99.1--FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR'S REPORT FOR
              FIRST MERCHANTS CORPORATION EMPLOYEE STOCK PURCHASE PLAN
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The annual financial statements and independent auditor's report thereon for
First Merchants Corporation Employee Stock Purchase Plan for the year ending
December 31, 2000, will be filed as an amendment to the 2000 Annual Report on
Form 10-K no later than March 30, 2001.