UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K [X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-17071 A. Full title of the plan and the address of the plan, if different from that of the Issuer named below: First Merchants Corporation Retirement Savings Plan B. Name of issuer of the securities held pursuant to the plan and the address of its principal office: First Merchants Corporation 200 East Jackson Street Muncie, Indiana 47305 First Merchants Corporation Retirement Income and Savings Plan EIN 35-1544218 PN 002 Accountants' Report and Financial Statements December 31, 2006 and 2005 First Merchants Corporation Retirement Income and Savings Plan December 31, 2006 and 2005 Contents Report of Independent Registered Public Accounting Firm........................................1 Financial Statements Statements of Net Assets Available for Benefits............................................2 Statements of Changes in Net Assets Available for Benefits.................................3 Notes to Financial Statements..............................................................4 Supplemental Schedule Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes at End of Year......11 Exhibit Exhibit 23, Consent of Independent Registered Public Accounting Firm......................12 Signature.....................................................................................13 [LETTERHEAD OF BKD LLP] Report of Independent Registered Public Accounting Firm Audit and Administrative Committee First Merchants Corporation Retirement and Savings Plan Muncie, Indiana We have audited the accompanying statements of net assets available for benefits of First Merchants Corporation Retirement and Savings Plan as of December 31, 2006, and 2005, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. The Plan has adopted FSP Nos. AAG INV-1 and SOP 94-4-1 as discussed in Note 2 to the financial statements. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the plan as of December 31, 2006, and 2005, and the changes in its net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying supplemental schedule is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ BKD, LLP Indianapolis, Indiana June 25, 2007 Federal Employer Identification Number: 44-0160260 First Merchants Corporation Retirement Income and Savings Plan Statements of Net Assets Available for Benefits December 31, 2006 and 2005 2005 Assets 2006 (Note 2) ------------------------- Investments, at fair market value Common stock $ 1,180,998 $ 1,073,188 Mutual funds 38,478,653 32,548,714 Collective investment fund 1,971,563 2,101,945 Money market funds 1,897,754 1,179,757 Participant loans 139,879 254,981 ----------- ----------- Total investments 43,668,847 37,158,585 ----------- ----------- Receivables Accrued income 14,311 -- Employer contributions 1,399,525 1,108,481 Participant contributions -- 108,047 ----------- ----------- Total receivables 1,413,836 1,216,528 ----------- ----------- Cash 17,355 324 ----------- ----------- Total assets 45,100,038 38,375,437 ----------- ----------- Liabilities Excess contributions refundable 5,468 6,224 ----------- ----------- Net Assets Available at Fair Market Value 45,094,570 38,369,213 ----------- ----------- Adjustment from fair value to contract value for interest in collective trust relating to fully benefit-responsive investment contracts 19,716 23,996 ----------- ----------- Net Assets Available for Benefits $45,114,286 $38,393,209 =========== =========== See Notes to Financial Statements 2 First Merchants Corporation Retirement Income and Savings Plan Statements of Changes in Net Assets Available for Benefits Years Ended December 31, 2006 and 2005 2005 2006 (Note 2) ------------------------- Investment Income Net appreciation in fair value of investments $ 2,478,543 $ 605,869 Interest and dividends 2,298,773 1,650,407 ----------- ----------- Net investment income 4,777,316 2,256,276 ----------- ----------- Contributions Participants 2,828,581 2,458,499 Employer 2,312,050 1,846,810 Rollovers 650,796 1,111,492 Transfer from other plans -- 10,502,523 ----------- ----------- 5,791,427 15,919,324 ----------- ----------- Total additions 10,568,743 18,175,600 Deductions - benefits paid to participants 3,847,666 1,935,392 ----------- ----------- Net Increase 6,721,077 16,240,208 Net Assets Available for Benefits, Beginning of Year 38,393,209 22,153,001 ----------- ----------- Net Assets Available for Benefits, End of Year $45,114,286 $38,393,209 =========== =========== See Notes to Financial Statements 3 First Merchants Corporation Retirement Income and Savings Plan Notes to Financial Statements December 31, 2006 and 2005 Note 1: Description of Plan The following description of First Merchants Corporation Retirement Income and Savings Plan (Plan) provides only general information. Participants should refer to the Plan Document and Summary Plan Description for a more complete description of the Plan's provisions, which are available from the plan administrator. General The Plan is a defined-contribution plan sponsored by First Merchants Corporation (Corporation) for the benefit of all employees who are age 18 or older. It is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). First Merchants Trust Company is the trustee and recordkeeper of the Plan. Prime Vest Financial Services was the custodian for a majority of the Plan's assets during 2005. In November 2005, the assets were transferred to Mid Atlantic Capital Corporation. In October 2006, the assets were transferred from Mid Atlantic Capital Corporation to Fidelity. Fidelity is now the custodian for a majority of the Plan's assets. Contributions The Plan permits eligible employees through a salary deferral election to have the Corporation make annual contributions of up to 75% of eligible compensation up to the maximum allowed by law. Employee rollover contributions are also permitted. Prior to March 1, 2005, the Corporation made matching contributions of its employees' salary deferral amounts of 25% of the first 5% of employees' eligible compensation for all participating employees. After March 1, 2005, the matching contribution described above is the only type of employer contribution granted to grandfathered participants who are at least age 55 and credited with at least ten years of service at February 28, 2005. The remaining participants receive the following three different types of employer contributions. The Corporation's contributions are as follows: o Retirement security contributions: range from 2% of pay to 7% of pay based on years of service. The participant must have 1,000 hours of service and be employed at the end of the plan year. o Matching contributions: 50% of the first 6% of employees' eligible compensation for all participating employees. o Transition contributions: 3% of eligible compensation for all participants who are at least age 45, credited with at least ten years of service at February 28, 2005 and were participating in the Corporation's defined-benefit plan at February 28, 2005. The participant must have 1,000 hours of service and be employed at the end of the plan year. This contribution will only be applicable through the 2009 Plan year. 4 First Merchants Corporation Retirement Income and Savings Plan Notes to Financial Statements December 31, 2006 and 2005 The entry date for retirement security and transition contributions is March 1, 2005, and each subsequent January 1. Catch-up contributions are also available for participants after they reach 50 years of age before the end of the applicable year. Prior to March 1, 2005, the Corporation's profit-sharing contributions were discretionary as determined by the Corporation's Board of Directors. The Plan document also includes an automatic deferral feature whereby a participant is treated as electing to defer 3% of eligible compensation unless the participant made an affirmative election otherwise. Contributions are subject to certain limitations. Participant Investment Account Options Investment account options available include various funds including a Corporation common stock fund. Each participant has the option of directing his contributions into any of the separate investment accounts and may change the allocation daily. Allocations to the Corporation common stock fund are generally limited to 25% of the applicable account balance. Participant Accounts Each participant's account is credited with the participant's contribution, the Corporation's contribution and plan earnings. Allocations of Plan earnings are based on participant account balances, as defined. The benefits to which a participant is entitled is the benefit that can be provided from the participant's vested account. Vesting Participants are immediately vested in their voluntary contributions and rollover contribution accounts plus earnings thereon. Vesting in the Corporation's matching contribution portion of their accounts plus earnings thereon is based on years of continuous service. A participant is fully vested in the matching contribution portion of their account after five years of credited service. Effective March 1, 2005, vesting in the retirement security contribution portion of their account plus earnings is 100% after five years of service. Effective March 1, 2005, vesting in the transition contribution portion of their account plus earnings is immediate since all eligible participants have at least ten years of service. The nonvested balance is forfeited upon termination of service. Forefeitures are used to reduce the Corporation's contribution or to pay reasonable administrative expenses of the Plan. Payment of Benefits Upon termination of service, participants may elect to receive a lump-sum amount or installments equal to the value of their accounts. Withdrawals other than for termination are permitted under circumstances provided by the Plan. At December 31, 2006, plan assets include approximately $39,600 allocated to accounts of terminated or retired participants who have elected to withdraw from the Plan but have not yet been paid. 5 First Merchants Corporation Retirement Income and Savings Plan Notes to Financial Statements December 31, 2006 and 2005 Plan Termination Although it has not expressed any intent to do so, the Corporation has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. Note 2: Summary of Significant Accounting Policies Method of Accounting The accompanying financial statements are prepared on the accrual method of accounting. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of net assets and changes in net assets available for benefits. Actual results could differ from those estimates. As described in Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP), investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the plan. As required by the FSP, the Statement of Net Assets Available for Benefits presents the fair value of the investment contracts as well as the adjustment of the fully-benefit responsive investment contracts from fair value to contract value. The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis. The FSP is effective for financial statements for the years ending after December 15, 2006 and the financial statements for 2005 have been restated to reflect the implementation of the new standard. Valuation of Investments and Income Recognition Quoted market prices, if available, are used to value investments. Participant loans and money market funds are valued at cost, which approximates market. Investment in the Corporation's unrestricted common stock is valued at the quoted market price. The Plan's interest in the collective trust is valued based on information reported by the investment advisor using the audited financial statements of the collective trust at year-end. 6 First Merchants Corporation Retirement Income and Savings Plan Notes to Financial Statements December 31, 2006 and 2005 Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Plan Tax Status The Plan obtained its latest determination letter in September 2001, in which the Internal Revenue Service stated that the Plan and related trust, as then designed, were in compliance with the applicable requirements of the Internal Revenue Code and therefore not subject to tax. The Plan has been amended and restated since receiving the determination letter. However, the Plan administrator believes that the Plan and related trust are currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Payment of Benefits Benefit payments to participants are recorded upon distribution. Participant Loans Effective March 1, 2005, participant loans were acquired from merged plans. Participant loans have never been allowed in the Plan. Effective March 1, 2005, no new loans will be granted under the Plan with respect to any merged plan that had an active loan program. Any outstanding loan will continue to be repaid based on the term of the loan from the merged plan. Administrative Expenses Administrative expenses may be paid by the Corporation or the Plan, at the Corporation's discretion. Note 3: Investments At December 31, 2006, the Plan's investments are held by Fidelity and the Corporation. The Federated Capital Preservation Fund included in Plan assets may be subject to withdrawal charges upon contract termination. Crediting interest rates on the guaranteed interest portion of the investment contract are determined by the issuer. The Plan's investments (including investments bought, sold, and held during the year) appreciated in fair value as follows: 7 First Merchants Corporation Retirement Income and Savings Plan Notes to Financial Statements December 31, 2006 and 2005 2006 Net Appreciation Fair Value in Fair Value at End During Year of Year ------------------------------- Investments at fair value Common stock $ 56,851 $ 1,180,998 Mutual funds 2,421,692 38,478,653 Federated Capital Preservation Fund -- 1,971,563 Investments at cost, which approximates market Money market funds -- 1,897,754 Participant loans -- 139,879 -------------- -------------- $ 2,478,543 $ 43,668,847 ============== ============== 2005 Net Appreciation (Depreciation) Fair Value in Fair Value at End During Year of Year ------------------------------- Investments at fair value Common stock $ (65,023) $ 1,073,188 Mutual funds 670,892 32,548,714 Federated Capital Preservation Fund -- 2,101,945 Investments at cost, which approximates market Money market funds -- 1,179,757 Participant loans -- 254,981 -------------- -------------- $ 605,869 $ 37,158,585 ============== ============== Interest and dividends realized on the Plan's investments for the years ended 2006 and 2005 were $2,298,773 and $1,650,407, respectively. 8 First Merchants Corporation Retirement Income and Savings Plan Notes to Financial Statements December 31, 2006 and 2005 The fair values of individual investments that represented 5% or more of the Plan's assets were as follows: 2006 2005 ----------------------- American Funds Amcap Fund $5,531,041 $5,265,001 Goldman Sachs Mid Cap Equity Fund 4,500,401 3,786,673 MFS Value Fund 5,068,479 4,431,452 Oppenheimer Main Street Fund 2,770,000 2,538,016 PIMCO Total Return Fund 2,432,313 2,358,389 Oppenheimer Small & Mid Cap Value Fund 3,646,415 3,180,749 Federated Capital Preservation Fund 1,971,563 2,101,945 Note 4: Party-in-Interest Transactions Party-in-interest transactions include those with fiduciaries or employees of the Plan, any person who provides services to the Plan, an employer whose employees are covered by the Plan, an employee organization whose members are covered by the Plan, a person who owns 50 percent or more of such an employer or employee association, or relatives of such persons. The Plan invests in First Merchants Corporation common stock. Activity at fair value was as follows: First Merchants Corporation Common Stock ----------- Balance, January 1, 2005 $ 1,030,460 Changes 42,728 ----------- Balance, December 31, 2005 1,073,188 Changes 107,810 ----------- Balance, December 31, 2006 $ 1,180,998 =========== The Corporation provides certain administrative services at no cost to the Plan. 9 First Merchants Corporation Retirement Income and Savings Plan Notes to Financial Statements December 31, 2006 and 2005 Note 5: Plan Amendments Effective March 1, 2005, the Plan was amended and restated to allow the employees of Lafayette Bank and Trust Company, Commerce National Bank, First Merchants Insurance Services and Indiana Title Insurance Company to become participants in the Plan. Approximately $10,500,000 was transferred into the Plan from these 401(k) plans and approximately 400 new participants were added to the Plan. The Plan's name was also changed to First Merchants Corporation Retirement Income and Savings Plan and the employer matching contribution changed as described in Note 1. Note 6: Subsequent Event Effective January 1, 2007, the Plan was amended to change the vesting of the Corporation's retirement security contribution portion of participant's accounts to 100% after three years of service from five years of service. 10 Supplemental Schedule First Merchants Corporation Retirement Income and Savings Plan Schedule H, Line 4i - Schedule of Assets Held for Investment Purposes at End of Year December 31, 2006 Employer Identification Number: 35-1544218 Plan Number: 002 (a)(b) (c) (e) Description of Identity of Issue, Investment Borrower, Lessor, or Including Par or Current Similar Party Maturity Value Value ------------------------------------------------------------------------------------ Common Stock *First Merchants Corporation 43,435 shares $ 1,180,998 ----------- Mutual Funds AIM Small Cap Equity Fund 81,031 shares 991,817 AIM Real Estate Fund 19,776 shares 665,051 American Funds Amcap Fund 279,064 shares 5,531,041 American Funds Europacific 3 shares 136 American Funds High Income Trust Fund 78,541 shares 990,396 Federated Max-Cap Index Fund 80,766 shares 2,096,698 Fidelity Advisor Diversified International Fund 42,001 shares 947,553 Fidelity Advisor Freedom 2010 Fund 28,033 shares 336,679 Fidelity Advisor Freedom 2015 Fund 13,090 shares 158,914 Fidelity Advisor Freedom 2020 Fund 29,246 shares 386,051 Fidelity Advisor Freedom 2025 Fund 18,507 shares 236,144 Fidelity Advisor Freedom 2030 Fund 7,038 shares 98,043 Fidelity Advisor Freedom 2035 Fund 6,016 shares 78,876 Fidelity Advisor Freedom 2040 Fund 3,031 shares 43,439 First American Mid Cap Growth Opportunity Fund 32,733 shares 1,255,311 Franklin Limited Maturity U. S. Government Fund 167,093 shares 1,652,545 Goldman Sachs Mid Cap Equity Fund 117,443 shares 4,500,401 ING Index Plus Mid Cap Fund 64,219 shares 1,089,149 MFS Value Fund 189,689 shares 5,068,479 MFS International New Discovery Fund 33,482 shares 902,339 Oppenheimer Main Street Fund 69,008 shares 2,770,000 Oppenheimer Small & Mid Cap Value Fund 100,813 shares 3,646,415 PIMCO Foreign Bond Fund 23,522 shares 239,449 PIMCO Total Return Fund 234,327 shares 2,432,313 Putnam Small Cap Growth Fund 53,230 shares 1,166,276 Templeton Foreign Fund 88,267 shares 1,195,138 ----------- 38,478,653 ----------- Collective Investment Fund Federated Capital Preservation Fund 199,128 shares 1,971,563 ----------- Money Market Fund Federated Prime Cash Obligations Fund 1,897,754 shares 1,897,754 ----------- *Participant Loans 7.25% - 9.00% 139,879 ----------- $43,668,847 =========== *Party-in-interest 11 Exhibit 23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statement of First Merchants Corporation on Form S-8 (File Number 333-50484) of our report dated June 25, 2007, of our audit on the financial statements of First Merchants Corporation Retirement Income and Savings Plan for the year ended December 31, 2006, which report is included in its Annual Report on Form 11-K. BKD, LLP Indianapolis, Indiana June 25, 2007 12 Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Date: 06/29/07 By: /s/ Kimberly J. Ellington -------- ------------------------- Kimberly J. Ellington First Merchants Corporation Retirement Savings Plan 13