SecProbe.io

<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
June 29, 2007

VIA EDGAR

Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C.  20549

Attention:  Rebekah Moore and Kevin W. Vaughn
                      Mail Stop-4561

          Re:  First Merchants Corporation
                  Form 10-K for Fiscal Year Ended December 31, 2006
                  Filed March 16, 2007
                  File No. 000-17071

Ladies and Gentlemen:

This correspondence is First Merchants Corporation's response to comments
received from the Securities and Exchange Commission on June 18, 2007, regarding
document revisions for future filings of First Merchants Corporation's Form
10-K.

Note 1 Nature of Operations and Summary of Significant Accounting Policies,
page 25
--------------------------------------------------------------------------------
In response to comments made regarding First Merchants Reinsurance Company's
total insurance exposure and inter-company accounting policy, we will revise
page 4 of the 10-K to read as follows.

1.   SEC Comment: We note that you have proposed to disclose your self-insurance
     risk on a per policy basis.  Please  revise to disclose the total  exposure
     related to self-insurance for all policies outstanding.

                  First Merchants Corporation response: In future filings, we
                  propose to change the disclosure on page 4 to read as follows:
                  The Corporation operates First Merchants Insurance Services,
                  Inc. a full-service property, casualty, personal lines, and
                  employee benefit insurance agency headquartered in Muncie,
                  Indiana. The Corporation is also the majority owner of Indiana
                  Title Insurance Company, LLC which is a full-service title
                  insurance agency. The Corporation operates First Merchants
                  Reinsurance Co. Ltd., a small life reinsurance company whose
                  primary business includes underwriting short-duration
                  contracts of credit life and accidental and health insurance
                  policies and debt cancellation contracts. Such policies and
                  contracts are purchased by customers of the Corporation's bank
                  customers to cover the amount of debt incurred by the insured.
                  No policies are issued for loans other than those originated
                  by the subsidiary banks. First Merchants Reinsurance Co. Ltd.
                  limits its self-insurance risk to the first $15,000 of
                  exposure under each credit life policy and $350 per month on
                  each accident and health policy. The company maintains the
                  same standard for its debt cancellation contracts. The total
                  self-insurance exposure as of December 31, 2006 totaled $20.5
                  million. All intercompany transactions are eliminated during
                  the preparation of consolidated financial statements.

2.   SEC Comment: Please revise to disclose how you account for the intercompany
     transactions  related to self-insurance  that First Merchant's  Reinsurance
     Company provides to its parent or other related entities.

First Merchants Corporation Response:  See response under item 1.
-------------------------------------

Note 22 Derivative Instruments and Hedging Activities, page 52

3.   SEC  Comment:  Please  revise  to  disclose  the  methods  and  significant
     assumptions   used  to  determine   the  fair  value  of  your   derivative
     instruments.

                  First Merchants Corporation Response: In future filings, we
                  propose to change Note 22 to read substantially as follows:
                  Statement of Financial Accounting Standards No. 133,
                  Accounting for Derivative Instruments and Hedging Activities
                  (SFAS 133), as amended and interpreted, establishes accounting
                  and reporting standards for derivative instruments, including
                  certain derivative instruments embedded in other contracts,
                  and for hedging activities. As required by SFAS 133, the
                  Corporation records all derivatives on the balance sheet at
                  fair value. The accounting for changes in the fair value of
                  derivatives depends on the intended use of the derivative and
                  the resulting designation. Derivatives used to hedge the
                  exposure to changes in the fair value of an asset, liability,
                  or firm commitment attributable to a particular risk, such as
                  interest rate risk, are considered fair value hedges.
                  Derivatives used to hedge the exposure to variability in
                  expected future cash flows, or other types of forecasted
                  transactions, are considered cash flow hedges. Hedge
                  ineffectiveness, if any, is measured periodically throughout
                  the life of the hedging relationship.

                  The Corporation's objective in using derivatives is to add
                  stability to interest income and to manage its exposure to
                  changes in interest rates. To accomplish this objective, the
                  Corporation uses interest rate floors to protect the
                  Corporation against movements in interest rates below the
                  instruments' strike rates, over the lives of the agreements.
                  The interest rate floors have notional amounts of $50,000,000,
                  $100,000,000, and $100,000,000 with corresponding strike rates
                  of 6.0%, 7.0% and 7.5%, respectively. All of the floors have
                  maturity dates of August 1, 2009. During 2006, the floors were
                  used to hedge the variable cash flows associated with existing
                  variable-rate loan asset pools that are based on the prime
                  rate (Prime). For accounting purposes, the floors are
                  designated as cash flow hedges of the overall changes in cash
                  flows on the first Prime-based interest payments received by
                  the Corporation each calendar month during the terms of the
                  hedges that, in aggregate for each period, are interest
                  payments on principal from specified portfolios equal to the
                  notional amounts of the floors.

                  For derivatives designated as cash flow hedges, the effective
                  portion of changes in the fair value of the derivative is
                  initially reported in other comprehensive income (outside of
                  earnings) and subsequently reclassified to earnings ("interest
                  income on loans") when the hedged transaction affects
                  earnings. Ineffectiveness resulting from the hedging
                  relationship, if any, is recorded as a gain or loss in
                  earnings as part of non-interest income. Based on the
                  Corporation's assessments both at inception and throughout the
                  life of the hedging relationship, it is probable that
                  sufficient Prime-based interest receipts will exist through
                  the maturity dates of the floors. The Corporation uses the
                  "Hypothetical Derivative Method" described in SFAS 133
                  Implementation Issue No. G20, "Cash Flow Hedges: Assessing and
                  Measuring the Effectiveness of a Purchased Option Used in a
                  Cash Flow Hedge," for its quarterly prospective and
                  retrospective assessments of hedge effectiveness, as well as
                  for measurements of hedge ineffectiveness. The Corporation
                  also monitors the risk of counterparty default on an ongoing
                  basis.

                  Prepayments in hedged loan portfolios are treated in a manner
                  consistent with the guidance in SFAS 133 Implementation Issue
                  No. G25, "Cash Flow hedges: Using the First-Payments-Received
                  Technique in Hedging the Variable Interest Payments on a Group
                  of Non-Benchmark-Rate-Based Loans," which allows the
                  designated forecasted transactions to be the variable,
                  Prime-rate-based interest payments on a rolling portfolio of
                  prepayable interest-bearing loans using the
                  first-payments-received technique, thereby allowing interest
                  payments from loans that prepay to be replaced with interest
                  payments from new loan originations.

                  As of December 31, 2006, no derivatives were designated as
                  fair value hedges or hedges of net investments in foreign
                  operations. Additionally, the Corporation does not use
                  derivatives for trading or speculative purposes and currently
                  does not have any derivatives that are not designated as
                  hedges.

                  At December 31, 2006, interest rate floors with a fair value
                  of $428,000 were included in other assets. For the year ended
                  December 31, 2006, the change in net unrealized losses of
                  $125,000 for derivatives designated as cash flow hedges is
                  separately disclosed in the statement of changes in
                  shareholders' equity and comprehensive income. No hedge
                  ineffectiveness on cash flow hedges was recognized during the
                  year ended December 31, 2006.

                  Amounts reported in accumulated other comprehensive income
                  related to derivatives will be reclassified to interest income
                  as interest payments are received on the Corporation's
                  variable-rate loan assets. For the year ended December 31,
                  2006, the change in net unrealized losses on cash flow hedges
                  reflects a reclassification of $38 of net unrealized losses
                  from accumulated other comprehensive income to interest
                  income. For the year ended December 31, 2007, the Corporation
                  estimates that an additional $50,000 will be reclassified from
                  accumulated other comprehensive income to interest income.

                  Interest rate floors are valued using market standard
                  methodologies that incorporate implied forward interest rates
                  and implied volatility as inputs. The fair value of each floor
                  is obtained by summing the values of each individual floorlet
                  - which are monthly European-style options on the
                  daily-weighted-average Prime rate. The fair value of each
                  floorlet is calculated using the Black-Scholes Model.

4.   SEC Comment:  We note in your  response that your interest rate floors have
     strike  rates that range from 6.0% to 7.5%.  Please  revise to disclose the
     total notional amounts associated with each strike rate.

First Merchants Corporation Response:  See response under item 3 paragraph 2.
-------------------------------------

In closing, First Merchants Corporation acknowledges that:

o    the  Corporation  is  responsible  for the  adequacy  and  accuracy  of the
     disclosure in the filing;
o    staff  comments or changes to disclosure  in response to staff  comments do
     not  foreclose  the  Commission  from taking any action with respect to the
     filing; and
o    the  Corporation  may  not  assert  staff  comments  as a  defense  in  any
     proceeding  initiated  by the  Commission  or any person  under the federal
     securities laws of the United States.

Sincerely,

Mark Hardwick
Executive Vice President
Chief Financial Officer
First Merchants Corporation
</TEXT>
</DOCUMENT>