First Merchants (FRME) Stock Forecast & Price Target

First Merchants Corp has demonstrated a robust financial position, with key regulatory capital ratios strengthening: CET1 increased to 11.7%, tier-1 capital rose to 11.9%, and total risk-based capital climbed to 13.4%. Additionally, the company experienced a 6% growth in average loans and a notable 9% increase in end-of-period loans held for investment, reflecting solid demand in its community banking segment. The firm has also shown strong profitability with a reported return on assets of 1.20% and return on tangible common equity of 13.8%, further bolstered by positive internal capital generation and improvements in asset quality indicators.

First Merchants Corp has reported a core fee income of $32.5 million, which, despite a 4% increase quarter over quarter, fell short of expectations primarily due to decreased mortgage gain on sale revenue. The company is expected to experience moderate pressure on net interest margin (NIM), projected to decline to 3.15% by 4Q26 as loan yield headwinds and competitive deposit pricing exert downward pressure, particularly due to the high percentage of floating rate loans in its portfolio. Additionally, while non-performing assets (NPAs) have seen a decline, the allowance for credit losses (ACL) remains elevated compared to peers, indicating potential vulnerabilities in asset quality and overall financial stability.