First Merchants (FRME) Stock Forecast & Price Target

First Merchants Corp has demonstrated solid financial performance, with average loans increasing 6% quarter-over-quarter and end-of-period loans held for investment growing by 9%, indicative of robust lending activity. The company reported a return on assets and return on tangible common equity of 1.20% and 13.8% respectively for the third quarter, supported by strong profitability and internal capital generation. Additionally, the expectation of continued growth in net interest income, along with positive operating leverage projected for 2026, further enhances the positive outlook for First Merchants's stock.

First Merchants Corporation has reported core fee income of $32.5 million, which was 1%-2% below expectations primarily due to a decline in mortgage gains on sale (GOS) revenue. The company anticipates a pressure on net interest margin, expecting it to drop to 3.15% by 4Q26 due to loan yield headwinds and competitive deposit pricing, resulting in a conservative forecast of a 4% decline in core fee income for 4Q, corresponding to a 1% year-over-year decline. In addition, despite a slight reduction in non-performing assets, several risks to future performance include potential credit quality deterioration, slower growth in loans and core deposit income, elevated operating expenses, and challenges related to future mergers and acquisitions in a fluctuating macroeconomic environment.