FIRST MERCHANTS CORP (FRME): what the price assumes

In the published model solve dated 2026-Q2, anchored at $41.93, FIRST MERCHANTS CORP (FRME) is priced for 9.4% return on equity. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-26.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/FRME

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Solve inputs: computed at a 9.4% cost of equity with 4% terminal growth over a 10-year stage, on common book equity (FY2026).

How unusual the bet is: within-range

Valuation X-Ray

The price is supported by asset-based and earnings-power and growth-DCF value. A value/asset-supported name, not a pure growth bet.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that justify the price: Asset, Earnings, Growth

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 5.0%); the inversion above states its own rate.

Per-Model Detail (n=6)

Economic-Unit Decomposition (Sum Of The Parts)

The issuer is a funded financial business. Debt, interest, and cash flows are operating inputs, so industrial EV, net-debt, WACC, and free-cash-flow lenses do not apply; value the common-equity claim with book, earnings, capital, and payout economics.

No unit-level total common-equity value is stated. Each financial unit requires supported standalone common equity, normalized earnings, capital adequacy, and payout capacity. Consolidated debt, interest, and cash are operating balances, not an enterprise-to-equity bridge; company-level book, earnings, capital, and payout lenses remain the coherent cross-checks.

Solvency

Deposit/float-funded balance sheet: debt is funding, not corporate leverage, and GAAP operating cash flow follows loan flows. Net-debt, interest-coverage, and cash-burn lenses do not apply. The solvency frame for a financial is regulatory capital and payout capacity (CET1, stress buffer, dividends plus buybacks against earnings).

Bullet Takeaways

• Deposits of 16.8 billion dollars, 91 percent of them core funding gathered through 126 banking centers in Indiana, Ohio and Michigan, let First Merchants earn 6.11 percent on its loan book while paying 2.07 percent for funding.
• Two commercial borrowers, an authorized wireless retailer and a roofing contractor, went to non-accrual in the June quarter and forced a 33.0 million dollar provision that cut reported quarterly earnings per diluted share to 0.70 dollars from 0.98 a year earlier.
• The allowance held against loans jumped to 1.56 percent from 1.39 percent in three months, and the next quarterly report is where a reader finds out whether those two names were isolated or the front edge of something wider.

Bull Case

Roughly book value is what the market is paying here, and that carries a specific assumption inside it: the bank keeps producing a return on equity of about 9.7 percent. It has recently been earning about 9.1 percent. The gap is small, which makes this less a question of whether a heroic number gets hit and more a question of whether an ordinary one holds. The interesting part is what has been assembled underneath while the market prices the whole thing as ordinary.

Start with the money coming in, because for a bank that is the game. Sixteen point eight billion dollars of deposits sat on the balance sheet at the end of June, 91 percent of it core funding, 23 percent paying no interest at all, with an average account balance of 39,000 dollars and 70.5 percent of the total inside federal insurance limits. Granular funding like that reprices slowly, and lately it has repriced downward: the cost of total deposits fell to 2.07 percent in the June quarter from 2.30 percent a year earlier, while the margin on a tax-equivalent basis widened to 3.38 percent from 3.25 percent. Some of that improvement was bought and some was built. The quarterly filing attributes it partly to "approximately $190.8 million of noninterest-bearing deposits acquired from First Savings on February 1, 2026, as well as changes to the Corporation's deposit product offerings, under which certain accounts that previously earned interest were intentionally transitioned to noninterest-bearing products".

The acquisition that supplied those balances closed on February 1, 2026. "First Savings was headquartered in Jeffersonville, Indiana and had 16 banking centers serving the southern Indiana market", and First Merchants paid for it in its own stock, roughly 243.2 million dollars of it, exchanging 0.85 of a share for each First Savings share. In the two months it was owned during the March quarter it contributed about 13.6 million dollars of revenue and 3.8 million dollars of net income. The goodwill note states the logic plainly: it "primarily represents the expected synergies from combining First Savings operations with the Corporation's existing franchise, including anticipated cost savings". Systems converted in mid-May, and the efficiency ratio moved from 74.45 percent in March, when 17.0 million dollars of acquisition costs ran through expenses, to 55.11 percent in June. That is what integration looks like when it goes to plan.

Underneath the deal arithmetic is a lender that knows its lane. The annual filing describes the focus as "small business and middle market commercial, commercial real estate, public finance and residential real estate", and the mix bears it out: commercial and industrial credit is the single largest slice of a 15.5 billion dollar loan book at 30.4 percent, with owner-occupied and non-owner-occupied commercial property behind it. Alongside sits a wealth business managing 4.4 billion dollars and advising on 6.7 billion, which produced 9.6 million dollars of fee income in the June quarter, the largest line inside noninterest income. Capital supports both ambitions. Common equity tier 1 stood at 11.16 percent after the acquisition consumed part of the cushion, against a stated internal target of 10.00 percent, and in June the board authorized repurchases of up to 3,125,000 shares, about 5 percent of the company.

The credit trouble in the June quarter is real, and a bear is right to lead with it. What it is not, so far, is broad. Net charge-offs ran at 0.10 percent of average loans annualized in that quarter, down from 0.27 percent in March, and 29.7 million of the 33.0 million dollar provision was specific reserve set against two named relationships rather than a portfolio-wide reassessment. Commercial property exposure sits well inside the levels supervisors watch, with construction lending equal to 38.2 percent of regulatory capital against a 100 percent guideline and total commercial property at 181.1 percent against 300 percent.

Bear Case

Two borrowers. That is all it took to absorb 29.7 million dollars of specific reserve in a single quarter, an authorized wireless retailer carrying 28.1 million dollars of exposure and a roofing contractor carrying 13.7 million. Neither is systemic. Both are exactly the shape of what a middle-market commercial lender owns, and the annual filing is blunt about how concentrated that ownership gets: "At December 31, 2025, two concentrations of commercial loans within a single industry (as segregated by North American Industry Classification System "NAICS code") were in excess of 10 percent of total loans." Those two were lessors of residential buildings and lessors of nonresidential buildings, 11.4 percent and 10.0 percent of the book respectively. Landlords, in other words, on both sides of a property cycle nobody has called the bottom of.

That matters because of what today's quote requires. Paying about book value for a bank is paying for a return on equity near 9.7 percent, sustained. Credit is the main mechanism by which that return fails to arrive, and the direction of travel over the past year is the wrong one: non-accrual loans went from 67.4 million dollars to 118.2 million, nonperforming assets plus loans 90 days past due reached 0.83 percent of loans and other real estate from 0.54 percent, and classified loans stand at 393.3 million dollars. There is no growth story underneath to catch the fall if the return slips. The multiple of book the market is willing to pay compresses, and that is the whole downside mechanism in one sentence.

The securities portfolio is the second pressure point, and it is the quiet one. Roughly 3.3 billion dollars of investments yield 2.66 percent while the loan book yields 6.11 percent, and the portfolio carries unrealized losses of 171.3 million dollars on the available-for-sale side and 254.0 million on the held-to-maturity side. Tangible book value per share reads 29.80 dollars; without the accumulated securities marks it would read 31.98. Getting out of low-rate paper costs real money, as the March quarter demonstrated: the bank sold mortgage loans with a fair value of 271.1 million dollars and a weighted average rate of 3.43 percent, booking a 29.8 million dollar net loss to do it.

Growth by acquisition brings its own bill, and management wrote that bill down itself: "Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per share may occur in connection with any future transaction." The share count has compounded at about 3.3 percent a year since early 2022, which is the arithmetic of paying in stock. And the funding advantage the bull leans on is solid rather than exceptional. Twenty-three percent of First Merchants deposits pay nothing, while CVBF reports in its own annual filing that "Average noninterest-bearing deposits were 58.98% of our total deposits for 2025, compared to 59.92% for 2024." Against a competitor funded like that, First Merchants competes on the rate it pays, inside an industry the company itself describes as crowded and getting more so: "The Corporation operates in a highly competitive industry that could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation."

Valuation

One times book, near enough, is the whole of the market's opinion on this bank. Read backwards, that quote assumes First Merchants keeps earning a return on equity of about 9.7 percent, against something near 9.1 percent lately. The requirement is not heroic and the record is not discouraging: among firms producing that kind of return, roughly 77 percent were still producing it a decade later. The relationship runs close to one for one, so each additional percentage point the market demands as compensation for risk is another point the bank has to earn.

The methods used to value a bank do not agree with each other, and the way they disagree is the useful part. The asset-value lens and the peer-multiple lens sit closest: the price stands about 22 percent above the asset-value central read and about 25 percent above the peer-multiple read. The earnings-power methods sit further back, with the price roughly 56 percent above them, and the forward-growth methods further still, about 65 percent above. That spread describes a value-supported name rather than a growth bet. Worth knowing, though, is that the asset-value approach here starts from filed book value per share and asks what the trailing return earns above the cost of that equity, and the trailing window presently contains both the March quarter's acquisition costs and the loss on the mortgage sale. It reads the run rate low.

Against its own cohort the placement is unremarkable. On price to book First Merchants sits in the lower half of a peer group that includes FULT, CATY, WSFS, VLY and WBS. The balance sheet behind that placement is one in transition rather than one at rest: 21.3 billion dollars of assets after the February acquisition against 18.6 billion a year earlier, with loans up 16.5 percent over the same span.

Capital is the floor under all of it. Common equity tier 1 was 11.7 percent as filed at year-end 2025 and 11.16 percent at the end of June, the difference being what the acquisition consumed, against a stated internal target of 10.00 percent. Tangible book value per share of 29.80 dollars is 6.8 percent higher than a year ago. About 57.9 percent of earnings went back to shareholders as dividends plus buybacks in the last full fiscal year, and the pace has held: 976,631 shares retired for 38.3 million dollars in the first half, with the quarterly common dividend lifted to 0.37 dollars a share from 0.36. For a bank trading near its own book value, that stream of capital return is most of what a holder collects while the credit question settles one way or the other.

Catalysts

Second-quarter results landed on July 22, 2026, and credit was the headline. Reported earnings per diluted share came in near 0.70 dollars against 0.98 a year earlier, with almost the entire difference sitting in a 33.0 million dollar provision for credit losses, of which 29.7 million was specific reserve against two commercial relationships: an authorized wireless retailer carrying 28.1 million dollars and a commercial and residential roofing contractor carrying 13.7 million. Underneath the provision, the operating picture improved. The tax-equivalent margin reached 3.38 percent, higher for a third straight quarter, and the efficiency ratio returned to 55.11 percent after the March quarter's integration costs cleared.

The other live thread is capital return. On June 24, 2026 the board approved a repurchase program of up to 3,125,000 shares, about 5 percent of shares outstanding, with total spending capped at 100 million dollars. That followed 976,631 shares already retired for 38.3 million dollars in the first half and a common dividend lifted to 0.37 dollars a share from 0.36. Organic loan growth of 221.7 million dollars in the June quarter, 5.8 percent annualized, says the lending engine kept running straight through the systems conversion in mid-May.

What resolves next is narrow and specific. Both impaired relationships now carry reserves, so the question the next quarterly report answers is one of pace: new non-accruals arrived at 46.1 million dollars in March and 53.6 million in June, against a range of roughly 15 to 23 million in each of the four quarters before that. Whether that migration slows back toward the earlier range is the single most informative number in the next print.

Peer Cohorts (Per Segment, With Filing Citations)

Community Banking (single reportable segment) (reported)

• FULT (FULTON FINANCIAL CORP)
• FY2025 10-K: …Fulton Insurance Services Group, Inc. and Fulton Community Partner, LLC. Collectively, the Parent Company and its subsidiaries are referred to as the Corporation. The Corporation's primary sources of revenue are interest income on loans, investment securities and other interest-earning assets and fee income earned on…
• FY2025 10-K: …by our website is not a part of this 2025 Annual Report on Form 10-K. Banking and Financial Services Through our banking subsidiary, Fulton Bank, the Corporation delivers financial services primarily within our five-state market area, comprised of Pennsylvania, Delaware, Maryland, New Jersey and Virginia, in a…
• BANR (Banner Corporation)
• FY2025 10-K: …has concluded that there was no impairment of the FHLB stock investment as of December 31, 2025 and 2024. Loans Receivable : The Bank originates one- to four-family residential loans for both portfolio investment and sale in the secondary market. The Bank also originates construction and land development, multifamily…
• FY2025 10-K: 33 $ 39,383 1.55 % $ 2,233,902 $ 33,113 1.48 % $ 1,921,326 $ 13,334 0.69 % Savings accounts 3,576,179 76,733 2.15 % 3,231,631 71,225 2.20 % 2,674,936 27,739 1.04 % Money market accounts 1,487,141 30,314 2.04 % 1,632,092 35,206 2.16 % 1,908,983 24,089 1.26 % Certificates of deposit 1,517,967 54,368 3.58 % 1,514,726…
• TCBK (TriCo Bancshares)
• FY2025 10-K: :ConsumerPortfolioSegmentMember tcbk:SFR141stDTLiensMember tcbk:FarmlandMember 2025-12-31 0000356171 us-gaap:ConsumerPortfolioSegmentMember tcbk:SFR141stDTLiensMember tcbk:SFRFirstDeedMember 2025-12-31 0000356171 us-gaap:ConsumerPortfolioSegmentMember tcbk:SFR141stDTLiensMember tcbk:SFRSecondDeedMember 2025-12-31…
• FY2025 10-K: …us-gaap:HomeEquityLoanMember tcbk:MultifamilyCollateralMember 2024-12-31 0000356171 us-gaap:ConsumerPortfolioSegmentMember us-gaap:HomeEquityLoanMember tcbk:FarmlandMember 2024-12-31 0000356171 us-gaap:ConsumerPortfolioSegmentMember us-gaap:HomeEquityLoanMember tcbk:SFRFirstDeedMember 2024-12-31 0000356171…
• CVBF (CVB FINANCIAL CORP.)
• FY2025 10-K: …approvals, and other customary closing conditions. Business Segments We are a community bank with one reportable operating segment. See Note 3 - Summary of Significant Accounting Policies - Business Segments of the notes to the consolidated financial statements. Human Capital We employed 1,079 associates as of…
• FY2025 10-K: …cvbf:LoansExcludingPurchasedCreditImpairedLoansMember us-gaap:FairValueMeasurementsNonrecurringMember cvbf:OtherRealEstateOwnedMember 2025-12-31 0000354647 us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember us-gaap:ConsumerOtherMember 2024-12-31 0000354647…
• CATY (Cathay General Bancorp)
• FY2025 10-K: …policies. The measure of segment assets is reported on the balance sheet as total assets. The Company's operations primarily consist of commercial banking services, servicing primarily the individuals, professionals, and small to medium-sized businesses in the local markets in which its branches are located. Its…
• FY2025 10-K: …Bank's deposits are generally obtained from residents within its geographic market area. The Bank utilizes traditional marketing methods to attract new clients and deposits, by offering a wide variety of products and services and utilizing various forms of advertising media. From time to time, the Bank may offer…
• WSFS (WSFS FINANCIAL CORPORATION)
• FY2025 10-K: …goal of 36,000 hours of service by providing over 38,000 hours of service to our Communities; • In October, we held our third annual "We Stand for Service Day", during which approximately 1,600 of our Associates provided more than 5,500 hours of service to more than 130 nonprofit and community organizations across…
• FY2025 10-K: …post-retirement benefits and income tax expense. All significant intercompany accounts and transactions were eliminated in consolidation. 72 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT ACCOUNTING POLICIES Cash, Cash Equivalents and Restricted Cash For purposes of reporting cash flows, cash, cash…
• VLY (VALLEY NATIONAL BANCORP)
• FY2025 10-K: …Consumer Banking segments of our business. This level of service and commitment is particularly impactful because of our strong community presence with almost 100 years of service, providing us with a competitive advantage with such customers over certain competitors that are not traditional banks. Overall, our…
• FY2025 10-K: Community Reinvestment Under the CRA, as implemented and overseen by federal banking regulators, an insured depository institution has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low- and moderate-income…
• WBS (WEBSTER FINANCIAL CORPORATION)
• FY2025 10-K: …development projects provide a return primarily through the realization of tax benefits. The Company applies the proportional amortization method to account for its investments in qualified affordable housing projects. Investment in Federal Home Loan Bank and Federal Reserve Bank Stock The Bank is a member of the…
• FY2025 10-K: , foreclosed property expense, other-non interest expense, allocated net operating costs, and allocated total support costs. (3) Intangible assets amortization, which is a component of other non-interest expense presented in Other segment items, was $ 10.7 million for Commercial Banking, $ 14.0 million for Healthcare…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.