8-K: Merchants Bancorp Reports Mixed 2025 Results, Q4 Shows Recovery

Merchants Bancorp reported a sequential increase in Q4 2025 net income and improved asset quality, despite a significant decline in full-year 2025 earnings compared to 2024.

Summary

• Full year 2025 net income was $218.8 million, a decrease of 32% compared to $320.4 million in 2024.
• Full year 2025 diluted earnings per common share was $3.78, a decrease of 40% compared to $6.30 in 2024.
• Fourth quarter 2025 net income was $67.8 million, a 24% increase compared to $54.7 million in Q3 2025, but a 29% decrease compared to $95.7 million in Q4 2024.
• Fourth quarter 2025 diluted earnings per common share was $1.28, a 32% increase compared to $0.97 in Q3 2025, but a 31% decrease compared to $1.85 in Q4 2024.
• Total assets reached a new company milestone of $19.4 billion at December 31, 2025, up 3% from December 31, 2024.
• Tangible book value per common share reached a new record-high of $37.51, increasing 10% from Q4 2024 and 3% from Q3 2025.
• Criticized loans receivable decreased by 13% sequentially to $508.2 million and by 27% year-over-year.
• Total loan delinquencies decreased by 38% sequentially to $206.8 million and by 36% year-over-year.
• Deposits grew 9% in 2025 to $13.0 billion, outpacing the 6% growth in loans receivable.
• Core deposits increased $1.9 billion, up 20% during 2025, now representing 87% of total deposits.
• Brokered deposits declined $776.8 million, or 31%, to $1.8 billion in 2025.
• Gain on sale of multi-family loans reached its highest level in company history during Q4 2025.
• The company reversed $1.2 million in anticipated excise tax during Q4 2025 due to finalized IRS rules exempting Series B preferred stock redemption.

Sentiment

Score: 6

Explanation: The sentiment is cautiously optimistic. While Q4 2025 showed strong sequential improvements in net income, asset quality, and tangible book value, full-year 2025 results were significantly lower than 2024 due to higher credit loss provisions and noninterest expenses. Management's comments highlight positive momentum and strategic positioning for 2026, but the substantial year-over-year decline in profitability tempers overall enthusiasm.

Positives

• Fourth quarter 2025 net income of $67.8 million increased 24% sequentially from Q3 2025.
• Fourth quarter 2025 diluted earnings per common share of $1.28 increased 32% sequentially from Q3 2025.
• Total assets reached a new company milestone of $19.4 billion at December 31, 2025.
• Tangible book value per common share reached a new record-high of $37.51, up 10% from Q4 2024 and 3% from Q3 2025.
• Asset quality improved meaningfully, with criticized loans receivable decreasing 13% sequentially to $508.2 million and 27% year-over-year.
• Total loan delinquencies decreased 38% sequentially to $206.8 million and 36% year-over-year.
• Non-performing loans decreased 34% during Q4 2025 to $197.8 million, or 1.79% of loans receivable.
• Capital ratios have reached exceptionally high levels, underscoring financial strength and stability.
• Liquidity remained strong with $5.3 billion in unused borrowing capacity, representing 27% of total assets, up from $4.3 billion at December 31, 2024.
• Gain on sale of multi-family loans reached its highest level in company history during Q4 2025.
• Loans receivable, net, increased $436.2 million (4%) sequentially and $597.4 million (6%) year-over-year to $11.0 billion.
• Deposits grew 9% in 2025 to $13.0 billion, outpacing 6% loan growth.
• Core deposits increased $1.9 billion (20%) during 2025 to $11.3 billion, now representing 87% of total deposits.
• Brokered deposits declined $776.8 million (31%) in 2025 to $1.8 billion.
• Net interest income increased $10.0 million (8%) sequentially in Q4 2025, reflecting higher interest income and lower interest expense on deposits.
• Net interest margin improved 7 basis points sequentially to 2.89% in Q4 2025.

Negatives

• Full year 2025 net income of $218.8 million decreased $101.6 million (32%) compared to 2024.
• Full year 2025 diluted earnings per common share of $3.78 decreased 40% compared to 2024.
• Fourth quarter 2025 net income decreased $27.8 million (29%) compared to Q4 2024.
• Fourth quarter 2025 diluted earnings per common share decreased 31% compared to Q4 2024.
• Full year 2025 provision for credit losses increased 385% to $117.8 million compared to $24.3 million in 2024.
• Full year 2025 noninterest expense increased 34% to $299.9 million compared to $223.8 million in 2024.
• Q4 2025 provision for credit losses increased 932% to $27.8 million compared to $2.7 million in Q4 2024.
• Q4 2025 noninterest expense increased $20.4 million (32%) compared to Q4 2024, driven by credit risk transfer premiums, salaries, and collateral preservation expenses.
• Q4 2025 noninterest income decreased $11.9 million (20%) compared to Q4 2024, primarily due to a 72% decrease in loan servicing fees.
• The company recorded $38.0 million in charge-offs during Q4 2025, primarily in the multi-family loan portfolio, with approximately 75% associated with three relationships.
• An impairment of $4.1 million for an investment in a joint venture was reflected in Q4 2025 other income.

Risks

• Declines on certain multi-family property values contributed to charge-offs and increased provision for credit losses.
• Ongoing investigation of borrowers involved in mortgage fraud or suspected fraud led to charge-offs and increased provision for credit losses.
• The company previously offered certain types of subordinated loans that are no longer offered, which contributed to underperforming loans.
• General risks identified in 'Risk Factors' or 'Management's Discussion and Analysis of Financial Condition and Results of Operations' in the Company's Annual Report on Form 10-K and other periodic filings with the SEC.

Future Outlook

The company anticipates a positive trajectory for 2026, driven by improved asset quality and strategic positioning. Management expresses confidence in the year ahead, focusing on harnessing momentum to deliver strategic, sustainable growth and long-term value for shareholders and communities. The company believes its remaining loan portfolio is well collateralized and its exceptional liquidity will enhance its ability to manage interest expense and asset levels. The business model is designed to continuously sell or securitize a significant portion of its loans, providing liquidity management flexibility.

Management Comments

• "This quarter reflects a decisive shift for Merchants. Asset quality improved meaningfully, with criticized loans down 13% and nonperforming loans reduced by nearly one-third during the quarter. We also achieved a record tangible book value of $37.51 per share and the strongest quarterly gain on sale of multi-family loans in our history. While total assets increased to $19.4 billion—the highest level reported in company history—the real story is the progress we’ve made in strengthening credit quality and positioning the company for growth in 2026." Michael F. Petrie, Chairman and CEO of Merchants Bancorp.
• "Our team’s disciplined execution and commitment to excellence have driven meaningful progress. The improvement in credit quality, combined with strong liquidity and operational performance, reinforces our confidence in the year ahead. We remain focused on harnessing this momentum to deliver strategic, sustainable growth and long-term value for our shareholders and communities." Michael J. Dunlap, President and Chief Operating Officer of Merchants Bancorp.

Industry Context

Merchants Bancorp's focus on strengthening credit quality and managing liquidity aligns with broader trends in the banking sector, where rising interest rates and economic uncertainties have put pressure on asset quality and funding costs. The company's success in multi-family loan sales and securitization, including Freddie Mac-sponsored Q-Series transactions, indicates effective navigation of specific market segments. The decline in brokered deposits and growth in core deposits reflect a strategic shift towards more stable funding sources, a common objective for banks in a competitive deposit environment.

Comparison to Industry Standards

• Merchants Bancorp is ranked as a top performing U.S. public bank by S&P Global Market Intelligence, indicating strong performance relative to peers.
• The company's capital ratios have reached exceptionally high levels, suggesting a strong position compared to regulatory benchmarks and industry averages for financial strength and stability.
• The improvement in asset quality, with criticized loans and delinquencies decreasing, suggests the company is effectively managing credit risk, potentially outperforming some peers facing ongoing asset quality challenges in specific loan portfolios like multi-family.

Stakeholder Impact

• Shareholders: Impacted by significant year-over-year decline in net income and diluted EPS, but also by record tangible book value per share and management's focus on long-term value.
• Employees: Salaries and employee benefits increased, indicating continued investment in human capital to support business growth.
• Customers: Improved asset quality and strong liquidity may signal a more stable and reliable banking partner.
• Creditors: High capital ratios and strong liquidity position enhance the company's financial strength and stability, benefiting creditors.

Next Steps

• Continue efforts in proactive portfolio management to further subside the frequency of migration to criticized loan status.
• Focus on harnessing current momentum to deliver strategic, sustainable growth and long-term value for shareholders and communities in 2026.
• Utilize exceptional liquidity to effectively manage interest expense and asset levels.
• Continuously sell or securitize a significant portion of loans to maintain liquidity flexibility.

Key Dates

Recommendation

While the fourth quarter showed strong sequential improvements in profitability and significant enhancements in asset quality, the full-year 2025 results represent a substantial decline in net income and diluted EPS compared to 2024. The company is actively addressing credit quality issues and strengthening its balance sheet, which are positive long-term indicators. However, the magnitude of the year-over-year earnings decline and the increased provision for credit losses suggest that the company is still navigating a challenging environment. A 'hold' recommendation is appropriate as investors should monitor whether the positive Q4 trends can be sustained and translate into consistent year-over-year growth in 2026, justifying a more bullish stance.

Keywords

Merchants Bancorp, MBIN, Financial Results, Earnings Report, Q4 2025, Full Year 2025, Net Income, EPS, Asset Quality, Criticized Loans, Loan Delinquencies, Tangible Book Value, Deposits, Core Deposits, Multi-family Loans, Mortgage Banking, Banking Industry, SEC Filing, 8-K