Merchants Bancorp (MBIN) Q4 2025 earnings review
The Turnaround Quarter: Credit Cleanup Drives Sequential Rebound
Merchants Bancorp executed a 'decisive shift' in Q4, prioritizing balance sheet cleanup over YoY growth comparisons. While Net Income fell 29% YoY to $67.8M, it rebounded 24% sequentially from Q3 lows. The headline story is the aggressive remediation of credit issues: Non-performing loans (NPLs) dropped 34% QoQ and criticized loans fell 13%. Management effectively 'kitchen-sinked' the quarter with $38M in charge-offs (primarily multi-family), clearing the deck for FY26. Despite the credit noise, Tangible Book Value hit a record $37.51 (+10% YoY), and the Mortgage Warehousing segment proved resilient, growing income 43% YoY.
🐂 Bull Case
The worst appears over. Non-performing loans dropped from $298.3M in Q3 to $197.8M in Q4 (-34%). Management explicitly stated that frequency of migration to criticized status is subsiding.
Despite headwinds, MBIN grew Tangible Book Value per share to $37.51, up 10% YoY. The company continues to compound intrinsic value even during down-cycles.
🐻 Bear Case
Noninterest expense surged 32% YoY to $83.6M. The efficiency ratio degraded to 45.1% from 32.6% a year ago, driven by higher FDIC insurance, legal fees for workouts, and credit risk transfer premiums.
Full-year 2025 Net Income ($218.8M) was down 32% vs 2024. The bank is structurally earning less than it did a year ago due to tighter spreads and the cost of de-risking the portfolio.
⚖️ Verdict: 🟢
Positive. While YoY comparisons look ugly, the sequential data confirms a successful pivot. The bank has aggressively recognized losses, reduced NPLs, and improved liquidity, setting a clean baseline for FY26.
Key Themes
Asset Quality: The Great Cleanup
Reversing. After quarters of deteriorating credit metrics, Q4 marked a sharp reversal. Criticized loans fell 13% QoQ ($508M vs $582M) and NPLs fell 34%. This came at a cost: $38M in net charge-offs (vs just $4.2M in 24Q4), largely tied to three multi-family relationships. This indicates management is realizing losses to remove overhangs rather than extending and pretending.
Deposit Quality Rotation
Accelerating. MBIN drastically improved its funding mix. Core deposits surged 20% YoY to $11.3B, while volatile Brokered Deposits were cut by 31% ($1.8B vs $2.5B). Core deposits now represent 87% of total deposits (up from 79% last year), reducing reliance on hot money and improving franchise stability.
The Cost of De-Risking (Expense Spike)
Accelerating. Noninterest expenses jumped 32% YoY. Notable drivers include a 95% increase in credit risk transfer premiums ($8.2M) and a 48% jump in 'Other' expenses due to collateral preservation (taxes/insurance on bad loans). While necessary, these costs are dragging efficiency down (45.1% efficiency ratio vs 32.6% prior year).
Mortgage Warehousing Resilience
Accelerating. While the traditional Banking segment profit fell 45% YoY due to provisions, the Mortgage Warehousing segment grew Net Income by 43% YoY ($35.0M vs $24.4M). This segment provides a crucial counter-cyclical buffer and highlights the value of MBIN's diversified business model.
Multi-Family Gain on Sale Recovery
Stable. Gain on sale of loans in the multi-family portfolio reached $24.8M, the highest level in company history. This signals that despite credit headwinds in the sector, the secondary market for these assets remains liquid and MBIN retains strong origination capabilities.
Other KPIs
Decelerating YoY but Improving QoQ. Down from 2.99% in 24Q4, but up from 2.82% in 25Q3. The sequential improvement suggests funding cost pressures are easing faster than asset yields are dropping.
Accelerating significantly vs 24Q4 ($2.7M) but stable vs 25Q3 ($29.2M). The elevated provision reflects the final cleanup of the multi-family book and fraud investigations previously disclosed.
Accelerating. Up 10% YoY ($34.15) and 3% QoQ ($36.31). This remains the primary metric for long-term value creation, showing the bank can grow equity even in a 'kitchen sink' year.
Guidance
Management did not provide specific numeric EPS guidance but stated Q4 reinforces a 'positive trajectory for 2026.' The reduction in NPLs and record assets ($19.4B) are cited as the base for this growth.
Stable/Strong. Unused capacity represents 27% of total assets, up from $4.3B in 24Q4. This suggests no liquidity stress despite the credit issues.
Key Questions
Charge-off Runway
Q4 saw $38M in charge-offs largely tied to three relationships. With criticized loans down 13%, should we expect charge-offs to normalize back to single-digit millions in Q1 2026, or is there a 'tail' to this cleanup?
Expense Baseline
Noninterest expense is up 32% YoY driven by credit risk premiums and workout costs. As NPLs decline, how much of this $83.6M quarterly expense run-rate is structural vs. transitory?
Multi-Family Market Liquidity
You achieved record gain-on-sale revenue this quarter. Are you seeing spreads widen or tighten in the secondary market for multi-family loans entering 2026?