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MB

Merchants Bancorp (MBIN)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 diluted EPS was $0.93, down 48% year over year and 50% sequentially; results were pressured by delayed originations/permanent loan conversions, lower gain-on-sale, NIM compression, and unfavorable fair value marks on servicing rights and floor derivatives (approx. $0.05 per diluted share drag) .
  • Revenue drivers softened: Net interest income fell to $122.2m (−4% YoY, −9% QoQ), total noninterest income fell to $23.7m (−42% YoY, −60% QoQ), and net interest margin compressed to 2.89% (from 3.14% YoY; 2.99% QoQ) .
  • Asset quality deteriorated: nonperforming loans rose to $284.6m (2.73% of loans) vs. $131.8m (1.22%) YoY and $279.7m (2.68%) QoQ; charge-offs were $10.5m in Q1, primarily in multi-family; ACL was $83.4m .
  • Balance sheet mix improved: core deposits rose to $10.7b (86% of total), brokered deposits fell to $1.7b (−70% YoY), liquidity remained robust with $4.7b of unused borrowing capacity (25% of assets) .
  • Stock reaction catalysts: stabilization in NPLs, resumption of permanent loan conversions and gain-on-sale volume, and normalization of fair value marks could support EPS recovery; management emphasized confidence in the pipeline and execution once rate uncertainty clears .

What Went Well and What Went Wrong

What Went Well

  • Core deposit growth and funding mix: Core deposits reached $10.7b and 86% of total deposits, the highest since March 2022, while brokered deposits dropped to $1.7b (−70% YoY), improving funding stability .
  • Tangible book value per share: TBV rose to a record $34.90 (+19% YoY; +2% QoQ), evidencing capital build despite earnings pressure .
  • Liquidity and credit protection: Unused borrowing lines totaled $4.7b; credit-linked note and CDS coverage remained on $2.2b of loans (13–14% coverage on CRT arrangements), providing loss protection and capital efficiency .

Quoted management commentary:

  • “Despite some challenges this quarter, we remain confident… Our loan pipeline remains strong, and we are well‑positioned to execute when the uncertain interest rate environment becomes clearer for our borrowers.” — Michael F. Petrie, Chairman & CEO .
  • “As we move forward, we are focused on enhancing our operations and investing in our people and processes to ensure long-term success.” — Michael J. Dunlap, President & COO .

What Went Wrong

  • Earnings miss vs consensus: EPS $0.93 vs consensus $1.28; company “decrease primarily driven by” lower gain-on-sale, NIM compression, higher noninterest expense, higher loan loss provision, and unfavorable valuation adjustments .
  • NIM and spread compression: NIM fell to 2.89% (−25 bps YoY, −10 bps QoQ); interest rate spread decreased to 2.38% (−20 bps YoY, −8 bps QoQ), impacted by mix shift to lower-margin warehouse loans and lower yields .
  • Asset quality deterioration: Nonperforming loans increased to $284.6m (2.73% of loans) driven by multi-family and healthcare borrowers facing higher floating-rate payments and sponsor deterioration; Q1 charge-offs were $10.5m .

Financial Results

Income Statement and Margins

MetricQ1 2024Q4 2024Q1 2025
Total Interest Income ($m)$314.2 $321.3 $287.2
Total Interest Expense ($m)$187.1 $186.7 $165.0
Net Interest Income ($m)$127.1 $134.6 $122.2
Provision for Credit Losses ($m)$4.7 $2.7 $7.7
Total Noninterest Income ($m)$40.9 $59.1 $23.7
Total Noninterest Expense ($m)$48.9 $63.2 $61.7
Net Income ($m)$87.1 $95.7 $58.2
Diluted EPS ($)$1.80 $1.85 $0.93
Net Interest Margin (%)3.14% 2.99% 2.89%
Interest Rate Spread (%)2.58% 2.46% 2.38%

Segment Net Income

Segment Net Income ($m)Q1 2024Q4 2024Q1 2025
Multi-family Mortgage Banking$16.6 $22.2 $3.4
Mortgage Warehousing$20.2 $24.4 $15.4
Banking$56.4 $56.3 $47.1
Other$(6.2) $(7.2) $(7.7)
Total$87.1 $95.7 $58.2

Key Performance Indicators (Balance Sheet and Credit)

KPIQ1 2024Q4 2024Q1 2025
Total Assets ($b)$17.82 $18.81 $18.80
Loans Receivable, Net ($b)$10.69 $10.35 $10.34
Core Deposits ($b)—$9.4 $10.7
Core Deposits (% of Total)59% 79% 86%
Brokered Deposits ($b)~$5.7 (derived) $2.5 $1.7
Unused Borrowing Capacity ($b)$5.6 $4.3 $4.7
Nonperforming Loans ($m)$131.8 $279.7 $284.6
NPL Ratio (% of Loans)1.22% 2.68% 2.73%
ACL on Loans ($m)$75.7 $84.4 $83.4
Net Charge-offs YTD ($m)$0.925 $10.6 $10.5
Tangible Book Value ($/share)$29.26 $34.15 $34.90

Actual vs Wall Street Consensus (Q1 2025)

MetricQ1 2025 ActualQ1 2025 ConsensusSurprise
Diluted EPS ($)$0.93 $1.28*—$0.35 (miss)
Revenue ($m)$138.16*$169.00*—$30.84m (miss)

Values retrieved from S&P Global.*

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Common Dividend ($/share)Q1 2025$0.09 (prior quarterly run-rate)$0.10 (declared Feb 20, 2025; payable Apr 1, 2025) Raised
Preferred Dividends (per depositary share)Q1 2025Prior run-rateSeries C: $0.375; Series D: $0.5156; Series E: $0.4765 Maintained
Operating/Financial GuidanceQ1 2025Not providedNot providedN/A

Note: Company did not issue quantitative revenue/margin guidance in Q1 materials; capital actions included redemption of Series B preferred on Jan 2, 2025 (~$125m) .

Earnings Call Themes & Trends

No Q1 2025 earnings call transcript was available in the document catalog; themes below reflect company disclosures across Q3 2024, Q4 2024, and Q1 2025 press materials.

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Credit protection via CRT/CDSExecuted CRT/CDS; Sep 2024 healthcare REMIC and CDS (1.2b) Added CDS on $1.2b warehouse loans; total CRT/CDS $2.9b CRT/CDS coverage persists on $2.2b loans, 13–14% coverage Continued risk mitigation
Servicing rights & derivative marksNegative MSR (−$6.7m) and derivatives (−$7.7m) Positive MSR (+$10.4m) and derivatives (+$2.6m), ~+$0.21/share Negative MSR (−$0.754m) and derivatives (−$2.3m), ~−$0.05/share Volatile; swung negative
Deposit mix & fundingCore deposits 78%; brokered reduced Core deposits 79%; brokered $2.5b Core deposits 86%; brokered $1.7b Improving core mix
Asset quality (NPLs, charge-offs)NPLs rose to 2.04%; charge-offs $2.1m NPLs rose to 2.68%; charge-offs $4.2m NPLs rose to 2.73%; charge-offs $10.5m (multi-family) Deteriorating; elevated
Liquidity & borrowing capacity$5.1b unused capacity (27% assets) $4.3b unused (23% assets) $4.7b unused (25% assets) Strong; stable
Gain on sale volumeQ3 up +$6.0m YoY Q4 up +$5.7m QoQ Q1 down sequentially; delays in conversions Depressed in Q1

Management Commentary

  • Strategic posture: Management emphasized confidence in strategy and pipeline, viewing lower gain-on-sale and asset quality deterioration as temporary; execution expected to improve as rate uncertainty abates .
  • Operational focus: Commitment to enhancing operations and investing in people/processes to ensure long-term success; culture highlighted as a driver of resilience .
  • Capital actions: Redemption of Series B preferred (~$125m) reduced net income available to common due to recognition of issuance costs and excise tax impact .

Key quotes:

  • “The lower gain on sale of loans and recent deterioration in asset quality are temporary setbacks… we are well‑positioned to execute when the uncertain interest rate environment becomes clearer.” — Michael F. Petrie .
  • “Together, we are committed to building a stronger foundation for future growth and delivering value to our stakeholders and communities.” — Michael J. Dunlap .

Q&A Highlights

No Q1 2025 earnings call transcript was available; no Q&A observed in the document set [Search returned none].

Estimates Context

  • EPS missed consensus: $0.93 actual vs $1.28 consensus; primary drivers were lower gain-on-sale, NIM compression, higher opex (credit risk transfer premium, deposit insurance), higher loan loss provision, and negative MSR/derivative marks .
  • Revenue missed consensus: S&P “Revenue” actual $138.16m vs $169.00m consensus; company-reported “Total income” was $145.9m (net interest income + noninterest income) .
MetricQ1 2025 ActualQ1 2025 ConsensusSurprise
Diluted EPS ($)$0.93 $1.28*—$0.35 (miss)
Revenue ($m)$138.16*$169.00*—$30.84m (miss)

Values retrieved from S&P Global.*

Where estimates may adjust:

  • Potential downward revisions to near-term EPS and revenue if conversion delays persist and asset quality remains elevated; upside if permanent loan conversions resume and fair value marks normalize (management expects execution to improve as rate clarity emerges) .

Key Takeaways for Investors

  • Earnings reset driven by mix/NIM compression and valuation marks; watch for resumption of permanent loan conversions and multi-family gain-on-sale normalization as key EPS levers .
  • Funding strength is improving: core deposits up materially and brokered deposits down; supportive to NIM stabilization over time .
  • Asset quality is the near-term swing factor: NPLs higher with multi-family/healthcare variable-rate stress; monitor charge-off cadence and specific reserves vs collateral .
  • Credit protection (CRT/CDS) provides a buffer against losses and aids capital efficiency, but underlying loan performance still matters; covered balance ~$2.2b .
  • TBV per share continues to build, offering downside support; liquidity and borrowing capacity are ample (25% of assets) .
  • Short-term trading: headline misses vs consensus and NPL headlines can pressure the stock; catalysts include improved pipeline closings, positive MSR/derivative marks, and signs of NPL stabilization .
  • Medium-term: If deposit mix improvements persist and CRT/CDS strategy contains losses, the model’s earnings power can rebound as loan pipelines convert and fee income (gain-on-sale) recovers .