Merchants Bancorp (MBIN): A Storm on the Horizon for this Banking Stock

Investors in Merchants Bancorp Inc. (NASDAQ: MBIN) are facing a growing storm of financial risks that could further erode the company’s value. Recent earnings reports and operational challenges paint a stark picture of declining profitability, deteriorating asset quality, and sector-specific vulnerabilities. This article dissects the key risks threatening MBIN’s performance and why the stock’s downward trajectory may not yet be fully priced in.

1. Plunging Earnings Signal Structural Weakness

Merchants Bancorp’s Q1 2025 results were a stark departure from historical norms. Net income tumbled 33% year-over-year to $58.2 million, while diluted EPS collapsed 48% to $0.93, missing analyst expectations. Revenue also declined sharply, falling 13.1% to $145.89 million, with a -12.66% revenue surprise versus estimates.

This collapse stems from multiple factors. First, the company’s mortgage warehousing and multi-family segments—critical to its business model—are struggling with delayed loan originations and conversions. Second, fair market value adjustments have penalized earnings: servicing rights declined by $754,000, and derivatives lost $2.3 million in value. These one-time hits may persist if market volatility continues.

2. Asset Quality Deteriorates Rapidly

The most alarming trend is the surge in non-performing loans (NPLs). NPLs jumped to $284.6 million (2.73% of loans receivable) in Q1 2025, nearly doubling from 1.22% in Q1 2024. The increase is concentrated in multi-family housing and healthcare sectors, where variable-rate loans are straining borrowers’ ability to pay amid rising interest rates and economic uncertainty. Charge-offs hit $10.5 million, and loan loss provisions rose 63%, signaling a stark escalation in credit risk.

3. Sector-Specific Headwinds Persist

Merchants Bancorp’s reliance on multi-family and healthcare lending exposes it to industry-specific risks. These sectors are highly sensitive to interest rate fluctuations and economic cycles. With the Federal Reserve’s prolonged hiking cycle and lingering inflation pressures, borrowers in these sectors face mounting repayment challenges.

Meanwhile, the mortgage warehousing segment—a key profit driver—has been hampered by delayed originations due to market uncertainty. This slowdown has reduced fee income and forced the company to rely more on volatile fair value adjustments, further destabilizing earnings.

4. Technical and Analyst Sentiment: A Bearish Outlook

The stock’s recent performance reflects investor pessimism. Over the past month, MBIN fell -12.4%, significantly underperforming the S&P 500’s -4.3% decline. Technical analysts forecast a potential -28.7% drop over the next three months, with a 90% probability of trading between $21.14 and $23.50 by mid-2025.

Analysts are equally cautious. The stock carries a Zacks Rank #3 (Hold), citing concerns over underperformance relative to the broader market. With earnings and asset quality metrics worsening, the risk of further downgrades looms large.

5. Liquidity: A Buffer, Not a Panacea

While Merchants Bancorp maintains $4.7 billion in unused borrowing capacity, this liquidity shield has limits. The January 2025 redemption of $125 million Series B Preferred Stock reduced capital flexibility but eliminated ongoing dividend obligations. However, without a rebound in core earnings, this maneuver may offer only temporary relief.

Conclusion: MBIN’s Risks Outweigh Rewards

The evidence is clear: Merchants Bancorp faces a confluence of severe risks. A 33% YoY net income decline, doubling NPLs, and a technical forecast of a 28.7% further drop all underscore a high-risk profile. Even its liquidity and reduced debt burden cannot offset the structural challenges in its key lending segments.

Investors should heed these red flags. The stock’s underperformance relative to the market and the deteriorating credit metrics suggest that MBIN’s struggles are not yet fully reflected in its price. Until the company stabilizes its core businesses and reverses asset quality trends, this stock remains a high-risk bet—one best avoided for now.

In short, the storm clouds over MBIN are not just on the horizon—they’re already here.