Merchants Bancorp Q1 Earnings: Resilience Amid Challenges

The first quarter of 2025 brought a mixed landscape for U.S. banks, with persistent headwinds from an inverted yield curve, macroeconomic uncertainty, and sector-specific pressures—particularly in agriculture. Amid this backdrop, Merchants Bancorp (FMCB) delivered a robust earnings report, underscoring its disciplined strategy and structural resilience.

Earnings and Profitability: A Steady Climb

Net income rose to $23.0 million in Q1 2025, with diluted EPS of $32.86, marking a 9.9% sequential increase and a 7.6% annualized growth. The trailing twelve-month diluted EPS of $123.32 reflects a consistent upward trajectory, bolstered by a 13.49% surge in tangible book value per share to $843.33. This metric, a critical gauge of shareholder equity, now exceeds $800—a milestone underscoring the bank’s capitalization strength.

The net interest margin (NIM) expanded to 4.20% (tax-equivalent basis), up from 4.09% in Q4 2024. This improvement was driven by disciplined loan pricing and reduced deposit costs, which offset the challenges of an inverted yield curve. Notably, non-interest income remained stable, with fee-based revenue holding steady despite broader market volatility.

Balance Sheet Dynamics: Deposits Rise, Loans Moderate

Total assets grew to $5.7 billion, a 5.5% annualized increase, while deposits surged by $278.8 million (5.93%) to $5.0 billion. The rise was fueled by brokered deposits, though core deposits also grew by $28.8 million, signaling organic strength in retail and commercial accounts. The loan-to-deposit ratio fell to 72.23%, a marked improvement from 78.53% in Q4 2024, reducing reliance on loans and enhancing liquidity.

However, gross loans and leases dipped 2.56% to $3.6 billion, reflecting seasonal agricultural lending patterns and a deliberate shift toward risk management. This cautious approach, though temporarily constraining loan growth, aligns with the bank’s long-term focus on credit quality.

Credit Quality: A Fortress of Prudence

Merchants Bancorp’s credit metrics remain among the strongest in the industry. Non-accrual loans/leases stood at a negligible $193,000, with a delinquency ratio of 0.01%—a testament to rigorous underwriting standards. Net charge-offs dropped to $160,000 in Q1, down sharply from $533,000 in the prior quarter. The allowance for credit losses, at 2.17% of total loans, reflects ample reserves to absorb potential shocks.

Capital and Dividend Strength: A Legacy of Reliability

Capital ratios are a standout feature. The common equity tier 1 ratio rose to 13.75%, and the total risk-based capital ratio hit 15.23%, both comfortably above “well-capitalized” thresholds. This positions the bank to navigate regulatory and economic turbulence with confidence.

Investors should note Merchants Bancorp’s 59-year streak of dividend increases, a rare feat earning it the “Dividend King” moniker. With a dividend yield of 2.1% and a payout ratio well within sustainable bounds, the bank balances shareholder returns with capital preservation.

Strategic Outlook: Navigating Agricultural Headwinds

CEO Kent Steinwert highlighted two critical risks: the inverted yield curve and challenges in the agricultural sector, which constitutes a material portion of the bank’s loan book. However, recent developments—such as retaliatory tariffs and a weakened U.S. dollar—could boost export opportunities for agricultural clients, potentially easing sector pressures.

The bank’s geographic focus on California, a state with strong economic diversification, further insulates it from overexposure to any single industry. Its 33 branches and 5-Star BauerFinancial rating (held for 35 years) reinforce its local market dominance and operational stability.

Conclusion: A Bank Built for Adversity

Merchants Bancorp’s Q1 results are a masterclass in balancing growth, prudence, and adaptability. With a 13.75% CET1 ratio, a 72% loan-to-deposit ratio, and negligible credit defaults, the bank is positioned to weather near-term risks while capitalizing on emerging opportunities. Its dividend history and recognition as a top performer (e.g., #2 best-performing bank in 2023 by Bank Director’s Magazine) further validate its institutional credibility.

For investors, FMCB offers a rare combination: a track record of compounding value, defensive characteristics in a volatile economy, and a dividend yield that outperforms many peers. While risks persist, the bank’s fortress balance sheet and disciplined strategy suggest it remains a reliable long-term holding. In an era of banking sector fragility, Merchants Bancorp stands as a pillar of resilience.