Merchants Bancorp (MBIN)

Diversified bank holding company Merchants Bancorp (NASDAQCM:MBIN) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 14.4% year on year to $171.1 million. Its non-GAAP profit of $0.97 per share was 22.8% above analysts’ consensus estimates.

Company Overview

With a strategic focus on low-risk, government-backed lending programs, Merchants Bancorp (NASDAQCM:MBIN) is an Indiana-based bank holding company specializing in multi-family mortgage banking, mortgage warehousing, and traditional banking services.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Merchants Bancorp competes with regional and national banks offering similar services, including First Merchants Corporation (NASDAQ:FRME), Old National Bancorp (NASDAQ:ONB), and other specialized mortgage banking institutions like Walker & Dunlop (NYSE:WD) in the multi-family financing space.

From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions. Luckily, Merchants Bancorp’s revenue grew at an incredible 18.1% compounded annual growth rate over the last five years. Its growth beat the average banking company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Merchants Bancorp’s annualized revenue growth of 14.9% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Merchants Bancorp reported year-on-year revenue growth of 14.4%, and its $171.1 million of revenue exceeded Wall Street’s estimates by 3%.

Net interest income made up 73.4% of the company’s total revenue during the last five years, meaning lending operations are Merchants Bancorp’s largest source of revenue.

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by total revenue.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

Over the last five years, Merchants Bancorp’s efficiency ratio has increased by 13.6 percentage points, going from 27.3% to 43.5%. Said differently, the company’s expenses have increased at a faster rate than revenue, which usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

Merchants Bancorp’s efficiency ratio came in at 45.2% this quarter, falling short of analysts’ expectations by 241 basis points (100 basis points = 1 percentage point). This result was 4.2 percentage points worse than the same quarter last year.

For the next 12 months, Wall Street expects Merchants Bancorp to become less profitable as it anticipates an efficiency ratio of 45.1%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Merchants Bancorp’s EPS grew at a solid 6.6% compounded annual growth rate over the last five years. However, this performance was lower than its 18.1% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Merchants Bancorp, its two-year annual EPS declines of 8.4% mark a reversal from its (seemingly) healthy five-year trend. These shorter-term results weren’t ideal, but given it was successful in other measures of financial health, we’re hopeful Merchants Bancorp can return to earnings growth in the future.

In Q3, Merchants Bancorp reported adjusted EPS of $0.97, down from $1.17 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Merchants Bancorp’s full-year EPS of $4.35 to grow 3.2%.

Banks operate as balance sheet businesses, with profits generated through borrowing and lending activities. Valuations reflect this reality, emphasizing balance sheet strength and long-term book value compounding ability.

This explains why tangible book value per share (TBVPS) stands as the premier banking metric. TBVPS strips away questionable intangible assets, revealing concrete per-share net worth that investors can trust. Traditional metrics like EPS are helpful but face distortion from M&A activity and loan loss accounting rules.

Merchants Bancorp’s TBVPS grew at an incredible 24.4% annual clip over the last five years. TBVPS growth has recently decelerated to 18.6% annual growth over the last two years (from $25.82 to $36.31 per share).

Over the next 12 months, Consensus estimates call for Merchants Bancorp’s TBVPS to grow by 11% to $40.31, solid growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Merchants Bancorp has averaged a Tier 1 capital ratio of 8.9%, which is considered unsafe in the event of a black swan or if macro or market conditions suddenly deteriorate. For this reason alone, we will be crossing it off our shopping list.

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Merchants Bancorp has averaged an ROE of 17.7%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This is a bright spot for Merchants Bancorp.

It was good to see Merchants Bancorp beat analysts’ EPS expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. On the other hand, its net interest income slightly missed. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 2% to $32.38 immediately after reporting.

Updated: December 3, 2025 at 11:48 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Merchants Bancorp, you should also grasp the company’s longer-term business quality and valuation.

Merchants Bancorp’s business quality ultimately falls short of our standards. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its worsening efficiency ratio shows the business has become less productive. And while the company’s net interest income growth was exceptional over the last five years, the downside is its estimated net interest income for the next 12 months are weak.

Merchants Bancorp’s P/B ratio based on the next 12 months is 0.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $40 on the company (compared to the current share price of $34.46).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.