Merchants Bancorp (MBIN)

Diversified bank holding company Merchants Bancorp (NASDAQCM:MBIN) reported Q4 CY2025 results beating Wall Street’s revenue expectations, but sales fell by 4.4% year on year to $185.3 million. Its GAAP profit of $1.28 per share was 32% 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. Over the last five years, Merchants Bancorp grew its revenue at an impressive 14.1% compounded annual growth rate. Its growth beat the average banking company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Merchants Bancorp’s annualized revenue growth of 10% over the last two years is below its five-year trend, but we still think the results were respectable. 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’s revenue fell by 4.4% year on year to $185.3 million but beat Wall Street’s estimates by 7.8%.

Net interest income made up 74% of the company’s total revenue during the last five years, meaning lending operations are Merchants Bancorp’s largest source of revenue.

Net interest income commands greater market attention due to its reliability and consistency, whereas non-interest income is often seen as lower-quality revenue that lacks the same dependable characteristics.

Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.

Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.

Over the last five years, Merchants Bancorp’s efficiency ratio has increased by 14 percentage points, going from 27.3% to 43.9%. 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 45.1% this quarter, beating analysts’ expectations by 71 basis points (100 basis points = 1 percentage point).

For the next 12 months, Wall Street expects Merchants Bancorp to maintain its trailing one-year ratio with a projection of 44.2%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Merchants Bancorp’s flat EPS over the last five years was below its 14.1% annualized revenue growth. However, its efficiency ratio actually improved during this time, telling us that non-fundamental factors such as taxes affected its ultimate earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Merchants Bancorp, its two-year annual EPS declines of 18.1% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.

In Q4, Merchants Bancorp reported EPS of $1.28, down from $1.85 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 $3.78 to grow 31.3%.

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.

When analyzing banks, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value by removing intangible assets of debatable liquidation worth. EPS can become murky due to acquisition impacts or accounting flexibility around loan provisions, and TBVPS resists financial engineering manipulation.

Merchants Bancorp’s TBVPS grew at an incredible 22.8% annual clip over the last five years. TBVPS growth has recently decelerated to 17% annual growth over the last two years (from $27.40 to $37.51 per share).

Over the next 12 months, Consensus estimates call for Merchants Bancorp’s TBVPS to grow by 11.2% to $41.71, mediocre 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 9.2%, 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, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Merchants Bancorp has averaged an ROE of 16.8%, excellent 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 excited its net interest income outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock remained flat at $34.98 immediately following the results.

Updated: January 28, 2026 at 11:42 PM EST

Before investing in or passing on Merchants Bancorp, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Merchants Bancorp’s business quality ultimately falls short of our standards. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its worsening efficiency ratio shows the business has become less productive.

Merchants Bancorp’s P/B ratio based on the next 12 months is 0.8x. While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $41.33 on the company (compared to the current share price of $37.21).