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Merchants Bancorp's Second Quarter Results Report

Merchants Bancorp, the parent company of Merchants Bank, revealed its financial performance for the second quarter of 2025, reporting a net income of $38.0 million. This figure is a significant decrease of $38.4 million, equating to a 50% drop, compared to the same quarter last year. Additionally, this result shows a decline of $20.3 million, or 35%, from the previous quarter, reflecting a challenging environment marked by increased provisions for credit losses and investigative issues relating to mortgage fraud.

In terms of diluted earnings per common share, Merchants Bancorp reported $0.60, which is a steep decline of 60% from $1.49 in Q2 2024, and down 35% when compared to the first quarter of 2025, which stood at $0.93. The substantial rise in the provision for credit losses totaled $43.1 million, or an increase of 432%, primarily triggered by estimated drops in multi-family property valuations following new appraisals and ongoing investigations into borrowers suspected of mortgage fraud.

Despite these challenges, Merchants Bancorp did witness an encouraging 13% year-over-year increase in tangible book value per share, which reached a record high of $35.42. This uptick was noted as particularly positive amid the broader struggles related to asset quality and fraud investigations. As of June 30, 2025, the company reported total assets of $19.1 billion, representing a 2% increase from March 31, 2025.

Furthermore, total loans receivable net of allowance for credit losses increased by $88.4 million, or 1%, compared to the prior quarter while core deposits also saw a robust increase of 7% over the same period. Core deposits reached $11.4 billion, marking a 22% rise from the end of 2024 and now making up 90% of total deposits, a notable achievement for the company since March 2022.

Executives Respond to Financial Performance

CEO Michael F. Petrie expressed cautious optimism regarding the bank's fundamentals, citing pledges to address asset quality challenges and enhance risk management strategies. He emphasized the importance of recovery actions taken in the recent quarter, which involved a 17% reduction in total delinquencies and a significant 58% drop in loans classified as special mention.

In a similar tone, President and COO Michael J. Dunlap articulated confidence in the company's strategic responses and operational adjustments aimed at fostering long-term stability and resilience. These strategies will address the ongoing issues associated with credit losses primarily arising from the multi-family mortgage segment, which has been heavily scrutinized due to fraud allegations impacting several lenders in the market.

Commitment to Tackling Credit Losses

Merchants Bancorp has been proactive in managing credit risk, setting aside an allowance for credit losses of $91.8 million at the close of Q2 2025, representing a 10% increase compared to the prior quarter. This provision includes specific reserves related to identified subordinated loans that were previously offered but have since been scrutinized due to higher risk profiles. Notably, the bank has seen an increase in charge-offs totaling $46.1 million during Q2, with these attributed mainly to the multi-family portfolio concerns.

Additionally, the company continues to explore avenues to optimize its loan sale and securitization processes, which have been vital in reducing credit risk exposure. The strategic execution of credit protection arrangements and active monitoring offer reassurance of a collateralized loan portfolio, despite prevailing market uncertainties.

Looking Ahead

While the second quarter presented numerous hurdles for Merchants Bancorp, the sustained growth in tangible book value and improved liquidity, highlighted by a cash reserve increase to $647.2 million, offers a positive backdrop for future operational decisions. With significant unused borrowing capacity of $5.0 billion and the reduction in delinquent loans, the organization remains poised to leverage its operational efficiencies to navigate challenges within the market.

Moving forward, Merchants Bancorp aims to enhance its risk management practices and ensure a stable growth trajectory. The executives underscored their commitment to rectifying asset quality issues and fostering a robust financial environment conducive to sustained profitability. The bank’s forward-looking strategies and resilient operational framework will be integral as they address forthcoming economic conditions and industry challenges.