Regulatory relief, but credit still bites
- The FDIC and DFI ended the bank's 2025 MOU in Q1 2026, removing a major regulatory overhang.
- Mortgage Warehousing remains the growth engine, with Q1 2026 funded volume up 65% year over year.
- Credit is not fixed yet: nonperforming loans rose to 2.16% of total loans at March 31, 2026.
- The bank took $23.0 million of Q1 2026 charge-offs, mainly tied to healthcare and multi-family loans.
- Finn's low financial health score means the stock still depends on a cleaner loan book.
The overhang eased, the loan cleanup did not
Merchants Bancorp had one clear win in Q1 2026. Regulators released the bank from its mid-2025 Memorandum of Understanding, or MOU. That matters because the MOU had limits tied to capital, asset concentrations, and risk controls.
The best part of the business is still Mortgage Warehousing. This unit gives short-term funding to mortgage lenders until those loans are sold to investors. Q1 2026 funded volume grew 65% from a year earlier, faster than the 43% industry increase cited by the company.
The problem is credit. Nonperforming loans, meaning loans not paying as agreed, rose to 2.16% of total loans at March 31, 2026 from 1.79% at year-end 2025. The softer sign is that criticized loans, meaning weaker loans watched more closely by the bank, fell 31% from March 31, 2025.
The stock case is balanced. Bulls can point to the MOU removal and strong warehouse share gains. Bears can point to $23.0 million of Q1 2026 charge-offs and the still open questions around multi-family loans, healthcare loans, and a mortgage fraud investigation.
A mortgage bank inside a bank
Merchants makes money in two main ways. First, it originates fixed-rate loans that often meet government program standards, then sells many of them. That creates gain-on-sale income and servicing fees.
Second, it keeps adjustable-rate loans on its balance sheet. Those loans produce net interest income, which is the spread between what borrowers pay and what the bank pays for deposits and borrowings.
The funding base comes from mortgage custodial deposits, municipal deposits, retail and commercial deposits, brokered deposits, and short-term borrowings. That gives Merchants several funding pipes, but it also means higher rates and deposit pressure can hit margins.
The model works best when mortgage activity is healthy, loan sales stay open, and credit losses stay low. It breaks when property values fall, borrowers cannot refinance, or warehouse customers pull back.
Where the loans come from
Mortgage Warehousing
This unit funds mortgage lenders for short periods, usually until loans are sold to investors. It was the standout in 2025 and Q1 2026, with funded volume far ahead of the industry.
Multi-family Mortgage Banking
This business finances and services multi-family housing and healthcare facilities, often through government-backed channels. It also includes low-income housing tax credit syndication and debt funds.
Loan servicing
Servicing means Merchants collects payments and handles loan administration after loans are made. Fees can be steady, but the 2025 segment result was hurt by lower loan servicing fees.
Banking portfolio loans
The Banking segment holds loans such as multi-family, healthcare, residential mortgage, agricultural, and SBA loans. This is the largest asset base, but it is also where recent credit costs have been concentrated.
Community banking deposits and services
Merchants gathers deposits from retail, commercial, municipal, mortgage, and brokered channels. Deposits help fund lending, but their cost can rise when rates stay high.
Banking is biggest, warehousing is fastest
Segment mix uses year-end 2025 segment assets from the 2025 Form 10-K: Banking at $11.3 billion, Mortgage Warehousing at $7.3 billion, and Multi-family Mortgage Banking at $526.4 million. The mix is asset-based, not revenue-based, so it shows balance sheet weight rather than fee mix.
What could still go wrong
Nonperforming loans stay high
High impact · Medium oddsThe NPL ratio rose to 2.16% at March 31, 2026 from 1.79% at year-end 2025. That keeps pressure on earnings because the bank earns less interest on problem loans and may need more reserves.
Charge-offs keep draining capital
High impact · Medium oddsMerchants charged off $23.0 million in Q1 2026 across seven relationships, mainly in healthcare and multi-family loans. If this pace continues, the credit cleanup could keep hurting Banking segment profit and capital.
Fraud investigation costs more
High impact · Medium oddsManagement has tied part of the credit stress to an ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. The key unknown is how much exposure remains and whether more losses appear.
Mortgage warehouse growth slows
Medium impact · Medium oddsMortgage Warehousing is the main growth engine. If mortgage volumes weaken or competitors price more aggressively, the segment could lose momentum after Q1 2026 funded volume grew 65% year over year.
Rates and funding costs squeeze spreads
Medium impact · Medium oddsMerchants funds loans with a mix of deposits and short-term borrowings. If funding costs rise faster than loan yields, net interest income can fall even if loan balances grow.
In one breath
What does Merchants Bancorp do?
Merchants Bancorp is a bank holding company based in Carmel, Indiana. It focuses on mortgage warehousing, multi-family and healthcare lending, mortgage banking, SBA lending, and community banking.
Why did the MOU matter for MBIN?
The MOU was a regulatory agreement with the FDIC and DFI that required certain risk and capital actions. Its termination in Q1 2026 removed a major overhang, but it did not erase the bank's credit problems.
What is the biggest risk for MBIN stock?
The biggest risk is credit quality. Nonperforming loans rose to 2.16% of total loans in Q1 2026, and the bank is still taking material charge-offs in healthcare and multi-family loans.
Why is Mortgage Warehousing important?
It is the fastest-growing segment and a major profit driver. In Q1 2026, funded volume grew 65% year over year, which showed continued market share gains.