Merchants' Servicing Valuations Lift Third-Quarter Profit

The Tip Desk · November 2, 2026 · 4 min read

Net income reached $105.2 million, or $2.06 a share, as servicing-rights and floor-derivative marks added $47.3 million.

Merchants Bancorp (MBIN), the Carmel, Indiana diversified bank holding company, reported third-quarter 2026 net income of $105.2 million, or $2.06 a share, up 92% from $54.7 million, or $0.97 a share, a year earlier. Sequential profit rose 34% from $78.3 million, or $1.48 a share, in the second quarter.

The company said the year-over-year increase was driven by a $37.8 million, or 88%, rise in noninterest income and a $33.3 million, or 34%, increase in net interest income after provision for credit losses, partially offset by an $18.4 million, or 186%, increase in the provision for income taxes and a $2.3 million, or 3%, increase in noninterest expense. Versus the second quarter, noninterest income rose $35.1 million, or 77%, to $80.8 million, while the tax provision increased $6.8 million, or 31%, and noninterest expense rose $6.3 million, or 9%.

Higher rates, the company said, pressured mortgage production and gain-on-sale revenue but generally supported servicing and derivative valuations. Loan servicing fees included a $28.2 million positive fair value adjustment to servicing rights — $5.0 million in Banking and $23.2 million in Multi-family Mortgage Banking — compared with a $6.0 million positive adjustment in the prior quarter. Other noninterest income included a $19.1 million positive fair value adjustment to floor derivatives in the Warehouse segment, versus a $1.9 million positive adjustment in the prior quarter. The company attributed the servicing-rights gain primarily to higher earnings on escrow and custodial balances and, to a lesser degree, slower expected prepayments.

Net interest income was $144.2 million, up $7.7 million, or 6%, from $136.5 million in the second quarter. Net interest margin expanded 2 bps to 2.83% from 2.81%, and the interest rate spread widened 1 bp to 2.44%. Average loan and loans-held-for-sale yields rose 14 bps to 6.40%, while average interest-earning deposit yields fell 86 bps to 4.63%. Average interest-bearing checking balances increased $1.5 billion, or 19%, to $9.4 billion, with the average rate up 9 bps to 3.52%, lifting interest expense.

The provision for credit losses was $12.0 million, up $2.8 million, or 31%, from $9.2 million, primarily due to higher specific reserves. Charge-offs were $3.9 million, with $0.2 million of recoveries, compared with $16.5 million of charge-offs and $4.8 million of recoveries in the second quarter.

Nonperforming loans declined $25.4 million, or 12%, to $180.3 million, or 1.47% of loans receivable, from $205.6 million, or 1.67%, at June 30, 2026, primarily due to loan payoffs and the transfer of one loan to other real estate owned. Criticized loans increased $15.4 million, or 3%, to $460.1 million, reversing the prior quarter’s $60.8 million, or 12%, decline. Substandard loans rose $48.8 million on migration within criticized classifications. Special-mention loans declined $33.4 million, or 16%, to $181.4 million. The allowance for credit losses on loans was $82.1 million.

Total deposits increased $787.5 million, or 6%, to $15.0 billion. Core deposits rose $1.4 billion, or 11%, to $14.3 billion and represented 95% of total deposits. Brokered deposits decreased $574.3 million, or 44%, to $723.5 million. Total assets were $20.9 billion, ending five consecutive quarters of new highs. Tangible book value per common share rose 4% to a record $41.64, the 31st consecutive quarterly high. Available liquidity was $13.0 billion, or 62% of total assets, with $6.3 billion of unused borrowing capacity. The total risk-based capital ratio was 13.3%.

On September 14, 2026, the company acquired The Loan Exchange for $13.9 million, recognizing about $11.1 million of goodwill, to expand single-family mortgage production and jumbo lending. Goodwill rose to $19.1 million from $8.0 million. The company said acquired operations are expected to result in elevated operating expenses and may be dilutive during the initial ramp-up. Noninterest expense of $79.5 million included a $5.7 million rise in salaries and employee benefits, including higher commissions on increased production. The efficiency ratio improved to 35.35% from 40.20% in the second quarter, reflecting the positive valuation adjustments in noninterest income.