MBIN

Merchants Bancorp ($MBIN) Plunges 40% Despite Management Buying... Wells Fargo Warns of Capital Needs

09/18/2025 12:34

Merchants Bancorp ($MBIN) is sending mixed signals to investors. Despite consistent insider buying over the past year, shares have dropped nearly 40% from the $50s to the $30s. This divergence leaves investors facing a fundamental question: trust management or trust the market? Merchants Bancorp is an Indiana-based regional bank with approximately $1.5 billion market capitalization. Its core business focuses on commercial real estate lending and multi-family housing loans, having pursued aggressive growth strategies in recent years. However, this growth strategy appears to be creating current headwinds. The most notable aspect is the insider trading pattern. Starting with CEO Michael Dury's $6 million purchase at $44.63 in late July 2024, followed by additional buying at $38.80 in August. While Vice Chairman Randall Rogers and Chairman Michael Petrie sold $10 million and $1 million respectively during the same period, these appeared to be pre-planned sales. More significant was the concentrated buying by board members in November 2024 when shares fell to $25. Director Patrick O'Brien invested $2 million, joined by other directors buying at the $25 level. Management buying continued into 2025. CEO Dury made substantial purchases in April-May at $30s levels and again in July at $31s. CFO Sean Sievers has been consistently buying at $24-29 levels in August and September. These purchase amounts represent significant personal investments, suggesting genuine conviction signals. However, the market is telling a different story. Following Q2 2024 earnings in July, shares plunged 14.6% after the company recognized $3.5 million in loan charge-offs primarily in the multi-family portfolio. Non-performing loans rose from 1.22% to 1.30%, while allowance for credit losses increased by $5.3 million. In October, NINGI Research disclosed a short position, criticizing 'reckless expansion' and raising concerns about the commercial real estate loan portfolio. A bigger concern emerged when Wells Fargo identified Merchants Bancorp in November 2024 as among banks likely needing future capital raises. The analysis cited accumulated other comprehensive income (AOCI) issues and commercial real estate concerns as key factors. Indeed, the company filed a $500 million mixed shelf registration with the SEC in May 2025, preparing for potential capital raising. Earnings results have been mixed. Q4 2024 results exceeded expectations with $1.85 EPS versus $1.29 expected and 27.5% revenue growth. However, subsequent quarters disappointed. Q1 EPS of $1.04 declined significantly from $1.80 the prior year, while Q2 came in at $0.60 versus $1.12 expected. Revenue has shown a consistent declining trend. Key metrics investors should monitor include non-performing loan ratios and credit loss provisioning trends. If NPLs exceed 1.5%, additional downside pressure is likely despite management optimism. Conversely, if NPLs improve below 1.0% and credit loss provisioning stabilizes, it would validate management's judgment. Looking at scenarios, optimistically, commercial real estate market stabilization and rate cuts could improve loan quality, potentially driving shares back to $40-45 levels. The most likely base case sees continued uncertainty with trading in the $30-35 range. The risk scenario involves further commercial real estate deterioration causing significant losses or capital raising failure, potentially driving shares to the $20s. While consistent management buying is clearly a positive signal, fundamental improvement appears necessary for meaningful share recovery. In the current situation, waiting for actual metric improvement rather than relying solely on management confidence seems prudent.