Merchants Bank of Indiana revealed that it had fewer bad loans due to mortgage fraud in the most recent quarter.
The regional bank wrote off about $30 million in loans in the third quarter, citing declines in multifamily property valuations and ongoing investigations into borrowers suspected of mortgage fraud.
This marked an improvement from last quarter, when Merchants revealed it had written off $46.1 million in loans, making it one of the first banks to identify issues related to an ongoing investigation into commercial mortgage fraud.
Merchants announced its third quarter figures on Wednesday. They come at a time when regional banks are hoping to calm the market’s nerves. Share prices of some regional players fell after banks Zions Bancorp and Western Alliance earlier this month disclosed their exposure to tens of millions of dollars in bad loans in connection with an alleged fraud scheme.
Bank stocks have since recovered, with both Zions and Western Alliance reporting no other credit issues in their earnings reports last week.
But Merchants Bancorp, with about $20 billion in assets, has exposure to multiple borrowers under investigation or found guilty of mortgage fraud. In the most recent quarter, the bank said the write-offs affected nine relationships.
Notably, the bank has made loans to Moshe Silber and Aron Puretz, both of whom are currently in prison for their roles in unrelated mortgage fraud. Merchants recently revealed in court filings that it made seven loans to Silber and that the company owes $61 million on properties backing those loans. The bank also lent to other troubled borrowers, including the late Mendel Steiner and Tzadik Management.
Merchants’ third-quarter earnings results show both improvements and some lingering concerns about the loan portfolio.
On the upside, the bank reported a $31.0 million provision for loan losses for the third quarter, down 43 percent from the second quarter of 2025.
On the negative side, Merchants still had nearly $30 million in write-offs in the third quarter, compared to $2.1 million in the same period last year.
The bank also saw an increase in delinquent loans, which rose from $270 million in the previous quarter to $336.2 million in the third quarter. It alleged that the increase in delinquencies was primarily related to an undisclosed multifamily relationship.
Deciphering Merchants’ exposure to bad landlords is challenging as billions of dollars of loan securitizations and credit risk transfers have been completed. The transactions are intended to reduce the credit risk of Merchants.
But of the $336.2 million in delinquent loans, only $45.7 million is “partially protected under credit risk transfer transactions,” according to the bank. In other words, the majority of overdue loans have not been removed from the bank’s balance sheet.
“Asset quality trends improved, with lower commission costs and fewer criticized assets during the quarter,” said Michael Dunlap, president and COO of Merchants, in a statement announcing his earnings. “Combined with strong liquidity, core deposit growth and effective capital management, we are confident in our ability to deliver sustainable performance and capitalize on additional market opportunities.”
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