Merchants Bancorp

10/28/2024 | Press release | Distributed by Public on 10/28/2024 14:11

Merchants Bancorp Reports Third Quarter 2024 Results

  • Third quarter 2024 net income of $61.3 million, decreased 25% compared to third quarter of 2023 and decreased 20% compared to the second quarter 2024, reflecting unfavorable fair market value adjustments to derivatives and servicing rights, and an increase in specific reserves on loans as part of the allowance for credit losses.
  • Third quarter 2024 diluted earnings per common share of $1.17 decreased 30% compared to the third quarter of 2023 and decreased 21% compared to the second quarter of 2024.
  • Unfavorable fair market value adjustments to interest rate floor derivatives on loans and servicing rights of $7.7 million and $6.7 million, respectively, negatively impacted results during the third quarter of 2024 by approximately $0.24 per diluted common share.
  • Total assets of $18.7 billion surpassed any level previously reported by the Company, increasing 2% compared to June 30, 2024, and increasing 10% compared to December 31, 2023.
  • Tangible book value per common share reached a record-high of $32.38 and increased 25% compared to $25.82 in the third quarter of 2023 and increased 4% compared to $31.27 in the second quarter of 2024.
  • As of September 30, 2024, the Company had $5.1 billion in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window, representing 27% of total assets.
  • The Company's most liquid assets are in unrestricted cash, short-term investments, including interest-earning demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse repurchase agreements included in loans receivable. Taken together, with unused borrowing capacity, these totaled $11.1 billion, or 59%, of the $18.7 billion in total assets as of September 30, 2024.
  • Loans receivable of $10.3 billion, net of allowance for credit losses on loans, decreased $671.3 million, or 6%, compared to June 30, 2024, and increased $134.1 million, or 1%, compared to December 31, 2023.
  • In September 2024 the Company sold $629 million of healthcare bridge loans into a private securitization via a real estate mortgage investment conduit (REMIC). As part of the transaction, the Company purchased a $535 million senior investment security that is classified as held to maturity and carries an 80% lower capital requirement than bridge loans.

CARMEL, Ind., Oct. 28, 2024/PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank, today reported third quarter 2024 net income of $61.3 million, or diluted earnings per common share of $1.17. This compared to $81.5 million, or diluted earnings per common share of $1.68 in the third quarter of 2023, and compared to $76.4 million, or diluted earnings per common share of $1.49 in the second quarter of 2024.

"Despite a few isolated credit issues and unfavorable fair market value adjustments related to derivatives and servicing rights, our quarterly results underscore the robust, underlying strength of our core businesses. We surpassed several previous records, reaching $18.7 billion in assets and increasing our tangible book value to $32.38, a 25% rise from the prior year. The declining interest rate environment also positions us well to capitalize on promising growth opportunities across various aspects of our operations," said Michael F. Petrie, Chairman and CEO of Merchants.

Michael J. Dunlap, President and Chief Operating Officer of Merchants, added, "We remain at the forefront of effective capital management, successfully executing another credit risk transfer transaction this quarter through the securitization of $629 million in healthcare loans. This strategy not only protects us from potential credit losses, but also enables us to efficiently deploy capital for our future growth initiatives."

Net income of $61.3 million for the third quarter 2024 decreased by $20.2 million, or 25%, compared to the third quarter of 2023, primarily driven by:

  • a $15.4 million, or 13%, increase in net interest income,
  • a $6.0 million, or 56%, increase in gain on sale of loans,
  • a $5.0 million, or 20%, decrease in provision for income taxes,
  • an $18.9 million, or 109%, decrease in loan servicing fees, primarily due to negative fair market value adjustments to servicing rights,
  • an $18.4 million, or 43%, increase in noninterest expense, primarily driven by salaries and employee benefits that reflected higher commissions on higher production volume, increases in deposit insurance expenses, and ongoing premium expense associated with the credit default swap,
  • a $5.6 million decrease in other income, reflecting negative fair market value adjustments to derivatives, and
  • a $2.9 million, or 72%, increase in the provision for credit losses primarily related to increased specific reserves.

Net income of $61.3 million for the third quarter 2024 decreased by $15.1 million, or 20%, compared to the second quarter of 2024, primarily driven by:

  • a $5.6 million, or 50%, increase in gain on sale of loans,
  • a $4.7 million, or 4%, increase in net interest income,
  • a $3.1 million, or 31%, decrease in the provision for credit losses,
  • a $2.7 million, or 12%, decrease in provision for income taxes,
  • a $12.3 million, or 114%, decrease in loan servicing fees, primarily due to negative fair market value adjustments to servicing rights,
  • a $10.9 million, or 22%, increase in noninterest expense, primarily driven by salaries and employee benefits that reflected higher commissions on higher production volume and increases in deposit insurance expenses, and
  • a $6.5 million decrease in other income, reflecting negative fair market value adjustments to derivatives.

Total Assets
Total assets of $18.7 billion at September 30, 2024 increased $440.6 million, or 2%, compared to June 30, 2024, and increased $1.7 billion, or 10%, compared to December 31, 2023. The increase compared to December 31, 2023 was primarily due to growth in loans held for sale and in the warehouse, and multi-family loan portfolios. There was also an increase in securities held to maturity compared to December 31, 2023, primarily due to the purchase of a security representing healthcare loans sold into a securitization in the third quarter of 2024 that was offset by a decline in loans in the healthcare portfolio that were sold into the securitization.

Return on average assets was 1.34% for the third quarter of 2024 compared to 2.03% for the third quarter of 2023 and 1.72% for the second quarter of 2024.

Asset Quality
The allowance for credit losses on loans of $84.5 million, as of September 30, 2024, increased $3.5 million, or 4%, compared to June 30, 2024, and increased $12.8 million, or 18%, compared to December 31, 2023. The increase compared to June 30, 2024 was primarily due to an $8.0 million increase in specific reserves, primarily related to two customers, that was partially offset by lower loan balances due to the securitization of healthcare loans, which reduced the allowance by approximately $4.4 million.

The $84.5 million allowance for credit losses on loans as of September 30, 2024, compared to the net charge-offs of $6.7 million over the last twelve months ended September 30, 2024, could absorb 13 years of losses if recent loss levels continued into the future.

The Company recorded charge-offs for three customers, primarily in the multi-family loan portfolio, for $2.1 million, and recorded $7,000 of recoveries during the third quarter 2024. This compares to $21,000 in charge-offs and $31,000 in recoveries during the third quarter of 2023 and to $3.5 million in charge-offs and $15,000 of recoveries in the second quarter of 2024.

As of September 30, 2024, non-performing loans were $210.9 million, or 2.04% of gross loans receivable, compared to $143.5 million, or 1.30%, as of June 30, 2024, and $82.0 million, or 0.80%, as of December 31, 2023. The increase in non-performing loans compared to both periods was primarily driven by multi-family and healthcare customers with delinquent payments on variable rate loans that have required higher payments largely due to elevated interest rates. The increase was also attributable to the financial deterioration of a few sponsors. Credit quality is expected to improve with recent reductions in interest rates. After six months of consecutive loan performance, the loans are placed back on accrual status.

All substandard loans as of September 30, 2024 have been evaluated for impairment and these loans have specific reserves of $19.2 million, including $8.0 million added during the third quarter of 2024. Although there has been an increase in adversely classified loans, asset values remain strong overall and loans are well-collateralized.

In addition to elevated reserves for credit losses on loans, the Company has been making additional efforts to minimize its credit risk through loan sale and securitization activities since 2019. In April 2023 and March 2024, the Company strategically entered into credit protection arrangements through a credit linked note and credit default swap, respectively, for $1.7 billion in loans to reduce our risk of losses with incremental coverage of approximately 14% on those covered loans. The balance of loans in those covered portfolios as of September 30, 2024 was $1.3 billion.

Securities Available for Sale
Total securities available for sale of $953.1 million as of September 30, 2024 decreased $64.0 million, or 6%, compared to June 30, 2024, and decreased $160.6 million, or 14%, compared to December 31, 2023. The decreases were primarily due to maturities, sales, and repayments, as well as fair value adjustments that were partially offset by purchases. As of September 30, 2024, Accumulated Other Comprehensive Income ("AOCI") of $0.1 million, related to securities available for sale, increased $0.6 million, or 119%, compared to June 30, 2024, and increased $2.6 million, or 104%, compared to December 31, 2023.

Securities Held to Maturity
Total securities held to maturity of $1.8 billion as of September 30, 2024 increased $463.9 million, or 36%, compared to June 30, 2024, and increased $550.8 million, or 46%, compared to December 31, 2023. The increases were primarily due to purchases of senior investment securities backed by residential and healthcare loans purchased as part of credit risk transfer securitization transactions originated by the Company.

Total Deposits
Total deposits of $12.9 billion at September 30, 2024 decreased $2.0 billion, or 14%, compared to June 30, 2024, and decreased $1.2 billion, or 8%, compared to December 31, 2023. The change compared to both periods was driven by decreases in certificates of deposit accounts. The changes reflected decreases in brokered deposits that were partially offset by growth in core deposits.

Core deposits of $10.1 billion at September 30, 2024 increased $1.3 billion, or 15%, from June 30, 2024 and increased $2.0 billion, or 25%, from December 31, 2023. Core deposits represented 78% of total deposits at September 30, 2024, 59% of total deposits at June 30, 2024, and 58% of total deposits at December 31, 2023.

Total brokered deposits of $2.8 billion at September 30, 2024 decreased $3.3 billion, or 54%, from June 30, 2024 and decreased $3.2 billion, or 53%, from December 31, 2023. As of September 30, 2024, brokered certificates of deposit had a weighted average remaining duration of 56 days.

Liquidity
Cash balances of $601.9 million as of September 30, 2024 increased by $61.0 million compared to June 30, 2024 and increased by $17.5 million compared to December 31, 2023. The Company continues to have significant borrowing capacity, with unused lines of credit totaling $5.1 billion as of September 30, 2024 compared to $7.0 billion at June 30, 2024 and $6.0 billion at December 31, 2023. Furthermore, its $3.2 billion line of credit with the Federal Reserve Bank of Chicago alone could fund 120% of its uninsured deposits, which represented approximately 20% of total deposits as of September 30, 2024.

This liquidity enhances the ability to effectively manage interest expense and asset levels in the future. Additionally, the Company's business model is designed to continuously sell or securitize a significant portion of its loans, which provides flexibility in managing its liquidity.

Comparison of Operating Results for the Three Months Ended
September 30, 2024 and 2023

Net Interest Income of $132.8 million increased $15.4 million, or 13%, compared to $117.4 million, primarily reflecting an increase in average balances on loans and loans held for sale, which were partially offset by higher average balances on borrowings.

  • Net interest margin of 2.99% remained unchanged. The margin was negatively impacted by 6 basis points in the third quarter of 2024 from the net reversal of $2.9 million in accrued interest income associated with the movement of loans into nonaccrual status.
  • Interest rate spread of 2.43% decreased 1 basis point compared to 2.44%.

Interest Income of $338.9 million increased $42.3 million, or 14%, primarily reflecting an increase in average balances of loans and loans held for sale, as well as increased average yields and balances on securities available for sale.

  • Average balances of $14.6 billion for loans and loans held for sale increased 9% compared to $13.4 billion.
  • Average yields on securities available for sale of 5.84% increased 210 basis points compared to 3.74%.
  • Average balances of $1.0 billion for securities available for sale increased $354.6 million, or 54%, compared to $656.6 million.

Interest Expense of $206.1 million increased $26.9 million, or 15%, compared to $179.2 million. The increase reflected higher average balances on borrowings and interest-bearing checking accounts, partially offset by lower average rates on borrowings and lower average balances on certificates of deposit.

  • Average balances of $2.5 billion for borrowings increased $1.8 billion, or 254%, compared to $711.9 million.
  • Average balances of $5.3 billion for interest-bearing checking increased 9% compared to $4.9 billion.
  • Average interest rates of 6.39% for borrowings decreased 271 basis points compared to 9.10%.
  • Average interest rates of 5.47% for certificates of deposit increased 13 basis points compared to 5.34%.

Noninterest Income of $16.7 million decreased $19.3 million, or 54%, compared to $36.1 million, primarily due to a $18.9 million, or 109%, decrease in net loan servicing fees and a $5.6 million, or 152%, decrease in other income, partially offset by a $6.0 million, or 56%, increase in gain on sale of loans.

  • Loan servicing fees included a $6.7 million negative fair market value adjustment to servicing rights, with a $1.6 million negative adjustment in the Banking segment and a $5.1 million negative adjustment in the Multi-family Mortgage Banking segment. This compared to a $11.6 million positive fair market value adjustment to servicing rights in the prior period with a $1.2 million positive adjustment in the Banking segment and a $10.4 million positive adjustment in the Multi-family Mortgage Banking segment. The value of servicing rights generally increases in rising interest rate environments and declines in falling interest rate environments due to expected prepayments and earning rates on escrow deposits.
  • Other income included a $7.7 million negative fair market value adjustment to derivatives that didn't occur in the prior comparative period.
  • Gain on sale of loans increased $6.0 million, reflecting higher volume in the multi-family loan portfolio.

Noninterest Expense of $61.3 million increased $18.4 million, or 43%, compared to $42.9 million, primarily due to increases in salaries and employee benefits that reflected higher commissions on higher production volume, as well as a $5.4 million, or 152%, increase in deposit insurance expenses. The higher noninterest expense also reflected a $3.4 million increase in other expenses primarily associated with ongoing premium expense for the credit default swap that was executed in March 2024.

  • The efficiency ratio of 41.00% increased 1,303 basis points compared to 27.97%.

Comparison of Operating Results for the Three Months Ended
September 30, 2024 and June 30, 2024

Net Interest Income of $132.8 million increased $4.7 million, or 4%, compared to $128.1 million, primarily due to higher average balances on borrowings at lower average interest rates that were partially offset by lower average balances on certificates of deposit at higher average interest rates. Higher average balances on loans and loans held for sale also contributed to the higher net interest income.

  • Net interest margin of 2.99% remain unchanged. The margin was negatively impacted by 6 basis points in the third quarter of 2024 from the net reversal of $2.9 million in accrued interest income associated with the movement of loans into nonaccrual status. This compared to 6 basis points, or $2.5 million in accrued interest income in the second quarter of 2024.
  • Interest rate spread of 2.43% decreased 2 basis points compared to 2.45%.

Interest Income of $338.9 million increased $10.7 million, or 3%, reflecting an increase in average balances on loans and loans held for sale and securities held to maturity, as well as increased average yields in interest earning deposits and other interest or dividends.

  • Average balances of $14.6 billion for loans and loans held for sale increased 2% compared to $14.3 billion.
  • Average balances of $1.3 billion for securities held to maturity increased 11% compared to $1.2 billion.
  • Average yields on interest earning deposits and other interest or dividends of 6.30% increased 59 basis points compared to 5.71%.

Interest Expense of $206.1 million increased 3% compared to $200.2 million. The increase was primarily driven by higher average balances on borrowings at lower average rates, as well as higher average balances of interest-bearing checking accounts. These were partially offset by lower average balances on certificates of deposits.

  • Average balances of $2.5 billion for borrowings increased $1.5 billion, or 144%, compared to $1.0 billion.
  • Average interest rates of 6.39% for borrowings decreased 161 basis points compared to 8.00%.
  • Average balances of $5.3 billion for interest-bearing checking accounts increased $363.8 million, or 7%, compared to $4.9 billion.
  • Average balances of $5.0 billion for certificate of deposit accounts decreased $1.5 billion, or 23%, compared to $6.5 billion.

Noninterest Income of $16.7 million decreased 47%, compared $31.4 million, primarily due to a $12.3 million, or 114%, decrease in net loan servicing fees, a $6.5 million, or 142%, decrease in other income that was partially offset by an increase of $5.6 million in gain on sale of loans.

  • Loan servicing fees included a $6.7 million negative fair market value adjustment to servicing rights, with a $1.6 million negative adjustment in the Banking segment and a $5.1 million negative adjustment in the Multi-family Mortgage Banking segment. This compared to a $5.1 million positive fair market value adjustment to servicing rights in the prior period, with a $0.6 million positive adjustment in the Banking segment and a $4.5 million positive adjustment in the Multi-family Mortgage Banking segment. The value of servicing rights generally increases in rising interest rate environments and declines in falling interest rate environments due to expected prepayments and earning rates on escrow deposits.
  • Other income included a $7.7 million negative fair market value adjustment to derivatives compared to a $0.2 million positive fair market value adjustment to derivatives in the second quarter of 2024.
  • Gain on sale of loans increased $5.6 million reflecting higher volume in the multi-family loan portfolio.

Noninterest Expense of $61.3 million increased $10.9 million, or 22%, compared to $50.4 million, primarily driven by a $6.8 million, or 24%, increase in salaries and employee benefits reflecting higher commissions on higher production volume, and a $3.4 million increase in deposit insurance expenses.

  • The efficiency ratio of 41.00% increased 941 basis points compared to 31.59%.

About Merchants Bancorp
Ranked as a top performing U.S. public bank by S&P Global Market Intelligence, Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple segments, including Multi-family Mortgage Banking that primarily offers multi-family housing and healthcare facility financing and servicing (through this segment it also serves as a syndicator of low-income housing tax credit and debt funds); Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers retail and correspondent residential mortgage banking, agricultural lending, and traditional community banking. Merchants Bancorp, with $18.7 billion in assets and $12.9 billion in deposits as of September 30, 2024, conducts its business primarily through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp., Merchants Capital Investments, LLC, Merchants Capital Servicing, LLC, Merchants Asset Management, LLC, and Merchants Mortgage, a division of Merchants Bank of Indiana. For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbancorp.com.

Forward-Looking Statements
 This press release contains forward-looking statements which reflect management's current views with respect to, among other things, future events and financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, management cautions that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated in these forward-looking statements, including the impacts of factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission. Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

September 30,

June 30,

March 31,

December 31,

September 30,

2024

2024

2024

2023

2023

Assets

Cash and due from banks

$ 12,214

$ 10,242

$ 17,924

$ 15,592

$ 10,633

Interest-earning demand accounts

589,692

530,640

490,831

568,830

396,605

Cash and cash equivalents

601,906

540,882

508,755

584,422

407,238

Securities purchased under agreements to resell

3,279

3,304

3,329

3,349

3,385

Mortgage loans in process of securitization

430,966

209,244

142,629

110,599

476,047

Securities available for sale ($682,975, $682,774, $700,640 and $722,497 utilizing fair value option at September 30, 2024, June 30, 2024, March 31, 2024 and December 31, 2023)

953,063

1,017,019

1,061,288

1,113,687

624,586

Securities held to maturity ($1,756,203, $1,291,960, $1,176,178, $1,203,535 and $1,010,745 at fair value, respectively)

1,755,047

1,291,110

1,175,167

1,204,217

1,012,801

Federal Home Loan Bank (FHLB) stock and other equity securities

184,050

67,499

64,215

48,578

48,219

Loans held for sale (includes $91,084, $102,873, $84,513, $86,663 and $90,875 at fair value, respectively)

3,808,234

3,483,076

3,503,131

3,144,756

3,477,036

Loans receivable, net of allowance for credit losses on loans of $84,549, $81,028, $75,712, $71,752 and $66,864, respectively

10,261,890

10,933,189

10,690,513

10,127,801

9,910,681

Premises and equipment, net

53,161

46,833

42,450

42,342

36,730

Servicing rights

177,327

178,776

172,200

158,457

162,141

Interest receivable

86,612

90,360

90,303

91,346

78,401

Goodwill

8,014

8,014

8,014

15,845

15,845

Other assets and receivables

329,427

343,116

360,582

307,117

242,126

Total assets

$ 18,652,976

$ 18,212,422

$ 17,822,576

$ 16,952,516

$ 16,495,236

Liabilities and Shareholders' Equity

Liabilities

Deposits

Noninterest-bearing

$ 311,386

$ 383,260

$ 319,872

$ 520,070

$ 287,846

Interest-bearing

12,580,501

14,533,807

13,655,789

13,541,390

12,719,492

Total deposits

12,891,887

14,917,067

13,975,661

14,061,460

13,007,338

Borrowings

3,568,721

1,159,206

1,835,985

964,127

1,654,075

Deferred and current tax liabilities, net

19,530

25,098

43,935

19,923

18,006

Other liabilities

233,731

222,904

190,527

205,922

183,102

Total liabilities

16,713,869

16,324,275

16,046,108

15,251,432

14,862,521

Commitments and Contingencies

Shareholders' Equity

Common stock, without par value

Authorized - 75,000,000 shares

Issued and outstanding - 45,764,023 shares, 45,757,567 shares, 43,354,718 shares, 43,242,928 shares and 43,240,212 shares

239,448

238,492

139,950

140,365

139,609

Preferred stock, without par value - 5,000,000 total shares authorized

7% Series A Preferred stock - $25 per share liquidation preference

Authorized - no shares at September 30, 2024 or June 30, 2024 and 3,500,000 shares at March 31, 2024 and all prior periods presented

Issued and outstanding - no shares at September 30, 2024 or June 30, 2024 and 2,081,800 shares at March 31, 2024 and all prior periods presented

-

-

50,221

50,221

50,221

6% Series B Preferred stock - $1,000 per share liquidation preference

Authorized - 125,000 shares

Issued and outstanding - 125,000 shares (equivalent to 5,000,000 depositary shares)

120,844

120,844

120,844

120,844

120,844

6% Series C Preferred stock - $1,000 per share liquidation preference

Authorized - 200,000 shares

Issued and outstanding - 196,181 shares (equivalent to 7,847,233 depositary shares)

191,084

191,084

191,084

191,084

191,084

8.25% Series D Preferred stock - $1,000 per share liquidation preference

Authorized - 300,000 shares

Issued and outstanding - 142,500 shares (equivalent to 5,700,000 depositary shares)

137,459

137,459

137,459

137,459

137,459

Retained earnings

1,250,176

1,200,778

1,138,083

1,063,599

998,252

Accumulated other comprehensive income (loss)

96

(510)

(1,173)

(2,488)

(4,754)

Total shareholders' equity

1,939,107

1,888,147

1,776,468

1,701,084

1,632,715

Total liabilities and shareholders' equity

$ 18,652,976

$ 18,212,422

$ 17,822,576

$ 16,952,516

$ 16,495,236

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)

Three Months Ended

Change

September 30,

June 30,

September 30,

3Q24

3Q24

2024

2024

2023

vs. 2Q24

vs. 3Q23

Interest Income

Loans

$

290,259

$

284,421

$

266,561

2 %

9 %

Mortgage loans in process of securitization

4,062

3,044

2,583

33 %

57 %

Investment securities:

Available for sale

14,855

14,784

6,182

-

140 %

Held to maturity

22,081

19,799

17,427

12 %

27 %

FHLB stock and other equity securities (dividends)

3,128

1,277

572

145 %

447 %

Other

4,543

4,948

3,351

-8 %

36 %

Total interest income

338,928

328,273

296,676

3 %

14 %

Interest Expense

Deposits

165,675

179,651

162,906

-8 %

2 %

Borrowed funds

40,432

20,503

16,334

97 %

148 %

Total interest expense

206,107

200,154

179,240

3 %

15 %

Net Interest Income

132,821

128,119

117,436

4 %

13 %

Provision for credit losses

6,898

9,965

4,014

-31 %

72 %

Net Interest Income After Provision for Credit Losses

125,923

118,154

113,422

7 %

11 %

Noninterest Income

Gain on sale of loans

16,731

11,168

10,758

50 %

56 %

Loan servicing fees, net

(1,509)

10,827

17,384

-114 %

-109 %

Mortgage warehouse fees

1,620

1,524

1,858

6 %

-13 %

Syndication and asset management fees

1,834

3,233

2,368

-43 %

-23 %

Other income

(1,934)

4,599

3,700

-142 %

-152 %

Total noninterest income

16,742

31,351

36,068

-47 %

-54 %

Noninterest Expense

Salaries and employee benefits

35,218

28,373

27,052

24 %

30 %

Loan expense

1,114

993

1,038

12 %

7 %

Occupancy and equipment

2,231

2,239

2,196

-

2 %

Professional fees

3,439

3,556

2,555

-3 %

35 %

Deposit insurance expense

8,981

5,579

3,568

61 %

152 %

Technology expense

2,068

1,859

1,609

11 %

29 %

Other expense

8,267

7,781

4,912

6 %

68 %

Total noninterest expense

61,318

50,380

42,930

22 %

43 %

Income Before Income Taxes

81,347

99,125

106,560

-18 %

-24 %

Provision for income taxes

20,074

22,732

25,056

-12 %

-20 %

Net Income

$

61,273

$

76,393

$

81,504

-20 %

-25 %

Dividends on preferred stock

(7,757)

(7,757)

(8,668)

-

-11 %

Impact of preferred stock redemption

-

(1,823)

-

100 %

-

Net Income Available to Common Shareholders

$

53,516

$

66,813

$

72,836

-20 %

-27 %

Basic Earnings Per Share

$

1.17

$

1.50

$

1.68

-22 %

-30 %

Diluted Earnings Per Share

$

1.17

$

1.49

$

1.68

-21 %

-30 %

Weighted-Average Shares Outstanding

Basic

45,759,667

44,569,345

43,238,724

Diluted

45,910,052

44,698,324

43,351,208

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)

Nine Months Ended

September 30,

September 30,

2024

2023

Change

Interest Income

Loans

$

846,678

$

684,743

24 %

Mortgage loans in process of securitization

8,826

7,358

20 %

Investment securities:

Available for sale

44,027

14,012

214 %

Held to maturity

62,402

50,492

24 %

FHLB stock and other equity securities (dividends)

5,249

1,470

257 %

Other

14,192

7,964

78 %

Total interest income

981,374

766,039

28 %

Interest Expense

Deposits

516,348

405,149

27 %

Borrowed funds

77,030

37,144

107 %

Total interest expense

593,378

442,293

34 %

Net Interest Income

387,996

323,746

20 %

Provision for credit losses

21,589

33,484

-36 %

Net Interest Income After Provision for Credit Losses

366,407

290,262

26 %

Noninterest Income

Gain on sale of loans

37,255

28,841

29 %

Loan servicing fees, net

28,720

28,360

1 %

Mortgage warehouse fees

4,126

5,751

-28 %

Loss on sale of investments available for sale (1)

(108)

-

-100 %

Syndication and asset management fees

10,370

7,476

39 %

Other income

8,604

9,786

-12 %

Total noninterest income

88,967

80,214

11 %

Noninterest Expense

Salaries and employee benefits

93,187

74,922

24 %

Loan expense

3,063

2,749

11 %

Occupancy and equipment

6,707

6,884

-3 %

Professional fees

11,094

8,547

30 %

Deposit insurance expense

19,685

9,552

106 %

Technology expense

5,781

4,757

22 %

Other expense

21,093

14,611

44 %

Total noninterest expense

160,610

122,022

32 %

Income Before Income Taxes

294,764

248,454

19 %

Provision for income taxes (2)

70,044

46,693

50 %

Net Income

$

224,720

$

201,761

11 %

Dividends on preferred stock

(24,181)

(26,003)

-7 %

Impact of preferred stock redemption

(1,823)

-

-100 %

Net Income Available to Common Shareholders

$

198,716

$

175,758

13 %

Basic Earnings Per Share

$

4.46

$

4.07

10 %

Diluted Earnings Per Share

$

4.45

$

4.06

10 %

Weighted-Average Shares Outstanding

Basic

44,549,432

43,218,125

Diluted

44,696,107

43,317,343

(1) Includes $(108) and $0 respectively, related to accumulated other comprehensive earnings reclassifications.

(2) Includes $26 and $0 respectively, related to income tax benefit for reclassification items.

Key Operating Results

(Unaudited)

($ in thousands, except share data)

Three Months Ended

Change

September 30,

June 30,

September 30,

3Q24

3Q24

2024

2024

2023

vs. 2Q24

vs. 3Q23

Noninterest expense

$ 61,318

$ 50,380

$ 42,930

22 %

43 %

Net interest income (before provision for credit losses)

132,821

128,119

117,436

4 %

13 %

Noninterest income

16,742

31,351

36,068

-47 %

-54 %

Total income

$ 149,563

$ 159,470

$ 153,504

-6 %

-3 %

Efficiency ratio

41.00 %

31.59 %

27.97 %

941

bps

1,303

bps

Average assets

$ 18,311,393

$ 17,814,191

$ 16,031,015

3 %

14 %

Net income

61,273

76,393

81,504

-20 %

-25 %

Return on average assets before annualizing

0.33 %

0.43 %

0.51 %

Annualization factor

4.00

4.00

4.00

Return on average assets

1.34 %

1.72 %

2.03 %

(38)

bps

(69)

bps

Return on average tangible common shareholders' equity (1)

14.43 %

19.55 %

26.69 %

(512)

bps

(1,226)

bps

Tangible book value per common share (1)

$ 32.38

$ 31.27

$ 25.82

4 %

25 %

Tangible common shareholders' equity/tangible assets (1)

7.95 %

7.86 %

6.78 %

9

bps

117

bps

Consolidated ratios

Total capital/risk-weighted assets(2)

12.4

%

12.0

%

11.5

%

Tier I capital/risk-weighted assets(2)

11.7

%

11.4

%

10.9

%

Common Equity Tier I capital/risk-weighted assets(2)

9.0

%

8.7

%

7.6

%

Tier I capital/average assets(2)

10.5

%

10.6

%

10.1

%

(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below:

(2) As defined by regulatory agencies; September 30, 2024 shown as estimates and prior periods shown as reported.

Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations. As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. A reconciliation of GAAP to non-GAAP financial measures is below. Net Income Available to Common Shareholders excludes preferred stock. Tangible common shareholders' equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total equity. Tangible Assets is calculated by excluding the balance of goodwill and intangible assets. Tangible book value per share is calculated by dividing tangible common shareholders' equity by the number of shares outstanding.

Three Months Ended

Change

September 30,

June 30,

September 30,

3Q24

3Q24

2024

2024

2023

vs. 2Q24

vs. 3Q23

Net income

$ 61,273

$ 76,393

$ 81,504

-20 %

-25 %

Less: preferred stock dividends

(7,757)

(7,757)

(8,668)

-

-11 %

Less: preferred stock redemption

-

(1,823)

-

-100 %

-

Net income available to common shareholders

$ 53,516

$ 66,813

$ 72,836

-20 %

-27 %

Average shareholders' equity

$ 1,941,026

$ 1,824,730

$ 1,607,779

6 %

21 %

Less: average goodwill & intangibles

(8,092)

(8,140)

(16,742)

-1 %

-52 %

Less: average preferred stock

(449,387)

(449,387)

(499,608)

-

-10 %

Average tangible common shareholders' equity

$ 1,483,547

$ 1,367,203

$ 1,091,429

9 %

36 %

Annualization factor

4.00

4.00

4.00

Return on average tangible common shareholders' equity

14.43 %

19.55 %

26.69 %

(512)

bps

(1,226)

bps

Total equity

$ 1,939,107

$ 1,888,147

$ 1,632,715

3 %

19 %

Less: goodwill and intangibles

(8,079)

(8,108)

(16,676)

-

-52 %

Less: preferred stock

(449,387)

(449,387)

(499,608)

-

-10 %

Tangible common shareholders' equity

$ 1,481,641

$ 1,430,652

$ 1,116,431

4 %

33 %

Assets

$ 18,652,976

$ 18,212,422

$ 16,495,236

2 %

13 %

Less: goodwill and intangibles

(8,079)

(8,108)

(16,676)

-

-52 %

Tangible assets

$ 18,644,897

$ 18,204,314

$ 16,478,560

2 %

13 %

Ending common shares

45,764,023

45,757,567

43,240,212

Tangible book value per common share

$ 32.38

$ 31.27

$ 25.82

4 %

25 %

Tangible common shareholders' equity/tangible assets

7.95 %

7.86 %

6.78 %

9

bps

117

bps

Key Operating Results

(Unaudited)

($ in thousands, except share data)

Nine Months Ended

September 30,

September 30,

2024

2023

Change

Noninterest expense

$ 160,610

$ 122,022

32 %

Net interest income (before provision for credit losses)

387,996

323,746

20 %

Noninterest income

88,967

80,214

11 %

Total income

$ 476,963

$ 403,960

18 %

Efficiency ratio

33.67 %

30.21 %

346

bps

Average assets

$ 17,642,004

$ 14,541,523

21 %

Net income

224,720

201,761

11 %

Return on average assets before annualizing

1.27 %

1.39 %

Annualization factor

1.33

1.33

Return on average assets

1.69 %

1.85 %

(16)

bps

Return on average tangible common shareholders' equity (1)

19.39 %

22.61 %

(322)

bps

Tangible book value per common share (1)

$ 32.38

$ 25.82

25 %

Tangible common shareholders' equity/tangible assets (1)

7.95 %

6.78 %

117

bps

(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below:

Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations. As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. A reconciliation of GAAP to non-GAAP financial measures is below. Net Income Available to Common Shareholders excludes preferred stock. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total assets. Tangible Assets is calculated by excluding the balance of goodwill and intangible assets. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding.

Nine Months Ended

September 30,

September 30,

2024

2023

Change

Net income

$ 224,720

$ 201,761

11 %

Less: preferred stock dividends

(24,181)

(26,003)

-7 %

Less: preferred stock redemption

(1,823)

-

-100 %

Net income available to common shareholders

$ 198,716

$ 175,758

13 %

Average shareholders' equity

$ 1,838,182

$ 1,550,196

19 %

Less: average goodwill & intangibles

(8,906)

(16,859)

-47 %

Less: average preferred stock

(466,066)

(499,608)

-7 %

Average tangible common shareholders' equity

$ 1,363,210

$ 1,033,729

32 %

Annualization factor

1.33

1.33

Return on average tangible common shareholders' equity

19.39 %

22.61 %

(322)

bps

Total equity

$ 1,939,107

$ 1,632,715

19 %

Less: goodwill and intangibles

(8,079)

(16,676)

-52 %

Less: preferred stock

(449,387)

(499,608)

-10 %

Tangible common shareholders' equity

$ 1,481,641

$ 1,116,431

33 %

Assets

$ 18,652,976

$ 16,495,236

13 %

Less: goodwill and intangibles

(8,079)

(16,676)

-52 %

Tangible assets

$ 18,644,897

$ 16,478,560

13 %

Ending common shares

45,764,023

43,240,212

Tangible book value per common share

$ 32.38

$ 25.82

25 %

Tangible common shareholders' equity/tangible assets

7.95 %

6.78 %

117

bps

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)

Three Months Ended

Three Months Ended

Three Months Ended

September 30, 2024

June 30, 2024

September 30, 2023

Average

Yield/

Average

Yield/

Average

Yield/

Balance

Interest

Rate

Balance

Interest

Rate

Balance

Interest

Rate

Assets:

Interest-earning deposits, and other interest or dividends

$ 484,712

$ 7,671

6.30 %

$ 438,445

$ 6,225

5.71 %

$ 259,630

$ 3,923

5.99 %

Securities available for sale

1,011,146

14,855

5.84 %

1,039,388

14,784

5.72 %

656,561

6,182

3.74 %

Securities held to maturity

1,288,466

22,081

6.82 %

1,160,170

19,799

6.86 %

1,040,070

17,427

6.65 %

Mortgage loans in process of securitization

308,362

4,062

5.24 %

234,706

3,044

5.22 %

208,767

2,583

4.91 %

Loans and loans held for sale

14,603,750

290,259

7.91 %

14,347,165

284,421

7.97 %

13,399,854

266,561

7.89 %

Total interest-earning assets

17,696,436

338,928

7.62 %

17,219,874

328,273

7.67 %

15,564,882

296,676

7.56 %

Allowance for credit losses on loans

(81,178)

(76,456)

(63,449)

Noninterest-earning assets

696,135

670,773

529,582

Total assets

$ 18,311,393

$ 17,814,191

$ 16,031,015

Liabilities & Shareholders' Equity:

Interest-bearing checking

$ 5,297,908

62,603

4.70 %

$ 4,935,123

58,128

4.74 %

$ 4,882,727

58,642

4.76 %

Savings deposits

145,305

17

0.05 %

#

145,262

19

0.05 %

241,861

340

0.56 %

Money market

2,816,906

33,858

4.78 %

#

2,788,335

33,207

4.79 %

2,798,325

33,235

4.71 %

Certificates of deposit

5,032,159

69,197

5.47 %

#

6,535,651

88,297

5.43 %

5,255,573

70,689

5.34 %

Total interest-bearing deposits

13,292,278

165,675

4.96 %

14,404,371

179,651

5.02 %

13,178,486

162,906

4.90 %

Borrowings

2,518,405

40,432

6.39 %

1,031,180

20,503

8.00 %

711,948

16,334

9.10 %

Total interest-bearing liabilities

15,810,683

206,107

5.19 %

15,435,551

200,154

5.22 %

13,890,434

179,240

5.12 %

Noninterest-bearing deposits

327,930

331,246

333,155

Noninterest-bearing liabilities

231,754

222,664

199,647

Total liabilities

16,370,367

15,989,461

14,423,236

Shareholders' equity

1,941,026

1,824,730

1,607,779

Total liabilities and shareholders' equity

$ 18,311,393

$ 17,814,191

$ 16,031,015

Net interest income

$ 132,821

$ 128,119

$ 117,436

Net interest spread

2.43 %

2.45 %

2.44 %

Net interest-earning assets

$ 1,885,753

$ 1,784,323

$ 1,674,448

Net interest margin

2.99 %

2.99 %

2.99 %

Average interest-earning assets to average interest-bearing liabilities

111.93 %

111.56 %

112.05 %

Supplemental Results

(Unaudited)

($ in thousands)

Net Income

Net Income

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

2024

2024

2023

2024

2023

Segment

Multi-family Mortgage Banking

$ 8,068

$ 9,037

$ 14,685

$ 33,714

$ 27,893

Mortgage Warehousing

15,940

22,270

19,926

58,400

47,163

Banking

44,983

52,378

52,445

153,786

144,402

Other

(7,718)

(7,292)

(5,552)

(21,180)

(17,697)

Total

$ 61,273

$ 76,393

$ 81,504

$ 224,720

$ 201,761

Total Assets

September 30, 2024

June 30, 2024

December 31, 2023

Amount

%

Amount

%

Amount

%

Segment

Multi-family Mortgage Banking

$ 453,281

2 %

$ 428,299

2 %

$ 411,097

2 %

Mortgage Warehousing

5,842,489

31 %

5,626,055

31 %

4,522,175

27 %

Banking

12,035,581

65 %

11,885,484

65 %

11,760,943

69 %

Other

321,625

2 %

272,584

2 %

258,301

2 %

Total

$ 18,652,976

100 %

$ 18,212,422

100 %

$ 16,952,516

100 %

Gain on Sale of Loans

Gain on Sale of Loans

Three Months Ended

Nine Months Ended

September 30,

June 30,

September 30,

September 30,

2024

2024

2023

2024

2023

Loan Type

Multi-family

$ 15,302

$ 9,083

$ 8,616

$ 32,808

$ 23,897

Single-family

690

524

951

1,494

1,430

Small Business Association (SBA)

739

1,561

1,191

2,953

3,514

Total

$ 16,731

$ 11,168

$ 10,758

$ 37,255

$ 28,841

Supplemental Results

(Unaudited)

($ in thousands)

Loans Receivable and Loans Held for Sale

September 30,

June 30,

December 31,

2024

2024

2023

Mortgage warehouse repurchase agreements

$ 1,213,429

$ 1,369,965

$ 752,468

Residential real estate (1)

1,317,234

1,345,656

1,324,305

Multi-family financing

4,456,129

4,160,420

4,006,160

Healthcare financing

1,733,674

2,495,910

2,356,689

Commercial and commercial real estate (2)(3)

1,548,689

1,566,809

1,643,081

Agricultural production and real estate

71,391

70,244

103,150

Consumer and margin loans

5,893

5,213

13,700

10,346,439

11,014,217

10,199,553

Less: Allowance for credit losses on loans

84,549

81,028

71,752

Loans receivable

$ 10,261,890

$ 10,933,189

$ 10,127,801

Loans held for sale

3,808,234

3,483,076

3,144,756

Total loans, net of allowance

$ 14,070,124

$ 14,416,265

$ 13,272,557

(1) Includes $1.2 billion, $1.2 billion and $1.2 billion of All-In-One © first-lien home equity lines of credit as of September 30, 2024, June 30, 2024 and December 31, 2023, respectively.

(2) Includes $0.9 billion, $1.0 billion and $1.1 billion of revolving lines of credit collateralized primarily by mortgage servicing rights as of September 30, 2024, June 30, 2024 and December 31, 2023, respectively.

(3) Includes only $19.3 million, $6.8 million and $8.4 million of non-owner occupied commercial real estate as of September 30, 2024, June 30, 2024 and December 31, 2023, respectively.

Loan Credit Risk Profile

September 30, 2024

June 30, 2024

December 31, 2023

Amount

%

Amount

%

Amount

%

Pass

$ 9,707,205

93.8 %

$ 10,523,378

95.6 %

$ 9,879,659

96.9 %

Special mention

351,407

3.4 %

244,000

2.2 %

191,267

1.9 %

Substandard

287,827

2.8 %

246,839

2.2 %

128,577

1.2 %

Doubtful

-

-

-

-

50

-

Loans receivable

$ 10,346,439

100.0 %

$ 11,014,217

100.0 %

$ 10,199,553

100.0 %

Charge-offs (year-to-date)

$ 6,437

$ 4,377

$ 9,791

Recoveries (year-to-date)

$ 23

$ 16

$ 41

Nonperforming Loans

September 30,

June 30,

December 31,

2024

2024

2023

Nonaccrual loans

$ 210,811

$ 143,319

$ 73,847

90 days past due and still accruing

91

133

8,168

Total nonperforming loans

$ 210,902

$ 143,452

$ 82,015

Other real estate owned

$ 896

-

-

Total nonperforming assets

$ 211,798

$ 143,452

$ 82,015

Nonperforming loans to total loans

2.04 %

1.30 %

0.80 %

Nonperforming assets to total assets

1.14 %

0.79 %

0.48 %

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SOURCE Merchants Bancorp