Merchants Bancorp Reports Second Quarter 2024 Results

• Second quarter 2024 net income of $76.4 million, increased 17% compared to second quarter of 2023 and decreased 12% compared to the first quarter 2024.
• Second quarter 2024 diluted earnings per common share of $1.49 increased 14% compared to the second quarter of 2023 and decreased 17% compared to the first quarter of 2024.
• Total assets of $18.2 billion surpassed any level previously reported by the Company, increasing 2% compared to March 31, 2024 and increasing 7% compared to December 31, 2023.
• On May 13, 2024, the Company completed a common stock offering of 2.4 million shares, resulting in net proceeds of $97.7 million, which contributed to the estimated 70 basis point increase in the common equity tier I capital ratio that reached 8.7% as of June 30, 2024.
• Tangible book value per common share reached a record-high of $31.27 and increased 30% compared to $24.14 in the second quarter of 2023 and increased 7% compared to $29.26 in the first quarter of 2024.
• As of June 30, 2024, the Company had $7.0 billion in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window, representing 39% 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 $12.6 billion, or 69%, of the $18.2 billion in total assets as of June 30, 2024.
• Loans receivable of $10.9 billion, net of allowance for credit losses on loans, increased $242.7 million, or 2%, compared to March 31, 2024, and increased $805.4 million, or 8%, compared to December 31, 2023.
• The efficiency ratio was 31.59% in the second quarter of 2024 compared to 32.71% in the second quarter of 2023 and 29.13% in the first quarter of 2024.
• On April 30, 2024, the Company completed a $324.6 million securitization of 13 multi-family mortgage loans through a Freddie Mac-sponsored Q-Series transaction.
• The Company redeemed all outstanding shares of the Series A Preferred Stock for $52 million on April 1, 2024, at the liquidation preference of $25.00 per share.

CARMEL, Ind., July 29, 2024/PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank, today reported second quarter 2024 net income of $76.4 million, or diluted earnings per common share of $1.49. This compared to $65.3 million, or diluted earnings per common share of $1.31 in the second quarter of 2023, and compared to $87.1 million, or diluted earnings per common share of $1.80 in the first quarter of 2024.

"Results for the second quarter demonstrate our success in serving customers while also increasing shareholder value in any interest rate environment. Loan growth continued as we reached a new record of $18.2 billion in assets and we also achieved a record-high tangible book value of $31.27 per share, which reflected a 30% increase over the prior year. Our originate-to-sell business model that minimizes interest rate risk has proven to be successful, and our priorities remain unchanged. We have also focused on effectively managing our capital to execute our strategies for future growth by issuing common stock, entering into credit risk transfer transactions, and participating in securitizations.," said Michael F. Petrie, Chairman and CEO of Merchants.

Michael J. Dunlap, President and Chief Operating Officer of Merchants, added, "The market leading positions we hold across our businesses is a testament to the resilience and creativity that our team has demonstrated while working with customers to find effective solutions to their lending needs. These strong relationships position us to be a lender of choice and provide us with significant growth opportunities."

Net income of $76.4 million for the second quarter 2024 increased by $11.1 million, or 17%, compared to the second quarter of 2023, primarily driven by:

• a $22.5 million, or 21%, increase in net interest income, and
• a $12.6 million, or 56%, decrease in the provision for credit losses related to lower loan charge-offs and relative changes to qualitative factors, which were partially offset by
• a $19.5 million, or 594%, increase in the provision for income tax, primarily due to a $13.0 million tax benefit recorded in the second quarter of 2023 that was related to tax refunds and changes in state tax apportionment calculations.

Net income of $76.4 million for the second quarter 2024 decreased by $10.7 million, or 12%, compared to the first quarter of 2024, primarily driven by:

• an $8.9 million lower fair market value positive adjustment to servicing rights. Results for the second quarter of 2024 included a $5.1 million positive fair market value adjustment to servicing rights compared to a $14.0 million positive fair market value adjustment to servicing rights in the first quarter of 2024, and
• a $5.2 million increase in the provision for credit losses that reflected higher loan charge-offs and specific reserves, as well as an increase in qualitative loss factors in the multi-family loan portfolio, which were offset by a decrease in loss rates of other portfolios during the second quarter of 2024.

Total Assets
Total assets of $18.2 billion at June 30, 2024 increased $389.8 million, or 2%, compared to March 31, 2024, and increased $1.3 billion, or 7%, compared to December 31, 2023. The increase compared to December 31, 2023 was primarily due to growth in the warehouse, multi-family, and healthcare loan portfolios.

Return on average assets was 1.72% for the second quarter of 2024 compared to 1.78% for the second quarter of 2023 and 2.07% for the first quarter of 2024.

Asset Quality
The allowance for credit losses on loans of $81.0 million, as of June 30, 2024, increased $5.3 million, or 7%, compared to March 31, 2024, and increased $9.3 million, or 13%, compared to December 31, 2023. The increase compared to both periods was primarily due to loan charge-offs, increases in specific reserves, loan growth, and changes to qualitative loss factors to reflect changes in industry conditions.

The Company recorded three charge-offs, primarily in the multi-family portfolio, for $3.5 million and recorded $15,000 of recoveries during the second quarter 2024. This compares to $9.5 million in charge-offs and $2,000 in recoveries during the second quarter of 2023 and to $0.9 million in charge-offs and $1,000 of recoveries in the first quarter of 2024.

As of June 30, 2024, non-performing loans were $143.5 million, or 1.30% of gross loans receivable, compared to $131.8 million, or 1.22%, as of March 31, 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 due to interest rates remaining at elevated levels.

Securities Available for Sale
Total securities available for sale of $1.0 billion as of June 30, 2024 decreased $44.3 million, or 4%, compared to March 31, 2024, and decreased $96.7 million, or 9%, compared to December 31, 2023. The decrease was primarily due to maturities, sales, and repayments that were partially offset by purchases.

As of June 30, 2024, Accumulated Other Comprehensive Losses ("AOCL") of $0.5 million, related to securities available for sale, decreased $0.7 million, or 57%, compared to March 31, 2024, and decreased $2.0 million, or 80%, compared to December 31, 2023. The $0.5 million of AOCL as of June 30, 2024 represented less than 1% of total equity and less than 1% of total investment securities.

Total Deposits
Total deposits of $14.9 billion at June 30, 2024 increased $941.4 million, or 7%, compared to March 31, 2024, and increased $855.6 million, or 6%, compared to December 31, 2023. The change compared to March 31, 2024 was primarily due to growth in core deposits, reflecting an increase in certificates of deposit and demand accounts. The change compared to December 31, 2023 was primarily due to growth in core deposit accounts, reflecting an increase in certificates of deposit accounts that was partially offset by a decrease in demand accounts.

Core deposits of $8.8 billion at June 30, 2024 increased $574.0 million, or 7%, from March 31, 2024 and increased $705.9 million, or 9%, from December 31, 2023. Core deposits represented 59% of total deposits at June 30, 2024 and March 31, 2024, and 58% of total deposits at December 31, 2023.

Total brokered deposits of $6.1 billion at June 30, 2024 increased $367.4 million, or 6%, from March 31, 2024 and increased $149.7 million, or 3%, from December 31, 2023. As of June 30, 2024, brokered certificates of deposit had a weighted average remaining duration of 70 days.

Liquidity
Cash balances of $540.9 million as of June 30, 2024 increased by $32.1 million compared to March 31, 2024 and decreased by $43.5 million compared to December 31, 2023. The Company continues to have significant borrowing capacity, with unused lines of credit totaling $7.0 billion as of June 30, 2024 compared to $5.6 billion at March 31, 2024 and $6.0 billion at December 31, 2023. Furthermore, its $2.8 billion line of credit with the Federal Reserve Board alone could fund 118% of its uninsured deposits, which represented approximately 15% of total deposits as of June 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
June 30, 2024 and 2023

Net Interest Income of $128.1 million increased $22.5 million, or 21%, compared to $105.6 million, primarily reflecting an increase in both average balances and yields on loans and loans held for sale, as well as higher average yields and balances of securities available for sale, which were partially offset by higher average balances and interest rates on deposits, as well as higher average balances on borrowings.

• Net interest margin of 2.99% increased 2 basis points compared to 2.97%. The margin was negatively impacted by approximately 6 basis points in the second quarter of 2024 from the net reversal of $2.5 million in accrued interest income associated with the movement of loans into nonaccrual status.
• Interest rate spread of 2.45% increased 4 basis points compared to 2.41%.

Interest Income of $328.3 million increased $70.2 million, or 27%, compared to $258.1 million, reflecting an increase in both average balances and higher yields of loans and loans held for sale, as well as securities available for sale.

• Average balances of $14.3 billion for loans and loans held for sale increased 20% compared to $12.0 billion.
• Average yield on loans and loans held for sale of 7.97% increased 30 basis points compared to 7.67%.
• Average balances of $1.0 billion for securities available for sale increased 54% compared to $672.9 million.
• Average yield on securities available for sale of 5.72% increased 240 basis points compared to 3.32%.

Interest Expense of $200.2 million increased $47.7 million, or 31%, compared to $152.5 million. The increase reflected an increase in both average balances and rates on certificates of deposit and interest-bearing checking, as well as higher average balances on borrowings.

• Average balances of $6.5 billion for certificates of deposit increased 38% compared to $4.7 billion.
• Average interest rates of 5.43% for certificates of deposit increased 45 basis points compared to 4.98%.
• Average balances of $4.9 billion for interest-bearing checking increased 15% compared to $4.3 billion.
• Average interest rates of 4.74% for interest-bearing checking increased 24 basis points compared to 4.50%.
• Average balances of $1.0 billion for borrowings increased 74% compared to $591.3 million.

Noninterest Income of $31.4 million increased $1.5 million, or 5%, compared to $29.9 million, primarily due to a $2.2 million, or 26%, increase in net loan servicing fees and a $1.4 million, or 46%, increase in other income, partially offset by a $1.3 million, or 47%, decrease in mortgage warehouse fees.

• Loan servicing fees included a $5.1 million positive fair market value adjustment to servicing rights, 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. This compared to a $3.4 million positive fair market value adjustment to mortgage servicing rights in the prior period, of which $1.3 million positive adjustment in the Banking segment and $2.1 million positive adjustment in the Multi-family Mortgage Banking segment.

Noninterest Expense of $50.4 million increased $6.1 million, or 14%, compared to $44.3 million reflecting increases in salaries and employee benefits to support business growth and increases in deposit insurance expenses. The higher noninterest expense also reflected a $1.6 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 31.59% decreased 112 basis points compared to 32.71%.

Comparison of Operating Results for the Three Months Ended
June 30, 2024 and March 31, 2024

Net Interest Income of $128.1 million increased 1%, compared to $127.1 million, primarily due to higher average balances on loans and loans held for sale, partially offset by higher average balances of deposits and on borrowings.

• Net interest margin of 2.99% decreased 15 basis points compared to 3.14%, primarily due to a shift in business mix that reflected significant growth in the mortgage warehouse portfolio. The margin was also negatively impacted by approximately 6 basis points in the second quarter of 2024 from the net reversal of $2.5 million in accrued interest income associated with the movement of loans into nonaccrual status.
• Interest rate spread of 2.45% decreased 13 basis points compared to 2.58%.

Interest Income of $328.3 million increased $14.1 million, or 4%, compared to $314.2 million, reflecting an increase in average balances on loans and loans held for sale, interest earning deposits, and mortgage loans in process or securitization. The increases in interest income were partially offset by a decrease in average yields on loans and loans held for sale.

• Average balances of $14.3 billion for loans and loans held for sale increased 6% compared to $13.5 billion.
• Average balances of $438.4 million on interest earning deposits increased 27% compared to $346.2 million.
• Average balances of $234.7 million for mortgage loans in process of securitization increased 70% compared to $137.9 million.
• Average yields on loans and loans held for sale of 7.97% decreased 14 basis points compared to 8.11%, reflecting a net $2.5 million reversal of accrued interest income associated with the movement of loans into nonaccrual status during the quarter.

Interest Expense of $200.2 million increased 7% compared to $187.1 million. The increase was primarily driven by higher average balances on certificate of deposit accounts and borrowings. These were partially offset by lower rates on borrowings, as well as lower average balances on interest-bearing checking accounts.

• Average balances of $6.5 billion for certificate of deposit accounts increased 15% compared to $5.7 billion.
• Average balances of $1.0 billion for borrowings increased 44% compared to $716.9 million.
• Average interest rates of 8.00% for borrowings decreased 103 basis points compared to 9.03%.
• Average balances of $4.9 billion for interest-bearing checking accounts decreased 3% compared to $5.1 billion.

Noninterest Income of $31.4 million decreased $9.5 million, or 23%, compared $40.9 million, primarily due to an $8.6 million, or 44%, decrease in net loan servicing fees and a $2.1 million, or 39%, decrease in syndication and asset management fees.

• Loan servicing fees included a $5.1 million positive fair market value adjustment to servicing rights, 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. This compared to a $14.0 million positive fair market value adjustment to servicing rights in the prior period, with a $0.8 million positive adjustment in the Banking segment and a $13.2 million positive adjustment in the Multi-family Mortgage Banking segment.

Noninterest Expense of $50.4 million increased $1.5 million, or 3%, compared to $48.9 million, driven by a $2.7 million, or 54%, increase in other expenses associated with ongoing premium expense for the credit default swap that was executed in March 2024. This increase was partially offset by a $1.2 million decrease in salaries and employee benefits

• The efficiency ratio of 31.59% increased 246 basis points compared to 29.13%.

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 $18.2 billion in assets and $14.9 billion in deposits as of June 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.

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