EX-99.1 2 tm2426947d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

 

 

PRESS RELEASE

 

Merchants Bancorp Reports Third Quarter 2024 Results

 

For Release October 28, 2024

 

·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, Indiana – (PR Newswire) - 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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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·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%.

 

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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.

 

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·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.

 

MEDIA CONTACT: REBECCA MARSH

Merchants Bancorp

Phone: (317) 805-4356

Email: rmarsh@bankmerchants.com

 

INVESTOR CONTACT: SEAN SIEVERS

Merchants Bancorp

Phone: (317) 663-5197

Email: ssievers@bankmerchants.com

 

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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%   941bps   1,303bps
                           
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%   9bps   117bps
                           
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%   9bps   117bps

 

 

 

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%   346bps
                
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%   117bps

 

(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%   117bps

 

 

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 commerical 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%