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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _______________

Commission File No. 001-38258

MERCHANTS BANCORP

(Exact name of registrant as specified in its charter)

Indiana

    

20-5747400

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

410 Monon Blvd. Carmel, Indiana

46032

(Address of principal

(Zip Code)

executive office)

(317) 569-7420

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes     No 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, without par value

MBIN

NASDAQ

Series A Preferred Stock, without par value

Depositary Shares, each representing a 1/40th interest in a share of Series B Preferred Stock, without par value

MBINP

MBINO

NASDAQ

NASDAQ

Depositary Shares, each representing a 1/40th interest in a share of Series C Preferred Stock, without par value

MBINN

NASDAQ

As of November 1, 2021, the latest practicable date, 28,785,374 shares of the registrant’s common stock, without par value, were issued and outstanding.

Merchants Bancorp

Index to Quarterly Report on Form 10-Q

PART I – FINANCIAL INFORMATION

Item 1 Interim Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

3

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020

4

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020

5

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020

6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

7

Notes to Condensed Consolidated Financial Statements

8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

40

Item 3 Quantitative and Qualitative Disclosures About Market Risk

60

Item 4 Controls and Procedures

60

PART II – OTHER INFORMATION

61

Item 1 Legal Proceedings

61

Item 1A Risk Factors

61

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3 Defaults Upon Senior Securities

61

Item 4 Mine Safety Disclosures

61

Item 5 Other Information

61

Item 6 Exhibits

62

SIGNATURES

63

2

Part I – Financial Information

Item 1. Financial Statements

Merchants Bancorp

Condensed Consolidated Balance Sheets

September 30, 2021 (Unaudited) and December 31, 2020

(In thousands, except share data)

September 30, 

December 31, 

    

2021

    

2020

Assets

 

  

 

  

Cash and due from banks

$

14,352

$

10,063

Interest-earning demand accounts

 

788,224

 

169,665

Cash and cash equivalents

 

802,576

 

179,728

Securities purchased under agreements to resell

 

5,923

 

6,580

Mortgage loans in process of securitization

 

634,027

 

338,733

Available for sale securities

 

301,119

 

269,802

Federal Home Loan Bank (FHLB) stock

 

70,767

 

70,656

Loans held for sale (includes $26,296 and $40,044, respectively at fair value)

 

3,453,279

 

3,070,154

Loans receivable, net of allowance for loan losses of $29,134 and $27,500, respectively

 

5,431,227

 

5,507,926

Premises and equipment, net

 

31,423

 

29,761

Servicing rights

 

105,473

 

82,604

Interest receivable

 

21,894

 

21,770

Goodwill

 

15,845

 

15,845

Intangible assets, net

 

1,843

 

2,283

Other assets and receivables

 

76,637

 

49,533

Total assets

$

10,952,033

$

9,645,375

Liabilities and Shareholders' Equity

 

 

Liabilities

 

  

 

  

Deposits

 

  

 

  

Noninterest-bearing

$

824,118

$

853,648

Interest-bearing

 

8,123,201

 

6,554,418

Total deposits

 

8,947,319

 

7,408,066

Borrowings

 

809,136

 

1,348,256

Deferred and current tax liabilities, net

 

21,681

 

20,405

Other liabilities

 

64,019

 

58,027

Total liabilities

 

9,842,155

 

8,834,754

Commitments and Contingencies

 

  

 

  

Shareholders' Equity

 

  

 

  

Common stock, without par value

 

  

 

  

Authorized - 50,000,000 shares

 

  

 

  

Issued and outstanding - 28,785,374 shares at September 30, 2021 and 28,747,083 shares at December 31, 2020

 

137,200

 

135,857

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

8% Preferred stock - $1,000 per share liquidation preference

 

 

Authorized - 50,000 shares

 

 

Issued and outstanding - 0 shares at September 30, 2021 and 41,625 shares at December 31, 2020

 

 

41,581

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

 

 

Authorized - 3,500,000 shares

 

 

Issued and outstanding - 2,081,800 shares

 

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

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

Authorized - 250,000 shares

Issued and outstanding - 196,181 shares at September 30, 2021 (equivalent to 7,847,233 depositary shares)

191,084

Retained earnings

 

610,267

 

461,744

Accumulated other comprehensive income

 

262

 

374

Total shareholders' equity

 

1,109,878

 

810,621

Total liabilities and shareholders' equity

$

10,952,033

$

9,645,375

See notes to condensed consolidated financial statements.

3

Merchants Bancorp

Condensed Consolidated Statements of Income (Unaudited)

For the Three and Nine Months Ended September 30, 2021 and 2020

(In thousands, except share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Interest Income

 

  

 

  

 

  

Loans

$

72,924

$

71,857

$

216,717

$

189,400

Mortgage loans in process of securitization

 

2,868

 

3,250

 

8,728

 

8,580

Investment securities:

 

 

 

  

 

  

Available for sale - taxable

 

1,115

 

431

 

2,302

 

2,725

Available for sale - tax exempt

12

37

32

112

Federal Home Loan Bank stock

 

190

 

531

 

966

 

1,217

Other

 

205

 

152

 

556

 

2,845

Total interest income

 

77,314

 

76,258

 

229,301

 

204,879

Interest Expense

 

  

 

  

 

  

 

  

Deposits

 

6,981

 

9,104

 

19,764

 

45,132

Borrowed funds

 

1,452

 

1,832

 

4,286

 

4,838

Total interest expense

 

8,433

 

10,936

 

24,050

 

49,970

Net Interest Income

 

68,881

 

65,322

 

205,251

 

154,909

Provision for loan losses

 

1,079

 

2,981

 

2,427

 

7,724

Net Interest Income After Provision for Loan Losses

 

67,802

 

62,341

 

202,824

 

147,185

Noninterest Income

 

  

 

  

 

  

 

  

Gain on sale of loans

 

29,013

 

29,498

 

82,755

 

67,748

Loan servicing fees, net

 

5,313

 

(643)

 

14,991

 

(4,870)

Mortgage warehouse fees

 

2,732

 

6,833

 

9,927

 

15,054

Gains on sale of investments available for sale (includes $0, $441, $0 and $441, respectively, related to accumulated other comprehensive earnings reclassifications)

 

 

441

 

 

441

Other income

 

3,213

 

2,528

 

9,389

 

6,374

Total noninterest income

 

40,271

 

38,657

 

117,062

 

84,747

Noninterest Expense

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

20,197

 

16,567

 

60,340

 

42,635

Loan expenses

 

1,734

 

2,944

 

6,178

 

6,147

Occupancy and equipment

 

1,861

 

1,420

 

5,296

 

4,295

Professional fees

 

901

 

712

 

2,102

 

2,007

Deposit insurance expense

 

664

 

1,404

 

1,986

 

5,041

Technology expense

 

1,169

 

903

 

3,077

 

2,229

Other expense

 

2,946

 

2,434

 

8,760

 

6,605

Total noninterest expense

 

29,472

 

26,384

 

87,739

 

68,959

Income Before Income Taxes

 

78,601

 

74,614

 

232,147

 

162,973

Provision for income taxes (includes $0, $(97), $0, and $(97), respectively, related to income tax (expense)/benefit for reclassification items)

 

20,098

 

19,612

 

60,244

 

42,226

Net Income

$

58,503

$

55,002

$

171,903

$

120,747

Dividends on preferred stock

(5,729)

(3,618)

(15,145)

(10,855)

Net Income Allocated to Common Shareholders

52,774

51,384

156,758

109,892

Basic Earnings Per Share

$

1.83

$

1.79

$

5.45

$

3.82

Diluted Earnings Per Share

$

1.83

$

1.79

$

5.43

$

3.82

Weighted-Average Shares Outstanding

 

  

 

  

 

  

 

  

Basic

 

28,784,197

 

28,745,614

 

28,779,745

 

28,741,395

Diluted

 

28,876,503

 

28,778,462

 

28,867,125

 

28,766,756

See notes to condensed consolidated financial statements.

4

Merchants Bancorp

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

For the Three and Nine Months Ended September 30, 2021 and 2020

(In thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Net Income

$

58,503

$

55,002

$

171,903

$

120,747

Other Comprehensive Income (Loss):

 

  

 

 

  

 

  

Net change in unrealized gains/(losses) on investment securities available for sale, net of tax (expense)/benefits of $(96), $(22), $34 and $(91), respectively

 

266

 

43

 

(112)

 

293

Less: Reclassification adjustment for gains included in net income, net of tax (expense)/benefits of $0, $(97), $0, and $(97), respectively

 

 

344

 

 

344

Other comprehensive income (loss) for the period

 

266

 

(301)

 

(112)

 

(51)

Comprehensive Income

$

58,769

$

54,701

$

171,791

$

120,696

See notes to condensed consolidated financial statements.

5

Merchants Bancorp

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Three and Nine Months Ended September 30, 2021 and 2020

(In thousands, except share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2021

    

2020

    

2021

    

2020

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Common Stock

 

  

 

  

 

  

Balance beginning of period

28,783,599

$

136,836

28,745,614

$

135,949

28,747,083

$

135,857

28,706,438

$

135,640

Distribution to employee stock ownership plan

-

-

-

-

19,433

537

-

-

Shares issued for stock compensation plans, net of taxes withheld to satisfy employee tax obligations

1,775

364

-

154

18,858

806

39,176

463

Balance end of period

28,785,374

137,200

28,745,614

136,103

28,785,374

137,200

28,745,614

136,103

8% Preferred Stock

Balance beginning of period

-

-

41,625

41,581

41,625

41,581

41,625

41,581

Redemption of 8% preferred stock

-

-

-

-

(41,625)

(41,581)

-

-

Balance end of period

-

-

41,625

41,581

-

-

41,625

41,581

7% Series A Preferred Stock

Balance at beginning and end of period

2,081,800

50,221

2,081,800

50,221

2,081,800

50,221

2,081,800

50,221

6% Series B Preferred Stock

Balance at beginning and end of period

125,000

120,844

125,000

120,844

125,000

120,844

125,000

120,844

6% Series C Preferred Stock

Balance beginning of period

196,181

191,084

-

-

-

-

-

-

Issuance of 6% Series C preferred stock, net of $5.1 million in offering expenses

-

-

-

-

150,000

144,926

-

-

Private issuance of 6% Series C preferred stock, net of $23 in offering expenses

-

-

-

-

46,181

46,158

-

-

Balance end of period

196,181

191,084

-

-

196,181

191,084

-

-

Retained Earnings

Balance beginning of period

560,083

358,895

461,744

304,984

Net income

58,503

55,002

171,903

120,747

Dividends on 8% preferred stock, $80.00 per share, annually

-

(832)

(833)

(2,498)

Final dividend for redemption of 8% preferred stock, $3.33 per share

-

-

(139)

-

Dividends on 7% Series A preferred stock, $1.75 per share, annually

(911)

(911)

(2,732)

(2,732)

Dividends on 6% Series B preferred stock, $60.00 per share, annually

(1,875)

(1,875)

(5,625)

(5,625)

Dividends on 6% Series C preferred stock, $60.00 per share, annually

(2,943)

-

(5,816)

-

Dividends on common stock, $0.36 per share, annually in 2021 and $0.32 per share, annually in 2020

(2,590)

(2,300)

(7,771)

(6,897)

Deconsolidation of entities

-

-

(419)

-

Redemption of 8% preferred stock