Merchants Bancorp Reports Third Quarter 2024 Results

(MENAFN- PR Newswire)

• 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
href="" rel="nofollow" merchantsbancor .

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 %

SOURCE Merchants Bancorp

WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE? 440k+
Newsrooms &
Influencers 9k+
Digital Media
Outlets 270k+
Journalists
Opted In GET STARTED

MENAFN28102024003732001241ID1108826235