Business
Merchants Bancorp : Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)
Merchants Bancorp : Quarterly Report for Quarter Ending March 31, 2026 (Form
About this update from Merchants Bancorp
Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of the financial condition at March 31, 2026 and results of operations for the three months ended March 31, 2026 and 2025, is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this Form 10-Q. The words "the Company," "we," "our," and "us" refer to Merchants Bancorp and its consolidated subsidiaries, unless we indicate otherwise. Financial Highlights for the Three Months Ended March 31, 2026 ● Net income of $67.7 million increased $9.5 million compared to the three months ended March 31, 2025. ● Diluted earnings per share of $1.25 increased 34% compared to the three months ended March 31, 2025. ● Total assets of $20.3 billion reflected the highest level ever reported by the Company, increasing 8% compared to March 31, 2025, and 4% from December 31, 2025. ● Tangible book value per common share of $38.55 increased 10% compared to $34.90 for the three months ended March 31, 2025. See Non-GAAP Financial Measures section at the end of Item 2. ● Liquidity remained strong, with $11.1 billion, or 55% of total assets, comprising of unused borrowing capacity of $3.9 billion through the Federal Home Loan Bank and the Federal Reserve Discount Window, as well as cash and cash equivalents, short-term investments (including interest-earning demand deposits), mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit included in loans receivable. ● Loans receivable, net of allowance for credit losses, totaled $11.4 billion, increasing $1.1 billion, or 10%, from March 31, 2025, and $448.5 million, or 4%, from December 31, 2025. ● Asset quality continued to stabilize, as criticized loans receivable of $505.5 million decreased by 1% from December 31, 2025. ● Core deposits of $12.1 billion reflected increases of $1.4 billion, or 13%, from March 31, 2025 and $781.4 million, or 7%, from December 31, 2025. Core deposits now represent 93% of total deposits, reaching the highest level the Company has reported since March 2022. ● Brokered deposits of $886.5 million decreased $831.9 million, or 48%, compared to March 31, 2025 and $870.8 million, or 50%, compared to December 31, 2025. ● As of March 31, 2026, approximately 97% of loans reprice within three months, which reduces the risk of market rate increases. ● Net interest margin was 2.92% compared to 2.89% for the three months ended March 31, 2025. ● Efficiency ratio was 43.16% compared to 4 2.27% for the three months ended March 31, 2025. See Non-GAAP Financial Measures section at the end of Item 2. ● The Company repurchased 73,164 shares of common stock for $3.0 million, pursuant to its previously authorized share repurchase program. Table of Contents Merchants Bancorp ● The volume of warehouse loans funded d uring the three months ended March 31, 2026 amounted to $19.6 billion, an increase of $7.7 billion, or 65% compared to the three months ended March 31, 2025. This compared to the 43% industry-wide increase in single-family residential loan volumes for the three months ended March 31, 2026 compared to the same period in 2025, according to an estimate of industry volume by the Mortgage Bankers Association. ● The total volume of loans originated and acquired through our Multi-family business was $1.2 billion, an increase of $245.3 million, or 26%, compared to $934.4 million for the three months ended March 31, 2025. It included construction loans coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment, while borrowers awaited conversion to permanent financing. It also included loans originated and acquired for sale in the secondary market. ● During the quarter, the Company was released from its mid-2025 Memorandum of Understanding with the FDIC, following progress made by management in addressing the MOU provisions . Business Overview We are a diversified bank holding company headquartered in Carmel, Indiana and registered under the Bank Holding Company Act of 1956, as amended. We currently operate in multiple business segments, including Multi-family Mortgage Banking that offers multi-family housing and healthcare facility financing and servicing, as well as syndicated low-income housing tax credit and debt funds; Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers portfolio lending for multi-family and healthcare facility loans, retail and correspondent residential mortgage banking, jumbo lending, agricultural lending, SBA lending, and traditional community banking. Our business consists of funding low risk, multi-family, residential, and SBA loans meeting underwriting standards of government programs under an originate to sell model, and retaining adjustable-rate loans as held for investment to reduce interest rate risk. The gain on sale of these loans and servicing fees contribute to noninterest income. The funding source is primarily from mortgage custodial, retail, commercial, brokered deposits, and short-term borrowings. We believe that the combination of net interest income and noninterest income from the sale of low risk profile assets has traditionally resulted in lower than industry charge-offs and a lower expense base, which serves to maximize net income and higher than industry shareholder return. Critical Accounting Policies and Estimates The preparation of our unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the current circumstances. These estimates and assumptions form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions. The estimates and judgments that management believes have the most effect on its reported financial position and results of operations are set forth within "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since those reported for the year ended December 31, 2025. Financial Condition As of March 31, 2026, we had approximately $20.3 billion in total assets, $13.0 billion in deposits, and $2.3 billion in total shareholders' equity. Total assets as of March 31, 2026 included $11.4 billion of loans receivable, net of Table of Contents Merchants Bancorp ACL-Loans and $4.7 billion of loans held for sale. Assets also included $1.4 billion in securities held to maturity and $843.9 million in securities available for sale, the majority of which were acquired from a warehouse customer. There are some restrictions on the types of securities we hold, particularly for those that are funded by certain multi-family custodial deposits where we set the cost of deposits based on the yield of the related security. Additionally, we had $437.0 million of mortgage loans in process of securitization that represent pre-sold multi-family rental real estate loan originations in primarily Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities pending settlements that typically occur within 30 days, as well as other assets of $744.2 million, which primarily related to low-income housing tax credits, and $83.2 million of cash and cash equivalents. Servicing rights at March 31, 2026 were $229.6 million based on the fair value of the loan servicing, which primarily includes Ginnie Mae multi-family servicing rights with 10-year call protection. Comparison of Financial Condition at March 31, 2026 and December 31, 2025 Total Assets. Total assets of $20.3 billion at March 31, 2026 increased $872.8 million, or 4%, compared to $19.4 billion at December 31, 2025. The increase was due primarily to growth in loans and loans held for sale, specifically in the warehouse and multi-family loan portfolios, which were partially offset by lower balances in the healthcare loan portfolio. Warehouse loans, including loans held for sale and loans receivable, are exclusively made up of loans to residential and multi-family mortgage bankers that are funding agency-eligible mortgages and commercial loans, which represent all of the Company's loans to non-depository institutions. Cash and Cash Equivalents. Cash and cash equivalents of $83.2 million at March 31, 2026 decreased $129.0 million, or 61%, compared to $212.2 million at December 31, 2025. The decrease was primarily attributable to growth in the loan portfolio. Mortgage Loans in Process of Securitization. Mortgage loans in process of securitization of $437.0 million at March 31, 2026 decreased $183.1 million, or 30%, compared to $620.1 million at December 31, 2025. These represent loans that our banking subsidiary, Merchants Bank, has funded and are held in the loan portfolio pending settlement, as primarily Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities with a firm investor commitment to purchase the securities. Securities Available for Sale. Securities available for sale of $843.9 million at March 31, 2026 decreased $21.2 million, or 2%, compared to $865.1 million at December 31, 2025. The decrease in securities available for sale was primarily due to $225.5 million in calls, maturities, repayments, sales and other adjustments, partially offset by purchases of $204.3 million during the period. Included in securities available for sale were $550.2 million and $571.3 million of investments for which a fair value option was elected at March 31, 2026 and December 31, 2025, respectively. Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on the unaudited condensed consolidated balance sheets with changes in the fair value recognized in earnings as they occur. As of March 31, 2026, AOCL of $0.8 million, related to securities available for sale increased $771,000 from December 31, 2025. The $0.8 million of AOCL as of March 31, 2026 represented less than 0.001% of total equity and total securities available for sale, reflecting our interest rate risk policy of maintaining short duration on assets and liabilities. Securities Held to Maturity. Securities held to maturity of $1.4 billion at March 31, 2026 decreased $117.7 million, or 8%, compared to $1.5 billion at December 31, 2025. The decrease was due to repayments and amortization of securities totaling $117.7 million during the period. Loans Held for Sale. Loans held for sale of $4.7 billion at March 31, 2026 increased $836.7 million, or 22%, compared to $3.9 billion at December 31, 2025. The increase in loans held for sale was due primarily to a significant increase in single-family warehouse participations, as we experienced higher volume. Loans held for sale are comprised Table of Contents Merchants Bancorp primarily of single-family residential real estate loan participations that meet Fannie Mae, Freddie Mac, or Ginnie Mae eligibility. Loans held for sale also includes single-family, SBA, and multi-family loans that are expected to be sold or securitized in the future. Loans Receivable, Net. Loans receivable, net of ACL-Loans, of $11.4 billion at March 31, 2026, increased $448.5 million compared to $11.0 billion at December 31, 2025. The increase in net loans was comprised primarily of: ● an increase of $382.1 million, or 24%, in mortgage warehouse repurchase agreements, to $2.0 billion at March 31, 2026 , reflecting higher loan volume from increased sales efforts and market exits or reductions of competitors, ● an increase of $205.0 million, or 4%, in multi-family financing loans, to $5.5 billion at March 31, 2026 , reflecting higher origination volume for loans generated through multi-family segment that will remain on our balance sheet until they convert to permanent financing or are otherwise paid off over an average of one to three years , ● an increase of $19.9 million, or 2%, in residential real estate loans, to $1.0 billion at March 31, 2026 , ● a decrease of $124.5 million, or 9%, in healthcare financing loans, to $1.3 billion at March 31, 2026 , and ● a decrease of $42.8 million, or 3%, in commercial and commercial real estate loans, to $1.6 billion at March 31, 2026. As of March 31, 2026, approximately 97% of total loans reprice within three months, which reduces the risk of market rate fluctuations. The Company is a nationwide lender, especially in our largest portfolios of multi-family, mortgage warehouse repurchase agreements, and healthcare financing. The tables below provide loans receivable for multi-family and healthcare portfolios, including the five highest geographic concentrations. March 31, 2026 Multi-family Healthcare State Amount % of Total State Amount % of Total (In thousands) (In thousands) Indiana $ 1,598,267 29 % Michigan $ 272,552 22 % New York 781,423 14 % Georgia 149,470 12 % Texas 291,847 5 % Ohio 142,097 11 % California 232,837 4 % Texas 120,876 10 % Georgia 206,977 4 % Pennsylvania 95,461 7 % Other states (1) 2,426,360 44 % Other states (1) 480,365 38 % Total $ 5,537,711 100 % $ 1,260,821 100 % (1) No state included in the "Other states" group has an individual percentage more than the next highest concentration percentage for the specific portfolio of loans. Table of Contents Merchants Bancorp December 31, 2025 Multi-family Healthcare State Amount % of Total State Amount % of Total (In thousands) (In thousands) Indiana $ 1,563,073 29 % Michigan $ 343,872 25 % New York 778,137 15 % Ohio 205,880 15 % Texas 286,403 5 % Texas 108,626 8 % California 238,116 4 % South Carolina 102,500 7 % Georgia 189,404 4 % Pennsylvania 96,537 7 % Other states (1) 2,277,547 43 % Other states (1) 527,944 38 % Total $ 5,332,680 100 % $ 1,385,359 100 % (1) No state included in the "Other states" group has an individual percentage more than the next highest concentration percentage for the specific portfolio of loans. ACL-Loans. The ACL-Loans of $76.8 million at March 31, 2026 decreased $6.5 million, or 8%, compared to $83.3 million at December 31, 2025. The decrease compared to December 31, 2025 was driven by $23.0 million in charge-offs that were partially offset by a $15.9 million increase in provision expense on loans. The latter was primarily associated with declines on certain multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud, and loan growth. Additionally, the changes were attributable to certain types of subordinated loans that the Company no longer offers to borrowers. Losses on underperforming loans have been largely identified and have either been included in ACL-Loans as specific reserves or charged-off. Additional details are provided in the Asset Quality portion of the Comparison of Financial Condition at March 31, 2026 and December 31, 2025 and in Note 4: Loans and Allowance for Credit Losses on Loans. Goodwill. Goodwill of $8.0 million at March 31, 2026 was unchanged compared to December 31, 2025. Servicing Rights. Servicing rights of $229.6 million at March 31, 2026 increased $12.3 million compared to $217.3 million at December 31, 2025. During the three months ended March 31, 2026, a positive fair market value adjustment of $8.9 million and originated or purchased servicing of $5.9 million were partially offset by paydowns of $2.5 million. The $8.9 million positive fair market value adjustment reflected a positive adjustment of $7.4 million for multi-family and healthcare mortgages and $1.6 million for single-family mortgages and SBA loans during the three months ended March 31, 2026. Servicing rights are recognized in connection with sales of loans when we retain servicing of the sold loans. The servicing rights are recorded and carried at fair value based on the expected future cash flows. The fair value increase recorded during the three months ended March 31, 2026 was driven by higher escrow earnings rates in the multi-family and healthcare servicing portfolios, which increased the expected cash flows from servicing activities. Lower prepayment assumptions in the single-family and healthcare portfolios also contributed to the higher servicing values. The value of servicing rights generally increases in rising interest rate environments and declines in falling interest rate environments due to expected prepayments. Other Real Estate Owned. Other real estate owned of $60.2 million at March 31, 2026 increased $0.1 million compared to December 31, 2025. Other Assets and Receivables. Other assets and receivables of $744.2 million at March 31, 2026 increased by $30.9 million, or 4%, compared to December 31, 2025. The increase was primarily due to a $22.9 million increase in income tax receivable primarily related to tax credits purchased during the period. Deposits. Deposits of $13.0 billion at March 31, 2026 decreased $89.4 million, or 1%, compared to December 31, 2025. As of March 31, 2026, approximately 83% of the total deposits reprice within three months. Table of Contents Merchants Bancorp A summary of deposits as of March 31, 2026 and December 31, 2025 is below. March 31, 2026 December 31, 2025 Change Amount Change % Amount % Amount % (In thousands) Brokered deposits $ 886,482 7% $ 1,757,326 13% ($ 870,844) (50)% Core deposits 12,065,271 93% 11,283,866 87% 781,405 7% Total $ 12,951,753 100% $ 13,041,192 100% ($ 89,439) (1)% Core deposits increased by $781.4 million, or 7%, to $12.1 billion at March 31, 2026 compared to $11.3 billion at December 31, 2025. Core deposits represented 93% of total deposits at March 31, 2026 compared to 87% of total deposits at December 31, 2025. We have decreased our use of total brokered deposits by $870.8 million, or 50%, to $886.5 million at March 31, 2026, compared to $1.8 billion at December 31, 2025. Brokered deposits represented 7% of total deposits at March 31, 2026, compared to 13% of total deposits at December 31, 2025. As of March 31, 2026, brokered certificates of deposit had a weighted average remaining duration of 88 days. Interest-bearing deposits at March 31, 2026 increased $12.8 million, to $12.4 billion compared to December 31, 2025, and noninterest-bearing deposits decreased $102.2 million, or 17%, to $501.9 million at March 31, 2026 compared to December 31, 2025. Uninsured deposits totaled approximately $3.5 billion as of March 31, 2026, representing 27% of total deposits. Since 2018, the Company has offered its customers an opportunity to insure balances in excess of $250,000 through our insured cash sweep program that extends FDIC protection up to $100 million. The balance of deposits in this program was $1.5 billion and $1.4 billion as of March 31, 2026 and December 31, 2025, respectively. Borrowings. Borrowings of $4.8 billion at March 31, 2026 increased $930.9 million, or 24%, compared to December 31, 2025. The higher level of collateralized borrowing was primarily due to increased borrowings at FHLB. The Company primarily utilizes borrowing facilities from the FHLB, the Federal Reserve's discount window, AFX, and Federal Funds, using the most cost-effective options available. See Note 10: Borrowings for further information. The Company continues to have significant borrowing capacity based on available collateral. As of March 31, 2026, unused lines of credit totaled $3.9 billion, compared to $5.3 billion at December 31, 2025. The Company's ratio of total collateralized borrowing capacity to total assets was 42% at March 31, 2026, compared to 47% as of December 31, 2025. Other Liabilities. Other liabilities of $219.8 million at March 31, 2026 decreased $30.7 million, or 12%, compared to $250.5 million at December 31, 2025. The decrease in other liabilities was primarily in accrued expenses and unfunded commitments for low-income housing credit investments. Total Shareholders' Equity. Total shareholders' equity was $2.3 billion as of March 31, 2026. The $49.5 million, or 2%, increase compared to December 31, 2025 resulted from net income of $67.7 million for the three months ended March 31, 2026. The increase was partially offset by dividends paid on common and preferred shares of $15.3 million during the period as well as repurchases of common stock totaling $2.2 million. See Note 13: Common Stock for more details on the common stock repurchases. Table of Contents Merchants Bancorp Asset Quality Loans are generally underwritten to strict Freddie Mac, Fannie Mae, HUD, or other agency guidelines. We continually strive to strengthen our various levels of credit and risk management. The ACL-Loans of $76.8 million, as of March 31, 2026, decreased by $6.5 million, or 8%, compared to $83.3 million as of December 31, 2025. The $6.5 million decrease compared to December 31, 2025 was driven by $23.0 million in charge-offs, partially offset by $15.9 million in provision expense. The latter was primarily associated with declines on certain multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. Additionally, the changes were attributable to certain types of subordinated loans that the Company no longer offers to borrowers. These underperforming loans have been largely identified and evaluated for potential losses that have either been included in the ACL-Loans as specific reserves or charged-off. During the three months ended March 31, 2026, the Company recorded charge-offs across seven relationships, primarily in the healthcare and multi-family loan portfolios totaling $23.0 million and had $616,000 of recoveries compared to $10.5 million of charge-offs and $28,000 of recoveries for the three months ended March 31, 2025. Nearly 75% of the charge-offs for the three months ended March 31, 2026 were related to two relationships. Overall criticized loans receivable of $505.5 million declined by $2.7 million, or 1%, compared to December 31, 2025 and $226.0 million, or 31%, compared to March 31, 2025. These declines reinforce the view that the frequency of migration to criticized status would stabilize and eventually subside, driven by favorable market conditions and our efforts with proactive portfolio management. Loans receivable classified as Special Mention totaled $234.3 million at March 31, 2026, compared to $204.9 million at December 31, 2025 and $407.9 million at March 31, 2025. Loans receivable classified as Substandard totaled $271.2 million at March 31, 2026, compared to $303.3 million at December 31, 2025 and $323.6 million at March 31, 2025. As of March 31, 2026, all Substandard loans have been evaluated for impairment, and these loans have specific reserves of $11.7 million. The Company believes that the remaining loans are well collateralized. Total nonperforming loans (nonaccrual and greater than 90 days late but still accruing) were $247.5 million, or 2.16% of total loans receivable, at March 31, 2026, compared to $197.8 million, or 1.79%, of total loans receivable at December 31, 2025 and $284.6 million, or 2.73%, at March 31, 2025. Loans receivable greater than 30 days past due were $242.3 million at March 31, 2026 compared to $206.6 million at December 31, 2025 and $304.6 million at March 31, 2025. As of March 31, 2026, 11% of the delinquent loans were covered by credit default swaps. As a percentage of nonperforming loans, the ACL-Loans was 31% at March 31, 2026 compared to 42% at December 31, 2025 and 29% at March 31, 2025. The changes in percentage was primarily due to fluctuations in nonperforming loans. The Company continues to reduce its credit risk through loan sales and securitization activities. Since 2024, the Company has strategically executed credit protection arrangements through credit default swaps to reduce risk of losses. The coverage ranges from 13-15% of the unpaid principal balances for each arrangement. As of March 31, 2026, the unpaid principal balance of loans protected by credit default swaps was $2.5 billion, compared to $2.8 billion as of December 31, 2025. Despite having credit protection on these loans, the Company is required to carry an allowance for credit losses on loans receivable. For additional information see Note 11: Derivative Financial Instruments and the Company's 2025 Annual Report on Form 10-K. Table of Contents Merchants Bancorp The percentage of commercial real estate loans as a percentage of total Tier I risk-based capital, including the ACL-Loans, has declined from 324% to 309% from December 31, 2025 to March 31, 2026, respectively. Comparison of Operating Results for the Three Months Ended March 31, 2026 and 2025 General. Net income of $67.7 million for the three months ended March 31, 2026 increased by $9.5 million, or 16%, compared with the three months ended March 31, 2025. The improvement was primarily attributable to a $22.9 million, or 97%, increase in noninterest income driven principally by higher positive fair value adjustments to mortgage servicing rights and certain derivatives. Net income also benefited from a $6.5 million, or 5%, increase in net interest income. These increases were partially offset by a $14.0 million, or 23%, increase in noninterest expense and a $7.6 million increase in the provision for credit losses. Table of Contents Merchants Bancorp The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis. Nonaccrual loans are included in loans and loans held for sale. Three Months Ended March 31, 2026 2025 Interest Interest Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate (Dollars in thousands) Assets: Interest-earning deposits, and other interest or dividends $ 433,306 $ 6,434 6.02 % $ 511,077 $ 7,465 5.92 % Securities available for sale 856,846 9,942 4.71 % 961,065 12,358 5.21 % Securities held to maturity 1,493,185 19,479 5.29 % 1,643,703 24,358 6.01 % Mortgage loans in process of securitization 338,052 4,387 5.26 % 277,426 3,743 5.47 % Loans and loans held for sale 14,741,304 230,269 6.34 % 13,751,197 239,280 7.06 % Total interest-earning assets 17,862,693 270,511 6.14 % 17,144,468 287,204 6.79 % Allowance for credit losses on loans (85,226) (86,711) Noninterest-earning assets 1,175,481 774,193 Total assets $ 18,952,948 $ 17,831,950 Liabilities/Shareholders' Equity: Interest-bearing checking $ 7,199,340 $ 60,763 3.42 % $ 5,121,343 $ 50,609 4.01 % Money market/savings deposits 3,925,326 34,000 3.51 % 3,544,828 34,521 3.95 % Certificates of deposit 1,562,186 15,086 3.92 % 3,369,269 38,811 4.67 % Total interest-bearing deposits 12,686,852 109,849 3.51 % 12,035,440 123,941 4.18 % Borrowings 3,137,379 32,014 4.14 % 3,125,935 41,067 5.33 % Total interest-bearing liabilities 15,824,231 141,863 3.64 % 15,161,375 165,008 4.41 % Noninterest-bearing deposits 560,176 294,248 Noninterest-bearing liabilities 242,151 216,158 Total liabilities 16,626,558 15,671,781 Shareholders' equity 2,326,390 2,160,169 Total liabilities and shareholders' equity $ 18,952,948 $ 17,831,950 Net interest income $ 128,648 $ 122,196 Interest rate spread 2.50 % 2.38 % Net interest-earning assets $ 2,038,462 $ 1,983,093 Net interest margin 2.92 % 2.89 % Average interest-earning assets to average interest-bearing liabilities 112.88 % 113.08 % Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates (rate). The following table sets forth the effects of changing volumes and rates on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Yields have been calculated on a pre-tax basis. Table of Contents Merchants Bancorp The following table summarizes the increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates (rate). Three Months Ended March 31, 2026 compared to March 31, 2025 Increase (Decrease) Due to Volume Rate Total (In thousands) Interest income Interest-earning deposits, and other interest or dividends $ (1,136) $ 105 $ (1,031) Securities available for sale (1,340) (1,076) (2,416) Securities held to maturity (2,231) (2,648) (4,879) Mortgage loans in process of securitization 818 (174) 644 Loans and loans held for sale 17,229 (26,240) (9,011) Total interest income 13,340 (30,033) (16,693) Interest expense Deposits Interest-bearing checking 20,535 (10,381) 10,154 Money market/savings deposits 3,705 (4,226) (521) Certificates of deposit (20,816) (2,909) (23,725) Total Deposits 3,424 (17,516) (14,092) Borrowings 150 (9,203) (9,053) Total interest expense 3,574 (26,719) (23,145) Net interest income $ 9,766 $ (3,314) $ 6,452 Net Interest Income. Net interest income of $128.6 million for the three months ended March 31, 2026 increased $6.5 million, or 5%, compared with the three months ended March 31, 2025. The increase reflected lower interest expense on certificates of deposits and borrowings, partially offset by higher interest expense on interest-bearing checking accounts and lower interest income on loans and loans held for sale. The interest rate spread of 2.50% for the three months ended March 31, 2026 increased 12 basis points compared to 2.38% for the three months ended March 31, 2025. Our net interest margin increased three basis points, to 2.92%, for the three months ended March 31, 2026 compared to 2.89% for the three months ended March 31, 2025. The increase in net interest margin was primarily attributable to the repayment of credit-linked notes in December 2025. Interest Income. Interest income of $270.5 million for the three months ended March 31, 2026, decreased $16.7 million, or 6%, compared with $287.2 million for the three months ended March 31, 2025. This decrease was primarily attributable to lower average yields on higher average balances on loans and loans held for sale, as well as lower average yields on lower average balances on securities held to maturity. Interest income of $230.3 million on loans and loans held for sale for the three months ended March 31, 2026, decreased $9.0 million, or 4%, compared to $239.3 million for the three months ended March 31, 2025. The average yield on loans decreased 72 basis points to 6.34%, for the three months ended March 31, 2026, compared to 7.06% for the three months ended March 31, 2025. The average balance of loans and loans held for sale of $14.7 billion for the three months ended March 31, 2026 increased $990.1 million, or 7%, compared to the three months ended March 31, 2025. Interest income of $19.5 million on securities held to maturity for the three months ended March 31, 2026, decreased $4.9 million, or 20%, compared to $24.4 million for the three months ended March 31, 2025. The average yield decreased 72 basis points to 5.29% for the three months ended March 31, 2026, compared to 6.01% for the three months ended March 31, 2025. The average balance of securities held to maturity of $1.5 billion for the three months Table of Contents Merchants Bancorp ended March 31, 2026 decreased $150.5 million, or 9%, compared to $1.6 billion for the three months ended March 31, 2025. The decrease in average balance was primarily due to repayments. Interest income of $9.9 million on securities available for sale for the three months ended March 31, 2026, decreased $2.4 million, or 20%, compared to the three months ended March 31, 2025. The average balance of securities available for sale of $856.8 million for the three months ended March 31, 2026 decreased $104.2 million, or 11%, compared to the three months ended March 31, 2025. The average yield decreased 50 basis points to 4.71%, for the three months ended March 31, 2026, compared to 5.21% for the three months ended March 31, 2025. The decrease in average balance of securities available for sale was primarily due to maturities and repayments, as well as fair value adjustments, that were partially offset by purchases. Interest income of $6.4 million on interest-earning deposits, and other interest or dividends for the three months ended March 31, 2026, decreased $1.0 million, or 14%, compared to the three months ended March 31, 2025. The average balance of interest-earning deposits, and other interest or dividends of $433.3 million for the three months ended March 31, 2026 decreased $77.8 million, or 15%, compared to $511.1 million for the three months ended March 31, 2025. The average yield increased 10 basis points, to 6.02% for the three months ended March 31, 2026, compared to 5.92% for the three months ended March 31, 2025. The decrease in average balances reflected the utilization of cash to fund loan growth. Interest income of $4.4 million on mortgage loans in process of securitization for the three months ended March 31, 2026, increased $0.6 million, or 17%, compared to the three months ended March 31, 2025. The average balance of mortgage loans in process of securitization of $338.1 million increased $60.6 million, or 22%, compared to the three months ended March 31, 2025. The average yield decreased 21 basis points, to 5.26% for the three months ended March 31, 2026, compared to 5.47% for the three months ended March 31, 2025. The increase in average balance was primarily due to a higher origination volume of loans pending settlement for sale on the secondary market. Interest Expense. Total interest expense of $141.9 million for three months ended March 31, 2026, decreased $23.1 million, or 14%, compared with $165.0 million for the three months ended March 31, 2025. Interest expense on deposits of $109.8 million decreased $14.1 million, or 11%, for the three months ended March 31, 2026, compared to $123.9 million for the three months ended March 31, 2025. The decrease reflected lower average balances at lower average rates on certificates of deposit, which were partially offset by higher average balances at lower average rates on interest-bearing checking accounts. Interest expense of $15.1 million on certificate of deposit accounts for the three months ended March 31, 2026, decreased $23.7 million, or 61%, compared to $38.8 million for the three months ended March 31, 2025. The average balance of $1.6 billion for the three months ended March 31, 2026, decreased $1.8 billion, or 54%, compared to $3.4 billion the three months ended March 31, 2025. The average rate on certificates of deposit was 3.92% for the three months ended March 31, 2026, which was a 75 basis points decrease compared to 4.67% for the three months ended March 31, 2025. The decrease in certificates of deposit is primarily due to the decrease in use of brokered deposits. Interest expense of $60.8 million on interest-bearing checking accounts for the three months ended March 31, 2026, increased $10.2 million, or 20%, compared to $50.6 million the three months ended March 31, 2025. The average balance of $7.2 billion for the three months ended March 31, 2026, increased $2.1 billion, or 41%, compared to $5.1 billion the three months ended March 31, 2025. The average rate on interest-bearing checking accounts was 3.42% for the three months ended March 31, 2026, which was a 59 basis points decrease compared to 4.01% for the three months ended March 31, 2025. Interest expense of $34.0 million for money market/savings accounts decreased $0.5 million, or 2%, for the three months ended March 31, 2026, compared to $34.5 million for the three months ended March 31, 2025. The average balance of money market/savings accounts of $3.9 billion for the three months ended March 31, 2026 increased $380.5 million, or 11%, compared to $3.5 billion for the three months ended March 31, 2025. The average rate on Table of Contents Merchants Bancorp money market/savings accounts was 3.51% for the three months ended March 31, 2026, which was a 44 basis point decrease compared to 3.95% for the three months ended March 31, 2025. Interest expense on borrowings of $32.0 million for the three months ended March 31, 2026, decreased $9.1 million, or 22%, compared to $41.1 million the three months ended March 31, 2025. The decrease was due primarily to a 119 basis points reduction in average interest rates, to 4.14%, for the three months ended March 31, 2026, compared to 5.33% for the three months ended March 31, 2025. This was partially offset by an $11.4 million increase in average borrowings, to $3.1 billion, for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. Included in interest expense on borrowings, our warehouse structured financing agreements provide for an additional interest payment for a portion of the earnings generated. As a result, the cost of borrowings increased from a base rate of 3.90% and 5.08%, to an effective rate of 4.14% and 5.33% for the three months ended March 31, 2026 and 2025, respectively. Provision for Credit Losses. We recorded a provision for credit losses of $15.3 million for the three months ended March 31, 2026, an increase of $7.6 million, or 98%, compared to the three months ended March 31, 2025. The $15.3 million provision for credit losses consisted of $15.9 million for the ACL-Loans, net of a $0.6 million release for the ACL-OBCE's and net of a $7,000 release for the ACL-Guarantees, related to a loan securitization. The ACL-Loans was $76.8 million, or 0.67% of total loans, at March 31, 2026, compared to $83.3 million, or 0.75% of total loans, at December 31, 2025, and $83.4 million, or 0.80%, at March 31, 2025. The decreases compared to both December 31, 2025 and March 31, 2025 was primarily related to charge-offs on loans with specific reserves. Additional details are provided in the Asset Quality portion of the Comparison of Financial Condition at March 31, 2026 and December 31, 2025 and in Note 4: Loans and Allowance for Credit Losses on Loans. Noninterest Income. Three Months Ended March 31, 2026 2025 Change Amount Change % (In thousands) Noninterest income: Gain on sale of loans $ 13,506 $ 11,619 $ 1,887 16% Loan servicing fees, net 15,099 4,010 11,089 277% Mortgage warehouse fees 1,620 1,513 107 7% Syndication and asset management fees 3,117 3,389 (272) (8)% Other income 13,257 3,162 10,095 319% Total noninterest income $ 46,599 $ 23,693 $ 22,906 97% Noninterest income of $46.6 million for the three months ended March 31, 2026 increased $22.9 million, or 97%, compared to $23.7 million for the three months ended March 31, 2025. Results reflected a $11.1 million, or 277%, increase in loan servicing fees, $10.1 million, or 319%, increase in other income, and a $1.9 million, or 16%, increase in gain on sale of loans. Loan servicing fees of $15.1 million for the three months ended March 31, 2026 increased $11.1 million, or 277%, compared to $4.0 million for the three months ended March 31, 2025. Loan servicing fees included an $8.9 million positive fair market value adjustment to servicing rights for the three months ended March 31, 2026, compared to a $0.8 million negative fair market value adjustment to servicing rights for the three months ended March 31, 2025. Table of Contents Merchants Bancorp Other noninterest income of $13.3 million for the three months ended March 31, 2026 increased $10.1 million, or 319%, compared to $3.2 million for the three months ended March 31, 2025. Other noninterest income included a $2.7 million positive adjustment to the fair value of floor derivatives for the three months ended March 31, 2026 compared to a $2.3 million negative fair value adjustment for the three months ended March 31, 2025. The floor derivatives are associated with arrangements whereby there is a guaranteed minimum interest rate the Company will receive on certain assets bearing variable interest rates. The change in value was driven largely by the change in market interest rates during the period. Also included in other noninterest income were changes in fair value on certain securities available for sale that the Company elected to account for under the fair value option, with changes in fair value reflected in earnings. The Company also has put options associated with these securities that provide protection against any change in value. By design, the fair value adjustments of the securities and the put options should be substantially equal and offsetting. For the three months ended March 31, 2026 there was a $7.9 million negative fair value adjustment on the securities that were offset by a $7.9 million positive fair value adjustment on the put options, hence having no net gain or loss recognized. Also see Note 2: Investment Securities, Note 11: Derivative Financial Instruments , and Note 12: Disclosures about Fair Value of Assets and Liabilities. Gain on sale of loans of $13.5 million for the three months ended March 31, 2026 increased $1.9 million, or 16%, compared to $11.6 million for the three months ended March 31, 2025. The increase in gain on sale of loans resulted primarily from higher volume in the multi-family loan portfolio. A summary of the gain on sale of loans for the three months ended March 31, 2026 and 2025 is below: Gain on Sale of Loans Three Months Ended March 31, 2026 2025 Change Amount Change % (In thousands) Loan Type: Multi-family $ 11,422 $ 10,125 $ 1,297 13% Single-family 388 206 182 88% SBA 1,696 1,288 408 32% Total $ 13,506 $ 11,619 $ 1,887 16% Syndication and asset management fees of $3.1 million for the three months ended March 31, 2026, decreased $0.3 million, or 8%, compared to $3.4 million for the three months ended March 31, 2025. The decrease was attributable to less equity raised by our LIHTC syndication platform during the three months ended March 31, 2026 than the prior year. Table of Contents Merchants Bancorp Noninterest Expense. Three Months Ended March 31, 2026 2025 Change Amount Change % (In thousands) Noninterest expense: Salaries and employee benefits $ 38,565 $ 36,419 $ 2,146 6% Loan expense 1,185 798 387 48% Occupancy and equipment 3,081 2,351 730 31% Professional fees 2,767 2,894 (127) (4)% Deposit insurance expense 8,408 7,228 1,180 16% Technology expense 2,679 2,374 305 13% Credit risk transfer premium expense 5,764 3,862 1,902 49% Other expense 13,193 5,738 7,455 130% Total noninterest expense $ 75,642 $ 61,664 $ 13,978 23% Noninterest expense of $75.6 million for the three months ended March 31, 2026 increased $14.0 million, or 23%, compared to the three months ended March 31, 2025. Results reflected a $7.5 million increase in other noninterest expense that included $3.1 million in collateral preservation expenses associated with taxes, insurance, property expenses, and legal fees related to nonperforming assets. The increase also reflects a $2.1 million, or 6%, increase in salaries and employee benefits to support business growth, a $1.9 million increase in credit risk transfer premium expense associated with credit default swaps, as well as $1.2 million, or 16%, increase in deposit insurance expense primarily associated with asset quality. The efficiency ratio was at 43.16% for the three months ended March 31, 2026, compared with 42.27% for the three months ended March 31, 2025. Income Taxes. Income tax expense of $16.6 million for the three months ended March 31, 2026 decreased $1.7 million, or 9%, compared to $18.3 million for the three months ended March 31, 2025. The effective tax rate was 19.7% and 23.9% for the three months ended March 31, 2026 and 2025, respectively. Our Segments We operate in three primary segments: Multi-family Mortgage Banking, Mortgage Warehousing, and Banking. The reportable segments are consistent with the internal reporting and evaluation of the principal lines of business of the Company. The Multi-family Mortgage Banking segment originates, and services government sponsored mortgages for multi-family and healthcare facilities. It is also a fully integrated syndicator of low-income housing tax credit and debt funds. Consistently one of the top ranked agency affordable lenders in the nation, our licenses with FHA, Fannie Mae, and Freddie Mac, coupled with our bank financing products, and tax credit syndication platform, provide sponsors with custom beginning-to-end financing solutions that adapt to an ever-changing market. We also offer customized loan products for need-based skilled nursing facilities, including independent living, assisted living, and memory care. A variety of loan products are available to accommodate acquisition, rehabilitation, and refinancing of healthcare properties throughout the country. These loans are underwritten with the intent to convert to FHA permanent loans within three years. We are also one of the largest Ginnie Mae servicers in the country based on aggregate unpaid principal balance. As of March 31, 2026 the Company's servicing portfolio included unpaid principal balance of loans serviced for others of $21.3 billion, loans sub-serviced for others of $4.1 billion and other servicing balances of $680.8 million. The Table of Contents Merchants Bancorp servicing portfolio is primarily Ginnie Mae, Fannie Mae, and Freddie Mac loans and is a significant source of our noninterest income and deposits. Our Mortgage Warehousing segment funds agency eligible loans for non-depository financial institutions from the date of origination or purchase until the date of sale to an investor, which typically takes less than 30 days and is a significant source of our net interest income, loans, and deposits. Mortgage Warehousing has grown to fund $45.6 billion in 2024, $66.3 billion in 2025, and $19.6 billion for the three months ended March 31, 2026. Mortgage Warehousing also provides commercial loans and collects deposits related to the mortgage escrow accounts of its customers. The Banking segment includes retail banking, commercial lending, agricultural lending, retail and correspondent residential mortgage banking, and SBA lending. Banking operates primarily in Indiana, except for correspondent mortgage banking which, like Multi-family Mortgage Banking and Mortgage Warehousing, is a national business. The Banking segment has a well-diversified customer and borrower base and has experienced significant growth over the past several years. Our segment financial information was compiled utilizing the policies described in Note 17: Segment Information included elsewhere in this report. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes, if any, in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. Our segments diversify the net income of Merchants Bank and provide synergies across the segments. Strategic opportunities come from MCC and MCS, where loans are funded by the Banking segment and the Banking segment provides Ginnie Mae custodial services to MCC and MCS. LIHTC syndication and debt fund offerings complement the lending activities of new and existing multi-family mortgage customers. The securities available for sale and held to maturity funded by MCC custodial deposits or purchases of securitized loans originated by MCC are pledged to FHLB to provide advance capacity during periods of high residential loan volume for Mortgage Warehousing. Mortgage Warehousing provides leads to Correspondent Lending in the Banking segment. Retail and commercial customers provide cross selling opportunities within the Banking segment. Merchants Mortgage is a risk mitigant to Mortgage Warehousing because it provides us with a ready platform to sell the underlying collateral to secure repayment. These and other synergies form a part of our strategic plan. The Other segment presented below, in Note 17: Segment Information , and elsewhere in this report includes general and administrative expenses for provision of services to all segments, internal funds transfer pricing offsets resulting from allocations to or from the other segments, certain elimination entries, and investments in low-income housing tax credit limited partnerships or LLC. For the three months ended March 31, 2026 and 2025, we had total net income of $67.7 million and $58.2 million, respectively. Net income for our three segments for the respective periods was as follows: Three Months Ended March 31, 2026 2025 (In thousands) Multi-family Mortgage Banking $ 11,014 $ 3,413 Mortgage Warehousing 28,648 15,398 Banking 37,980 47,107 Other (9,910) (7,679) Total $ 67,732 $ 58,239 Table of Contents Merchants Bancorp Multi-family Mortgage Banking. The Multi-family Mortgage Banking segment reported net income of $11.0 million for the three months ended March 31, 2026, an increase of $7.6 million, or 223%, compared to net income of $3.4 million for the three months ended March 31, 2025. The rise in net income was primarily due to increases of $7.6 million in loan servicing fees and $2.1 million in gain on sale of loans, which was partially offset by an increase in income tax expense of $1.4 million. Loan servicing fees included $7.4 million positive fair market value adjustment to servicing rights for the three months ended March 31, 2026, compared to a $0.4 million positive fair market value adjustment for the three months ended March 31, 2025. The total volume of loans originated and acquired through our Multi-family business was $1.2 billion, an increase of $245.3 million, or 26%, compared to $934.4 million for the three months ended March 31, 2025. It includes construction loans coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment while borrowers await conversion to permanent financing. It also includes loans originated and acquired for sale in the secondary market. Mortgage Warehousing. The Mortgage Warehousing segment reported net income of $28.6 million for the three months ended March 31, 2026, an increase of $13.3 million, or 86%, compared to the three months ended March 31, 2025. The rise in net income reflected increases of $10.1 million in net interest income and $5.0 million in other noninterest income, which was partially offset by an increase in income tax expense of $2.3 million. Noninterest income included a $2.7 million positive fair market value adjustment to derivatives for the three months ended March 31, 2026, compared to a $2.3 million negative fair market value adjustment to derivatives for the three months ended March 31, 2025. The volume of loans funded during the three months ended March 31, 2026 amounted to $19.6 billion, an increase of $7.7 billion, or 65%, compared to the three months ended March 31, 2025. This compared to the 43% industry-wide increase in single-family residential loan volumes for the three months ended March 31, 2026 compared to the same period in 2025, according to an estimate of industry volume by the Mortgage Bankers Association. Banking. The Banking segment reported net income of $38.0 million for the three months ended March 31, 2026, a decrease of $9.1 million, or 19%, compared to $47.1 million for the three months ended March 31, 2025. The decrease in net income was primarily due to lower net interest income after provision for credit losses. Noninterest income included a $1.6 million positive fair market value adjustment to servicing rights for the three months ended March 31, 2026, compared to a $1.2 million negative fair market value adjustment to servicing rights for the three months ended March 31, 2025. Liquidity and Capital Resources Liquidity . Our primary sources of funds are business and consumer deposits, escrow and custodial deposits, borrowings, brokered deposits, principal and interest payments on loans, principal and interest on investment securities, and proceeds from sale of loans. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition. At March 31, 2026, based on pledged collateral, we had $3.9 billion in available unused borrowing capacity with the FHLB and the Federal Reserve discount window. This compared to $5.3 billion at December 31, 2025. While the amounts available fluctuate daily, we also had available capacity lines through our membership in the AFX and US Bank Federal Funds. This liquidity enhances the ability to effectively manage interest expense and asset levels in the future. Table of Contents Merchants Bancorp The Company's most liquid assets are in cash, short-term investments, including interest-bearing demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit included in loans receivable. Taken together with its unused borrowing capacity of $3.9 billion described above, these totaled $11.1 billion, or 55%, of its $20.3 billion total assets at March 31, 2026. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period. The Company's investment portfolio has minimal levels of unrealized losses and management does not anticipate a need to sell securities for liquidity purposes at a loss. As of March 31, 2026, AOCL of $0.8 million, related to securities available for sale, increased $771,000 compared to AOCL as of December 31, 2025. The $0.8 million of AOCL as of March 31, 2026 represented less than 0.001% of total equity and total securities available for sale, reflecting our interest rate risk policy of maintaining short duration on assets and liabilities. Most common recurring variability within our cash flows comes from loan growth and sale activity. As discussed in detail throughout this section and Capital Resources , the Company has numerous funding sources to cover volatility in cash flows for operating and financing needs through our cash, investments, borrowing capacity, deposit base and capital resources. The following table and summary provide cash flow information for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. Three Months Ended March 31, 2026 2025 Change (In thousands) Cash flows from: Operating activities $ (597,324) $ 148,038 $ (745,362) Investing activities (335,257) (903) (334,354) Financing activities 803,594 (102,449) 906,043 ● Cash flows from operating activities decreased $745.4 million primarily driven by an increase in cash outflows of $5.4 billion in loans originated and purchased for sale, partially offset by an increase cash inflow of $4.5 billion from proceeds from sold loans and principal collected, as we increased production and sales volumes during the quarter. ● Cash flows from investing activities decreased $334.4 million primarily driven by a fluctuation in cash outflows of $451.8 million in net change in loans receivable due to increased loan growth. ● Cash flows from financing activities increased $906.0 million primarily driven by increased cash inflows due to higher FHLB borrowings, partially offset by increased cash outflows due to lower deposit growth. Certificates of deposit that are scheduled to mature in less than one year from March 31, 2026 totaled $1.1 billion, or 96% of total certificates of deposit. Of the $1.1 billion in total, including those that will mature in more than one year, there were $741.5 million classified as core deposits. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may decide to utilize FHLB advances, the Federal Reserve discount window, brokered deposits, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our unaudited condensed consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments, lines of credit and standby letters of credit. Table of Contents Merchants Bancorp At March 31, 2026, we had $3.9 billion in outstanding commitments to extend credit that are subject to credit risk and $1.5 billion in outstanding commitments subject to certain performance criteria and cancellation by the Company. These commitments include funding commitments for approved loans, unfunded construction draws, standby letters of credit and certain unfunded warehouse repurchase agreements. The Company does not expect that all such commitments will be funded and believes it has sufficient liquidity to meet current loan origination commitments should funding occur. Additionally, the Company's business model is designed to continuously sell a significant portion of its loans, which provides flexibility in managing its liquidity. Capital Resources. The access to and cost of funding new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance costs and the level and nature of regulatory oversight depend, in part, on our capital position. The Company filed a shelf registration statement on Form S-3 with the SEC on May 23, 2025, which was declared effective on June 4, 2025, under which we can issue up to $500 million aggregate offering amount of registered securities to finance our growth objectives. The Company has demonstrated its ability to raise capital or utilize securitization transactions to free up capital as needed. The assessment of capital adequacy depends on a number of factors, including asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to our current operations and to promote public confidence in our Company. Preferred Stock/Dividends . 6% Series C Preferred Stock. Dividends on the Series C Preferred Stock, to the extent declared by the Board, are payable quarterly. The Company may redeem the Series C Preferred Stock, in whole or in part, at our option, on any dividend payment date on or after April 1, 2026, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption. 8.25% Series D Preferred Stock. Dividends on the Series D Preferred Stock, to the extent declared by the Board are payable quarterly. The Company may redeem the Series D Preferred Stock, in whole or in part, at our option, on any dividend payment date on or after October 1, 2027, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption. If the Series D Preferred Stock remains outstanding on October 1, 2027, its dividend rate would reset to the 5-year Treasury rate, plus 4.34% and would remain at that level for an additional 5 years. 7.625% Series E Preferred Stock. Dividends on the Series E Preferred Stock, to the extent declared by the Board, are payable quarterly. The Company may redeem the Series E Preferred Stock, in whole or in part, at its option, on any dividend payment date on or after January 1, 2030, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption. Dividends declared to preferred shareholders for the three months ended March 31, 2026, totaled $10.3 million. For more information, see Note 14: Preferred Stock . Common Shares/Dividends . As of March 31, 2026, the Company had 45,935,408 common shares issued and outstanding. The Board declared a quarterly dividend of $0.11 per share for the first quarter of 2026. On January 28, 2026, the Company announced a stock repurchase program, up to $100,000,000 of common stock, expiring December 31, 2027. On February 26, 2026, the Company entered into a Rule 10b5-1 plan (the "10b5-1 Table of Contents Merchants Bancorp Plan") with a broker for the repurchase of shares of its common stock commencing on March 3, 2026. The details of this repurchase plan were provided in a press release issued by the Company on January 28, 2026. The following table summarizes our share repurchase authorization and repurchase activity of our common stock during the three months ended March 31, 2026. Three Months Ended March 31, 2026 Remaining authorization at January 31, 2026 $ 100,000,000 Dollar value of shares repurchased $ 3,001,622 Shares repurchased 73,164 Average price paid per share $ 41.03 Remaining authorization at March 31, 2026 $ 96,998,378 The timing and actual number of additional shares repurchased will depend on a variety of factors, including cash requirements to meet the operating needs of the business, legal requirements, as well as the share price and economic and market conditions. Capital Adequacy . The following tables present the Company's capital ratios at March 31, 2026 and December 31, 2025. Minimum Amount to be Well Minimum Amount Capitalized with To Be Well Actual Basel III Buffer (1) Capitalized (1) Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) March 31, 2026 Total capital (1) (to risk-weighted assets) Company $ 2,408,656 12.8 % $ 1,980,993 10.5 % $ - N/A % Merchants Bank 2,335,139 12.4 % 1,979,758 10.5 % 1,885,483 10.0 % Tier I capital (1) (to risk-weighted assets) Company 2,322,134 12.3 % 1,603,661 8.5 % - N/A % Merchants Bank 2,248,617 11.9 % 1,602,661 8.5 % 1,508,387 8.0 % Common Equity Tier I capital (1) (to risk-weighted assets) Company 1,770,844 9.4 % 1,320,662 7.0 % - N/A % Merchants Bank 2,248,617 11.9 % 1,319,838 7.0 % 1,225,564 6.5 % Tier I capital (1) (to average assets) Company 2,322,134 12.3 % 947,199 5.0 % - N/A % Merchants Bank 2,248,617 11.9 % 944,081 5.0 % 944,081 5.0 % (1) As defined by regulatory agencies. Table of Contents Merchants Bancorp Minimum Amount to be Well Minimum Amount Capitalized with To Be Well Actual Basel III Buffer (1) Capitalized (1) Amount Ratio Amount Ratio Amount Ratio (Dollars in thousands) December 31, 2025 Total capital (1) (to risk-weighted assets) Company $ 2,365,600 13.6 % $ 1,822,759 10.5 % $ - N/A % Merchants Bank 2,320,227 13.4 % 1,821,535 10.5 % 1,734,795 10.0 % Tier I capital (1) (to risk-weighted assets) Company 2,272,014 13.1 % 1,475,567 8.5 % - N/A % Merchants Bank 2,226,641 12.8 % 1,474,576 8.5 % 1,387,836 8.0 % Common Equity Tier I capital (1) (to risk-weighted assets) Company 1,720,724 9.9 % 1,215,172 7.0 % - N/A % Merchants Bank 2,226,641 12.8 % 1,214,357 7.0 % 1,127,617 6.5 % Tier I capital (1) (to average assets) Company 2,272,014 11.5 % 990,358 5.0 % - N/A % Merchants Bank 2,226,641 11.3 % 987,284 5.0 % 987,284 5.0 % (1) As defined by regulatory agencies. Quantitative measures established by regulation to ensure capital adequacy require the Company and Merchants Bank to maintain minimum amounts and ratios (set forth in the table above). Management believes, as of March 31, 2026 and December 31, 2025, that the Company and Merchants Bank met all capital adequacy requirements to which they were subject. For additional information regarding dividend restrictions, see the Company's 2025 Annual Report on Form 10-K. As of March 31, 2026 and December 31, 2025, the most recent notifications from the Federal Reserve categorized the Company as well capitalized and most recent notifications from the FDIC categorized Merchants Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes has changed the Company's or Merchants Bank's category. The Company's principal source of funds for dividend payments to shareholders is dividends received from Merchants Bank. Banking statutes and regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under Indiana law, Merchants Bank may not pay a dividend if such dividend would be greater than retained net income (as defined) for the current year plus those for the previous two years. During the three months ended March 31, 2026, the Company's MOU from mid-2025 with the FDIC and DFI was terminated, following progress made by management in addressing the MOU provisions. As a result, the Company is no longer subject to any dividend or capital restrictions beyond those applicable to institutions that are considered well-capitalized under applicable regulatory guidelines. Table of Contents Merchants Bancorp Quantitative and Qualitative Disclosures About Market Risk Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified two primary sources of market risk: interest rate risk and price risk related to market demand. Interest Rate Risk Overview . Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers' ability to prepay residential mortgage loans at any time and depositors' ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries or SOFR. Our business consists of funding low risk, multi-family, residential, and SBA loans, as well as warehouse repurchase agreements, meeting underwriting standards of government programs under an originate to sell model, and retaining adjustable-rate loans as held for investment to reduce interest rate risk. Our Asset-Liability Committee, or ALCO, is a management committee that manages our interest rate risk within policy limits established by our Board. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Our ALCO meets quarterly, at a minimum, to monitor the level of interest rate risk sensitivity to ensure compliance with the Board's approved risk limits. Additionally, the Risk Committee of our Board meets quarterly, in conjunction with Board meetings, to assess risks associated with interest rate sensitivity. Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints. An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin. Income Simulation and Economic Value Analysis. Interest rate risk measurement is calculated and reported to the ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk. We use two approaches to model interest rate risk: Net Interest Income at Risk (NII at Risk) and Economic Value of Equity ("EVE"). Under NII at Risk, net interest income is modeled for a twelve month period utilizing various assumptions for assets, liabilities, and derivatives and excludes non-interest income. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement. Table of Contents Merchants Bancorp We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results reflect the analysis used quarterly by management. It models gradual -200, -100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next one-year period. The following table presents NII at Risk for Merchants Bank as of March 31, 2026 and December 31, 2025. Net Interest Income Sensitivity Twelve Months Forward - 200 - 100 + 100 + 200 (Dollars in thousands) March 31, 2026: Dollar change $ (72,556) $ (38,982) $ 36,757 $ 73,717 Percent change (12.5) % (6.7) % 6.3 % 12.7 % December 31, 2025: Dollar change $ (86,677) $ (45,885) $ 39,011 $ 78,102 Percent change (14.7) % (7.8) % 6.6 % 13.2 % Our interest rate risk management policy objective is to limit the change in our net interest income to 20% for a +/-100 basis point move in interest rates, and 30% for a +/-200 basis point move in rates. At March 31, 2026 we estimated that we were within policy limits set by our Board for the -200, -100, +100, and +200 basis point scenarios. The EVE results for Merchants Bank included in the following table reflect the analysis used quarterly by management. It models immediate -200, -100, +100 and +200 basis point parallel shifts in market interest rates. Economic Value of Equity Sensitivity (Shock) Immediate Change in Rates - 200 - 100 + 100 + 200 (Dollars in thousands) March 31, 2026: Dollar change $ 65,852 $ 37,799 $ (6,262) $ (11,235) Percent change 2.9 % 1.6 % (0.3) % (0.5) % December 31, 2025: Dollar change $ 62,263 $ 37,217 $ (4,649) $ (8,900) Percent change 2.8 % 1.7 % (0.2) % (0.4) % Our interest rate risk management policy objective is to limit the change in our EVE to 15% for a +/-100 basis point move in interest rates, and 20% for a +/-200 basis point move in rates. We are within policy limits set by our Board for the -200, -100, +100 and +200 basis point scenarios. The EVE reported at March 31, 2026 projects that as interest rates increase (decrease) immediately, the economic value of equity position will be expected to decrease (increase). When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the greater the value lost. The opposite is true when interest rates fall. Non-GAAP Financial Measures The Company's accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist users of the financial information in assessing the Company's operating performance. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the following table. Table of Contents Merchants Bancorp Although intended to enhance understanding of the Company's business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance. March 31, 2026 2025 (In thousands) Total equity $ 2,330,303 $ 2,160,735 Less: goodwill and intangibles (8,045) (8,068) Less: preferred stock (551,291) (551,291) Tangible common shareholders' equity $ 1,770,967 $ 1,601,376 Assets $ 20,321,782 $ 18,797,800 Less: goodwill and intangibles (8,045) (8,068) Tangible assets $ 20,313,737 $ 18,789,732 Ending common shares 45,935,408 45,881,706 Tangible book value per common share $ 38.55 $ 34.90