Merchants Bancorp Reports Second Quarter 2023 Results

About this update from Merchants Bancorp

Second quarter 2023 net income of $65.3 million increased 21% compared to second quarter of 2022 and increased 19% compared to the first quarter 2023. Second quarter 2023 diluted earnings per common share of $1.31 increased 18% compared to the second quarter of 2022 and increased 22% compared to the first quarter of 2023. During the second quarter 2023, the Company recorded a $13.0 million tax benefit related to tax refunds and changes to its state tax apportionment calculations, which was offset by credit events that totaled approximately $14.8 million , primarily for the impact of a multi-family loan charge-off, an increase in specific reserves for a healthcare customer, and changes to qualitative factors and forecasted loss rates. Total assets of $15.9 billion increased 11% compared to March 31, 2023 , and increased 26% compared to December 31, 2022 . As of June 30, 2023 , the Company had $5.3 billion , or 34% of total assets, in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window, based on available collateral. The Company's most liquid assets are in unrestricted 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 unused borrowing capacity, these totaled $10.2 billion , or 64%, of the $15.9 billion in total assets as of June 30, 2023 . Uninsured deposits totaled approximately $2 billion as of June 30, 2023 , representing less than 20% of total deposits. Loans receivable of $9.9 billion , net of allowance for credit losses on loans, increased $1.3 billion , or 15%, compared to March 31, 2023 , and increased $2.4 billion , or 33%, compared to December 31, 2022 . Efficiency ratio was 32.7% in the second quarter of 2023 compared to 29.6% in the second quarter of 2022 and 30.3% in the first quarter of 2023. Tangible book value per common share of $24.14 increased 23% compared to $19.70 in the second quarter of 2022 and increased 6% compared to $22.88 in the first quarter of 2023. CARMEL, Ind. , July 27, 2023 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana , today reported second quarter 2023 net income of $65.3 million , or diluted earnings per common share of $1.31 . This compared to $53.9 million , or diluted earnings per common share of $1.11 in the second quarter of 2022, and compared to $55.0 million , or diluted earnings per common share of $1.07 in the first quarter of 2023. "We have continued to garner accolades for our performance and were honored to be named this month by American Banker Magazine as the #1 top-performing bank with assets between $10-50 billion . Our results in the second quarter reflected that ongoing strength as we delivered profitable loan growth and our noninterest income gained momentum from diverse sources. We have effectively managed our expenses and capital during this time of economic uncertainty, while maintaining an expense ratio of 32.7%, a return on average assets of 1.78%, and increasing tangible book value to $24.14 per share," said Michael F. Petrie , Chairman and CEO of Merchants. Michael J. Dunlap , President and Chief Operating Officer of Merchants, added, "Our liquidity remains strong, with unused borrowing capacity that increased to $5.3 billion during the quarter, which positions us well to execute our plans for future growth. Our relationship-focused teams are working hard every day to meet the needs of our loyal customers and improve communities across the country." Net income of $65.3 million for the second quarter 2023 increased by $11.4 million , or 21%, compared to the second quarter of 2022, driven by: a $33.6 million , or 47%, increase in net interest income, a $14.8 million , or 82%, decrease in the Provision for Income Tax, reflecting a $13.0 million tax benefit related to tax refunds and changes to its state tax apportionment calculations described in the Provision for Income Tax section, a $16.4 million , or 264%, increase in provision for credit losses, primarily due to credit events that totaled approximately $14.8 million for the impact of a multi-family loan charge-off, an increase in specific reserves for a healthcare customer, and changes to qualitative factors and forecasted loss rates, described in the Asset Quality section, an $11.4 million , 34%, increase in noninterest expense, and a $10.2 million , or 47%, decrease in gain on sale of loans. Net income of $65.3 million for the second quarter 2023 increased by $10.3 million , or 19%, compared to the first quarter of 2023, primarily driven by: a $15.6 million , or 109%, increase in noninterest income reflecting higher gain on sale of loans, loan servicing fees and syndication and asset management fees, a $15.1 million , or 82%, decrease in the Provision for Income Tax, reflecting a $13.0 million tax benefit related to tax refunds and changes to its state tax apportionment calculations described in the Provision for Income Tax section, a $4.9 million , or 5%, increase in net interest income, a $15.7 million , or 229%, increase in provision for credit losses, primarily due to credit events that totaled approximately $14.8 million for the impact of a multi-family loan charge-off, an increase in specific reserves for a healthcare customer, and changes to qualitative factors and forecasted loss rates, described in the Asset Quality section, and a $9.5 million , 27%, increase in noninterest expense. Total Assets Total assets of $15.9 billion at June 30, 2023 increased $1.6 billion , or 11%, compared to March 31, 2023 , and increased $3.3 billion , or 26%, compared to December 31, 2022 . Increases compared to both periods were primarily due to significant growth in the mortgage warehouse, multi-family and healthcare loan portfolios. Return on average assets was 1.78% for the second quarter of 2023 compared to 2.20% for the second quarter of 2022 and 1.71% for the first quarter of 2023. Asset Quality The allowance for credit losses on loans of $63.0 million as of June 30, 2023 increased $11.1 million , or 22%, compared to March 31, 2023 and increased $19.0 million , or 43%, compared to December 31, 2022 . The increases were primarily due to the following: replenishment of $8.2 million related to the charge-off of a loan in the multi-family portfolio, a $2.0 million increase in net specific reserves, primarily related to a loan in the healthcare portfolio, a $4.6 million increase related to changes in qualitative factors and forecasted loss rates to reflect changes in industry conditions, such as the impact of higher interest rates, and loan growth in the period. The increases to the allowance for credit losses were partially offset by charge-offs of $9.5 million during the second quarter of 2023, which compared to no charge-offs in the first quarter of 2023 and $47 thousand of charge-offs in the second quarter of 2022. Non-performing loans were $68.4 million , or 0.69%, of loans receivable as of June 30, 2023 , compared to 0.76% at March 31, 2023 , and 0.36% at December 31, 2022 . The increase in non-performing loans compared to both periods was primarily due to 3 customers. Securities Available for Sale Total securities available for sale of $648.0 million as of June 30, 2023 decreased $31.5 million , or 5%, compared to March 31, 2023 , and increased $324.7 million , or 100%, compared to December 31, 2022 . As of June 30, 2023 , Accumulated Other Comprehensive Losses ("AOCL") of $7.0 million , related to securities available for sale, decreased $0.7 million , or 9%, compared to March 31, 2023 , and decreased $3.5 million , or 33%, compared to December 31, 2022 . The $7.0 million of AOCL as of June 30, 2023 represented less than 1% of total equity and less than 1% of total investment securities. Total Deposits Total deposits of $13.1 billion at June 30, 2023 increased $1.7 billion , or 15%, compared to March 31, 2023 , and increased $3.0 billion , or 30%, compared to December 31, 2022 . The increase for both periods was primarily due to an increase in brokered certificates of deposit. Total brokered deposits of $4.8 billion at June 30, 2023 increased $1.0 billion , or 27%, from March 31, 2023 and increased $2.0 billion , or 72%, from December 31, 2022 . Brokered deposits represented 36% of total deposits at June 30, 2023 compared to 33% of total deposits at March 31, 2023 and 27% of total deposits at December 31, 2022 . As of June 30, 2023 , brokered certificates of deposit had a weighted average remaining duration of 51 days. The Company continues to offer new products, such as adjustable-rate certificates of deposits, to minimize interest rate risks by aligning the rate and short duration characteristics of its deposit and loan portfolios. Additionally, the Company has offered its insured cash sweep program since 2018, which extends FDIC protection up to $100 million . This program has contributed to the Company's low level of uninsured deposits, which were below 20% of total deposits as of June 30, 2023 . Liquidity Cash balances of $377.3 million as of June 30, 2023 increased by $7.7 million compared to March 31, 2023 and increased by $151.1 million compared to December 31, 2022 . The Company continues to have significant borrowing capacity, with unused lines of credit totaling $5.3 billion as of June 30, 2023 compared to $4.0 billion at March 31, 2023 and $3.1 billion at December 31, 2022 . 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 a significant portion of its loans, which provides flexibility in managing its liquidity. Comparison of Operating Results for the Three Months Ended June 30, 2023 and 2022 Net Interest Income of $105.6 million increased $33.6 million , or 47%, compared to $72.0 million , reflecting higher yields and average balances on loans and loans held for sale, and new balances of securities held to maturity, which were partially offset by higher interest rates on deposits and higher average rates on borrowings, primarily related to the credit linked notes issued by the Company during the first quarter of 2023. Interest rate spread of 2.41% decreased 49 basis points compared to 2.90%. Net interest margin of 2.97% decreased 6 basis points compared to 3.03%. Interest Income of $258.1 million increased $168.8 million , or 189%, compared to $89.3 million , reflecting an increase in both yields and average balances of loans and loans held for sale, as well as new balances in securities held to maturity. Average balances of $12.0 billion for loans and loans held for sale increased 38% compared to $8.6 billion . Average yield on loans and loans held for sale of 7.67% increased 368 basis points compared to 3.99%. Interest Expense of $152.5 million increased 784% compared to $17.2 million . Interest expense on deposits of $137.8 million increased $123.0 million , or 833%, compared $14.8 million , primarily reflecting higher rates on certificates of deposit, interest-bearing checking, and money market accounts, as well as higher average rates on borrowings, primarily related to the credit linked notes issued by the Company during the first quarter of 2023. Average balances of $12.0 billion for interest-bearing deposits increased 63% compared to $7.4 billion . Average interest rates of 4.60% for interest-bearing deposits increased 379 basis points compared to 0.81%. Provision for Credit Losses of $22.6 million increased $16.4 million compared to $6.2 million , primarily reflecting the impact of charge-offs, an increase in specific reserves, changes to qualitative and loss factors, as well as loan growth described in the Asset Quality section above. Noninterest Income of $29.9 million decreased $9.3 million , or 24%, compared to $39.2 million , primarily due to a $10.2 million , or 47%, decrease in gain on sale of loans. The decrease in gain on sale of loans was associated with a business mix shift in multi-family lending, from volumes sold in the secondary market towards those maintained on the balance sheet. Loan servicing fees included a $3.4 million positive fair market value adjustment to servicing rights, with a $1.3 million positive adjustment in the Banking segment and a $2.1 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $7.7 million positive fair market value adjustment to mortgage servicing rights, of which $1.1 million was in the Banking segment and $6.6 million was in the Multi-family Mortgage Banking segment. Noninterest Expense of $44.3 million increased $11.4 million , or 34%, compared to $33.0 million , primarily due to increases in salaries and employee benefits, deposit insurance expense, and professional fees. The efficiency ratio of 32.7% increased 307 basis points compared to 29.6%. Provision for Income Taxes of $3.3 million decreased $14.8 million compared to $18.1 million , reflecting a $13.0 million tax benefit related to tax refunds and changes to state tax apportionment calculations. During the second quarter of 2023, the Company received an advisory letter it requested from the State of Indiana related to certain state tax apportionment provisions in the Indiana Financial Institution Tax Code and Regulations. The advisory letter provided guidance related to the methodology used to determine and source the receipts in the state of Indiana for the Company's mortgage origination and warehousing service lines. In effect, the guidance provided the Company the ability to revise its state income tax apportionment calculation to reduce its Indiana tax and related deferred tax liabilities. As such, the Company will amend several of its state returns and request the respective refunds. Additionally, the change in methodology is expected to result in a 1.0% to 1.5% reduction in the Company's overall effective tax rate in the future. Comparison of Operating Results for the Three Months Ended June 30, 2023 and March 31, 2023 Net Interest Income of $105.6 million increased $4.9 million , or 5%, compared to $100.7 million , reflecting higher average balances and yields on loans and loans held for sale, which were partially offset by higher interest rates and average balances on deposits and borrowings. Interest rate spread of 2.41% decreased 35 basis points compared to 2.76%. Net interest margin of 2.97% decreased 30 basis points compared to 3.27%. Interest Income of $258.1 million increased $46.8 million , or 22%, compared to $211.3 million , reflecting an increase in average balances and yields on loans and loans held for sale. Average balances of $12.0 billion for loans and loans held for sale increased 13%, compared to $10.6 billion . Average yield on loans and loans held for sale of 7.67% increased 42 basis points compared to 7.25%. Interest Expense of $152.5 million increased $41.9 million , or 38%, compared to $110.6 million . Interest expense on deposits of $137.8 million increased $33.4 million , or 32%, compared to $104.4 million , primarily due to higher average balances and interest rates on certificates of deposit and interest-bearing checking, accounts, as well as higher average rates on borrowings, primarily related to the credit linked notes issued by the Company during the first quarter of 2023. Average balances of $12.0 billion for interest-bearing deposits increased 15% compared to $10.5 billion . Average interest rates of 4.60% for interest-bearing deposits increased 55 basis points compared to 4.05%. Provision for Credit Losses of $22.6 million increased $15.7 million compared to $6.9 million , primarily reflecting the impact of charge-offs, an increase in specific reserves, changes to qualitative and loss factors, as well as loan growth described in the Asset Quality section above. Noninterest Income of $29.9 million increased $15.6 million , or 109%, compared $14.3 million , primarily due to a $6.3 million , or 265%, increase in loan servicing fees, a $4.6 million , or 69%, increase in gain on sale of loans, and a $2.7 million , or 221% increase in syndication and asset management fees. Loan servicing fees included a $3.4 million positive fair market value adjustment to servicing rights, with a $1.3 million positive adjustment in the Banking segment and a $2.1 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $2.9 million negative fair market value adjustment to servicing rights, with a $0.7 million negative adjustment in the Banking segment and a $2.2 million negative adjustment in the Multi-family Mortgage Banking segment. Noninterest Expense of $44.3 million increased $9.5 million , or 27%, compared to $34.8 million , primarily due to increases in salaries and employee benefits, deposit insurance expense and professional fees. The efficiency ratio of 32.7% increased 246 basis points compared to 30.3%. Provision for Income Taxes of $3.3 million decreased $15.1 million compared to $18.4 million , reflecting the $13.0 million tax benefit related to the tax refunds and changes to state tax apportionment calculations described in the Comparison of Operating Results for the Three Months Ended June 30, 2023 and March 31, 2023 section above. 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 $15.9 billion in assets and $13.1 billion in deposits as of June 30, 2023 , 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 , Farmers-Merchants Bank of Illinois , and Merchants Mortgage, a division of Merchants Bank of Indiana . For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbancorp.com . Forward-Looking Statements This press release contains forward-looking statements which reflect management's current views with respect to, among other things, future events and financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, management cautions that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated in these forward-looking statements, including the impacts of factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission . Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise. Consolidated Balance Sheets (Unaudited) (In thousands, except share data) June 30 , March 31 , December 31 , September 30 , June 30 , 2023 2023 2022 2022 2022 Assets Cash and due from banks $ 15,390 $ 19,002 $ 22,170 $ 13,796 $ 10,714 Interest-earning demand accounts 361,920 350,584 203,994 310,165 247,432 Cash and cash equivalents 377,310 369,586 226,164 323,961 258,146 Securities purchased under agreements to resell 3,412 3,438 3,464 3,497 3,520 Mortgage loans in process of securitization 298,907 197,074 154,194 137,448 323,046 Securities available for sale 648,003 679,518 323,337 322,069 336,814 Securities held to maturity (includes $1,058,590 , $1,106,582 , $1,118,966 , $1,005,487 and $0 at fair value, respectively) 1,062,017 1,104,835 1,119,078 1,005,487 — Federal Home Loan Bank (FHLB) stock 39,130 39,130 39,130 39,130 39,130 Loans held for sale (includes $82,931 , $85,516 , $82,192 , $68,785 and $41,991 at fair value, respectively) 3,058,013 2,855,250 2,910,576 2,844,750 2,759,116 Loans receivable, net of allowance for credit losses on loans of $62,986 , $51,838 , $44,014 , $38,996 and $37,474 , respectively 9,854,018 8,575,210 7,426,858 6,919,128 7,033,203 Premises and equipment, net 36,947 35,793 35,438 35,492 35,085 Servicing rights 147,288 143,867 146,248 144,984 130,710 Interest receivable 70,509 64,282 56,262 40,170 26,184 Goodwill 15,845 15,845 15,845 15,845 15,845 Intangible assets, net 949 1,068 1,186 1,307 1,441 Other assets and receivables 262,524 156,070 157,447 145,454 123,815 Total assets $ 15,874,872 $ 14,240,966 $ 12,615,227 $ 11,978,722 $ 11,086,055 Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing $ 349,387 $ 313,733 $ 326,875 $ 315,868 $ 444,461 Interest-bearing 12,710,477 11,031,498 9,744,470 10,003,611 7,855,277 Total deposits 13,059,864 11,345,231 10,071,345 10,319,479 8,299,738 Borrowings 1,016,836 1,233,762 930,392 97,279 1,440,904 Deferred and current tax liabilities, net 16,084 32,827 19,613 19,124 19,414 Other liabilities 221,788 123,462 134,138 130,250 97,460 Total liabilities 14,314,572 12,735,282 11,155,488 10,566,132 9,857,516 Commitments and Contingencies Shareholders' Equity Common stock, without par value Authorized - 75,000,000 shares Issued and outstanding - 43,237,300 shares, 43,233,618 shares,43,113,127 shares, 43,109,578 shares and 43,106,505 shares 138,853 138,105 137,781 137,226 136,671 Preferred stock, without par value - 5,000,000 total sharesauthorized 7% Series A Preferred stock - $25 per share liquidationpreference Authorized - 3,500,000 shares Issued and outstanding - 2,081,800 shares 50,221 50,221 50,221 50,221 50,221 6% Series B Preferred stock - $1,000 per share liquidationpreference Authorized - 125,000 shares Issued and outstanding - 125,000 shares (equivalent to5,000,000 depositary shares) 120,844 120,844 120,844 120,844 120,844 6% Series C Preferred stock - $1,000 per share liquidationpreference Authorized - 200,000 shares Issued and outstanding - 196,181 shares (equivalent to7,847,233 depositary shares) 191,084 191,084 191,084 191,084 191,084 8.25% Series D Preferred stock - $1,000 per share liquidationpreference Authorized - 300,000 shares Issued and outstanding - 142,500 shares (equivalent to5,700,000 depositary shares) 137,459 137,459 137,459 137,371 — Retained earnings 928,875 875,700 832,871 787,530 737,789 Accumulated other comprehensive loss (7,036) (7,729) (10,521) (11,686) (8,070) Total shareholders' equity 1,560,300 1,505,684 1,459,739 1,412,590 1,228,539 Total liabilities and shareholders' equity $ 15,874,872 $ 14,240,966 $ 12,615,227 $ 11,978,722 $ 11,086,055 Consolidated Statement of Income (Unaudited) (In thousands, except share data) Three Months Ended Change June 30 , March 31 , June 30 , 2Q23 2Q23 2023 2023 2022 vs. 1Q23 vs. 2Q22 Interest Income Loans $ 228,732 $ 189,450 $ 85,994 21 % 166 % Mortgage loans in process of securitization 3,127 1,648 1,449 90 % 116 % Investment securities: Available for sale - taxable 5,564 2,266 917 146 % 507 % Held to maturity 17,311 15,754 — 10 % 100 % Federal Home Loan Bank stock 471 427 284 10 % 66 % Other 2,864 1,749 626 64 % 358 % Total interest income 258,069 211,294 89,270 22 % 189 % Interest Expense Deposits 137,801 104,442 14,768 32 % 833 % Borrowed funds 14,651 6,159 2,471 138 % 493 % Total interest expense 152,452 110,601 17,239 38 % 784 % Net Interest Income 105,617 100,693 72,031 5 % 47 % Provision for credit losses 22,603 6,867 6,212 229 % 264 % Net Interest Income After Provision for Credit Losses 83,014 93,826 65,819 -12 % 26 % Noninterest Income Gain on sale of loans 11,350 6,733 21,564 69 % -47 % Loan servicing fees, net 8,616 2,360 9,607 265 % -10 % Mortgage warehouse fees 2,865 1,028 1,350 179 % 112 % Syndication and asset management fees 3,896 1,212 1,599 221 % 144 % Other income 3,155 2,931 5,051 8 % -38 % Total noninterest income 29,882 14,264 39,171 109 % -24 % Noninterest Expense Salaries and employee benefits 25,724 22,146 22,475 16 % 14 % Loan expenses 907 804 1,184 13 % -23 % Occupancy and equipment 2,456 2,232 2,011 10 % 22 % Professional fees 3,723 2,269 1,594 64 % 134 % Deposit insurance expense 3,806 2,178 670 75 % 468 % Technology expense 1,571 1,577 1,304 — 20 % Other expense 6,133 3,566 3,719 72 % 65 % Total noninterest expense 44,320 34,772 32,957 27 % 34 % Income Before Income Taxes 68,576 73,318 72,033 -6 % -5 % Provision for income taxes 3,274 18,363 18,098 -82 % -82 % Net Income $ 65,302 $ 54,955 $ 53,935 19 % 21 % Dividends on preferred stock (8,668) (8,667) (5,729) — 51 % Net Income Allocated to Common Shareholders $ 56,634 $ 46,288 $ 48,206 22 % 17 % Basic Earnings Per Share $ 1.31 $ 1.07 $ 1.12 22 % 17 % Diluted Earnings Per Share $ 1.31 $ 1.07 $ 1.11 22 % 18 % Weighted-Average Shares Outstanding Basic 43,235,398 43,179,604 43,209,824 Diluted 43,309,393 43,290,779 43,335,211 Consolidated Statement of Income (Unaudited) (In thousands, except share data) Six Months Ended June 30 , June 30 , 2023 2022 Change Interest Income Loans $ 418,182 $ 158,190 164 % Mortgage loans in process of securitization 4,775 3,694 29 % Investment securities: Available for sale - taxable 7,830 1,618 384 % Held to maturity 33,065 — 100 % Federal Home Loan Bank stock 898 553 62 % Other 4,613 1,227 276 % Total interest income 469,363 165,282 184 % Interest Expense Deposits 242,243 23,581 927 % Borrowed funds 20,810 3,945 428 % Total interest expense 263,053 27,526 856 % Net Interest Income 206,310 137,756 50 % Provision for credit losses 29,470 8,663 240 % Net Interest Income After Provision for Credit Losses 176,840 129,093 37 % Noninterest Income Gain on sale of loans 18,083 39,529 -54 % Loan servicing fees, net 10,976 19,338 -43 % Mortgage warehouse fees 3,893 3,208 21 % Syndication and asset management fees 5,108 2,213 131 % Other income 6,086 9,480 -36 % Total noninterest income 44,146 73,768 -40 % Noninterest Expense Salaries and employee benefits 47,870 43,768 9 % Loan expenses 1,711 2,395 -29 % Occupancy and equipment 4,688 3,825 23 % Professional fees 5,992 2,897 107 % Deposit insurance expense 5,984 1,429 319 % Technology expense 3,148 2,540 24 % Other expense 9,699 7,136 36 % Total noninterest expense 79,092 63,990 24 % Income Before Income Taxes 141,894 138,871 2 % Provision for income taxes 21,637 34,794 -38 % Net Income $ 120,257 $ 104,077 16 % Dividends on preferred stock (17,335) (11,457) 51 % Net Income Allocated to Common Shareholders $ 102,922 $ 92,620 11 % Basic Earnings Per Share $ 2.38 $ 2.14 11 % Diluted Earnings Per Share $ 2.38 $ 2.14 11 % Weighted-Average Shares Outstanding Basic 43,207,655 43,220,198 Diluted 43,300,240 43,367,875 Key Operating Results (Unaudited) ($ in thousands, except share data) Three Months Ended Change June 30 , March 31 , June 30 , 2Q23 2Q23 2023 2023 2022 vs. 1Q23 vs. 2Q22 Noninterest expense $ 44,320 $ 34,772 $ 32,957 27 % 34 % Net interest income (before provision for credit losses) 105,617 100,693 72,031 5 % 47 % Noninterest income 29,882 14,264 39,171 109 % -24 % Total income $ 135,499 $ 114,957 $ 111,202 18 % 22 % Efficiency ratio 32.71 % 30.25 % 29.64 % 246 bps 307 bps Average assets $ 14,673,257 $ 12,885,735 $ 9,820,878 14 % 49 % Net income 65,302 54,955 53,935 19 % 21 % Return on average assets before annualizing 0.45 % 0.43 % 0.55 % Annualization factor 4.00 4.00 4.00 Return on average assets 1.78 % 1.71 % 2.20 % 7 bps (42) bps Return on average tangible common shareholders' equity (1) 22.03 % 18.89 % 23.05 % 314 bps (102) bps Tangible book value per common share (1) $ 24.14 $ 22.88 $ 19.70 6 % 23 % Tangible common shareholders' equity/tangible assets (1) 6.58 % 6.95 % 7.67 % (37) bps (109) bps Consolidated ratios Total capital/risk-weighted assets(2) 11.3 % 12.4 % N/A Tier I capital/risk-weighted assets(2) 10.8 % 11.9 % N/A Common Equity Tier I capital/risk-weighted assets(2) 7.3 % 7.9 % N/A Tier I capital/average assets(2) 10.6 % 11.6 % 12.4 % (1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below: (2) As defined by regulatory agencies; March 31, 2023 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 operationsand 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 forresults determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. A reconciliation of GAAP tonon-GAAP financial measures is below. Net Income Available to Common Shareholders excludes preferred stock. Tangible common equity is calculated by excluding thebalance 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 andintangible assets. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding. Three Months Ended Change June 30 , March 31 , June 30 , 2Q23 2Q23 2023 2023 2022 vs. 1Q23 vs. 2Q22 Net income $ 65,302 $ 54,955 $ 53,935 19 % 21 % Less: preferred stock dividends (8,668) (8,667) (5,729) — 51 % Net income available to common shareholders $ 56,634 $ 46,288 $ 48,206 22 % 17 % Average shareholders' equity $ 1,544,976 $ 1,496,610 $ 1,215,891 3 % 27 % Less: average goodwill & intangibles (16,858) (16,980) (17,361) -1 % -3 % Less: average preferred stock (499,608) (499,608) (362,149) — 38 % Average tangible common shareholders' equity $ 1,028,510 $ 980,022 $ 836,381 5 % 23 % Annualization factor 4.00 4.00 4.00 Return on average tangible common shareholders' equity 22.03 % 18.89 % 23.05 % 314 bps (102) bps Total equity $ 1,560,300 $ 1,505,684 $ 1,228,539 4 % 27 % Less: goodwill and intangibles (16,794) (16,913) (17,286) -1 % -3 % Less: preferred stock (499,608) (499,608) (362,149) — 38 % Tangible common shareholders' equity $ 1,043,898 $ 989,163 $ 849,104 6 % 23 % Assets $ 15,874,872 $ 14,240,966 $ 11,086,055 11 % 43 % Less: goodwill and intangibles (16,794) (16,913) (17,286) -1 % -3 % Tangible assets $ 15,858,078 $ 14,224,053 $ 11,068,769 11 % 43 % Ending common shares 43,237,300 43,233,618 43,106,505 Tangible book value per common share $ 24.14 $ 22.88 $ 19.70 6 % 23 % Tangible common shareholders' equity/tangible assets 6.58 % 6.95 % 7.67 % (37) bps (109) bps Key Operating Results (Unaudited) ($ in thousands, except share data) Six Months Ended June 30 , June 30 , 2023 2022 Change Noninterest expense $ 79,092 $ 63,990 24 % Net interest income (before provision for credit losses) 206,310 137,756 50 % Noninterest income 44,146 73,768 -40 % Total income $ 250,456 $ 211,524 18 % Efficiency ratio 31.58 % 30.25 % 133 bps Average assets $ 13,784,434 $ 10,126,963 36 % Net income 120,257 104,077 16 % Return on average assets before annualizing 0.87 % 1.03 % Annualization factor 2.00 2.00 Return on average assets 1.74 % 2.06 % (32) bps Return on average tangible common shareholders' equity (1) 20.49 % 22.72 % (223) bps Tangible book value per common share (1) $ 24.14 $ 19.70 23 % Tangible common shareholders' equity/tangible assets (1) 6.58 % 7.67 % (109) 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'sfinancial 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 notnecessarily comparable to non-GAAP financial measures that other companies use. A reconciliation of GAAP to non-GAAP financialmeasures is below. Net Income Available to Common Shareholders excludes preferred stock. Tangible common equity is calculated byexcluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total assets. Tangible Assets iscalculated by excluding the balance of goodwill and intangible assets. Tangible book value per share is calculated by dividing tangiblecommon equity by the number of shares outstanding Six Months Ended June 30 , June 30 , 2023 2022 Change Net income $ 120,257 $ 104,077 16 % Less: preferred stock dividends (17,335) (11,457) 51 % Net income available to common shareholders $ 102,922 $ 92,620 11 % Average shareholders' equity $ 1,520,927 $ 1,194,981 27 % Less: average goodwill & intangibles (16,918) (17,428) -3 % Less: average preferred stock (499,608) (362,149) 38 % Average tangible common shareholders' equity $ 1,004,401 $ 815,404 23 % Annualization factor 2.00 2.00 Return on average tangible common shareholders' equity 20.49 % 22.72 % (223) bps Total equity $ 1,560,300 $ 1,228,539 27 % Less: goodwill and intangibles (16,794) (17,286) -3 % Less: preferred stock (499,608) (362,149) 38 % Tangible common shareholders' equity $ 1,043,898 $ 849,104 23 % Assets $ 15,874,872 $ 11,086,055 43 % Less: goodwill and intangibles (16,794) (17,286) -3 % Tangible assets $ 15,858,078 $ 11,068,769 43 % Ending common shares 43,237,300 43,106,505 Tangible book value per common share $ 24.14 $ 19.70 23 % Tangible common shareholders' equity/tangible assets 6.58 % 7.67 % (109) bps Merchants Bancorp Average Balance Analysis ($ in thousands) (Unaudited) Three Months Ended Three Months Ended Three Months Ended June 30, 2023 March 31, 2023 June 30, 2022 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets: Interest-bearing deposits, and other $ 249,722 $ 3,335 5.36 % $ 184,470 $ 2,176 4.78 % $ 367,540 $ 910 0.99 % Securities available for sale - taxable 672,887 5,564 3.32 % 445,614 2,266 2.06 % 330,759 917 1.11 % Securities held to maturity 1,093,018 17,311 6.35 % 1,115,243 15,754 5.73 % — — Mortgage loans in process of securitization 280,092 3,127 4.48 % 159,333 1,648 4.19 % 198,349 1,449 2.93 % Loans and loans held for sale 11,968,565 228,732 7.67 % 10,595,669 189,450 7.25 % 8,643,276 85,994 3.99 % Total interest-earning assets 14,264,284 258,069 7.26 % 12,500,329 211,294 6.86 % 9,539,924 89,270 3.75 % Allowance for credit losses on loans (54,411) (45,190) (33,401) Noninterest-earning assets 463,384 430,596 314,355 Total assets $ 14,673,257 $ 12,885,735 $ 9,820,878 Liabilities & Shareholders' Equity: Interest-bearing checking 4,307,736 48,296 4.50 % 4,052,081 40,647 4.07 % 3,849,876 6,945 0.72 % Savings deposits 236,012 299 0.51 % # 237,289 265 0.45 % 238,944 62 0.10 % Money market 2,749,594 30,521 4.45 % # 2,848,500 28,608 4.07 % 2,626,973 6,567 1.00 % Certificates of deposit 4,729,242 58,685 4.98 % # 3,322,991 34,922 4.26 % 639,556 1,194 0.75 % Total interest-bearing deposits 12,022,584 137,801 4.60 % 10,460,861 104,442 4.05 % 7,355,349 14,768 0.81 % Borrowings 591,333 14,651 9.94 % 482,723 6,159 5.17 % 749,628 2,471 1.32 % Total interest-bearing liabilities 12,613,917 152,452 4.85 % 10,943,584 110,601 4.10 % 8,104,977 17,239 0.85 % Noninterest-bearing deposits 346,837 304,119 402,328 Noninterest-bearing liabilities 167,527 141,422 97,682 Total liabilities 13,128,281 11,389,125 8,604,987 Shareholders' equity 1,544,976 1,496,610 1,215,891 Total liabilities and shareholders' equity $ 14,673,257 $ 12,885,735 $ 9,820,878 Net interest income $ 105,617 $ 100,693 $ 72,031 Net interest spread 2.41 % 2.76 % 2.90 % Net interest-earning assets $ 1,650,367 $ 1,556,745 $ 1,434,947 Net interest margin 2.97 % 3.27 % 3.03 % Average interest-earning assets to averageinterest-bearing liabilities 113.08 % 114.23 % 117.70 % Supplemental Results (Unaudited) ($ in thousands) Net Income Net Income Three Months Ended Six Months Ended June 30 , March 31 , June 30 , June 30 , 2023 2023 2022 2023 2022 Segment Multi-family Mortgage Banking $ 11,242 $ 1,966 $ 19,556 $ 13,208 $ 31,048 Mortgage Warehousing 18,596 8,641 11,868 27,237 25,027 Banking 42,650 49,307 25,932 91,957 54,696 Other (7,186) (4,959) (3,421) (12,145) (6,694) Total $ 65,302 $ 54,955 $ 53,935 $ 120,257 $ 104,077 Total Assets June 30 , March 31 , December 31 , 2023 2023 2022 Segment Multi-family Mortgage Banking $ 373,680 $ 341,487 $ 351,274 Mortgage Warehousing 4,474,832 3,318,491 2,519,810 Banking 10,784,596 10,430,293 9,587,544 Other 241,764 150,695 156,599 Total $ 15,874,872 $ 14,240,966 $ 12,615,227 Gain on Sale of Loans Gain on Sale of Loans Three Months Ended Six Months Ended June 30 , March 31 , June 30 , June 30 , 2023 2023 2022 2023 2022 Loan Type Multi-family 10,361 $ 4,920 $ 19,623 $ 15,281 $ 34,576 Single-family 202 277 406 479 863 Small Business Association (SBA) 787 1,536 1,535 2,323 4,090 Total $ 11,350 $ 6,733 $ 21,564 $ 18,083 $ 39,529 Loans Receivable and Loans Held for Sale June 30 , March 31 , December 31 , 2023 2023 2022 Mortgage warehouse lines of credit $ 1,201,932 $ 604,445 $ 464,785 Residential real estate 1,342,586 1,215,252 1,178,401 Multi-family financing 3,746,333 3,566,530 3,135,535 Healthcare financing 2,128,378 1,941,204 1,604,341 Commercial and commercial real estate (1)(2) 1,394,256 1,194,320 978,661 Agricultural production and real estate 91,599 89,516 95,651 Consumer and margin loans 11,920 15,781 13,498 9,917,004 8,627,048 7,470,872 Less: Allowance for credit losses on loans 62,986 51,838 44,014 Loans receivable $ 9,854,018 $ 8,575,210 $ 7,426,858 Loans held for sale 3,058,013 2,855,250 2,910,576 Total loans, net of allowance $ 12,912,031 $ 11,430,460 $ 10,337,434 (1) Includes $894.7 million , $672.9 million and $497.0 million of revolving lines of credit collateralized primarily by mortgage servicing rights as of June 30 ,2023, March 31, 2023 and December 31, 2022 , respectively (2) Includes only $8.3 million , $9.1 million and $12.8 million of non-owner occupied commercial real estate as of June 30, 2023 , March 31, 2023 and December 31, 2022 , respectively View original content to download multimedia: https://www.prnewswire.com/news-releases/merchants-bancorp-reports-second-quarter-2023-results-301887547.html SOURCE Merchants Bancorp

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