Business
Merchants Bancorp Reports Second Quarter 2024 Results
Second quarter 2024 net income of $76.4 million, increased 17% compared to second quarter of 2023 and decreased 12% compared to the first quarter 2024.Second
About this update from Merchants Bancorp
Second quarter 2024 net income of $76.4 million , increased 17% compared to second quarter of 2023 and decreased 12% compared to the first quarter 2024. Second quarter 2024 diluted earnings per common share of $1.49 increased 14% compared to the second quarter of 2023 and decreased 17% compared to the first quarter of 2024. Total assets of $18.2 billion surpassed any level previously reported by the Company, increasing 2% compared to March 31, 2024 and increasing 7% compared to December 31, 2023 . On May 13, 2024 , the Company completed a common stock offering of 2.4 million shares, resulting in net proceeds of $97.7 million , which contributed to the estimated 70 basis point increase in the common equity tier I capital ratio that reached 8.7% as of June 30, 2024 . Tangible book value per common share reached a record-high of $31.27 and increased 30% compared to $24.14 in the second quarter of 2023 and increased 7% compared to $29.26 in the first quarter of 2024. As of June 30, 2024 , the Company had $7.0 billion in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window, representing 39% of total assets. The Company's most liquid assets are in unrestricted cash, short-term investments, including interest-earning demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse repurchase agreements included in loans receivable. Taken together, with unused borrowing capacity, these totaled $12.6 billion , or 69%, of the $18.2 billion in total assets as of June 30, 2024 . Loans receivable of $10.9 billion , net of allowance for credit losses on loans, increased $242.7 million , or 2%, compared to March 31, 2024 , and increased $805.4 million , or 8%, compared to December 31, 2023 . The efficiency ratio was 31.59% in the second quarter of 2024 compared to 32.71% in the second quarter of 2023 and 29.13% in the first quarter of 2024. On April 30, 2024 , the Company completed a $324.6 million securitization of 13 multi-family mortgage loans through a Freddie Mac-sponsored Q-Series transaction. The Company redeemed all outstanding shares of the Series A Preferred Stock for $52 million on April 1, 2024 , at the liquidation preference of $25.00 per share. CARMEL, Ind. , July 29, 2024 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank , today reported second quarter 2024 net income of $76.4 million , or diluted earnings per common share of $1.49 . This compared to $65.3 million , or diluted earnings per common share of $1.31 in the second quarter of 2023, and compared to $87.1 million , or diluted earnings per common share of $1.80 in the first quarter of 2024. "Results for the second quarter demonstrate our success in serving customers while also increasing shareholder value in any interest rate environment. Loan growth continued as we reached a new record of $18.2 billion in assets and we also achieved a record-high tangible book value of $31.27 per share, which reflected a 30% increase over the prior year. Our originate-to-sell business model that minimizes interest rate risk has proven to be successful, and our priorities remain unchanged. We have also focused on effectively managing our capital to execute our strategies for future growth by issuing common stock, entering into credit risk transfer transactions, and participating in securitizations.," said Michael F. Petrie , Chairman and CEO of Merchants. Michael J. Dunlap , President and Chief Operating Officer of Merchants, added, "The market leading positions we hold across our businesses is a testament to the resilience and creativity that our team has demonstrated while working with customers to find effective solutions to their lending needs. These strong relationships position us to be a lender of choice and provide us with significant growth opportunities." Net income of $76.4 million for the second quarter 2024 increased by $11.1 million , or 17%, compared to the second quarter of 2023, primarily driven by: a $22.5 million , or 21%, increase in net interest income, and a $12.6 million , or 56%, decrease in the provision for credit losses related to lower loan charge-offs and relative changes to qualitative factors, which were partially offset by a $19.5 million , or 594%, increase in the provision for income tax, primarily due to a $13.0 million tax benefit recorded in the second quarter of 2023 that was related to tax refunds and changes in state tax apportionment calculations. Net income of $76.4 million for the second quarter 2024 decreased by $10.7 million , or 12%, compared to the first quarter of 2024, primarily driven by: an $8.9 million lower fair market value positive adjustment to servicing rights. Results for the second quarter of 2024 included a $5.1 million positive fair market value adjustment to servicing rights compared to a $14.0 million positive fair market value adjustment to servicing rights in the first quarter of 2024, and a $5.2 million increase in the provision for credit losses that reflected higher loan charge-offs and specific reserves, as well as an increase in qualitative loss factors in the multi-family loan portfolio, which were offset by a decrease in loss rates of other portfolios during the second quarter of 2024. Total Assets Total assets of $18.2 billion at June 30, 2024 increased $389.8 million , or 2%, compared to March 31, 2024 , and increased $1.3 billion , or 7%, compared to December 31, 2023 . The increase compared to December 31, 2023 was primarily due to growth in the warehouse, multi-family, and healthcare loan portfolios. Return on average assets was 1.72% for the second quarter of 2024 compared to 1.78% for the second quarter of 2023 and 2.07% for the first quarter of 2024. Asset Quality The allowance for credit losses on loans of $81.0 million , as of June 30, 2024 , increased $5.3 million , or 7%, compared to March 31, 2024 , and increased $9.3 million , or 13%, compared to December 31, 2023 . The increase compared to both periods was primarily due to loan charge-offs, increases in specific reserves, loan growth, and changes to qualitative loss factors to reflect changes in industry conditions. The Company recorded three charge-offs, primarily in the multi-family portfolio, for $3.5 million and recorded $15,000 of recoveries during the second quarter 2024. This compares to $9.5 million in charge-offs and $2,000 in recoveries during the second quarter of 2023 and to $0.9 million in charge-offs and $1,000 of recoveries in the first quarter of 2024. As of June 30, 2024 , non-performing loans were $143.5 million , or 1.30% of gross loans receivable, compared to $131.8 million , or 1.22%, as of March 31, 2024 , and $82.0 million , or 0.80%, as of December 31, 2023 . The increase in non-performing loans compared to both periods was primarily driven by multi-family and healthcare customers with delinquent payments on variable rate loans that have required higher payments due to interest rates remaining at elevated levels. Securities Available for Sale Total securities available for sale of $1.0 billion as of June 30, 2024 decreased $44.3 million , or 4%, compared to March 31, 2024 , and decreased $96.7 million , or 9%, compared to December 31, 2023 . The decrease was primarily due to maturities, sales, and repayments that were partially offset by purchases. As of June 30, 2024 , Accumulated Other Comprehensive Losses ("AOCL") of $0.5 million , related to securities available for sale, decreased $0.7 million , or 57%, compared to March 31, 2024 , and decreased $2.0 million , or 80%, compared to December 31, 2023 . The $0.5 million of AOCL as of June 30, 2024 represented less than 1% of total equity and less than 1% of total investment securities. Total Deposits Total deposits of $14.9 billion at June 30, 2024 increased $941.4 million , or 7%, compared to March 31, 2024 , and increased $855.6 million , or 6%, compared to December 31, 2023 . The change compared to March 31, 2024 was primarily due to growth in core deposits, reflecting an increase in certificates of deposit and demand accounts. The change compared to December 31, 2023 was primarily due to growth in core deposit accounts, reflecting an increase in certificates of deposit accounts that was partially offset by a decrease in demand accounts. Core deposits of $8.8 billion at June 30, 2024 increased $574.0 million , or 7%, from March 31, 2024 and increased $705.9 million , or 9%, from December 31, 2023 . Core deposits represented 59% of total deposits at June 30, 2024 and March 31, 2024 , and 58% of total deposits at December 31, 2023 . Total brokered deposits of $6.1 billion at June 30, 2024 increased $367.4 million , or 6%, from March 31, 2024 and increased $149.7 million , or 3%, from December 31, 2023 . As of June 30, 2024 , brokered certificates of deposit had a weighted average remaining duration of 70 days. Liquidity Cash balances of $540.9 million as of June 30, 2024 increased by $32.1 million compared to March 31, 2024 and decreased by $43.5 million compared to December 31, 2023 . The Company continues to have significant borrowing capacity, with unused lines of credit totaling $7.0 billion as of June 30, 2024 compared to $5.6 billion at March 31, 2024 and $6.0 billion at December 31, 2023 . Furthermore, its $2.8 billion line of credit with the Federal Reserve Board alone could fund 118% of its uninsured deposits, which represented approximately 15% of total deposits as of June 30, 2024 . This liquidity enhances the ability to effectively manage interest expense and asset levels in the future. Additionally, the Company's business model is designed to continuously sell or securitize a significant portion of its loans, which provides flexibility in managing its liquidity. Comparison of Operating Results for the Three Months Ended June 30, 2024 and 2023 Net Interest Income of $128.1 million increased $22.5 million , or 21%, compared to $105.6 million , primarily reflecting an increase in both average balances and yields on loans and loans held for sale, as well as higher average yields and balances of securities available for sale, which were partially offset by higher average balances and interest rates on deposits, as well as higher average balances on borrowings. Net interest margin of 2.99% increased 2 basis points compared to 2.97%. The margin was negatively impacted by approximately 6 basis points in the second quarter of 2024 from the net reversal of $2.5 million in accrued interest income associated with the movement of loans into nonaccrual status. Interest rate spread of 2.45% increased 4 basis points compared to 2.41%. Interest Income of $328.3 million increased $70.2 million , or 27%, compared to $258.1 million , reflecting an increase in both average balances and higher yields of loans and loans held for sale, as well as securities available for sale. Average balances of $14.3 billion for loans and loans held for sale increased 20% compared to $12.0 billion . Average yield on loans and loans held for sale of 7.97% increased 30 basis points compared to 7.67%. Average balances of $1.0 billion for securities available for sale increased 54% compared to $672.9 million . Average yield on securities available for sale of 5.72% increased 240 basis points compared to 3.32%. Interest Expense of $200.2 million increased $47.7 million , or 31%, compared to $152.5 million . The increase reflected an increase in both average balances and rates on certificates of deposit and interest-bearing checking, as well as higher average balances on borrowings. Average balances of $6.5 billion for certificates of deposit increased 38% compared to $4.7 billion . Average interest rates of 5.43% for certificates of deposit increased 45 basis points compared to 4.98%. Average balances of $4.9 billion for interest-bearing checking increased 15% compared to $4.3 billion . Average interest rates of 4.74% for interest-bearing checking increased 24 basis points compared to 4.50%. Average balances of $1.0 billion for borrowings increased 74% compared to $591.3 million . Noninterest Income of $31.4 million increased $1.5 million , or 5%, compared to $29.9 million , primarily due to a $2.2 million , or 26%, increase in net loan servicing fees and a $1.4 million , or 46%, increase in other income, partially offset by a $1.3 million , or 47%, decrease in mortgage warehouse fees. Loan servicing fees included a $5.1 million positive fair market value adjustment to servicing rights, with a $0.6 million positive adjustment in the Banking segment and a $4.5 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $3.4 million positive fair market value adjustment to mortgage servicing rights in the prior period, of which $1.3 million positive adjustment in the Banking segment and $2.1 million positive adjustment in the Multi-family Mortgage Banking segment. Noninterest Expense of $50.4 million increased $6.1 million , or 14%, compared to $44.3 million reflecting increases in salaries and employee benefits to support business growth and increases in deposit insurance expenses. The higher noninterest expense also reflected a $1.6 million increase in other expenses primarily associated with ongoing premium expense for the credit default swap that was executed in March 2024 . The efficiency ratio of 31.59% decreased 112 basis points compared to 32.71%. Comparison of Operating Results for the Three Months Ended June 30, 2024 and March 31, 2024 Net Interest Income of $128.1 million increased 1%, compared to $127.1 million , primarily due to higher average balances on loans and loans held for sale, partially offset by higher average balances of deposits and on borrowings. Net interest margin of 2.99% decreased 15 basis points compared to 3.14%, primarily due to a shift in business mix that reflected significant growth in the mortgage warehouse portfolio. The margin was also negatively impacted by approximately 6 basis points in the second quarter of 2024 from the net reversal of $2.5 million in accrued interest income associated with the movement of loans into nonaccrual status. Interest rate spread of 2.45% decreased 13 basis points compared to 2.58%. Interest Income of $328.3 million increased $14.1 million , or 4%, compared to $314.2 million , reflecting an increase in average balances on loans and loans held for sale, interest earning deposits, and mortgage loans in process or securitization. The increases in interest income were partially offset by a decrease in average yields on loans and loans held for sale. Average balances of $14.3 billion for loans and loans held for sale increased 6% compared to $13.5 billion . Average balances of $438.4 million on interest earning deposits increased 27% compared to $346.2 million . Average balances of $234.7 million for mortgage loans in process of securitization increased 70% compared to $137.9 million . Average yields on loans and loans held for sale of 7.97% decreased 14 basis points compared to 8.11%, reflecting a net $2.5 million reversal of accrued interest income associated with the movement of loans into nonaccrual status during the quarter. Interest Expense of $200.2 million increased 7% compared to $187.1 million . The increase was primarily driven by higher average balances on certificate of deposit accounts and borrowings. These were partially offset by lower rates on borrowings, as well as lower average balances on interest-bearing checking accounts. Average balances of $6.5 billion for certificate of deposit accounts increased 15% compared to $5.7 billion . Average balances of $1.0 billion for borrowings increased 44% compared to $716.9 million . Average interest rates of 8.00% for borrowings decreased 103 basis points compared to 9.03%. Average balances of $4.9 billion for interest-bearing checking accounts decreased 3% compared to $5.1 billion . Noninterest Income of $31.4 million decreased $9.5 million , or 23%, compared $40.9 million , primarily due to an $8.6 million , or 44%, decrease in net loan servicing fees and a $2.1 million , or 39%, decrease in syndication and asset management fees. Loan servicing fees included a $5.1 million positive fair market value adjustment to servicing rights, with a $0.6 million positive adjustment in the Banking segment and a $4.5 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $14.0 million positive fair market value adjustment to servicing rights in the prior period, with a $0.8 million positive adjustment in the Banking segment and a $13.2 million positive adjustment in the Multi-family Mortgage Banking segment. Noninterest Expense of $50.4 million increased $1.5 million , or 3%, compared to $48.9 million , driven by a $2.7 million , or 54%, increase in other expenses associated with ongoing premium expense for the credit default swap that was executed in March 2024 . This increase was partially offset by a $1.2 million decrease in salaries and employee benefits The efficiency ratio of 31.59% increased 246 basis points compared to 29.13%. About Merchants Bancorp Ranked as a top performing U.S. public bank by S&P Global Market Intelligence , Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple segments, including Multi-family Mortgage Banking that primarily offers multi-family housing and healthcare facility financing and servicing (through this segment it also serves as a syndicator of low-income housing tax credit and debt funds); Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers retail and correspondent residential mortgage banking, agricultural lending, and traditional community banking. Merchants Bancorp , with $18.2 billion in assets and $14.9 billion in deposits as of June 30, 2024 , conducts its business primarily through its direct and indirect subsidiaries, Merchants Bank of Indiana , Merchants Capital Corp. , Merchants Capital Investments, LLC , Merchants Capital Servicing, LLC , Merchants Asset Management, LLC , and Merchants Mortgage, a division of Merchants Bank of Indiana . For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbancorp.com . Forward-Looking Statements This press release contains forward-looking statements which reflect management's current views with respect to, among other things, future events and financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, management cautions that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements. A number of important factors could cause actual results to differ materially from those indicated in these forward-looking statements, including the impacts of factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission . Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise. Consolidated Balance Sheets (Unaudited) (In thousands, except share data) June 30 , March 31 , December 31 , September 30 , June 30 , 2024 2024 2023 2023 2023 Assets Cash and due from banks $ 10,242 $ 17,924 $ 15,592 $ 10,633 $ 15,390 Interest-earning demand accounts 530,640 490,831 568,830 396,605 361,920 Cash and cash equivalents 540,882 508,755 584,422 407,238 377,310 Securities purchased under agreements to resell 3,304 3,329 3,349 3,385 3,412 Mortgage loans in process of securitization 209,244 142,629 110,599 476,047 298,907 Securities available for sale ( $682,774 , $700,640 and $722,497 utilizing fair value option at June 30, 2024 , March 31, 2024 and December 31, 2023 ) 1,017,019 1,061,288 1,113,687 624,586 648,003 Securities held to maturity ( $1,291,960 , $1,176,178 , $1,203,535 , $1,010,745 and $1,058,590 at fair value, respectively) 1,291,110 1,175,167 1,204,217 1,012,801 1,062,017 Federal Home Loan Bank (FHLB) stock 67,499 64,215 48,578 48,219 39,130 Loans held for sale (includes $102,873 , $84,513 , $86,663 , $90,875 and $82,931 at fair value, respectively) 3,483,076 3,503,131 3,144,756 3,477,036 3,058,013 Loans receivable, net of allowance for credit losses on loans of $81,028 , $75,712 , $71,752 , $66,864 and $62,986 , respectively 10,933,189 10,690,513 10,127,801 9,910,681 9,854,018 Premises and equipment, net 46,833 42,450 42,342 36,730 36,947 Servicing rights 178,776 172,200 158,457 162,141 147,288 Interest receivable 90,360 90,303 91,346 78,401 70,509 Goodwill 8,014 8,014 15,845 15,845 15,845 Other assets and receivables 343,116 360,582 307,117 242,126 263,473 Total assets $18,212,422 $17,822,576 $ 16,952,516 $ 16,495,236 $15,874,872 Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing $ 383,260 $ 319,872 $ 520,070 $ 287,846 $ 349,387 Interest-bearing 14,533,807 13,655,789 13,541,390 12,719,492 12,710,477 Total deposits 14,917,067 13,975,661 14,061,460 13,007,338 13,059,864 Borrowings 1,159,206 1,835,985 964,127 1,654,075 1,016,836 Deferred and current tax liabilities, net 25,098 43,935 19,923 18,006 16,084 Other liabilities 222,904 190,527 205,922 183,102 221,788 Total liabilities 16,324,275 16,046,108 15,251,432 14,862,521 14,314,572 Commitments and Contingencies Shareholders' Equity Common stock, without par value Authorized - 75,000,000 shares Issued and outstanding - 45,757,567 shares, 43,354,718 shares, 43,242,928 shares, 43,240,212 shares and 43,237,300 shares 238,492 139,950 140,365 139,609 138,853 Preferred stock, without par value - 5,000,000 total shares authorized 7% Series A Preferred stock - $25 per share liquidation preference Authorized - no shares at June 30, 2024 and 3,500,000 shares at March 31, 2024 and all prior periods presented Issued and outstanding - no shares at June 30, 2024 and 2,081,800 shares at March 31, 2024 and all prior periods presented — 50,221 50,221 50,221 50,221 6% Series B Preferred stock - $1,000 per share liquidation preference Authorized - 125,000 shares Issued and outstanding - 125,000 shares (equivalent to 5,000,000 depositary shares) 120,844 120,844 120,844 120,844 120,844 6% Series C Preferred stock - $1,000 per share liquidation preference Authorized - 200,000 shares Issued and outstanding - 196,181 shares (equivalent to 7,847,233 depositary shares) 191,084 191,084 191,084 191,084 191,084 8.25% Series D Preferred stock - $1,000 per share liquidation preference Authorized - 300,000 shares Issued and outstanding - 142,500 shares (equivalent to 5,700,000 depositary shares) 137,459 137,459 137,459 137,459 137,459 Retained earnings 1,200,778 1,138,083 1,063,599 998,252 928,875 Accumulated other comprehensive loss (510) (1,173) (2,488) (4,754) (7,036) Total shareholders' equity 1,888,147 1,776,468 1,701,084 1,632,715 1,560,300 Total liabilities and shareholders' equity $18,212,422 $17,822,576 $ 16,952,516 $ 16,495,236 $15,874,872 Consolidated Statement of Income (Unaudited) (In thousands, except share data) Three Months Ended Change June 30 , March 31 , June 30 , 2Q24 2Q24 2024 2024 2023 vs. 1Q24 vs. 2Q23 Interest Income Loans $ 284,421 $ 271,998 $ 228,732 5 % 24 % Mortgage loans in process of securitization 3,044 1,720 3,127 77 % -3 % Investment securities: Available for sale 14,784 14,388 5,564 3 % 166 % Held to maturity 19,799 20,522 17,311 -4 % 14 % Federal Home Loan Bank stock 1,277 844 471 51 % 171 % Other 4,948 4,701 2,864 5 % 73 % Total interest income 328,273 314,173 258,069 4 % 27 % Interest Expense Deposits 179,651 171,022 137,801 5 % 30 % Borrowed funds 20,503 16,095 14,651 27 % 40 % Total interest expense 200,154 187,117 152,452 7 % 31 % Net Interest Income 128,119 127,056 105,617 1 % 21 % Provision for credit losses 9,965 4,726 22,603 111 % -56 % Net Interest Income After Provision for Credit Losses 118,154 122,330 83,014 -3 % 42 % Noninterest Income Gain on sale of loans 11,168 9,356 11,350 19 % -2 % Loan servicing fees, net 10,827 19,402 8,616 -44 % 26 % Mortgage warehouse fees 1,524 982 2,865 55 % -47 % Loss on sale of investments available for sale (1) — (108) — -100 % — Syndication and asset management fees 3,233 5,303 3,896 -39 % -17 % Other income 4,599 5,939 3,155 -23 % 46 % Total noninterest income 31,351 40,874 29,882 -23 % 5 % Noninterest Expense Salaries and employee benefits 28,373 29,596 25,724 -4 % 10 % Loan expenses 993 956 907 4 % 9 % Occupancy and equipment 2,239 2,237 2,456 — -9 % Professional fees 3,556 4,099 3,723 -13 % -4 % Deposit insurance expense 5,579 5,125 3,806 9 % 47 % Technology expense 1,859 1,854 1,571 — 18 % Other expense 7,781 5,045 6,133 54 % 27 % Total noninterest expense 50,380 48,912 44,320 3 % 14 % Income Before Income Taxes 99,125 114,292 68,576 -13 % 45 % Provision for income taxes (2) 22,732 27,238 3,274 -17 % 594 % Net Income $ 76,393 $ 87,054 $ 65,302 -12 % 17 % Dividends on preferred stock (7,757) (8,667) (8,668) -10 % -11 % Impact of preferred stock redemption (1,823) — — -100 % -100 % Net Income Available to Common Shareholders $ 66,813 $ 78,387 $ 56,634 -15 % 18 % Basic Earnings Per Share $ 1.50 $ 1.81 $ 1.31 -17 % 15 % Diluted Earnings Per Share $ 1.49 $ 1.80 $ 1.31 -17 % 14 % Weighted-Average Shares Outstanding Basic 44,569,345 43,305,985 43,235,398 Diluted 44,698,324 43,466,647 43,309,393 (1) Includes $0 , $(108) , and $0 respectively, related to accumulated other comprehensive losses reclassifications. (2) Includes $0 , $26 , and $0 respectively, related to income tax benefit for reclassification items. Consolidated Statement of Income (Unaudited) (In thousands, except share data) Six Months Ended June 30 , June 30 , 2024 2023 Change Interest Income Loans $ 556,419 $ 418,182 33 % Mortgage loans in process of securitization 4,764 4,775 — Investment securities: Available for sale 29,172 7,830 273 % Held to maturity 40,321 33,065 22 % Federal Home Loan Bank stock 2,121 898 136 % Other 9,649 4,613 109 % Total interest income 642,446 469,363 37 % Interest Expense Deposits 350,673 242,243 45 % Borrowed funds 36,598 20,810 76 % Total interest expense 387,271 263,053 47 % Net Interest Income 255,175 206,310 24 % Provision for credit losses 14,691 29,470 -50 % Net Interest Income After Provision for Credit Losses 240,484 176,840 36 % Noninterest Income Gain on sale of loans 20,524 18,083 13 % Loan servicing fees, net 30,229 10,976 175 % Mortgage warehouse fees 2,506 3,893 -36 % Loss on sale of investments available for sale (1) (108) — -100 % Syndication and asset management fees 8,536 5,108 67 % Other income 10,538 6,086 73 % Total noninterest income 72,225 44,146 64 % Noninterest Expense Salaries and employee benefits 57,969 47,870 21 % Loan expenses 1,949 1,711 14 % Occupancy and equipment 4,476 4,688 -5 % Professional fees 7,655 5,992 28 % Deposit insurance expense 10,704 5,984 79 % Technology expense 3,713 3,148 18 % Other expense 12,826 9,699 32 % Total noninterest expense 99,292 79,092 26 % Income Before Income Taxes 213,417 141,894 50 % Provision for income taxes (2) 49,970 21,637 131 % Net Income $ 163,447 $ 120,257 36 % Dividends on preferred stock (16,424) (17,335) -5 % Impact of preferred stock redemption (1,823) — -100 % Net Income Available to Common Shareholders $ 145,200 $ 102,922 41 % Basic Earnings Per Share $ 3.30 $ 2.38 39 % Diluted Earnings Per Share $ 3.29 $ 2.38 38 % Weighted-Average Shares Outstanding Basic 43,937,665 43,207,655 Diluted 44,082,485 43,300,240 (1) Includes $(108) and $0 respectively, related to accumulated other comprehensive earnings reclassifications. (2) Includes $26 and $0 respectively, related to income tax benefit for reclassification items. Key Operating Results (Unaudited) ($ in thousands, except share data) Three Months Ended Change June 30 , March 31 , June 30 , 2Q24 2Q24 2024 2024 2023 vs. 1Q24 vs. 2Q23 Noninterest expense $ 50,380 $ 48,912 $ 44,320 3 % 14 % Net interest income (before provision for credit losses) 128,119 127,056 105,617 1 % 21 % Noninterest income 31,351 40,874 29,882 -23 % 5 % Total income $ 159,470 $ 167,930 $ 135,499 -5 % 18 % Efficiency ratio 31.59 % 29.13 % 32.71 % 246 bps (112) bps Average assets $ 17,814,191 $ 16,793,072 $ 14,673,257 6 % 21 % Net income 76,393 87,054 65,302 -12 % 17 % Return on average assets before annualizing 0.43 % 0.52 % 0.45 % Annualization factor 4.00 4.00 4.00 Return on average assets 1.72 % 2.07 % 1.78 % (35) bps (6) bps Return on average tangible common shareholders' equity (1) 19.55 % 25.34 % 22.03 % (579) bps (248) bps Tangible book value per common share (1) $ 31.27 $ 29.26 $ 24.14 7 % 30 % Tangible common shareholders' equity/tangible assets (1) 7.86 % 7.12 % 6.58 % 74 bps 128 bps Consolidated ratios Total capital/risk-weighted assets(2) 12.0 % 11.7 % 11.3 % Tier I capital/risk-weighted assets(2) 11.4 % 11.2 % 10.8 % Common Equity Tier I capital/risk-weighted assets(2) 8.7 % 8.0 % 7.3 % Tier I capital/average assets(2) 10.6 % 10.5 % 10.6 % (1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below: (2) As defined by regulatory agencies; June 30, 2024 shown as estimates and prior periods shown as reported. Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations. As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. A reconciliation of GAAP to non-GAAP financial measures is below. Net Income Available to Common Shareholders excludes preferred stock. Tangible common shareholders' equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total equity. Tangible Assets is calculated by excluding the balance of goodwill and intangible assets. Tangible book value per share is calculated by dividing tangible common shareholders' equity by the number of shares outstanding. Three Months Ended Change June 30 , March 31 , June 30 , 2Q24 2Q24 2024 2024 2023 vs. 1Q24 vs. 2Q23 Net income $ 76,393 $ 87,054 $ 65,302 -12 % 17 % Less: preferred stock dividends (7,757) (8,667) (8,668) -10 % -11 % Less: preferred stock redemption (1,823) - - -100 % -100 % Net income available to common shareholders $ 66,813 $ 78,387 $ 56,634 -15 % 18 % Average shareholders' equity $ 1,824,730 $ 1,747,660 $ 1,544,976 4 % 18 % Less: average goodwill & intangibles (8,140) (10,494) (16,858) -22 % -52 % Less: average preferred stock (449,387) (499,608) (499,608) -10 % -10 % Average tangible common shareholders' equity $ 1,367,203 $ 1,237,558 $ 1,028,510 10 % 33 % Annualization factor 4.00 4.00 4.00 Return on average tangible common shareholders' equity 19.55 % 25.34 % 22.03 % (579) bps (248) bps Total equity $ 1,888,147 $ 1,776,468 $ 1,560,300 6 % 21 % Less: goodwill and intangibles (8,108) (8,163) (16,794) -1 % -52 % Less: preferred stock (449,387) (499,608) (499,608) -10 % -10 % Tangible common shareholders' equity $ 1,430,652 $ 1,268,697 $ 1,043,898 13 % 37 % Assets $ 18,212,422 $ 17,822,576 $ 15,874,872 2 % 15 % Less: goodwill and intangibles (8,108) (8,163) (16,794) -1 % -52 % Tangible assets $ 18,204,314 $ 17,814,413 $ 15,858,078 2 % 15 % Ending common shares 45,757,567 43,354,718 43,237,300 Tangible book value per common share $ 31.27 $ 29.26 $ 24.14 7 % 30 % Tangible common shareholders' equity/tangible assets 7.86 % 7.12 % 6.58 % 74 bps 128 bps Key Operating Results (Unaudited) ($ in thousands, except share data) Six Months Ended June 30 , June 30 , 2024 2023 Change Noninterest expense $ 99,292 $ 79,092 26 % Net interest income (before provision for credit losses) 255,175 206,310 24 % Noninterest income 72,225 44,146 64 % Total income $ 327,400 $ 250,456 31 % Efficiency ratio 30.33 % 31.58 % (125) bps Average assets $ 17,303,632 $ 13,784,434 26 % Net income 163,447 120,257 36 % Return on average assets before annualizing 0.94 % 0.87 % Annualization factor 2.00 2.00 Return on average assets 1.89 % 1.74 % 15 bps Return on average tangible common shareholders' equity (1) 22.30 % 20.49 % 181 bps Tangible book value per common share (1) $ 31.27 $ 24.14 30 % Tangible common shareholders' equity/tangible assets (1) 7.86 % 6.58 % 128 bps (1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below: Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the Company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations. As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. A reconciliation of GAAP to non-GAAP financial measures is below. Net Income Available to Common Shareholders excludes preferred stock. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total assets. Tangible Assets is calculated by excluding the balance of goodwill and intangible assets. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding. Six Months Ended June 30 , June 30 , 2024 2023 Change Net income $ 163,447 $ 120,257 36 % Less: preferred stock dividends (16,424) (17,335) -5 % Less: preferred stock redemption (1,823) - -100 % Net income available to common shareholders $ 145,200 $ 102,922 41 % Average shareholders' equity $ 1,786,195 $ 1,520,927 17 % Less: average goodwill & intangibles (9,317) (16,918) -45 % Less: average preferred stock (474,497) (499,608) -5 % Average tangible common shareholders' equity $ 1,302,381 $ 1,004,401 30 % Annualization factor 2.00 2.00 Return on average tangible common shareholders' equity 22.30 % 20.49 % 181 bps Total equity $ 1,888,147 $ 1,560,300 21 % Less: goodwill and intangibles (8,108) (16,794) -52 % Less: preferred stock (449,387) (499,608) -10 % Tangible common shareholders' equity $ 1,430,652 $ 1,043,898 37 % Assets $ 18,212,422 $ 15,874,872 15 % Less: goodwill and intangibles (8,108) (16,794) -52 % Tangible assets $ 18,204,314 $ 15,858,078 15 % Ending common shares 45,757,567 43,237,300 Tangible book value per common share $ 31.27 $ 24.14 30 % Tangible common shareholders' equity/tangible assets 7.86 % 6.58 % 128 bps Merchants Bancorp Average Balance Analysis ($ in thousands) (Unaudited) Three Months Ended Three Months Ended Three Months Ended June 30, 2024 March 31, 2024 June 30, 2023 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets: Interest-bearing deposits, and other $ 438,445 $ 6,225 5.71 % $ 346,150 $ 5,545 6.44 % $ 249,722 $ 3,335 5.36 % Securities available for sale 1,039,388 14,784 5.72 % 1,085,114 14,388 5.33 % 672,887 5,564 3.32 % Securities held to maturity 1,160,170 19,799 6.86 % 1,196,633 20,522 6.90 % 1,093,018 17,311 6.35 % Mortgage loans in process of securitization 234,706 3,044 5.22 % 137,890 1,720 5.02 % 280,092 3,127 4.48 % Loans and loans held for sale 14,347,165 284,421 7.97 % 13,494,961 271,998 8.11 % 11,968,565 228,732 7.67 % Total interest-earning assets 17,219,874 328,273 7.67 % 16,260,748 314,173 7.77 % 14,264,284 258,069 7.26 % Allowance for credit losses on loans (76,456) (71,544) (54,411) Noninterest-earning assets 670,773 603,868 463,384 Total assets $ 17,814,191 $ 16,793,072 $ 14,673,257 Liabilities & Shareholders' Equity: Interest-bearing checking $ 4,935,123 58,128 4.74 % $ 5,070,393 60,688 4.81 % $ 4,307,736 48,296 4.50 % Savings deposits 145,262 19 0.05 % 201,860 219 0.44 % 236,012 299 0.51 % Money market 2,788,335 33,207 4.79 % 2,817,382 33,644 4.80 % 2,749,594 30,521 4.45 % Certificates of deposit 6,535,651 88,297 5.43 % 5,694,933 76,471 5.40 % 4,729,242 58,685 4.98 % Total interest-bearing deposits 14,404,371 179,651 5.02 % 13,784,568 171,022 4.99 % 12,022,584 137,801 4.60 % Borrowings 1,031,180 20,503 8.00 % 716,853 16,095 9.03 % 591,333 14,651 9.94 % Total interest-bearing liabilities 15,435,551 200,154 5.22 % 14,501,421 187,117 5.19 % 12,613,917 152,452 4.85 % Noninterest-bearing deposits 331,246 332,172 346,837 Noninterest-bearing liabilities 222,664 211,819 167,527 Total liabilities 15,989,461 15,045,412 13,128,281 Shareholders' equity 1,824,730 1,747,660 1,544,976 Total liabilities and shareholders' equity $ 17,814,191 $ 16,793,072 $ 14,673,257 Net interest income $ 128,119 $ 127,056 $ 105,617 Net interest spread 2.45 % 2.58 % 2.41 % Net interest-earning assets $ 1,784,323 $ 1,759,327 $ 1,650,367 Net interest margin 2.99 % 3.14 % 2.97 % Average interest-earning assets to average interest-bearing liabilities 111.56 % 112.13 % 113.08 % Supplemental Results (Unaudited) ($ in thousands) Net Income Net Income Three Months Ended Six Months Ended June 30 , March 31 , June 30 , June 30 , 2024 2024 2023 2024 2023 Segment Multi-family Mortgage Banking $ 9,037 $ 16,609 $ 11,242 $ 25,646 $ 13,208 Mortgage Warehousing 22,270 20,190 18,596 42,460 27,237 Banking 52,378 56,425 42,650 108,803 91,957 Other (7,292) (6,170) (7,186) (13,462) (12,145) Total $ 76,393 $ 87,054 $ 65,302 $ 163,447 $ 120,257 Total Assets June 30, 2024 March 31, 2024 December 31, 2023 Amount % Amount % Amount % Segment Multi-family Mortgage Banking $ 428,299 2 % $ 416,454 2 % $ 411,097 2 % Mortgage Warehousing 5,626,055 31 % 5,369,299 30 % 4,522,175 27 % Banking 11,885,484 65 % 11,760,028 66 % 11,760,943 69 % Other 272,584 2 % 276,795 2 % 258,301 2 % Total $ 18,212,422 100 % $ 17,822,576 100 % $ 16,952,516 100 % Gain on Sale of Loans Gain on Sale of Loans Three Months Ended Six Months Ended June 30, 2024 March 31, 2024 June 30 , June 30 , 2024 2024 2023 2024 2023 Loan Type Multi-family $ 9,083 $ 8,423 $ 10,361 $ 17,506 $ 15,281 Single-family 524 280 202 804 479 Small Business Association (SBA) 1,561 653 787 2,214 2,323 Total $ 11,168 $ 9,356 $ 11,350 $ 20,524 $ 18,083 Supplemental Results (Unaudited) ($ in thousands) Loans Receivable and Loans Held for Sale June 30 , March 31 , December 31 , 2024 2024 2023 Mortgage warehouse repurchase agreements $ 1,369,965 $ 1,142,994 $ 752,468 Residential real estate (1) 1,345,656 1,321,300 1,324,305 Multi-family financing 4,160,420 4,096,606 4,006,160 Healthcare financing 2,495,910 2,464,685 2,356,689 Commercial and commercial real estate (2)(3) 1,566,809 1,666,751 1,643,081 Agricultural production and real estate 70,244 65,977 103,150 Consumer and margin loans 5,213 7,912 13,700 11,014,217 10,766,225 10,199,553 Less: Allowance for credit losses on loans 81,028 75,712 71,752 Loans receivable $ 10,933,189 $ 10,690,513 $ 10,127,801 Loans held for sale 3,483,076 3,503,131 3,144,756 Total loans, net of allowance $ 14,416,265 $ 14,193,644 $ 13,272,557 (1) Includes $1.2 billion , $1.2 billion and $1.2 billion of All-In-One © first-lien home equity lines of credit as of June 30, 2024 , March 31, 2024 and December 31, 2023 , respectively. (2) Includes $1.0 billion , $1.1 billion and $1.1 billion of revolving lines of credit collateralized primarily by mortgage servicing rights as of June 30, 2024 , March 31, 2024 and December 31, 2023 , respectively. (3) Includes only $6.8 million , $6.8 million and $8.4 million of non-owner occupied commercial real estate as of June 30, 2024 , March 31, 2024 and December 31, 2023 , respectively. Loan Credit Risk Profile June 30, 2024 March 31, 2024 December 31, 2023 Amount % Amount % Amount % Pass $ 10,523,378 95.6 % $ 10,410,748 96.7 % $ 9,879,659 96.9 % Special mention 244,000 2.2 % 232,122 2.2 % 191,267 1.9 % Substandard 246,839 2.2 % 123,355 1.1 % 128,577 1.2 % Doubtful — — — — 50 — Loans receivable $ 11,014,217 100.0 % $ 10,766,225 100.0 % $ 10,199,553 100.0 % Charge-offs (year-to-date) $ 4,377 $ 925 $ 9,791 Recoveries (year-to-date) $ 16 $ 1 $ 41 Nonperforming Loans June 30 , March 31 , December 31 , 2024 2024 2023 Nonaccrual loans $ 143,319 $ 78,804 $ 73,847 90 days past due and still accruing 133 52,982 8,168 Total nonperforming loans $ 143,452 $ 131,786 $ 82,015 As a percentage of loans receivable 1.30 % 1.22 % 0.80 % View original content to download multimedia: https://www.prnewswire.com/news-releases/merchants-bancorp-reports-second-quarter-2024-results-302209008.html SOURCE Merchants Bancorp