Merchants Bancorp Reports Third Quarter 2023 Results

About this update from Merchants Bancorp

Third quarter 2023 net income of $81.5 million increased 39% compared to third quarter of 2022 and increased 25% compared to the second quarter 2023. Third quarter 2023 diluted earnings per common share of $1.68 increased 38% compared to the third quarter of 2022 and increased 28% compared to the second quarter of 2023. Total assets of $16.5 billion increased 4% compared to June 30, 2023 , and increased 31% compared to December 31, 2022 . As of September 30, 2023 , the Company had $5.4 billion , or 32% 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 $10.7 billion , or 65%, of the $16.5 billion in total assets as of September 30, 2023 . Uninsured deposits totaled approximately $2 billion as of September 30, 2023 , representing less than 20% of total deposits. Loans receivable of $9.9 billion , net of allowance for credit losses on loans, increased $56.7 million , or 1%, compared to June 30, 2023 , and increased $2.5 billion , or 33%, compared to December 31, 2022 . Efficiency ratio was 28.0% in the third quarter of 2023 compared to 30.5% in the third quarter of 2022 and 32.7% in the second quarter of 2023. Tangible book value per common share of $25.82 increased 24% compared to $20.78 in the third quarter of 2022 and increased 7% compared to $24.14 in the second quarter of 2023. On August 31, 2023 , the Company completed a $303.6 million securitization of 11 multi-family mortgage loans through a Freddie Mac-sponsored Q-Series transaction. On September 7, 2023 , the Company entered into an agreement with Bank of Pontiac to sell its Farmers-Merchants Bank of Illinois branch locations in Paxton , Melvin , and Piper City, Illinois , and into an agreement with CBI Bank & Trust , to sell its Farmers-Merchants Bank of Illinois branch located in Joy, Illinois . CARMEL, Ind. , Oct. 26, 2023 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana , today reported third quarter 2023 net income of $81.5 million , or diluted earnings per common share of $1.68 . This compared to $58.5 million , or diluted earnings per common share of $1.22 in the third quarter of 2022, and compared to $65.3 million , or diluted earnings per common share of $1.31 in the second quarter of 2023. "We could not be prouder to have achieved the highest earnings and asset levels in company history during the third quarter, along with tangible book value of $25.82 per share that grew 24% over the last year. Our focus on growing our sales teams in new markets, conservative underwriting, cost controls, and effectively matching our asset and liability duration have positioned us well for sustainable earnings growth for the remainder of 2023 and beyond," said Michael F. Petrie , Chairman and CEO of Merchants. Michael J. Dunlap , President and Chief Operating Officer of Merchants, added, "Our team has continued to maximize sources of liquidity and capital efficiencies to ensure that our strong pipeline of loan growth can be effectively executed in various interest rate environments so we can meet the needs of our customers and continue to generate ongoing profitability. We could not have achieved these record-setting milestones during the third quarter without the hard work and dedication of our entire team." Net income of $81.5 million for the third quarter 2023 increased by $23.0 million , or 39%, compared to the third quarter of 2022, primarily driven by a $32.1 million , or 38%, increase in net interest income. Results for the third quarter 2023 included a $11.6 million positive fair market value adjustment to servicing rights compared to a $4.6 million positive adjustment in the third quarter of 2022. Net income of $81.5 million for the third quarter 2023 increased by $16.2 million , or 25%, compared to the second quarter of 2023, primarily driven by an $11.8 million , or 11% increase, in net interest income, an $18.6 million decrease in provision for credit losses related to credit events in the second quarter 2023, and a $6.2 million , or 21% increase in noninterest income. These increases to net income were partially offset by a $21.8 million increase in the provision for income taxes following the $13.0 million tax benefit related to tax refunds and changes to state tax apportionment calculations that were recognized in the second quarter 2023. Results for the third quarter 2023 included a $11.6 million positive fair market value adjustment to servicing rights compared to a $3.4 million positive adjustment in the second quarter of 2023. Total Assets Total assets of $16.5 billion at September 30, 2023 increased $620.4 million , or 4%, compared to June 30, 2023 , and increased $3.9 billion , or 31%, compared to December 31, 2022 . The increase compared to December 31, 2022 was primarily due to significant growth in the healthcare, commercial lines of credit on collateralized mortgage servicing rights, multi-family, and warehouse loan portfolios. Return on average assets was 2.03% for the third quarter of 2023 compared to 2.05% for the third quarter of 2022 and 1.78% for the second quarter of 2023. Asset Quality The allowance for credit losses on loans of $66.9 million , as of September 30, 2023 , increased $3.9 million , or 6%, compared to June 30, 2023 and increased $22.9 million , or 52%, compared to December 31, 2022 . The increase compared to June 30, 2023 was primarily in the multi-family, healthcare, and commercial portfolios due to a combination of changes in qualitative loss factors and loan growth. The increase compared to December 31, 2022 was primarily due to loan growth in the period, as well as credit events and increases in qualitative factors and forecasted loss rates to reflect changes in industry conditions that were recorded during the second quarter 2023. The Company experienced net recoveries of $10,000 during the third quarter 2023. Non-performing loans were $60.2 million , or 0.60%, of loans receivable as of September 30, 2023 , compared to 0.69% at June 30, 2023 , and 0.36% at December 31, 2022 . The increase in non-performing loans compared to December 31, 2022 was primarily due to 3 customers. Securities Available for Sale Total securities available for sale of $624.6 million as of September 30, 2023 decreased $23.4 million , or 4%, compared to June 30, 2023 , and increased $301.2 million , or 93%, compared to December 31, 2022 . As of September 30, 2023 , Accumulated Other Comprehensive Losses ("AOCL") of $4.8 million , related to securities available for sale, decreased $2.3 million , or 32%, compared to June 30, 2023 , and decreased $5.8 million , or 55%, compared to December 31, 2022 . The $4.8 million of AOCL as of September 30, 2023 represented less than 1% of total equity and less than 1% of total investment securities. Total Deposits Total deposits of $13.0 billion at September 30, 2023 decreased $52.5 million compared to June 30, 2023 , and increased $2.9 billion , or 29%, compared to December 31, 2022 . The changes for both periods were primarily due to changes in brokered certificates of deposit. Total brokered deposits of $4.4 billion at September 30, 2023 decreased $350.8 million , or 7%, from June 30, 2023 and increased $1.6 billion , or 59%, from December 31, 2022 . Brokered deposits represented 34% of total deposits at September 30, 2023 compared to 36% of total deposits at June 30, 2023 and 27% of total deposits at December 31, 2022 . As of September 30, 2023 , brokered certificates of deposit had a weighted average remaining duration of 49 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. As of September 30, 2023 , deposit balances in Flex CD products increased by $294.3 million , or 201%, compared to December 31, 2022 . Additionally, the Company has offered an insured cash sweep program since 2018, which extends FDIC protection up to $100 million per depositor. The balance of deposits in this program was $1.8 billion as of September 30, 2023 and has contributed to the Company's low level of uninsured deposits, which were below 20% of total deposits. Liquidity Cash balances of $407.2 million as of September 30, 2023 increased by $29.9 million compared to June 30, 2023 and increased by $181.1 million compared to December 31, 2022 . The Company continues to have significant borrowing capacity, with unused lines of credit totaling $5.4 billion as of September 30, 2023 compared to $5.3 billion at June 30, 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 or securitize a significant portion of its loans, which provides flexibility in managing its liquidity. Comparison of Operating Results for the Three Months Ended September 30, 2023 and 2022 Net Interest Income of $117.4 million increased $32.1 million , or 38%, reflecting higher yields and average balances on loans and loans held for sale, and higher balances of securities held to maturity, which were partially offset by higher rates and average balances on deposits, as well as higher rates on borrowings that were primarily related to the credit linked notes issued by the Company during the first quarter of 2023. Interest rate spread of 2.44% decreased 33 basis points compared to 2.77%. Net interest margin of 2.99% decreased 6 basis points compared to 3.05%. Interest Income of $296.7 million increased $162.6 million , or 121%, compared to $134.1 million , reflecting an increase in both yields and average balances of loans and loans held for sale, as well as higher balances in securities held to maturity. Average balances of $13.4 billion for loans and loans held for sale increased 31% compared to $10.2 billion . Average yield on loans and loans held for sale of 7.89% increased 289 basis points compared to 5.00%. Interest Expense of $179.2 million increased $130.5 million , or 268%, compared to $48.7 million . The increase was primarily due to higher rates on certificates of deposit, interest-bearing checking, and money market accounts, as well higher average balances of certificates of deposit and higher rates on borrowings. Average balances of $13.2 billion for interest-bearing deposits increased 46% compared to $9.0 billion . Average interest rates of 4.90% for interest-bearing deposits increased 292 basis points compared to 1.98%. Noninterest Income of $36.1 million increased $6.9 million , or 24%, compared to $29.2 million , primarily due to a $9.2 million , or 113%, increase in loan servicing fees that was offset by a $2.6 million , or 19%, decrease in gain on sale of loans. Loan servicing fees included a $11.6 million positive fair market value adjustment to servicing rights, with a $1.2 million positive adjustment in the Banking segment and a $10.4 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $4.6 million positive fair market value adjustment to mortgage servicing rights in the prior period, of which $0.9 million was in the Banking segment and $3.7 million was in the Multi-family Mortgage Banking segment. 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. Noninterest Expense of $42.9 million increased $8.0 million , or 23%, primarily due to increases in salaries and employee benefits and deposit insurance expense. The efficiency ratio of 28.0% decreased 253 basis points compared to 30.5%. Comparison of Operating Results for the Three Months Ended September 30, 2023 and June 30, 2023 Net Interest Income of $117.4 million increased $11.8 million , or 11%, compared to $105.6 million , reflecting higher average balances and yields on loans and loans held for sale, which were partially offset by higher average balances and rates and on deposits, as well as higher average balances on borrowings. Interest rate spread of 2.44% increased 3 basis points compared to 2.41%. Net interest margin of 2.99% increased 2 basis points compared to 2.97%. Interest Income of $296.7 million increased $38.6 million , or 15%, compared to $258.1 million , reflecting an increase in average balances and yields on loans and loans held for sale. Average balances of $13.4 billion for loans and loans held for sale increased 12%, compared to $12.0 billion . Average yield on loans and loans held for sale of 7.89% increased 22 basis points compared to 7.67%. Interest Expense of $179.2 million increased 18% compared to $152.5 million . The increase was primarily due to higher average balances and rates on certificates of deposit and interest-bearing checking accounts, as well as higher average balances on borrowings. Average balances of $13.2 billion for interest-bearing deposits increased 10% compared to $12.0 billion . Average interest rates of 4.90% for interest-bearing deposits increased 30 basis points compared to 4.60%. Noninterest Income of $36.1 million increased $6.2 million , or 21%, compared $29.9 million , primarily due to a $8.8 million , or 102%, increase in loan servicing fees. Loan servicing fees included a $11.6 million positive fair market value adjustment to servicing rights, with a $1.2 million positive adjustment in the Banking segment and a $10.4 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $3.4 million positive fair market value adjustment to servicing rights in the prior period, 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. Noninterest Expense of $42.9 million decreased $1.4 million , or 3%, primarily due to a decrease in professional fees and other miscellaneous expenses that were partially offset by higher salaries and employee benefits. The efficiency ratio of 28.0% decreased 474 basis points compared to 32.7%. 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 $16.5 billion in assets and $13.0 billion in deposits as of September 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) September 30 , June 30 , March 31 , December 31 , September 30 , 2023 2023 2023 2022 2022 Assets Cash and due from banks $ 10,633 $ 15,390 $ 19,002 $ 22,170 $ 13,796 Interest-earning demand accounts 396,605 361,920 350,584 203,994 310,165 Cash and cash equivalents 407,238 377,310 369,586 226,164 323,961 Securities purchased under agreements to resell 3,385 3,412 3,438 3,464 3,497 Mortgage loans in process of securitization 476,047 298,907 197,074 154,194 137,448 Securities available for sale 624,586 648,003 679,518 323,337 322,069 Securities held to maturity (includes $1,010,745 , $1,058,590 , $1,106,582 , $1,118,966 and $1,005,487 at fair value, respectively) 1,012,801 1,062,017 1,104,835 1,119,078 1,005,487 Federal Home Loan Bank (FHLB) stock 48,219 39,130 39,130 39,130 39,130 Loans held for sale (includes $90,875 , $82,931 , $85,516 , $82,192 and $68,785 at fair value, respectively) 3,477,036 3,058,013 2,855,250 2,910,576 2,844,750 Loans receivable, net of allowance for credit losses on loans of $66,864 , $62,986 , $51,838 , $44,014 and $38,996 , respectively 9,910,681 9,854,018 8,575,210 7,426,858 6,919,128 Premises and equipment, net 36,730 36,947 35,793 35,438 35,492 Servicing rights 162,141 147,288 143,867 146,248 144,984 Interest receivable 78,401 70,509 64,282 56,262 40,170 Goodwill 15,845 15,845 15,845 15,845 15,845 Intangible assets, net 831 949 1,068 1,186 1,307 Other assets and receivables 241,295 262,524 156,070 157,447 145,454 Total assets $ 16,495,236 $ 15,874,872 $ 14,240,966 $ 12,615,227 $ 11,978,722 Liabilities and Shareholders' Equity Liabilities Deposits Noninterest-bearing $ 287,846 $ 349,387 $ 313,733 $ 326,875 $ 315,868 Interest-bearing 12,719,492 12,710,477 11,031,498 9,744,470 10,003,611 Total deposits 13,007,338 13,059,864 11,345,231 10,071,345 10,319,479 Borrowings 1,654,075 1,016,836 1,233,762 930,392 97,279 Deferred and current tax liabilities, net 18,006 16,084 32,827 19,613 19,124 Other liabilities 183,102 221,788 123,462 134,138 130,250 Total liabilities 14,862,521 14,314,572 12,735,282 11,155,488 10,566,132 Commitments and Contingencies Shareholders' Equity Common stock, without par value Authorized - 75,000,000 shares Issued and outstanding - 43,240,212 shares, 43,237,300 shares, 43,233,618 shares, 43,113,127 shares and 43,109,578 shares 139,609 138,853 138,105 137,781 137,226 Preferred stock, without par value - 5,000,000 total shares authorized 7% Series A Preferred stock - $25 per share liquidation preference Authorized - 3,500,000 shares Issued and outstanding - 2,081,800 shares 50,221 50,221 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 liquidationpreference 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) 137,459 137,459 137,459 137,459 137,371 Retained earnings 998,252 928,875 875,700 832,871 787,530 Accumulated other comprehensive loss (4,754) (7,036) (7,729) (10,521) (11,686) Total shareholders' equity 1,632,715 1,560,300 1,505,684 1,459,739 1,412,590 Total liabilities and shareholders' equity $ 16,495,236 $ 15,874,872 $ 14,240,966 $ 12,615,227 $ 11,978,722 Consolidated Statement of Income (Unaudited) (In thousands, except share data) Three Months Ended Change September 30 , June 30 , September 30 , 3Q23 3Q23 2023 2023 2022 vs. 2Q23 vs. 3Q22 Interest Income Loans $ 266,561 $ 228,732 $ 129,101 17 % 106 % Mortgage loans in process of securitization 2,583 3,127 2,162 -17 % 19 % Investment securities: Available for sale - taxable 6,182 5,564 485 11 % 1175 % Held to maturity 17,427 17,311 970 1 % 1697 % Federal Home Loan Bank stock 572 471 379 21 % 51 % Other 3,351 2,864 1,015 17 % 230 % Total interest income 296,676 258,069 134,112 15 % 121 % Interest Expense Deposits 162,906 137,801 45,002 18 % 262 % Borrowed funds 16,334 14,651 3,725 11 % 338 % Total interest expense 179,240 152,452 48,727 18 % 268 % Net Interest Income 117,436 105,617 85,385 11 % 38 % Provision for credit losses 4,014 22,603 2,225 -82 % 80 % Net Interest Income After Provision for Credit Losses 113,422 83,014 83,160 37 % 36 % Noninterest Income Gain on sale of loans 10,758 11,350 13,354 -5 % -19 % Loan servicing fees, net 17,384 8,616 8,169 102 % 113 % Mortgage warehouse fees 1,858 2,865 1,105 -35 % 68 % Syndication and asset management fees 2,368 3,896 3,073 -39 % -23 % Other income 3,700 3,155 3,485 17 % 6 % Total noninterest income 36,068 29,882 29,186 21 % 24 % Noninterest Expense Salaries and employee benefits 27,052 25,724 23,027 5 % 17 % Loan expenses 1,038 907 1,226 14 % -15 % Occupancy and equipment 2,196 2,456 1,967 -11 % 12 % Professional fees 2,555 3,723 2,429 -31 % 5 % Deposit insurance expense 3,568 3,806 755 -6 % 373 % Technology expense 1,609 1,571 1,325 2 % 21 % Other expense 4,912 6,133 4,222 -20 % 16 % Total noninterest expense 42,930 44,320 34,951 -3 % 23 % Income Before Income Taxes 106,560 68,576 77,395 55 % 38 % Provision for income taxes 25,056 3,274 18,907 665 % 33 % Net Income $ 81,504 $ 65,302 $ 58,488 25 % 39 % Dividends on preferred stock (8,668) (8,668) (5,729) — 51 % Net Income Allocated to Common Shareholders $ 72,836 $ 56,634 $ 52,759 29 % 38 % Basic Earnings Per Share $ 1.68 $ 1.31 $ 1.22 28 % 38 % Diluted Earnings Per Share $ 1.68 $ 1.31 $ 1.22 28 % 38 % Weighted-Average Shares Outstanding Basic 43,238,724 43,235,398 43,107,975 Diluted 43,351,208 43,309,393 43,258,925 Consolidated Statement of Income (Unaudited) (In thousands, except share data) Nine Months Ended September 30 , September 30 , 2023 2022 Change Interest Income Loans $ 684,743 $ 287,291 138 % Mortgage loans in process of securitization 7,358 5,856 26 % Investment securities: Available for sale - taxable 14,012 2,103 566 % Held to maturity 50,492 970 5105 % Federal Home Loan Bank stock 1,470 932 58 % Other 7,964 2,242 255 % Total interest income 766,039 299,394 156 % Interest Expense Deposits 405,149 68,583 491 % Borrowed funds 37,144 7,670 384 % Total interest expense 442,293 76,253 480 % Net Interest Income 323,746 223,141 45 % Provision for credit losses 33,484 10,888 208 % Net Interest Income After Provision for Credit Losses 290,262 212,253 37 % Noninterest Income Gain on sale of loans 28,841 52,883 -45 % Loan servicing fees, net 28,360 27,507 3 % Mortgage warehouse fees 5,751 4,313 33 % Syndication and asset management fees 7,476 5,286 41 % Other income 9,786 12,965 -25 % Total noninterest income 80,214 102,954 -22 % Noninterest Expense Salaries and employee benefits 74,922 66,795 12 % Loan expenses 2,749 3,621 -24 % Occupancy and equipment 6,884 5,792 19 % Professional fees 8,547 5,326 60 % Deposit insurance expense 9,552 2,184 337 % Technology expense 4,757 3,865 23 % Other expense 14,611 11,358 29 % Total noninterest expense 122,022 98,941 23 % Income Before Income Taxes 248,454 216,266 15 % Provision for income taxes 46,693 53,701 -13 % Net Income $ 201,761 $ 162,565 24 % Dividends on preferred stock (26,003) (17,186) 51 % Net Income Allocated to Common Shareholders $ 175,758 $ 145,379 21 % Basic Earnings Per Share $ 4.07 $ 3.37 21 % Diluted Earnings Per Share $ 4.06 $ 3.36 21 % Weighted-Average Shares Outstanding Basic 43,218,125 43,182,380 Diluted 43,317,343 43,331,148 Key Operating Results (Unaudited) ($ in thousands, except share data) Three Months Ended Change September 30 , June 30 , September 30 , 3Q23 3Q23 2023 2023 2022 vs. 2Q23 vs. 3Q22 Noninterest expense $ 42,930 $ 44,320 $ 34,951 -3 % 23 % Net interest income (before provision for credit losses) 117,436 105,617 85,385 11 % 38 % Noninterest income 36,068 29,882 29,186 21 % 24 % Total income $ 153,504 $ 135,499 $ 114,571 13 % 34 % Efficiency ratio 27.97 % 32.71 % 30.51 % (474) bps (254) bps Average assets $ 16,031,015 $ 14,673,257 $ 11,437,805 9 % 40 % Net income 81,504 65,302 58,488 25 % 39 % Return on average assets before annualizing 0.51 % 0.45 % 0.51 % Annualization factor 4.00 4.00 4.00 Return on average assets 2.03 % 1.78 % 2.05 % 25 bps (2) bps Return on average tangible common shareholders' equity (1) 26.69 % 22.03 % 23.92 % 466 bps 277 bps Tangible book value per common share (1) $ 25.82 $ 24.14 $ 20.78 7 % 24 % Tangible common shareholders' equity/tangible assets (1) 6.78 % 6.58 % 7.49 % 20 bps (71) bps Consolidated ratios Total capital/risk-weighted assets(2) 11.4 % 11.3 % 12.5 % Tier I capital/risk-weighted assets(2) 10.9 % 10.8 % 12.1 % Common Equity Tier I capital/risk-weighted assets(2) 7.5 % 7.3 % 7.8 % Tier I capital/average assets(2) 10.1 % 10.6 % 12.3 % (1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below: (2) As defined by regulatory agencies; September 30, 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 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. Three Months Ended Change September 30 , June 30 , September 30 , 3Q23 3Q23 2023 2023 2022 vs. 2Q23 vs. 3Q22 Net income $ 81,504 $ 65,302 $ 58,488 25 % 39 % Less: preferred stock dividends (8,668) (8,668) (5,729) — 51 % Net income available to common shareholders $ 72,836 $ 56,634 $ 52,759 29 % 38 % Average shareholders' equity $ 1,607,779 $ 1,544,976 $ 1,267,160 4 % 27 % Less: average goodwill & intangibles (16,742) (16,858) (17,228) -1 % -3 % Less: average preferred stock (499,608) (499,608) (367,726) — 36 % Average tangible common shareholders' equity $ 1,091,429 $ 1,028,510 $ 882,206 6 % 24 % Annualization factor 4.00 4.00 4.00 Return on average tangible common shareholders' equity 26.69 % 22.03 % 23.92 % 466 bps 277 bps Total equity $ 1,632,715 $ 1,560,300 $ 1,412,590 5 % 16 % Less: goodwill and intangibles (16,676) (16,794) (17,152) -1 % -3 % Less: preferred stock (499,608) (499,608) (499,520) — — Tangible common shareholders' equity $ 1,116,431 $ 1,043,898 $ 895,918 7 % 25 % Assets $ 16,495,236 $ 15,874,872 $ 11,978,722 4 % 38 % Less: goodwill and intangibles (16,676) (16,794) (17,152) -1 % -3 % Tangible assets $ 16,478,560 $ 15,858,078 $ 11,961,570 4 % 38 % Ending common shares 43,240,212 43,237,300 43,109,578 Tangible book value per common share $ 25.82 $ 24.14 $ 20.78 7 % 24 % Tangible common shareholders' equity/tangible assets 6.78 % 6.58 % 7.49 % 20 bps (71) bps Key Operating Results (Unaudited) ($ in thousands, except share data) Nine Months Ended September 30 , September 30 , 2023 2022 Change Noninterest expense $ 122,022 $ 98,941 23 % Net interest income (before provision for credit losses) 323,746 223,141 45 % Noninterest income 80,214 102,954 -22 % Total income $ 403,960 $ 326,095 24 % Efficiency ratio 30.21 % 30.34 % (13) bps Average assets $ 14,541,523 $ 10,568,712 38 % Net income 201,761 162,565 24 % Return on average assets before annualizing 1.39 % 1.54 % Annualization factor 1.33 1.33 Return on average assets 1.85 % 2.05 % (20) bps Return on average tangible common shareholders' equity (1) 22.61 % 23.08 % (47) bps Tangible book value per common share (1) $ 25.82 $ 20.78 24 % Tangible common shareholders' equity/tangible assets (1) 6.78 % 7.49 % (71) bps (1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below: Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations. As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. A reconciliation of GAAP to non-GAAP financial measures is below. Net Income Available to Common Shareholders excludes preferred stock. Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total assets. Tangible Assets is calculated by excluding the balance of goodwill and intangible assets. Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding. Nine Months Ended September 30 , September 30 , 2023 2022 Change Net income $ 201,761 $ 162,565 24 % Less: preferred stock dividends (26,003) (17,186) 51 % Net income available to common shareholders $ 175,758 $ 145,379 21 % Average shareholders' equity $ 1,550,196 $ 1,219,305 27 % Less: average goodwill & intangibles (16,859) (17,360) -3 % Less: average preferred stock (499,608) (364,028) 37 % Average tangible common shareholders' equity $ 1,033,729 $ 837,917 23 % Annualization factor 1.33 1.33 Return on average tangible common shareholders' equity 22.61 % 23.08 % (47) bps Total equity $ 1,632,715 $ 1,412,590 16 % Less: goodwill and intangibles (16,676) (17,152) -3 % Less: preferred stock (499,608) (499,520) — Tangible common shareholders' equity $ 1,116,431 $ 895,918 25 % Assets $ 16,495,236 $ 11,978,722 38 % Less: goodwill and intangibles (16,676) (17,152) -3 % Tangible assets $ 16,478,560 $ 11,961,570 38 % Ending common shares 43,240,212 43,109,578 Tangible book value per common share $ 25.82 $ 20.78 24 % Tangible common shareholders' equity/tangible assets 6.78 % 7.49 % (71) bps Merchants Bancorp Average Balance Analysis ($ in thousands) (Unaudited) Three Months Ended Three Months Ended Three Months Ended Septmeber 30, 2023 June 30, 2023 September 30, 2022 Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate Assets: Interest-bearing deposits, and other $ 259,630 $ 3,923 5.99 % $ 249,722 $ 3,335 5.36 % $ 211,653 $ 1,394 2.61 % Securities available for sale - taxable 656,561 6,182 3.74 % 672,887 5,564 3.32 % 331,796 485 0.58 % Securities held to maturity 1,040,070 17,427 6.65 % 1,093,018 17,311 6.35 % 98,363 970 3.91 % Mortgage loans in process of securitization 208,767 2,583 4.91 % 280,092 3,127 4.48 % 235,230 2,162 3.65 % Loans and loans held for sale 13,399,854 266,561 7.89 % 11,968,565 228,732 7.67 % 10,245,294 129,101 5.00 % Total interest-earning assets 15,564,882 296,676 7.56 % 14,264,284 258,069 7.26 % 11,122,336 134,112 4.78 % Allowance for credit losses on loans (63,449) (54,411) (39,325) Noninterest-earning assets 529,582 463,384 354,794 Total assets $ 16,031,015 $ 14,673,257 $ 11,437,805 Liabilities & Shareholders' Equity: Interest-bearing checking 4,882,727 58,642 4.76 % 4,307,736 48,296 4.50 % 4,207,217 21,980 2.07 % Savings deposits 241,861 340 0.56 % 236,012 299 0.51 % 239,262 162 0.27 % Money market 2,798,325 33,235 4.71 % 2,749,594 30,521 4.45 % 2,523,315 13,094 2.06 % Certificates of deposit 5,255,573 70,689 5.34 % 4,729,242 58,685 4.98 % 2,030,152 9,766 1.91 % Total interest-bearing deposits 13,178,486 162,906 4.90 % 12,022,584 137,801 4.60 % 8,999,946 45,002 1.98 % Borrowings 711,948 16,334 9.10 % 591,333 14,651 9.94 % 588,582 3,725 2.51 % Total interest-bearing liabilities 13,890,434 179,240 5.12 % 12,613,917 152,452 4.85 % 9,588,528 48,727 2.02 % Noninterest-bearing deposits 333,155 346,837 474,925 Noninterest-bearing liabilities 199,647 167,527 107,192 Total liabilities 14,423,236 13,128,281 10,170,645 Shareholders' equity 1,607,779 1,544,976 1,267,160 Total liabilities and shareholders' equity $ 16,031,015 $ 14,673,257 $ 11,437,805 Net interest income $ 117,436 $ 105,617 $ 85,385 Net interest spread 2.44 % 2.41 % 2.77 % Net interest-earning assets $ 1,674,448 $ 1,650,367 $ 1,533,808 Net interest margin 2.99 % 2.97 % 3.05 % Average interest-earning assets toaverage interest-bearing liabilities 112.05 % 113.08 % 116.00 % Supplemental Results (Unaudited) ($ in thousands) Net Income Net Income Three Months Ended Nine Months Ended September 30 , June 30 , September 30 , September 30 , 2023 2023 2022 2023 2022 Segment Multi-family Mortgage Banking $ 14,685 $ 11,242 $ 13,366 $ 27,893 $ 44,414 Mortgage Warehousing 19,926 18,596 11,801 47,163 36,828 Banking 52,445 42,650 39,344 144,402 94,040 Other (5,552) (7,186) (6,023) (17,697) (12,717) Total $ 81,504 $ 65,302 $ 58,488 $ 201,761 $ 162,565 Total Assets September 30 , June 30 , December 31 , 2023 2023 2022 Segment Multi-family Mortgage Banking $ 392,754 $ 373,680 $ 351,274 Mortgage Warehousing 4,757,817 4,474,832 2,519,810 Banking 11,135,651 10,784,596 9,587,544 Other 209,014 241,764 156,599 Total $ 16,495,236 $ 15,874,872 $ 12,615,227 Gain on Sale of Loans Gain on Sale of Loans Three Months Ended Nine Months Ended September 30 , June 30 , September 30 , September 30 , 2023 2023 2022 2023 2022 Loan Type Multi-family 8,616 $ 10,361 $ 12,002 $ 23,897 $ 46,578 Single-family 951 202 138 1,430 1,001 Small Business Association (SBA) 1,191 787 1,214 3,514 5,304 Total $ 10,758 $ 11,350 $ 13,354 $ 28,841 $ 52,883 Loans Receivable and Loans Held for Sale September 30 , June 30 , December 31 , 2023 2023 2022 Mortgage warehouse lines of credit $ 1,022,692 $ 1,201,932 $ 464,785 Residential real estate 1,358,908 1,342,586 1,178,401 Multi-family financing 3,709,320 3,746,333 3,135,535 Healthcare financing 2,218,559 2,128,378 1,604,341 Commercial and commercial real estate (1)(2) 1,560,031 1,394,256 978,661 Agricultural production and real estate 96,490 91,599 95,651 Consumer and margin loans 11,545 11,920 13,498 9,977,545 9,917,004 7,470,872 Less: Allowance for credit losses on loans 66,864 62,986 44,014 Loans receivable $ 9,910,681 $ 9,854,018 $ 7,426,858 Loans held for sale 3,477,036 3,058,013 2,910,576 Total loans, net of allowance $ 13,387,717 $ 12,912,031 $ 10,337,434 (1) Includes $1.0 billion , $894.7 million and $497.0 million of revolving lines of credit collateralized primarily by mortgage servicing rights as of September 30, 2023 , June 30, 2023 and December 31, 2022 , respectively. (2) Includes only $8.1 million , $8.3 million and $12.8 million of non-owner occupied commerical real estate as of September 30, 2023 , June 30, 2023 and December 31, 2022 , respectively. View original content to download multimedia: https://www.prnewswire.com/news-releases/merchants-bancorp-reports-third-quarter-2023-results-301969179.html SOURCE Merchants Bancorp

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