Merchants Bancorp Reports First Quarter 2024 Results

• First quarter 2024 net income of $87.1 million was the Company's highest quarterly earnings ever recorded, increasing 58% compared to first quarter of 2023 and increasing 12% compared to the fourth quarter 2023.
• First quarter 2024 diluted earnings per common share of $1.80 increased 68% compared to the first quarter of 2023 and increased 14% compared to the fourth quarter of 2023.
• Total assets of $17.8 billion surpassed any level previously reported by the Company, increasing 25% compared to March 31, 2023 and increasing 5% compared to December 31, 2023.
• Tangible book value per common share of $29.26 increased 28% compared to $22.88 in the first quarter of 2023 and increased 7% compared to $27.40 in the fourth quarter of 2023.
• As of March 31, 2024, the Company had $5.6 billion in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window, representing 32% of total assets.
• 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 repurchase agreements included in loans receivable. Taken together, with unused borrowing capacity, these totaled $10.9 billion, or 61%, of the $17.8 billion in total assets as of March 31, 2024.
• Loans receivable of $10.7 billion, net of allowance for credit losses on loans, increased $2.1 billion, or 25%, compared to March 31, 2023, and increased $562.7 million, or 6%, compared to December 31, 2023.
• The efficiency ratio was 29.1% in the first quarter of 2024 compared to 30.3% in the first quarter of 2023 and 33.1% in the fourth quarter of 2023.
• Quarterly dividends of $0.09 per common share increased 13% compared to the first quarter of 2023.
• The previously announced agreement to sell several Illinois bank branches was completed on January 26, 2024, resulting in a gain of $0.7 million.
• The Company redeemed all outstanding shares of the Series A Preferred Stock for approximately $52 million on April 1, 2024, at the liquidation preference of $25.00 per share.
• On March 27, 2024, the Company executed a credit default swap on a $544 million pool of its multi-family mortgage loans, to provide credit protection for the loan pool and reduce risk-based capital requirements.

CARMEL, Ind., April 29, 2024/PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank, today reported first quarter 2024 net income of $87.1 million, or diluted earnings per common share of $1.80. This compared to $55.0 million, or diluted earnings per common share of $1.07 in the first quarter of 2023, and compared to $77.5 million, or diluted earnings per common share of $1.58 in the fourth quarter of 2023.

"Our financial results are off to a strong start in 2024, as we achieved the highest quarterly earnings in Company history. Loan growth continued to accelerate, with total assets reaching a record level of nearly $18 billion at the end of the quarter. The momentum of our profitability continued, as we grew net income by 58% compared to the same period in 2023, all while decreasing our efficiency ratio to 29.1%, increasing our return on average assets to 2.07%, and increasing our tangible book value by 28%, to $29.26 per share," said Michael F. Petrie, Chairman and CEO of Merchants.

Michael J. Dunlap, President and Chief Operating Officer of Merchants, added, "We are proud of the culture we have established at Merchants and believe it has contributed to the entrepreneurial creativity and successes we have had since becoming a public company in 2017. We have created a unique business model, with a focus on well-collateralized, affordable multi-family housing that is underwritten to agency guidelines. We can operate in any interest rate environment, and we are managing our capital and strong liquidity to maximize future growth opportunities."

Net income of $87.1 million for the first quarter 2024 increased by $32.1 million, or 58%, compared to the first quarter of 2023. The higher net income was primarily driven by a $26.4 million increase in net interest income and a higher fair market value adjustment to servicing rights, which was partially offset by a $14.1 million increase in noninterest expenses. Results for the first quarter 2024 included a $14.0 million positive fair market value adjustment to servicing rights compared to a $2.9 million negative adjustment in the first quarter of 2023.

Net income of $87.1 million for the first quarter 2024 increased by $9.6 million, or 12%, compared to the fourth quarter of 2023. The increase in net income was primarily driven by a $21.6 million higher fair market value adjustment to servicing rights, which was partially offset by a $10.0 million decrease in gain on sale of loans. Results for the first quarter of 2024 included $14.0 million positive fair market value adjustment to servicing rights compared to a $7.6 million negative fair market value adjustment to servicing rights in the fourth quarter 2023.

Total Assets

Total assets of $17.8 billion at March 31, 2024 increased $3.6 billion, or 25%, compared to March 31, 2023, and increased $870 million, or 5%, compared to December 31, 2023. The increase compared to December 31, 2023 was primarily due to growth in the warehouse, healthcare, and multi-family loan portfolios as well as loans held for sale.

Return on average assets was 2.07% for the first quarter of 2024 compared to 1.71% for the first quarter of 2023 and 1.86% for the fourth quarter of 2023.

Asset Quality

The allowance for credit losses on loans of $75.7 million, as of March 31, 2024, increased $23.9 million, or 46%, compared to March 31, 2023 and increased $4.0 million, or 6%, compared to December 31, 2023. The increase compared to both periods was primarily due to loan growth in the multi-family and healthcare portfolios, as well as changes in specific reserves and loss factors to reflect industry conditions. The Company experienced one charge-off of a commercial loan for $0.9 million and $1,000 of recoveries during the first quarter 2024.

As of March 31, 2024, non-performing loans were $131.8 million, or 1.22% of loans receivable before the allowance for credit losses on loans, compared to $65.3 million, or 0.76%, as of March 31, 2023, and $82.0 million, or 0.80%, as of December 31, 2023. The increase in non-performing loans compared to December 31, 2023 was primarily due to 3 customers with delinquent payments of 90 days or more. As of March 31, 2024, there were 13 customers classified in nonaccrual status and 8 customers delinquent by 90 or more days, but still accruing interest with full repayment expected.

Securities Available for Sale

Total securities available for sale of $1.1 billion as of March 31, 2024 increased $381.8 million, or 56%, compared to March 31, 2023, and decreased $52.4 million, or 5%, compared to December 31, 2023. The increase compared to March 31, 2023 was primarily associated with the acquisition of certain securities from a warehouse customer that provides protective put options and interest rate floor derivatives to prevent losses in value. The decrease in securities from December 31, 2023 was partially due to the sale of securities held by Farmers-Merchants Bank of Illinois ("FMBI") prior to the completion of the sale of its branches.

As of March 31, 2024, Accumulated Other Comprehensive Losses ("AOCL") of $1.2 million, related to securities available for sale, decreased $6.6 million, or 85%, compared to March 31, 2023, and decreased $1.3 million, or 53%, compared to December 31, 2023. The $1.2 million of AOCL as of March 31, 2024 represented less than 1% of total equity and less than 1% of total investment securities.

Total Deposits

Total deposits of $14.0 billion at March 31, 2024 increased $2.6 billion compared to March 31, 2023, and decreased $85.8 million, or 1%, compared to December 31, 2023. The change compared to March 31, 2023 was primarily due to increases in brokered certificates of deposit and brokered demand deposit accounts. The change compared to December 31, 2023 was primarily due to decreases in brokered demand deposit accounts that were partially offset by increases in brokered certificates of deposit.

Total brokered deposits of $5.8 billion at March 31, 2024 increased $2.0 billion, or 54%, from March 31, 2023 and decreased $0.2 million, or 4%, from December 31, 2023. Brokered deposits represented 41% of total deposits at March 31, 2024 compared to 33% of total deposits at March 31, 2023 and 42% of total deposits at December 31, 2023. As of March 31, 2024, brokered certificates of deposit had a weighted average remaining duration of 57 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 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 $1.7 billion as of March 31, 2024 compared to $1.5 billion at March 31, 2023 and $1.6 billion at December 31, 2023, and has contributed to the Company's low level of uninsured deposits, which were below 15% of total deposits.

Liquidity

Cash balances of $508.8 million as of March 31, 2024 increased by $139.2 million compared to March 31, 2023 and decreased by $75.7 million compared to December 31, 2023. The Company continues to have significant borrowing capacity, with unused lines of credit totaling $5.6 billion as of March 31, 2024 compared to $4.0 billion at March 31, 2023 and $6.0 billion at December 31, 2023.

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
March 31, 2024 and 2023

Net Interest Income of $127.1 million increased $26.4 million, or 26%, compared to $100.7 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 rates on borrowings.

• Interest rate spread of 2.58% decreased 18 basis points compared to 2.76%.
• Net interest margin of 3.14% decreased 13 basis points compared to 3.27%.

Interest Income of $314.2 million increased $102.9 million, or 49%, compared to $211.3 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 $13.5 billion for loans and loans held for sale increased 27% compared to $10.6 billion.
• Average yield on loans and loans held for sale of 8.11% increased 86 basis points compared to 7.25%.
• Average balances of $1.1 billion for securities available for sale increased 144% compared to $445.6 million.
• Average yield on securities available for sale of 5.33% increased 327 basis points compared to 2.06%.

Interest Expense of $187.1 million increased $76.5 million, or 69%, compared to $110.6 million. The increase was primarily due to higher average balances and rates on certificates of deposit and interest-bearing checking, as well as higher rates on borrowings.

• Average balances of $5.7 billion for certificates of deposit increased 71% compared to $3.3 billion.
• Average interest rates of 5.40% for certificates of deposit increased 114 basis points compared to 4.26%.
• Average balances of $5.1 billion for interest-bearing deposits increased 25% compared to $4.1 billion.
• Average interest rates of 4.81% for interest-bearing deposits increased 74 basis points compared to 4.07%.

Noninterest Income of $40.9 million increased $26.6 million, or 187%, compared to $14.3 million, primarily due to a $17.0 million, or 722%, increase in loan servicing fees, a $4.1 million, or 338% increase in syndication and asset management fees, a $3.0 million, or 103%, increase in other income and a $2.6 million, or 39%, increase in gain on sale of loans.

• Loan servicing fees included a $14.0 million positive fair market value adjustment to servicing rights, 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. This compared to a $2.9 million negative fair market value adjustment to mortgage servicing rights in the prior period, of which $0.7 million negative adjustment in the Banking segment and $2.2 million negative adjustment in the Multi-family Mortgage Banking segment.

Noninterest Expense of $48.9 million increased $14.1 million, or 41%, compared to $34.8 million partially due to increases in salaries and employee benefits associated with higher commissions on higher production volume, as well as increases in deposit insurance expense.

• The efficiency ratio of 29.1% decreased 112 basis points compared to 30.3%.

Comparison of Operating Results for the Three Months Ended
March 31, 2024 and December 31, 2023

Net Interest Income of $127.1 million increased 2% compared to $124.3 million, reflecting higher yields and average balances of securities available for sale, partially offset by a decrease in average balances on loans and loans held for sale, while interest expense held relatively unchanged.

• Interest rate spread of 2.58% increased 10 basis points compared to 2.48%.
• Net interest margin of 3.14% increased 9 basis points compared to 3.05%.

Interest Income of $314.2 million increased $2.4 million, or 1%, compared to $311.8 million, reflecting an increase in average yields and balances of securities available for sale, partially offset by a decrease in average balances on loans and loans held for sale, as well as decreases in average balances of mortgage loans in process of securitization.

• Average yields of 5.33% for securities available for sale increased 112 basis points compared to 4.21%.
• Average balances of $1.1 billion for securities available for sale increased 51% compared to $716.3 million.
• Average balances of $13.5 billion for loans and loans held for sale decreased 1% compared to $13.7 billion.
• Average balances of $137.9 million for mortgage loans in process of securitization decreased 64% compared to $380.6 million.

Interest Expense of $187.1 million decreased $0.3 million, compared to $187.4 million. The decrease was primarily driven by lower rates on interest-bearing checking and certificate of deposit accounts, as well as lower average balances of interest-bearing checking accounts, which were partially offset by higher average certificate of deposit balances.

• Average interest rates of 4.81% for interest-bearing checking accounts decreased 6 basis points compared to 4.87%.
• Average interest rates of 5.40% for certificate of deposit accounts decreased 3 basis points compared to 5.43%.
• Average balances of $5.1 billion for interest-bearing checking accounts decreased 10% compared to $5.6 billion.
• Average balances of $5.7 billion for certificate of deposit accounts increased 13% compared to $5.0 billion.

Noninterest Income of $40.9 million increased $6.4 million, or 19%, compared $34.5 million, primarily due to a $21.6 million, or 997%, increase in loan servicing fees, partially offset by a decrease of $10.0 million, or 52%, in gain on sale of loans and a $4.5 million, or 43%, decrease in other income.

• Loan servicing fees included a $14.0 million positive fair market value adjustment to servicing rights, 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. This compared to a $7.6 million negative fair market value adjustment to servicing rights in the prior period, with a $1.1 million negative adjustment in the Banking segment and a $6.5 million negative adjustment in the Multi-family Mortgage Banking segment.
• The decrease in gain on sale of loans was associated with decrease in production volume of multi-family loans that were sold in the secondary market.

Noninterest Expense of $48.9 million decreased $3.7 million, or 7%, compared to $52.6 million, primarily due to decreases in salaries and employee benefits associated with lower commissions on lower production volume.

• The efficiency ratio of 29.1% decreased 398 basis points compared to 33.1%.

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 $17.8 billion in assets and $14.0 billion in deposits as of March 31, 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.

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