Merchants Bancorp Reports Second Quarter 2023 Results

• Second quarter 2023 net income of $65.3 million increased 21% compared to second quarter of 2022 and increased 19% compared to the first quarter 2023.
• Second quarter 2023 diluted earnings per common share of $1.31 increased 18% compared to the second quarter of 2022 and increased 22% compared to the first quarter of 2023.
• During the second quarter 2023, the Company recorded a $13.0 million tax benefit related to tax refunds and changes to its state tax apportionment calculations, which was offset by credit events that totaled approximately $14.8 million, primarily for the impact of a multi-family loan charge-off, an increase in specific reserves for a healthcare customer, and changes to qualitative factors and forecasted loss rates.
• Total assets of $15.9 billion increased 11% compared to March 31, 2023, and increased 26% compared to December 31, 2022.
• As of June 30, 2023, the Company had $5.3 billion, or 34% of total assets, in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window, based on available collateral.
• The Company's most liquid assets are in unrestricted cash, short-term investments, including interest-bearing demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit included in loans receivable.  Taken together, with unused borrowing capacity, these totaled $10.2 billion, or 64%, of the $15.9 billion in total assets as of June 30, 2023.
• Uninsured deposits totaled approximately $2 billion as of June 30, 2023, representing less than 20% of total deposits.
• Loans receivable of $9.9 billion, net of allowance for credit losses on loans, increased $1.3 billion, or 15%, compared to March 31, 2023, and increased $2.4 billion, or 33%, compared to December 31, 2022.
• Efficiency ratio was 32.7% in the second quarter of 2023 compared to 29.6% in the second quarter of 2022 and 30.3% in the first quarter of 2023.
• Tangible book value per common share of $24.14 increased 23% compared to $19.70 in the second quarter of 2022 and increased 6% compared to $22.88 in the first quarter of 2023.

CARMEL, Ind., July 27, 2023 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported second quarter 2023 net income of $65.3 million, or diluted earnings per common share of $1.31. This compared to $53.9 million, or diluted earnings per common share of $1.11 in the second quarter of 2022, and compared to $55.0 million, or diluted earnings per common share of $1.07 in the first quarter of 2023.

"We have continued to garner accolades for our performance and were honored to be named this month by American Banker Magazine as the #1 top-performing bank with assets between $10-50 billion.  Our results in the second quarter reflected that ongoing strength as we delivered profitable loan growth and our noninterest income gained momentum from diverse sources.  We have effectively managed our expenses and capital during this time of economic uncertainty, while maintaining an expense ratio of 32.7%, a return on average assets of 1.78%, and increasing tangible book value to $24.14 per share," said Michael F. Petrie, Chairman and CEO of Merchants. 

Michael J. Dunlap, President and Chief Operating Officer of Merchants, added, "Our liquidity remains strong, with unused borrowing capacity that increased to $5.3 billion during the quarter, which positions us well to execute our plans for future growth.  Our relationship-focused teams are working hard every day to meet the needs of our loyal customers and improve communities across the country."  

Net income of $65.3 million for the second quarter 2023 increased by $11.4 million, or 21%, compared to the second quarter of 2022, driven by:

• a $33.6 million, or 47%, increase in net interest income,
• a $14.8 million, or 82%, decrease in the Provision for Income Tax, reflecting a $13.0 million tax benefit related to tax refunds and changes to its state tax apportionment calculations described in the Provision for Income Tax section,
• a $16.4 million, or 264%, increase in provision for credit losses, primarily due to credit events that totaled approximately $14.8 million for the impact of a multi-family loan charge-off, an increase in specific reserves for a healthcare customer, and changes to qualitative factors and forecasted loss rates, described in the Asset Quality section,
• an $11.4 million, 34%, increase in noninterest expense, and
• a $10.2 million, or 47%, decrease in gain on sale of loans.

Net income of $65.3 million for the second quarter 2023 increased by $10.3 million, or 19%, compared to the first quarter of 2023, primarily driven by:

• a $15.6 million, or 109%, increase in noninterest income reflecting higher gain on sale of loans, loan servicing fees and syndication and asset management fees,
• a $15.1 million, or 82%, decrease in the Provision for Income Tax, reflecting a $13.0 million tax benefit related to tax refunds and changes to its state tax apportionment calculations described in the Provision for Income Tax section,
• a $4.9 million, or 5%, increase in net interest income,
• a $15.7 million, or 229%, increase in provision for credit losses, primarily due to credit events that totaled approximately $14.8 million for the impact of a multi-family loan charge-off, an increase in specific reserves for a healthcare customer, and changes to qualitative factors and forecasted loss rates, described in the Asset Quality section, and
• a $9.5 million, 27%, increase in noninterest expense.

Total Assets
Total assets of $15.9 billion at June 30, 2023 increased $1.6 billion, or 11%, compared to March 31, 2023, and increased $3.3 billion, or 26%, compared to December 31, 2022.  Increases compared to both periods were primarily due to significant growth in the mortgage warehouse, multi-family and healthcare loan portfolios. 

Return on average assets was 1.78% for the second quarter of 2023 compared to 2.20% for the second quarter of 2022 and 1.71% for the first quarter of 2023.

Asset Quality
The allowance for credit losses on loans of $63.0 million as of June 30, 2023 increased $11.1 million, or 22%, compared to March 31, 2023 and increased $19.0 million, or 43%, compared to December 31, 2022.  The increases were primarily due to the following:

• replenishment of $8.2 million related to the charge-off of a loan in the multi-family portfolio,
• a $2.0 million increase in net specific reserves, primarily related to a loan in the healthcare portfolio,  
• a $4.6 million increase related to changes in qualitative factors and forecasted loss rates to reflect changes in industry conditions, such as the impact of higher interest rates, and
• loan growth in the period.  

The increases to the allowance for credit losses were partially offset by charge-offs of $9.5 million during the second quarter of 2023, which compared to no charge-offs in the first quarter of 2023 and $47 thousand of charge-offs in the second quarter of 2022.

Non-performing loans were $68.4 million, or 0.69%, of loans receivable as of June 30, 2023, compared to 0.76% at March 31, 2023, and 0.36% at December 31, 2022.  The increase in non-performing loans compared to both periods was primarily due to 3 customers.

Securities Available for Sale 
Total securities available for sale of $648.0 million as of June 30, 2023 decreased $31.5 million, or 5%, compared to March 31, 2023, and increased $324.7 million, or 100%, compared to December 31, 2022.

As of June 30, 2023, Accumulated Other Comprehensive Losses ("AOCL") of $7.0 million, related to securities available for sale, decreased $0.7 million, or 9%, compared to March 31, 2023, and decreased $3.5 million, or 33%, compared to December 31, 2022.  The $7.0 million of AOCL as of June 30, 2023 represented less than 1% of total equity and less than 1% of total investment securities.

Total Deposits
Total deposits of $13.1 billion at June 30, 2023 increased $1.7 billion, or 15%, compared to March 31, 2023, and increased $3.0 billion, or 30%, compared to December 31, 2022. The increase for both periods was primarily due to an increase in brokered certificates of deposit.

Total brokered deposits of $4.8 billion at June 30, 2023 increased $1.0 billion, or 27%, from March 31, 2023 and increased $2.0 billion, or 72%, from December 31, 2022.   Brokered deposits represented 36% of total deposits at June 30, 2023 compared to 33% of total deposits at March 31, 2023 and 27% of total deposits at December 31, 2022.  As of June 30, 2023, brokered certificates of deposit had a weighted average remaining duration of 51 days.

The Company continues to offer new products, such as adjustable-rate certificates of deposits, to minimize interest rate risks by aligning the rate and short duration characteristics of its deposit and loan portfolios.  Additionally, the Company has offered its insured cash sweep program since 2018, which extends FDIC protection up to $100 million.  This program has contributed to the Company's low level of uninsured deposits, which were below 20% of total deposits as of June 30, 2023.

Liquidity
Cash balances of $377.3 million as of June 30, 2023 increased by $7.7 million compared to March 31, 2023 and increased by $151.1 million compared to December 31, 2022.  The Company continues to have significant borrowing capacity, with unused lines of credit totaling $5.3 billion as of June 30, 2023 compared to $4.0 billion at March 31, 2023 and $3.1 billion at December 31, 2022. 

This liquidity enhances the ability to effectively manage interest expense and asset levels in the future. Additionally, the Company's business model is designed to continuously sell a significant portion of its loans, which provides flexibility in managing its liquidity.

Comparison of Operating Results for the Three Months Ended

June 30, 2023 and 2022

Net Interest Income of $105.6 million increased $33.6 million, or 47%, compared to $72.0 million, reflecting higher yields and average balances on loans and loans held for sale, and new balances of securities held to maturity, which were partially offset by higher interest rates on deposits and higher average rates on borrowings, primarily related to the credit linked notes issued by the Company during the first quarter of 2023.

• Interest rate spread of 2.41% decreased 49 basis points compared to 2.90%.
• Net interest margin of 2.97% decreased 6 basis points compared to 3.03%.

Interest Income of $258.1 million increased $168.8 million, or 189%, compared to $89.3 million, reflecting an increase in both yields and average balances of loans and loans held for sale, as well as new balances in securities held to maturity. 

• Average balances of $12.0 billion for loans and loans held for sale increased 38% compared to $8.6 billion.
• Average yield on loans and loans held for sale of 7.67% increased 368 basis points compared to 3.99%.

Interest Expense of $152.5 million increased 784% compared to $17.2 million.  Interest expense on deposits of $137.8 million increased $123.0 million, or 833%, compared $14.8 million, primarily reflecting higher rates on certificates of deposit, interest-bearing checking, and money market accounts, as well as higher average rates on borrowings, primarily related to the credit linked notes issued by the Company during the first quarter of 2023.

• Average balances of $12.0 billion for interest-bearing deposits increased 63% compared to $7.4 billion.
• Average interest rates of 4.60% for interest-bearing deposits increased 379 basis points compared to 0.81%.

Provision for Credit Losses of $22.6 million increased $16.4 million compared to $6.2 million, primarily reflecting the impact of charge-offs, an increase in specific reserves, changes to qualitative and loss factors, as well as loan growth described in the Asset Quality section above.

Noninterest Income of $29.9 million decreased $9.3 million, or 24%, compared to $39.2 million, primarily due to a $10.2 million, or 47%, decrease in gain on sale of loans.  

• The decrease in gain on sale of loans was associated with a business mix shift in multi-family lending, from volumes sold in the secondary market towards those maintained on the balance sheet.
• Loan servicing fees included a $3.4 million positive fair market value adjustment to servicing rights, with a $1.3 million positive adjustment in the Banking segment and a $2.1 million positive adjustment in the Multi-family Mortgage Banking segment.  This compared to a $7.7 million positive fair market value adjustment to mortgage servicing rights, of which $1.1 million was in the Banking segment and $6.6 million was in the Multi-family Mortgage Banking segment.

Noninterest Expense of $44.3 million increased $11.4 million, or 34%, compared to $33.0 million, primarily due to increases in salaries and employee benefits, deposit insurance expense, and professional fees.

• The efficiency ratio of 32.7% increased 307 basis points compared to 29.6%.

Provision for Income Taxes of $3.3 million decreased $14.8 million compared to $18.1 million, reflecting a $13.0 million tax benefit related to tax refunds and changes to state tax apportionment calculations.  

During the second quarter of 2023, the Company received an advisory letter it requested from the State of Indiana related to certain state tax apportionment provisions in the Indiana Financial Institution Tax Code and Regulations. The advisory letter provided guidance related to the methodology used to determine and source the receipts in the state of Indiana for the Company's mortgage origination and warehousing service lines. In effect, the guidance provided the Company the ability to revise its state income tax apportionment calculation to reduce its Indiana tax and related deferred tax liabilities. As such, the Company will amend several of its state returns and request the respective refunds.  Additionally, the change in methodology is expected to result in a 1.0% to 1.5% reduction in the Company's overall effective tax rate in the future.

Comparison of Operating Results for the Three Months Ended

June 30, 2023 and March 31, 2023

Net Interest Income of $105.6 million increased $4.9 million, or 5%, compared to $100.7 million, reflecting higher average balances and yields on loans and loans held for sale, which were partially offset by higher interest rates and average balances on deposits and borrowings.

• Interest rate spread of 2.41% decreased 35 basis points compared to 2.76%.
• Net interest margin of 2.97% decreased 30 basis points compared to 3.27%.

Interest Income of $258.1 million increased $46.8 million, or 22%, compared to $211.3 million, reflecting an increase in average balances and yields on loans and loans held for sale.

• Average balances of $12.0 billion for loans and loans held for sale increased 13%, compared to $10.6 billion.
• Average yield on loans and loans held for sale of 7.67% increased 42 basis points compared to 7.25%.

Interest Expense of $152.5 million increased $41.9 million, or 38%, compared to $110.6 million.  Interest expense on deposits of $137.8 million increased $33.4 million, or 32%, compared to $104.4 million, primarily due to higher average balances and interest rates on certificates of deposit and interest-bearing checking, accounts, as well as higher average rates on borrowings, primarily related to the credit linked notes issued by the Company during the first quarter of 2023.  

• Average balances of $12.0 billion for interest-bearing deposits increased 15% compared to $10.5 billion.
• Average interest rates of 4.60% for interest-bearing deposits increased 55 basis points compared to 4.05%.

Provision for Credit Losses of $22.6 million increased $15.7 million compared to $6.9 million, primarily reflecting the impact of charge-offs, an increase in specific reserves, changes to qualitative and loss factors, as well as loan growth described in the Asset Quality section above.

Noninterest Income of $29.9 million increased $15.6 million, or 109%, compared $14.3 million, primarily due to a $6.3 million, or 265%, increase in loan servicing fees, a $4.6 million, or 69%, increase in gain on sale of loans, and a $2.7 million, or 221% increase in syndication and asset management fees.

• Loan servicing fees included a $3.4 million positive fair market value adjustment to servicing rights, with a $1.3 million positive adjustment in the Banking segment and a $2.1 million positive adjustment in the Multi-family Mortgage Banking segment.  This compared to a $2.9 million negative fair market value adjustment to servicing rights, with a $0.7 million negative adjustment in the Banking segment and a $2.2 million negative adjustment in the Multi-family Mortgage Banking segment.

Noninterest Expense of $44.3 million increased $9.5 million, or 27%, compared to $34.8 million, primarily due to increases in salaries and employee benefits, deposit insurance expense and professional fees.

• The efficiency ratio of 32.7% increased 246 basis points compared to 30.3%.

Provision for Income Taxes of $3.3 million decreased $15.1 million compared to $18.4 million, reflecting the $13.0 million tax benefit related to the tax refunds and changes to state tax apportionment calculations described in the Comparison of Operating Results for the Three Months Ended June 30, 2023 and March 31, 2023 section above.

About Merchants Bancorp
Ranked as a top performing U.S. public bank by S&P Global Market Intelligence, Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple segments, including Multi-family Mortgage Banking that primarily offers multi-family housing and healthcare facility financing and servicing. Through this segment it also serves as a syndicator of low-income housing tax credit and debt funds; Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers retail and correspondent residential mortgage banking, agricultural lending, and traditional community banking.  Merchants Bancorp, with $15.9 billion in assets and $13.1 billion in deposits as of June 30, 2023, conducts its business primarily through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp., Merchants Capital Investments, LLC, Merchants Capital Servicing, LLC, Merchants Asset Management, LLC, Farmers-Merchants Bank of Illinois, and Merchants Mortgage, a division of Merchants Bank of Indiana. For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbancorp.com.

Forward-Looking Statements
This press release contains forward-looking statements which reflect management's current views with respect to, among other things, future events and financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, management cautions that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.  A number of important factors could cause actual results to differ materially from those indicated in these forward-looking statements, including the impacts of factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission.  Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

 

Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
		June 30,		March 31,		December 31,		September 30,		June 30,
		2023		2023		2022		2022		2022
Assets
Cash and due from banks		$              15,390		$              19,002		$              22,170		$              13,796		$              10,714
Interest-earning demand accounts		361,920		350,584		203,994		310,165		247,432
Cash and cash equivalents		377,310		369,586		226,164		323,961		258,146
Securities purchased under agreements to resell		3,412		3,438		3,464		3,497		3,520
Mortgage loans in process of securitization		298,907		197,074		154,194		137,448		323,046
Securities available for sale		648,003		679,518		323,337		322,069		336,814
Securities held to maturity (includes $1,058,590, $1,106,582, $1,118,966, $1,005,487 and $0 at fair value, respectively)		1,062,017		1,104,835		1,119,078		1,005,487		—
Federal Home Loan Bank (FHLB) stock		39,130		39,130		39,130		39,130		39,130
Loans held for sale (includes $82,931, $85,516, $82,192, $68,785 and $41,991 at fair value, respectively)		3,058,013		2,855,250		2,910,576		2,844,750		2,759,116
Loans receivable, net of allowance for credit losses on loans of $62,986, $51,838, $44,014, $38,996 and  $37,474, respectively		9,854,018		8,575,210		7,426,858		6,919,128		7,033,203
Premises and equipment, net		36,947		35,793		35,438		35,492		35,085
Servicing rights		147,288		143,867		146,248		144,984		130,710
Interest receivable		70,509		64,282		56,262		40,170		26,184
Goodwill		15,845		15,845		15,845		15,845		15,845
Intangible assets, net		949		1,068		1,186		1,307		1,441
Other assets and receivables		262,524		156,070		157,447		145,454		123,815
Total assets		$       15,874,872		$       14,240,966		$       12,615,227		$       11,978,722		$       11,086,055
Liabilities and Shareholders' Equity
Liabilities
Deposits
Noninterest-bearing		$            349,387		$            313,733		$            326,875		$            315,868		$            444,461
Interest-bearing		12,710,477		11,031,498		9,744,470		10,003,611		7,855,277
Total deposits		13,059,864		11,345,231		10,071,345		10,319,479		8,299,738
Borrowings		1,016,836		1,233,762		930,392		97,279		1,440,904
Deferred and current tax liabilities, net		16,084		32,827		19,613		19,124		19,414
Other liabilities		221,788		123,462		134,138		130,250		97,460
Total liabilities		14,314,572		12,735,282		11,155,488		10,566,132		9,857,516
Commitments and  Contingencies
Shareholders' Equity
Common stock, without par value
Authorized - 75,000,000 shares
Issued and outstanding  - 43,237,300 shares, 43,233,618 shares, 43,113,127 shares, 43,109,578 shares and 43,106,505 shares		138,853		138,105		137,781		137,226		136,671
Preferred stock, without par value - 5,000,000 total 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 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		137,371		—
Retained earnings		928,875		875,700		832,871		787,530		737,789
Accumulated other comprehensive loss		(7,036)		(7,729)		(10,521)		(11,686)		(8,070)
Total shareholders' equity		1,560,300		1,505,684		1,459,739		1,412,590		1,228,539
Total liabilities and shareholders' equity		$       15,874,872		$       14,240,966		$       12,615,227		$       11,978,722		$       11,086,055

 

Consolidated Statement of Income
(Unaudited)
(In thousands, except share data)
		Three Months Ended									Change
		June 30,			March 31,			June 30,			2Q23		2Q23
		2023			2023			2022			vs. 1Q23		vs. 2Q22
Interest Income
Loans		$	228,732		$	189,450		$	85,994		21 %		166 %
Mortgage loans in process of securitization			3,127			1,648			1,449		90 %		116 %
Investment securities:
Available for sale - taxable			5,564			2,266			917		146 %		507 %
Held to maturity			17,311			15,754			—		10 %		100 %
Federal Home Loan Bank stock			471			427			284		10 %		66 %
Other			2,864			1,749			626		64 %		358 %
Total interest income			258,069			211,294			89,270		22 %		189 %
Interest Expense
Deposits			137,801			104,442			14,768		32 %		833 %
Borrowed funds			14,651			6,159			2,471		138 %		493 %
Total interest expense			152,452			110,601			17,239		38 %		784 %
Net Interest Income			105,617			100,693			72,031		5 %		47 %
Provision for credit losses			22,603			6,867			6,212		229 %		264 %
Net Interest Income After Provision for Credit Losses			83,014			93,826			65,819		-12 %		26 %
Noninterest Income
Gain on sale of loans			11,350			6,733			21,564		69 %		-47 %
Loan servicing fees, net			8,616			2,360			9,607		265 %		-10 %
Mortgage warehouse fees			2,865			1,028			1,350		179 %		112 %
Syndication and asset management fees			3,896			1,212			1,599		221 %		144 %
Other income			3,155			2,931			5,051		8 %		-38 %
Total noninterest income			29,882			14,264			39,171		109 %		-24 %
Noninterest Expense
Salaries and employee benefits			25,724			22,146			22,475		16 %		14 %
Loan expenses			907			804			1,184		13 %		-23 %
Occupancy and equipment			2,456			2,232			2,011		10 %		22 %
Professional fees			3,723			2,269			1,594		64 %		134 %
Deposit insurance expense			3,806			2,178			670		75 %		468 %
Technology expense			1,571			1,577			1,304		—		20 %
Other expense			6,133			3,566			3,719		72 %		65 %
Total noninterest expense			44,320			34,772			32,957		27 %		34 %
Income Before Income Taxes			68,576			73,318			72,033		-6 %		-5 %
Provision for income taxes			3,274			18,363			18,098		-82 %		-82 %
Net Income		$	65,302		$	54,955		$	53,935		19 %		21 %
Dividends on preferred stock			(8,668)			(8,667)			(5,729)		—		51 %
Net Income Allocated to Common Shareholders		$	56,634		$	46,288		$	48,206		22 %		17 %
Basic Earnings Per Share		$	1.31		$	1.07		$	1.12		22 %		17 %
Diluted Earnings Per Share		$	1.31		$	1.07		$	1.11		22 %		18 %
Weighted-Average Shares Outstanding
Basic			43,235,398			43,179,604			43,209,824
Diluted			43,309,393			43,290,779			43,335,211

 

Consolidated Statement of Income
(Unaudited)
(In thousands, except share data)
		Six Months Ended
		June 30,			June 30,
		2023			2022			Change
Interest Income
Loans		$	418,182		$	158,190		164 %
Mortgage loans in process of securitization			4,775			3,694		29 %
Investment securities:
Available for sale - taxable			7,830			1,618		384 %
Held to maturity			33,065			—		100 %
Federal Home Loan Bank stock			898			553		62 %
Other			4,613			1,227		276 %
Total interest income			469,363			165,282		184 %
Interest Expense
Deposits			242,243			23,581		927 %
Borrowed funds			20,810			3,945		428 %
Total interest expense			263,053			27,526		856 %
Net Interest Income			206,310			137,756		50 %
Provision for credit losses			29,470			8,663		240 %
Net Interest Income After Provision for Credit Losses			176,840			129,093		37 %
Noninterest Income
Gain on sale of loans			18,083			39,529		-54 %
Loan servicing fees, net			10,976			19,338		-43 %
Mortgage warehouse fees			3,893			3,208		21 %
Syndication and asset management fees			5,108			2,213		131 %
Other income			6,086			9,480		-36 %
Total noninterest income			44,146			73,768		-40 %
Noninterest Expense
Salaries and employee benefits			47,870			43,768		9 %
Loan expenses			1,711			2,395		-29 %
Occupancy and equipment			4,688			3,825		23 %
Professional fees			5,992			2,897		107 %
Deposit insurance expense			5,984			1,429		319 %
Technology expense			3,148			2,540		24 %
Other expense			9,699			7,136		36 %
Total noninterest expense			79,092			63,990		24 %
Income Before Income Taxes			141,894			138,871		2 %
Provision for income taxes			21,637			34,794		-38 %
Net Income		$	120,257		$	104,077		16 %
Dividends on preferred stock			(17,335)			(11,457)		51 %
Net Income Allocated to Common Shareholders		$	102,922		$	92,620		11 %
Basic Earnings Per Share		$	2.38		$	2.14		11 %
Diluted Earnings Per Share		$	2.38		$	2.14		11 %
Weighted-Average Shares Outstanding
Basic			43,207,655			43,220,198
Diluted			43,300,240			43,367,875

 

Key Operating Results
(Unaudited)
($ in thousands, except share data)
			Three Months Ended						Change
			June 30,		March 31,		June 30,		2Q23		2Q23
			2023		2023		2022		vs. 1Q23		vs. 2Q22
Noninterest expense			$                  44,320		$                    34,772		$           32,957		27 %		34 %
Net interest income (before provision for credit losses)			105,617		100,693		72,031		5 %		47 %
Noninterest income			29,882		14,264		39,171		109 %		-24 %
Total income			$                135,499		$                  114,957		$         111,202		18 %		22 %
Efficiency ratio			32.71 %		30.25 %		29.64 %		246	bps	307	bps
Average assets			$           14,673,257		$             12,885,735		$      9,820,878		14 %		49 %
Net income			65,302		54,955		53,935		19 %		21 %
Return on average assets before annualizing			0.45 %		0.43 %		0.55 %
Annualization factor			4.00		4.00		4.00
Return on average assets			1.78 %		1.71 %		2.20 %		7	bps	(42)	bps
Return on average tangible common shareholders' equity (1)			22.03 %		18.89 %		23.05 %		314	bps	(102)	bps
Tangible book value per common share (1)			$                    24.14		$                      22.88		$             19.70		6 %		23 %
Tangible common shareholders' equity/tangible assets (1)			6.58 %		6.95 %		7.67 %		(37)	bps	(109)	bps
Consolidated ratios
Total capital/risk-weighted assets(2)			11.3	%	12.4	%	N/A
Tier I capital/risk-weighted assets(2)			10.8	%	11.9	%	N/A
Common Equity Tier I capital/risk-weighted assets(2)			7.3	%	7.9	%	N/A
Tier I capital/average assets(2)			10.6	%	11.6	%	12.4	%
(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below:
(2) As defined by regulatory agencies; March 31, 2023 shown as estimates and prior periods shown as reported
Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the company's financial condition, results of 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
			June 30,		March 31,		June 30,		2Q23		2Q23
			2023		2023		2022		vs. 1Q23		vs. 2Q22
Net income			$                  65,302		$                    54,955		$           53,935		19 %		21 %
Less: preferred stock dividends			(8,668)		(8,667)		(5,729)		—		51 %
Net income available to common shareholders			$                  56,634		$                    46,288		$           48,206		22 %		17 %
Average shareholders' equity			$             1,544,976		$               1,496,610		$      1,215,891		3 %		27 %
Less: average goodwill & intangibles			(16,858)		(16,980)		(17,361)		-1 %		-3 %
Less: average preferred stock			(499,608)		(499,608)		(362,149)		—		38 %
Average tangible common shareholders' equity			$             1,028,510		$                  980,022		$         836,381		5 %		23 %
Annualization factor			4.00		4.00		4.00
Return on average tangible common shareholders' equity			22.03 %		18.89 %		23.05 %		314	bps	(102)	bps
Total equity			$             1,560,300		$               1,505,684		$      1,228,539		4 %		27 %
Less: goodwill and intangibles			(16,794)		(16,913)		(17,286)		-1 %		-3 %
Less: preferred stock			(499,608)		(499,608)		(362,149)		—		38 %
Tangible common shareholders' equity			$             1,043,898		$                  989,163		$         849,104		6 %		23 %
Assets			$           15,874,872		$             14,240,966		$    11,086,055		11 %		43 %
Less: goodwill and intangibles			(16,794)		(16,913)		(17,286)		-1 %		-3 %
Tangible assets			$           15,858,078		$             14,224,053		$    11,068,769		11 %		43 %
Ending common shares			43,237,300		43,233,618		43,106,505
Tangible book value per common share			$                    24.14		$                      22.88		$             19.70		6 %		23 %
Tangible common shareholders' equity/tangible assets			6.58 %		6.95 %		7.67 %		(37)	bps	(109)	bps

 

Key Operating Results
(Unaudited)
($ in thousands, except share data)
			Six Months Ended
			June 30,		June 30,
			2023		2022		Change
Noninterest expense			$           79,092		$          63,990		24 %
Net interest income (before provision for credit losses)			206,310		137,756		50 %
Noninterest income			44,146		73,768		-40 %
Total income			$         250,456		$        211,524		18 %
Efficiency ratio			31.58 %		30.25 %		133	bps
Average assets			$    13,784,434		$   10,126,963		36 %
Net income			120,257		104,077		16 %
Return on average assets before annualizing			0.87 %		1.03 %
Annualization factor			2.00		2.00
Return on average assets			1.74 %		2.06 %		(32)	bps
Return on average tangible common shareholders' equity (1)			20.49 %		22.72 %		(223)	bps
Tangible book value per common share (1)			$             24.14		$            19.70		23 %
Tangible common shareholders' equity/tangible assets (1)			6.58 %		7.67 %		(109)	bps
(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" below:
Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the company'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,
			2023		2022		Change
Net income			$         120,257		$        104,077		16 %
Less: preferred stock dividends			(17,335)		(11,457)		51 %
Net income available to common shareholders			$         102,922		$          92,620		11 %
Average shareholders' equity			$      1,520,927		$     1,194,981		27 %
Less: average goodwill & intangibles			(16,918)		(17,428)		-3 %
Less: average preferred stock			(499,608)		(362,149)		38 %
Average tangible common shareholders' equity			$      1,004,401		$        815,404		23 %
Annualization factor			2.00		2.00
Return on average tangible common shareholders' equity			20.49 %		22.72 %		(223)	bps
Total equity			$      1,560,300		$     1,228,539		27 %
Less: goodwill and intangibles			(16,794)		(17,286)		-3 %
Less: preferred stock			(499,608)		(362,149)		38 %
Tangible common shareholders' equity			$      1,043,898		$        849,104		23 %
Assets			$    15,874,872		$   11,086,055		43 %
Less: goodwill and intangibles			(16,794)		(17,286)		-3 %
Tangible assets			$    15,858,078		$   11,068,769		43 %
Ending common shares			43,237,300		43,106,505
Tangible book value per common share			$             24.14		$            19.70		23 %
Tangible common shareholders' equity/tangible assets			6.58 %		7.67 %		(109)	bps

 

Merchants Bancorp
Average Balance Analysis
($ in thousands)
(Unaudited)
	Three Months Ended				Three Months Ended				Three Months Ended
	June 30, 2023				March 31, 2023				June 30, 2022
	Average		Yield/		Average		Yield/		Average		Yield/
	Balance	Interest	Rate		Balance	Interest	Rate		Balance	Interest	Rate
Assets:
Interest-bearing deposits, and other	$       249,722	$     3,335	5.36 %		$      184,470	$     2,176	4.78 %		$        367,540	$       910	0.99 %
Securities available for sale - taxable	672,887	5,564	3.32 %		445,614	2,266	2.06 %		330,759	917	1.11 %
Securities held to maturity	1,093,018	17,311	6.35 %		1,115,243	15,754	5.73 %		—	—
Mortgage loans in process of securitization	280,092	3,127	4.48 %		159,333	1,648	4.19 %		198,349	1,449	2.93 %
Loans and loans held for sale	11,968,565	228,732	7.67 %		10,595,669	189,450	7.25 %		8,643,276	85,994	3.99 %
Total interest-earning assets	14,264,284	258,069	7.26 %		12,500,329	211,294	6.86 %		9,539,924	89,270	3.75 %
Allowance for credit losses on loans	(54,411)				(45,190)				(33,401)
Noninterest-earning assets	463,384				430,596				314,355
Total assets	$  14,673,257				$  12,885,735				$     9,820,878
Liabilities & Shareholders' Equity:
Interest-bearing checking	4,307,736	48,296	4.50 %		4,052,081	40,647	4.07 %		3,849,876	6,945	0.72 %
Savings deposits	236,012	299	0.51 %	#	237,289	265	0.45 %		238,944	62	0.10 %
Money market	2,749,594	30,521	4.45 %	#	2,848,500	28,608	4.07 %		2,626,973	6,567	1.00 %
Certificates of deposit	4,729,242	58,685	4.98 %	#	3,322,991	34,922	4.26 %		639,556	1,194	0.75 %
Total interest-bearing deposits	12,022,584	137,801	4.60 %		10,460,861	104,442	4.05 %		7,355,349	14,768	0.81 %
Borrowings	591,333	14,651	9.94 %		482,723	6,159	5.17 %		749,628	2,471	1.32 %
Total interest-bearing liabilities	12,613,917	152,452	4.85 %		10,943,584	110,601	4.10 %		8,104,977	17,239	0.85 %
Noninterest-bearing deposits	346,837				304,119				402,328
Noninterest-bearing liabilities	167,527				141,422				97,682
Total liabilities	13,128,281				11,389,125				8,604,987
Shareholders' equity	1,544,976				1,496,610				1,215,891
Total liabilities and shareholders' equity	$  14,673,257				$  12,885,735				$     9,820,878
Net interest income		$  105,617				$ 100,693				$   72,031
Net interest spread			2.41 %				2.76 %				2.90 %
Net interest-earning assets	$    1,650,367				$    1,556,745				$     1,434,947
Net interest margin			2.97 %				3.27 %				3.03 %
Average interest-earning assets to average interest-bearing liabilities			113.08 %				114.23 %				117.70 %

 

Supplemental Results
(Unaudited)
($ in thousands)
				Net Income						Net Income
				Three Months Ended						Six Months Ended
				June 30,		March 31,		June 30,		June 30,
				2023		2023		2022		2023		2022
Segment
Multi-family Mortgage Banking				$            11,242		$            1,966		$             19,556		$         13,208		$         31,048
Mortgage Warehousing				18,596		8,641		11,868		27,237		25,027
Banking				42,650		49,307		25,932		91,957		54,696
Other				(7,186)		(4,959)		(3,421)		(12,145)		(6,694)
Total				$            65,302		$          54,955		$             53,935		$       120,257		$       104,077
				Total Assets
				June 30,		March 31,		December 31,
				2023		2023		2022
Segment
Multi-family Mortgage Banking				$          373,680		$        341,487		$           351,274
Mortgage Warehousing				4,474,832		3,318,491		2,519,810
Banking				10,784,596		10,430,293		9,587,544
Other				241,764		150,695		156,599
Total				$     15,874,872		$   14,240,966		$      12,615,227
				Gain on Sale of Loans						Gain on Sale of Loans
				Three Months Ended						Six Months Ended
				June 30,		March 31,		June 30,		June 30,
				2023		2023		2022		2023		2022
Loan Type
Multi-family				10,361		$            4,920		$             19,623		$         15,281		$         34,576
Single-family				202		277		406		479		863
Small Business Association (SBA)				787		1,536		1,535		2,323		4,090
Total				$            11,350		$            6,733		$             21,564		$         18,083		$         39,529
				Loans Receivable and Loans Held for Sale
				June 30,		March 31,		December 31,
				2023		2023		2022
Mortgage warehouse lines of credit				$       1,201,932		$        604,445		$           464,785
Residential real estate				1,342,586		1,215,252		1,178,401
Multi-family financing				3,746,333		3,566,530		3,135,535
Healthcare financing				2,128,378		1,941,204		1,604,341
Commercial and commercial real estate (1)(2)				1,394,256		1,194,320		978,661
Agricultural production and real estate				91,599		89,516		95,651
Consumer and margin loans				11,920		15,781		13,498
				9,917,004		8,627,048		7,470,872
Less: Allowance for credit losses on loans				62,986		51,838		44,014
Loans receivable				$       9,854,018		$     8,575,210		$        7,426,858
Loans held for sale				3,058,013		2,855,250		2,910,576
Total loans, net of allowance				$     12,912,031		$   11,430,460		$      10,337,434
(1)     Includes $894.7 million, $672.9 million and $497.0 million of revolving  lines of credit collateralized primarily by mortgage servicing rights as of June 30, 2023, March 31, 2023 and December 31, 2022, respectively
(2)     Includes only $8.3 million, $9.1 million and $12.8 million of non-owner occupied commercial real estate as of June 30, 2023, March 31, 2023 and December 31, 2022, respectively

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/merchants-bancorp-reports-second-quarter-2023-results-301887547.html

SOURCE Merchants Bancorp