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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _______________

Commission File No. 001-38258

MERCHANTS BANCORP

(Exact name of registrant as specified in its charter)

Indiana

    

20-5747400

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

410 Monon Blvd. Carmel, Indiana

46032

(Address of principal

(Zip Code)

executive office)

(317) 569-7420

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes     No 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, without par value

MBIN

NASDAQ

Series A Preferred Stock, without par value

Depositary Shares, each representing a 1/40th interest in a share of Series B Preferred Stock, without par value

MBINP

MBINO

NASDAQ

NASDAQ

Depositary Shares, each representing a 1/40th interest in a share of Series C Preferred Stock, without par value

Depositary Shares, each representing a 1/40th interest in a share of Series D Preferred Stock, without par value

MBINN

MBINM

NASDAQ

NASDAQ

As of November 1, 2022, the latest practicable date, 43,109,578 shares of the registrant’s common stock, without par value, were issued and outstanding.

Merchants Bancorp

Index to Quarterly Report on Form 10-Q

PART I – FINANCIAL INFORMATION

Item 1 Interim Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021

5

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements

8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

48

Item 3 Quantitative and Qualitative Disclosures About Market Risk

71

Item 4 Controls and Procedures

71

PART II – OTHER INFORMATION

72

Item 1 Legal Proceedings

72

Item 1A Risk Factors

72

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

72

Item 3 Defaults Upon Senior Securities

72

Item 4 Mine Safety Disclosures

72

Item 5 Other Information

72

Item 6 Exhibits

73

SIGNATURES

74

2

Part I – Financial Information

Item 1. Financial Statements

Merchants Bancorp

Condensed Consolidated Balance Sheets

September 30, 2022 (Unaudited) and December 31, 2021

(In thousands, except share data)

September 30, 

December 31, 

    

2022

    

2021

Assets

 

  

 

  

Cash and due from banks

$

13,796

$

14,030

Interest-earning demand accounts

 

310,165

 

1,018,584

Cash and cash equivalents

 

323,961

 

1,032,614

Securities purchased under agreements to resell

 

3,497

 

5,888

Mortgage loans in process of securitization

 

137,448

 

569,239

Available for sale securities

 

322,069

 

310,629

Held to maturity securities (includes $1,005,487 and $0, respectively at fair value)

1,005,487

Federal Home Loan Bank (FHLB) stock

 

39,130

 

29,588

Loans held for sale (includes $68,785 and $48,583, respectively at fair value)

 

2,844,750

 

3,303,199

Loans receivable, net of allowance for credit losses on loans of $38,996 and $31,344, respectively

 

6,919,128

 

5,751,319

Premises and equipment, net

 

35,492

 

31,212

Servicing rights

 

144,984

 

110,348

Interest receivable

 

40,170

 

24,103

Goodwill

 

15,845

 

15,845

Intangible assets, net

 

1,307

 

1,707

Other assets and receivables

 

145,454

 

92,947

Total assets

$

11,978,722

$

11,278,638

Liabilities and Shareholders' Equity

 

 

Liabilities

 

  

 

  

Deposits

 

  

 

  

Noninterest-bearing

$

315,868

$

641,442

Interest-bearing

 

10,003,611

 

8,341,171

Total deposits

 

10,319,479

 

8,982,613

Borrowings

 

97,279

 

1,033,954

Deferred and current tax liabilities, net

 

19,124

 

19,170

Other liabilities

 

130,250

 

87,492

Total liabilities

 

10,566,132

 

10,123,229

Commitments and Contingencies

 

  

 

  

Shareholders' Equity

 

  

 

  

Common stock, without par value(1)

 

  

 

  

Authorized - 75,000,000 shares at September 30, 2022 and 50,000,000 shares at December 31, 2021

 

  

 

  

Issued and outstanding - 43,109,578 shares at September 30, 2022 and 43,180,079 shares at December 31, 2021

 

137,226

 

137,565

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

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

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

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)

137,371

Retained earnings

 

787,530

 

657,149

Accumulated other comprehensive loss

 

(11,686)

 

(1,454)

Total shareholders' equity

 

1,412,590

 

1,155,409

Total liabilities and shareholders' equity

$

11,978,722

$

11,278,638

(1)The number of shares have been restated to reflect the 3-for-2 common stock split, effective on January 17, 2022.

See notes to condensed consolidated financial statements.

3

Merchants Bancorp

Condensed Consolidated Statements of Income (Unaudited)

For the Three and Nine Months Ended September 30, 2022 and 2021

(In thousands, except share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Interest Income

 

  

 

  

 

  

Loans

$

129,101

$

72,924

$

287,291

$

216,717

Mortgage loans in process of securitization

 

2,162

 

2,868

 

5,856

 

8,728

Investment securities:

 

 

 

  

 

Available for sale - taxable

 

485

 

1,115

 

2,103

 

2,302

Available for sale - tax exempt

12

32

Held to maturity

970

970

Federal Home Loan Bank stock

 

379

 

190

 

932

 

966

Other

 

1,015

 

205

 

2,242

 

556

Total interest income

 

134,112

 

77,314

 

299,394

 

229,301

Interest Expense

 

  

 

  

 

  

 

  

Deposits

 

45,002

 

6,981

 

68,583

 

19,764

Borrowed funds

 

3,725

 

1,452

 

7,670

 

4,286

Total interest expense

 

48,727

 

8,433

 

76,253

 

24,050

Net Interest Income

 

85,385

 

68,881

 

223,141

 

205,251

Provision for credit losses

 

2,225

 

1,079

 

10,888

 

2,427

Net Interest Income After Provision for Credit Losses

 

83,160

 

67,802

 

212,253

 

202,824

Noninterest Income

 

  

 

  

 

  

 

  

Gain on sale of loans

 

13,354

 

29,013

 

52,883

 

82,755

Loan servicing fees, net

 

8,169

 

5,313

 

27,507

 

14,991

Mortgage warehouse fees

 

1,105

 

2,732

 

4,313

 

9,927

Syndication and asset management fees

3,073

643

5,286

1,178

Other income

 

3,485

 

2,570

 

12,965

 

8,211

Total noninterest income

 

29,186

 

40,271

 

102,954

 

117,062

Noninterest Expense

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

23,027

 

20,197

 

66,795

 

60,340

Loan expenses

 

1,226

 

1,734

 

3,621

 

6,178

Occupancy and equipment

 

1,967

 

1,861

 

5,792

 

5,296

Professional fees

 

2,429

 

901

 

5,326

 

2,102

Deposit insurance expense

 

755

 

664

 

2,184

 

1,986

Technology expense

 

1,325

 

1,169

 

3,865

 

3,077

Other expense

 

4,222

 

2,946

 

11,358

 

8,760

Total noninterest expense

 

34,951

 

29,472

 

98,941

 

87,739

Income Before Income Taxes

 

77,395

 

78,601

 

216,266

 

232,147

Provision for income taxes

 

18,907

 

20,098

 

53,701

 

60,244

Net Income

$

58,488

$

58,503

$

162,565

$

171,903

Dividends on preferred stock

(5,729)

(5,729)

(17,186)

(15,145)

Net Income Allocated to Common Shareholders

52,759

52,774

145,379

156,758

Basic Earnings Per Share(1)

$

1.22

$

1.22

$

3.37

$

3.63

Diluted Earnings Per Share(1)

$

1.22

$

1.22

$

3.36

$

3.62

Weighted-Average Shares Outstanding(1)

 

  

 

  

 

  

 

  

Basic

 

43,107,975

 

43,176,296

 

43,182,380

 

43,169,618

Diluted

 

43,258,925

 

43,314,755

 

43,331,148

 

43,300,688

(1)The number of shares and per share amounts have been restated to reflect the 3-for-2 common stock split, effective on January 17, 2022.

See notes to condensed consolidated financial statements.

4

Merchants Bancorp

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

For the Three and Nine Months Ended September 30, 2022 and 2021

(In thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Net Income

$

58,488

$

58,503

$

162,565

$

171,903

Other Comprehensive Income (Loss):

 

  

 

 

  

 

  

Net change in unrealized gain/(losses) on investment securities available for sale, net of tax (expense)/benefits of $1,210, $(96), $3,413 and $34, respectively

 

(3,616)

 

266

 

(10,232)

 

(112)

Other comprehensive income (loss) for the period

 

(3,616)

 

266

 

(10,232)

 

(112)

Comprehensive Income

$

54,872

$

58,769

$

152,333

$

171,791

See notes to condensed consolidated financial statements.

5

Merchants Bancorp

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Three and Nine Months Ended September 30, 2022 and 2021

(In thousands, except share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Common Stock

 

  

 

  

 

  

Balance beginning of period(1)

43,106,505

$

136,671

43,175,398

$

136,836

43,180,079

$

137,565

43,120,625

$

135,857

Repurchase of common stock

-

-

(165,037)

(1,761)

Cash paid in lieu of fractional shares for stock split

-

-

(29)

(1)

Distribution to employee stock ownership plan

-

-

-

-

20,709

653

29,149

537

Shares issued for stock compensation plans, net of taxes withheld to satisfy tax obligations

3,073

555

2,663

364

73,856

770

28,287

806

Balance end of period

43,109,578

137,226

43,178,061

137,200

43,109,578

137,226

43,178,061

137,200

8% Preferred Stock

Balance beginning of period

-

-

-

-

-

-

41,625

41,581

Redemption of 8% preferred stock

-

-

-

-

-

-

(41,625)

(41,581)

Balance end of period

-

-

-

-

-

-

-

-

7% Series A Preferred Stock

Balance at beginning and end of period

2,081,800

50,221

2,081,800

50,221

2,081,800

50,221

2,081,800

50,221

6% Series B Preferred Stock

Balance at beginning and end of period

125,000

120,844

125,000

120,844

125,000

120,844

125,000

120,844

6% Series C Preferred Stock