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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, 2023

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

MBINP

NASDAQ

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

MBINO

NASDAQ

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

MBINN

NASDAQ

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

MBINM

NASDAQ

As of November 1, 2023, the latest practicable date, 43,240,212 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, 2023 and December 31, 2022

3

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022

4

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022

5

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022

6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022

7

Notes to Condensed Consolidated Financial Statements

8

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

44

Item 3 Quantitative and Qualitative Disclosures About Market Risk

68

Item 4 Controls and Procedures

69

PART II – OTHER INFORMATION

70

Item 1 Legal Proceedings

70

Item 1A Risk Factors

70

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3 Defaults Upon Senior Securities

70

Item 4 Mine Safety Disclosures

70

Item 5 Other Information

70

Item 6 Exhibits

71

SIGNATURES

72

2

Part I – Financial Information

Item 1. Financial Statements

Merchants Bancorp

Condensed Consolidated Balance Sheets

September 30, 2023 (Unaudited) and December 31, 2022

(In thousands, except share data)

September 30, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Cash and due from banks

$

10,633

$

22,170

Interest-earning demand accounts

 

396,605

 

203,994

Cash and cash equivalents

 

407,238

 

226,164

Securities purchased under agreements to resell

 

3,385

 

3,464

Mortgage loans in process of securitization

 

476,047

 

154,194

Securities available for sale

 

624,586

 

323,337

Securities held to maturity ($1,010,745 and $1,118,966 at fair value, respectively)

1,012,801

1,119,078

Federal Home Loan Bank (FHLB) stock

 

48,219

 

39,130

Loans held for sale (includes $90,875 and $82,192 at fair value, respectively)

 

3,477,036

 

2,910,576

Loans receivable, net of allowance for credit losses on loans of $66,864 and $44,014, respectively

 

9,910,681

 

7,426,858

Premises and equipment, net

 

36,730

 

35,438

Servicing rights

 

162,141

 

146,248

Interest receivable

 

78,401

 

56,262

Goodwill

 

15,845

 

15,845

Intangible assets, net

 

831

 

1,186

Other assets and receivables

 

241,295

 

157,447

Total assets

$

16,495,236

$

12,615,227

Liabilities and Shareholders' Equity

 

 

Liabilities

 

  

 

  

Deposits

 

  

 

  

Noninterest-bearing

$

287,846

$

326,875

Interest-bearing

 

12,719,492

 

9,744,470

Total deposits

 

13,007,338

 

10,071,345

Borrowings

 

1,654,075

 

930,392

Deferred and current tax liabilities, net

 

18,006

 

19,613

Other liabilities

 

183,102

 

134,138

Total liabilities

 

14,862,521

 

11,155,488

Commitments and Contingencies

 

  

 

  

Shareholders' Equity

 

  

 

  

Common stock, without par value

 

  

 

  

Authorized - 75,000,000 shares

 

  

 

  

Issued and outstanding - 43,240,212 shares at September 30, 2023 and 43,113,127 shares at December 31, 2022

 

139,609

 

137,781

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)

137,459

137,459

Retained earnings

 

998,252

 

832,871

Accumulated other comprehensive loss

 

(4,754)

 

(10,521)

Total shareholders' equity

 

1,632,715

 

1,459,739

Total liabilities and shareholders' equity

$

16,495,236

$

12,615,227

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, 2023 and 2022

(In thousands, except share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Interest Income

 

  

 

  

 

  

Loans

$

266,561

$

129,101

$

684,743

$

287,291

Mortgage loans in process of securitization

 

2,583

 

2,162

 

7,358

 

5,856

Investment securities:

 

 

 

  

 

Available for sale - taxable

 

6,182

 

485

 

14,012

 

2,103

Held to maturity

17,427

970

50,492

970

Federal Home Loan Bank stock

 

572

 

379

 

1,470

 

932

Other

 

3,351

 

1,015

 

7,964

 

2,242

Total interest income

 

296,676

 

134,112

 

766,039

 

299,394

Interest Expense

 

  

 

  

 

  

 

  

Deposits

 

162,906

 

45,002

 

405,149

 

68,583

Borrowed funds

 

16,334

 

3,725

 

37,144

 

7,670

Total interest expense

 

179,240

 

48,727

 

442,293

 

76,253

Net Interest Income

 

117,436

 

85,385

 

323,746

 

223,141

Provision for credit losses

 

4,014

 

2,225

 

33,484

 

10,888

Net Interest Income After Provision for Credit Losses

 

113,422

 

83,160

 

290,262

 

212,253

Noninterest Income

 

  

 

  

 

  

 

  

Gain on sale of loans

 

10,758

 

13,354

 

28,841

 

52,883

Loan servicing fees, net

 

17,384

 

8,169

 

28,360

 

27,507

Mortgage warehouse fees

 

1,858

 

1,105

 

5,751

 

4,313

Syndication and asset management fees

2,368

3,073

7,476

5,286

Other income

 

3,700

 

3,485

 

9,786

 

12,965

Total noninterest income

 

36,068

 

29,186

 

80,214

 

102,954

Noninterest Expense

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

27,052

 

23,027

 

74,922

 

66,795

Loan expenses

 

1,038

 

1,226

 

2,749

 

3,621

Occupancy and equipment

 

2,196

 

1,967

 

6,884

 

5,792

Professional fees

 

2,555

 

2,429

 

8,547

 

5,326

Deposit insurance expense

 

3,568

 

755

 

9,552

 

2,184

Technology expense

 

1,609

 

1,325

 

4,757

 

3,865

Other expense

 

4,912

 

4,222

 

14,611

 

11,358

Total noninterest expense

 

42,930

 

34,951

 

122,022

 

98,941

Income Before Income Taxes

 

106,560

 

77,395

 

248,454

 

216,266

Provision for income taxes

 

25,056

 

18,907

 

46,693

 

53,701

Net Income

$

81,504

$

58,488

$

201,761

$

162,565

Dividends on preferred stock

(8,668)

(5,729)

(26,003)

(17,186)

Net Income Allocated to Common Shareholders

72,836

52,759

175,758

145,379

Basic Earnings Per Share

$

1.68

$

1.22

$

4.07

$

3.37

Diluted Earnings Per Share

$

1.68

$

1.22

$

4.06

$

3.36

Weighted-Average Shares Outstanding

 

  

 

  

 

  

 

  

Basic

 

43,238,724

 

43,107,975

 

43,218,125

 

43,182,380

Diluted

 

43,351,208

 

43,258,925

 

43,317,343

 

43,331,148

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, 2023 and 2022

(In thousands)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Net Income

$

81,504

$

58,488

$

201,761

$

162,565

Other Comprehensive Income (Loss):

 

  

 

 

  

 

  

Net change in unrealized gain/(losses) on investment securities available for sale, net of tax (expense)/benefits of $(714), $1,210, $(2,050) and $3,413, respectively

 

2,282

 

(3,616)

 

5,767

 

(10,232)

Other comprehensive income (loss) for the period

 

2,282

 

(3,616)

 

5,767

 

(10,232)

Comprehensive Income

$

83,786

$

54,872

$

207,528

$

152,333

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, 2023 and 2022

(In thousands, except share data)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Common Stock

 

  

 

  

 

  

Balance beginning of period

43,237,300

$

138,853

43,106,505

$

136,671

43,113,127

$

137,781

43,180,079

$

137,565

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

-

-

-

-

33,293

810

20,709

653

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

2,912

756

3,073

555

93,792

1,018

73,856

770

Balance end of period

43,240,212

139,609

43,109,578

137,226

43,240,212

139,609

43,109,578

137,226

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

Balance at beginning and end of period

196,181

191,084

196,181

191,084

196,181

191,084

196,181

191,084

8.25% Series D Preferred Stock

Balance beginning of period

142,500

137,459

-

-

142,500

137,459

-

-

Issuance of 8.25% Series D preferred stock, net of $5.1 million in offering expenses

-

-

142,500

137,371

-

-

142,500

137,371

Balance at beginning and end of period

142,500

137,459

142,500

137,371

142,500

137,459

142,500

137,371