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Group 1 - The focus is on income-producing asset classes such as REITs, ETFs, Preferreds, and 'Dividend Champions' that target premium dividend yields up to 10% [1][2] - The iREIT®+HOYA Capital service aims to provide sustainable portfolio income, diversification, and inflation hedging for investors [2] - The investment research covers various asset classes including REITs, ETFs, closed-end funds, preferreds, and dividend champions, helping investors achieve dependable monthly income [2]

Core Thesis - Merchants Bancorp (MBIN) is currently undervalued, trading below book value despite strong historical performance metrics, including a long-term average ROE of 21% and significant growth in BVPS and EPS [2][4] Financial Performance - As of November 26th, MBIN's share price was $32.82, with a trailing P/E of 7.54 [1] - The company has experienced a surge in delinquent loans due to a fraud scheme, but the losses are primarily in government-backed multifamily and healthcare portfolios, which limits long-term damage [2][3] - MBIN continues to generate substantial pre-tax, pre-provision earnings, providing a buffer against losses while remaining profitable [4] Growth Potential - The multifamily segment has shown an impressive 11.6% ROA, which translates into triple-digit ROE when leveraged, driven by gain-on-sale economics [3] - If book value compounds to $60 by 2028 and the market assigns a 1.5x multiple, shares could approach $90, indicating a potential tripling in value over three years [5] Management and Ownership - Founders Michael Petrie and Randall Rogers own approximately 40% of the company and have a strong track record in capital-constrained niches [3] - The potential for a future sale of the company is considered a reasonable upside scenario as the founders near retirement [5] Market Sentiment - Despite the negative sentiment surrounding delinquency headlines, the stock is seen as embedding overly pessimistic assumptions, trading at 0.9x book value and roughly 4-5x normalized earnings [4]

Equity and Tangible Assets - Total equity increased to $2,225,434,000 as of September 30, 2025, compared to $1,939,107,000 in 2024[488] - Tangible common shareholders' equity rose to $1,666,087,000 from $1,481,641,000 year-over-year[488] - Tangible book value per common share increased to $36.31 from $32.38[488] - The company’s assets totaled $19,354,647,000 as of September 30, 2025, compared to $18,652,976,000 in 2024[488] Interest Rate Risk Management - Net interest income sensitivity for a +200 basis point shift is projected to increase by 15.8% as of September 30, 2025[481] - Economic Value of Equity (EVE) is expected to decrease by 2.3% with an immediate -200 basis point shift in interest rates as of September 30, 2025[485] - The company aims to limit the change in net interest income to 20% for a +/- 100 basis point move in interest rates[481] - The company reported a dollar change in net interest income of $44,510,000 for a +100 basis point shift as of September 30, 2025[481] - The company is within policy limits for interest rate risk management for all tested scenarios as of September 30, 2025[481] - The company’s interest rate risk management policy aims to limit the change in EVE to 15% for a +/- 100 basis point move in interest rates[485]

Core Insights - The Q3 earnings season for regional banks showed satisfactory performance, with revenues collectively missing analysts' consensus estimates by 1.1% [3] - Merchants Bancorp reported a revenue increase of 14.4% year on year, totaling $171.1 million, exceeding analysts' expectations by 3% [6] - Customers Bancorp emerged as a top performer with a revenue increase of 38.5% year on year, reaching $232.1 million, outperforming analysts' expectations by 7% [9] Industry Overview - Regional banks serve as intermediaries between local depositors and borrowers, benefiting from rising interest rates, digital transformation, and local economic growth [2] - Challenges include competition from fintech, deposit outflows, credit deterioration during economic slowdowns, and regulatory compliance costs [2] - Recent concerns regarding regional bank stability due to high-profile failures and significant commercial real estate exposure add to the industry's challenges [2] Company Performance - Merchants Bancorp focuses on low-risk, government-backed lending programs and specializes in multi-family mortgage banking [5] - Despite a strong quarter, Merchants Bancorp's stock is down 2.4% since reporting, currently trading at $31.59 [7] - Customers Bancorp's strategy emphasizes business lending and digital banking, leading to a stock increase of 2.2% since reporting, currently trading at $66.99 [10]

Group 1 - The article discusses the author's journey into investing, starting in high school in 2011, focusing on REITs, preferred stocks, and high-yield bonds, indicating a long-standing interest in markets and the economy [1] - The author has recently adopted a strategy that combines long stock positions with covered calls and cash secured puts, emphasizing a fundamental long-term investment approach [1] - The author primarily covers REITs and financials on Seeking Alpha, with occasional articles on ETFs and other stocks influenced by macro trade ideas [1]

Group 1 - The individual began investing in high school in 2011, focusing on REITs, preferred stocks, and high-yield bonds, indicating a long-standing interest in markets and the economy [1] - Recently, the investment strategy has evolved to combine long stock positions with covered calls and cash secured puts, reflecting a more sophisticated approach to investing [1] - The investment philosophy is fundamentally long-term, with a primary focus on REITs and financials, while occasionally exploring ETFs and other stocks based on macro trade ideas [1]

Core Viewpoint - Merchants Bancorp (MBIN) reported quarterly earnings of $0.97 per share, exceeding the Zacks Consensus Estimate of $0.79 per share, but down from $1.17 per share a year ago, indicating a +22.78% earnings surprise [1] Financial Performance - The company posted revenues of $171.07 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 3.04% and up from $149.56 million year-over-year [2] - Over the last four quarters, Merchants Bancorp has exceeded consensus EPS estimates two times and topped consensus revenue estimates three times [2] Stock Performance and Outlook - Merchants Bancorp shares have declined approximately 11.3% year-to-date, contrasting with the S&P 500's gain of 16.9% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters [4] Earnings Estimate Revisions - Prior to the earnings release, the estimate revisions trend for Merchants Bancorp was unfavorable, resulting in a Zacks Rank 5 (Strong Sell) for the stock, indicating expected underperformance in the near future [6] - The current consensus EPS estimate for the upcoming quarter is $1.05 on revenues of $169.29 million, and $3.27 on revenues of $659.38 million for the current fiscal year [7] Industry Context - The Zacks Industry Rank for Banks - Northeast is in the top 18% of over 250 Zacks industries, suggesting that the industry outlook can significantly impact stock performance [8]

Financial Performance - Third quarter 2025 net income was $54.7 million, a decrease of $6.6 million, or 11%, compared to the third quarter of 2024, but an increase of $16.7 million, or 44%, compared to the second quarter of 2025[1][2][4][5] - Diluted earnings per common share for the third quarter 2025 were $0.97, down 17% from $1.17 in the third quarter of 2024, but up 62% from $0.60 in the second quarter of 2025[1][2] - Net income available to common shareholders increased by 60% to $44,436 in Q3 2025 compared to $27,715 in Q3 2024[43] - Net income for the nine months ended September 30, 2025, was $150,921, a decrease of 33% compared to $224,720 for the same period in 2024[55] - Total income for the nine months ended September 30, 2025, was $496,160, reflecting a 4% increase from $476,963 in 2024[55] Assets and Deposits - Total assets reached $19.4 billion, an increase of $213.4 million, or 1%, compared to June 30, 2025, and $548.9 million, or 3%, compared to December 31, 2024[1][7] - Total assets as of September 30, 2025, reached $19,354,647 million, a 1.1% increase from $19,141,204 million as of June 30, 2025[60] - Total deposits increased by $1.2 billion, or 10%, compared to June 30, 2025, and by $2.0 billion, or 17%, compared to December 31, 2024[1][16] - Total deposits stood at $1.39 trillion, compared to $1.26 trillion, marking a 10.4% increase[67] - Total core deposits were $1.27 trillion, up from $1.14 trillion, representing an increase of 11.4%[67] Income and Expenses - Noninterest income rose to $43.0 million, an increase of $26.3 million, or 157%, compared to $16.7 million, driven by significant growth in loan servicing fees and gains on loan sales[1][26] - Noninterest income decreased by 15% to $43,014 in Q3 2025 compared to $50,480 in Q2 2025[50] - Noninterest expense of $77.3 million remained essentially unchanged[34] - Noninterest expense increased by 35% to $216,251 for the nine months ended September 30, 2025, compared to $160,610 in 2024[55] Loans and Credit Quality - The provision for credit losses decreased by 45%, or $23.8 million, with loans receivable classified as special mention declining by 9% to $155.7 million compared to June 30, 2025[1][9][12] - Nonperforming loans totaled $298,268 million as of September 30, 2025, an increase from $251,532 million as of June 30, 2025, indicating a rise in nonperforming assets[65] - Delinquent loans to total loans ratio was 2.28% as of September 30, 2025, compared to 1.91% as of June 30, 2025, reflecting a deterioration in loan quality[66] - Loans held for sale increased to $4,129,329 million as of September 30, 2025, from $4,105,765 million as of June 30, 2025, marking a 0.6% increase[62] Interest Income and Margin - Interest Income of $301.8 million decreased $2.6 million, or 1%, compared to $304.4 million[31] - Total interest income for Q3 2025 was $301,779, a decrease of 11% compared to Q3 2024[43] - Net interest margin of 2.82% decreased 1 basis point compared to 2.83%[35] Shareholder Metrics - Average shareholders' equity increased by 1% from $2,201,836 in Q2 2025 to $2,221,677 in Q3 2025, and rose 14% year-over-year from $1,941,026 in Q3 2024[52] - Tangible book value per common share increased by 3% to $36.31 in Q3 2025 from $35.42 in Q2 2025[50] - Tangible book value per common share increased by 12% to $36.31 as of September 30, 2025, compared to $32.38 in 2024[56] Capital and Risk Management - The company executed a credit default swap on a $557.1 million pool of healthcare mortgage loans to enhance capital efficiency and reduce risk exposure[1][3] - The allowance for credit losses on loans was $93.3 million, reflecting a 2% increase compared to June 30, 2025, and an 11% increase compared to December 31, 2024[1][9]

PART I – FINANCIAL INFORMATION [Item 1 Interim Financial Statements (Unaudited)](index=5&type=section&id=Item%201%20Interim%20Financial%20Statements%20(Unaudited)) The unaudited condensed consolidated financial statements detail the company's financial position and performance [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total assets | $19,141,204 | $18,805,732 | 1.8% | | Loans receivable, net | $10,432,117 | $10,354,002 | 0.8% | | Total deposits | $12,686,835 | $11,919,976 | 6.4% | | Total liabilities | $16,956,572 | $16,562,422 | 2.4% | | Total shareholders' equity | $2,184,632 | $2,243,310 | -2.6% | - Total assets increased by **1.8% to $19.1 billion**, driven by growth in loans held for sale and loan portfolios[12](index=12&type=chunk) [Condensed Consolidated Statements of Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Condensed Consolidated Statements of Income Highlights (In thousands, except share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $128,719 | $128,119 | 0.5% | | Provision for credit losses | $53,027 | $9,965 | 432.0% | | Noninterest Income | $50,480 | $31,351 | 61.0% | | Noninterest Expense | $77,337 | $50,380 | 53.5% | | Net Income | $37,981 | $76,393 | -50.3% | | Basic Earnings Per Share | $0.60 | $1.50 | -60.0% | | Diluted Earnings Per Share | $0.60 | $1.49 | -59.7% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $250,915 | $255,175 | -1.7% | | Provision for credit losses | $60,754 | $14,691 | 313.5% | | Noninterest Income | $74,173 | $72,225 | 2.7% | | Noninterest Expense | $139,001 | $99,292 | 40.0% | | Net Income | $96,220 | $163,447 | -41.1% | | Basic Earnings Per Share | $1.53 | $3.30 | -53.6% | | Diluted Earnings Per Share | $1.53 | $3.29 | -53.5% | - Net income for the three months ended June 30, 2025, **decreased by 50.3% to $38.0 million**, primarily due to a **432.0% increase** in the provision for credit losses[15](index=15&type=chunk)[334](index=334&type=chunk) - Diluted earnings per share **decreased by 59.7% to $0.60** for the three months ended June 30, 2025[15](index=15&type=chunk)[282](index=282&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Condensed Consolidated Statements of Comprehensive Income Highlights (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Income | $37,981 | $76,393 | -50.3% | | Net unrealized (losses) gains on investment securities available for sale, net of tax | $(170) | $663 | -125.6% | | Comprehensive Income | $37,811 | $77,056 | -50.9% | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Income | $96,220 | $163,447 | -41.1% | | Net unrealized (losses) gains on investment securities available for sale, net of tax | $(114) | $1,896 | -106.0% | | Comprehensive Income | $96,106 | $165,425 | -41.9% | - Comprehensive income for the three months ended June 30, 2025, **decreased by 50.9% to $37.8 million**, primarily reflecting the decrease in net income and net unrealized losses on investment securities available for sale[17](index=17&type=chunk) [Condensed Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Shareholders'%20Equity) Condensed Consolidated Statements of Shareholders' Equity Highlights (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Common stock | $241,452 | $240,313 | | Preferred stock (Series C, D, E) | $551,291 | $551,291 | | Retained earnings | $1,392,136 | $1,330,995 | | Accumulated other comprehensive loss | $(247) | $(133) | | Total shareholders' equity | $2,184,632 | $2,243,310 | - Total shareholders' equity **decreased by $58.7 million, or 2.6%, to $2.18 billion** at June 30, 2025, primarily due to the redemption of 6% Series B Preferred Stock ($125.0 million) and dividends paid ($29.7 million), partially offset by net income ($96.2 million)[20](index=20&type=chunk)[323](index=323&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, In thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $26,886 | $(332,653) | | Net cash used in investing activities | $(27,229) | $(1,012,173) | | Net cash provided by financing activities | $170,898 | $1,301,286 | | Net Change in Cash and Cash Equivalents | $170,555 | $(43,540) | | Cash and Cash Equivalents, End of Period | $647,165 | $540,882 | - Net cash provided by operating activities **significantly improved to $26.9 million** for the six months ended June 30, 2025, compared to a net cash used of $332.7 million in the prior year[23](index=23&type=chunk)[439](index=439&type=chunk) - Net cash provided by financing activities **decreased to $170.9 million** for the six months ended June 30, 2025, from $1.3 billion in the prior year[23](index=23&type=chunk)[439](index=439&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [Note 1: Basis of Presentation](index=10&type=section&id=Note%201%3A%20Basis%20of%20Presentation) - The financial statements are unaudited and prepared in accordance with Form 10-Q and Article 10 of Regulation S-X, consolidating Merchants Bancorp and its wholly owned subsidiaries[27](index=27&type=chunk)[29](index=29&type=chunk) - Material estimates are particularly susceptible to significant change related to the determination of the **allowance for credit losses** on loans and **fair values** of servicing rights and financial instruments[35](index=35&type=chunk) Restricted Cash for Senior Credit Linked Notes (In thousands) | Date | Balance | | :--- | :--- | | June 30, 2025 | $43,800 | | December 31, 2024 | $33,500 | - FASB ASU 2023-09 (Income Taxes) is effective for annual periods beginning after December 15, 2024, and FASB ASU 2024-03 (Expense Disaggregation) is effective for annual periods beginning after December 15, 2026[40](index=40&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk)[44](index=44&type=chunk) [Note 2: Investment Securities](index=12&type=section&id=Note%202%3A%20Investment%20Securities) Investment Securities Summary (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Securities available for sale (Fair Value) | $936,343 | $980,050 | | Securities held to maturity (Amortized Cost) | $1,548,211 | $1,664,686 | | FHLB stock and other equity securities | $217,850 | $217,804 | - Unrealized losses on investment securities available for sale are primarily attributable to changes in the prevailing interest rate environment, not credit-related factors[58](index=58&type=chunk) - One held-to-maturity mortgage-backed security (**$550.9 million amortized cost**) was classified as Special Mention at June 30, 2025, due to delinquencies in underlying loans, but no credit losses are expected[61](index=61&type=chunk) [Note 3: Mortgage Loans in Process of Securitization](index=15&type=section&id=Note%203%3A%20Mortgage%20Loans%20in%20Process%20of%20Securitization) Mortgage Loans in Process of Securitization (In thousands) | Date | Balance | | :--- | :--- | | June 30, 2025 | $402,427 | | December 31, 2024 | $428,206 | - The aggregate positive fair value adjustment recorded in mortgage loans in process of securitization **decreased to $3.0 million** at June 30, 2025, from $4.1 million at December 31, 2024[64](index=64&type=chunk) [Note 4: Loans and Allowance for Credit Losses on Loans](index=16&type=section&id=Note%204%3A%20Loans%20and%20Allowance%20for%20Credit%20Losses%20on%20Loans) Loans Receivable, Net and ACL-Loans (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Loans Receivable | $10,523,928 | $10,438,388 | | Less: ACL-Loans | $91,811 | $84,386 | | Loans Receivable, net | $10,432,117 | $10,354,002 | - The ACL-Loans **increased by $7.4 million, or 9%, to $91.8 million** at June 30, 2025, driven by a $64.0 million increase in provision expense, partially offset by $56.6 million in charge-offs[86](index=86&type=chunk)[308](index=308&type=chunk) Provision for Credit Losses and Charge-offs (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Provision for credit losses (ACL-Loans) | $54,461 | $8,753 | | Loans charged to the allowance | $(46,063) | $(3,452) | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Provision for credit losses (ACL-Loans) | $63,967 | $14,230 | | Loans charged to the allowance | $(56,570) | $(4,377) | - Total collateral dependent loans **increased to $417.7 million** at June 30, 2025, from $317.3 million at December 31, 2024[100](index=100&type=chunk)[101](index=101&type=chunk) Delinquent Loans (In thousands) | Status | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | 30-59 Days Past Due | $32,191 | $10,460 | | 60-89 Days Past Due | $160 | $15,633 | | 90+ Days Past Due | $246,658 | $266,170 | | Total Past Due | $279,009 | $292,263 | | Nonaccrual loans | $250,818 | $279,716 | - The Company completed a **$373.3 million securitization** of multi-family mortgage loans (gain $5.9 million) and a **$312.1 million sale** of All-in-One© HELOCs (gain $2.2 million) in June 2025[134](index=134&type=chunk)[135](index=135&type=chunk) [Note 5: Qualified Affordable Housing and Other Tax Credits](index=29&type=section&id=Note%205%3A%20Qualified%20Affordable%20Housing%20and%20Other%20Tax%20Credits) Qualified Affordable Housing Investments (In thousands) | Investment Type | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | LIHTC (Proportional amortization) | $153,596 | $123,574 | | LIHTC (Lower of cost or market) | $45,580 | $56,533 | | Joint Venture (Consolidated) | $10,937 | $10,937 | | Total Investments | $210,113 | $191,044 | | Unfunded Commitments | $91,904 | $93,929 | Amortization Expense and Expected Tax Credits (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Amortization expense | $7,559 | $5,145 | | Expected tax credits | $8,369 | $5,418 | - The Company advanced LIHTC funds **$81.4 million** as of June 30, 2025, for investment projects, expecting repayment over a similar period[145](index=145&type=chunk) [Note 6: Leases](index=30&type=section&id=Note%206%3A%20Leases) Lease Information (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Operating lease ROU asset | $7,429 | $8,332 | | Operating lease liability | $8,325 | $9,303 | | Weighted average remaining lease term (years) | 4.1 | 4.6 | | Weighted average discount rate | 3.44% | 3.43% | Operating Lease Cost (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Operating lease cost | $1,432 | $1,369 | [Note 7: Other Assets and Receivables](index=31&type=section&id=Note%207%3A%20Other%20Assets%20and%20Receivables) Other Assets and Receivables (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total other assets and receivables | $495,295 | $571,330 | | Joint venture investments | $50,900 | $42,200 | | CDS recovery asset | $445 | $0 | | Total loan pool balances for CDS | $2,000,000 | $1,200,000 | - The decrease in other assets and receivables was primarily due to a **$125.0 million prepaid asset** at December 31, 2024, that was released for the January 2, 2025, redemption of Series B Preferred Stock[313](index=313&type=chunk) [Note 8: Variable Interest Entities](index=32&type=section&id=Note%208%3A%20Variable%20Interest%20Entities) Unconsolidated VIEs Maximum Exposure to Loss (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Investments in VIEs | $266,541 | $257,499 | | Loans to VIEs | $606,689 | $415,628 | | Securities for VIEs | $1,536,441 | $1,652,833 | | Total Maximum Exposure to Loss | $2,409,671 | $2,325,960 | - The Company determined it was not the primary beneficiary for most of its VIEs at June 30, 2025, primarily due to not having control or the obligation to absorb losses/rights to receive benefits that could be significant[160](index=160&type=chunk) [Note 9: Deposits](index=34&type=section&id=Note%209%3A%20Deposits) Deposits Summary (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Noninterest-bearing deposits | $315,523 | $239,005 | | Interest-bearing deposits | $12,371,312 | $11,680,971 | | Total deposits | $12,686,835 | $11,919,976 | | Total core deposits | $11,432,356 | $9,385,898 | | Total brokered deposits | $1,254,479 | $2,534,078 | - Core deposits **increased by $2.0 billion, or 22%, to $11.4 billion**, representing **90% of total deposits** at June 30, 2025[315](index=315&type=chunk) - Brokered deposits **decreased by 50% to $1.3 billion**, representing **10% of total deposits** at June 30, 2025[316](index=316&type=chunk) - Uninsured deposits totaled approximately **$3.1 billion, or 24% of total Bank deposits**, as of June 30, 2025[318](index=318&type=chunk) [Note 10: Borrowings](index=35&type=section&id=Note%2010%3A%20Borrowings) Borrowings Summary (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Federal Reserve discount window borrowings | $175,000 | $50,000 | | FHLB advances | $3,680,588 | $4,172,030 | | Total borrowings | $4,009,474 | $4,386,122 | - Total borrowings **decreased by $376.6 million, or 9%**, primarily due to a reduction of $491.4 million in FHLB advances, partially offset by a $125.0 million increase in Federal Reserve discount window usage[319](index=319&type=chunk) - The Company entered into new FHLB variable-rate debt agreements totaling **$3.7 billion** in June 2025, with maturities in September 2025[168](index=168&type=chunk)[169](index=169&type=chunk) [Note 11: Derivative Financial Instruments](index=35&type=section&id=Note%2011%3A%20Derivative%20Financial%20Instruments) Derivative Financial Instruments Fair Value (In thousands) | Metric | June 30, 2025 Asset | June 30, 2025 Liability | December 31, 2024 Asset | December 31, 2024 Liability | | :--- | :--- | :--- | :--- | :--- | | Interest rate lock commitments | $270 | $8 | $30 | $176 | | Forward contracts | — | $427 | $229 | $1 | | Interest rate swaps | $2,484 | — | $4,199 | — | | Put options | $45,055 | — | $43,777 | — | | Interest rate floors | $6,118 | — | $4,043 | — | | Credit derivatives | — | — | — | — | | Total | $53,927 | $435 | $52,278 | $177 | Derivative (Loss) Gain in Income Statement (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net (loss) gain in gain on sale of loans | $(382) | $423 | | Net gain in other income | $11,855 | $3,681 | - The Company purchased a Credit Default Swap (CDS) in March 2024 to manage credit risk on specific multi-family mortgage loans, with the protection seller posting **$64.8 million in collateral**[176](index=176&type=chunk) [Note 12: Disclosures about Fair Value of Assets and Liabilities](index=38&type=section&id=Note%2012%3A%20Disclosures%20about%20Fair%20Value%20of%20Assets%20and%20Liabilities) Fair Value Measurements (June 30, 2025, In thousands) | Asset/Liability | Fair Value | Level 1 | Level 2 | Level 3 | | :--- | :--- | :--- | :--- | :--- | | Mortgage loans in process of securitization | $402,427 | — | $402,427 | — | | Securities available for sale | $936,343 | $70,102 | $866,241 | — | | Loans held for sale | $91,930 | — | $91,930 | — | | Servicing rights | $193,037 | — | — | $193,037 | | Derivative assets | $64,007 | — | $12,500 | $52,598 | | Derivative liabilities | $10,450 | — | $10,442 | $8 | | Collateral dependent loans (nonrecurring) | $194,337 | — | — | $194,337 | - Servicing rights, collateral dependent loans, and certain derivatives (interest rate lock commitments, put options, interest rate floors, credit default swap) are classified within **Level 3** due to significant unobservable inputs[195](index=195&type=chunk)[197](index=197&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk)[211](index=211&type=chunk) Key Unobservable (Level 3) Inputs (June 30, 2025) | Asset/Liability | Unobservable Inputs | Weighted Average | | :--- | :--- | :--- | | Collateral dependent loans | Marketability discount and costs to sell | 14% | | Servicing rights - Multi-family | Discount rate | 9% | | Servicing rights - Multi-family | Constant prepayment rate | 9% | | Interest rate lock commitments | Loan closing rates | 82% | | Put options | Market credit spread | 4% | | Interest rate floors | Discount rate | 7% | [Note 13: Common Stock](index=47&type=section&id=Note%2013%3A%20Common%20Stock) - As of August 1, 2025, **45,885,458 shares** of the Company's common stock were issued and outstanding[4](index=4&type=chunk) - On May 13, 2024, the Company issued **2,400,000 shares** of common stock in a public offering, generating **$97.7 million in net proceeds**[229](index=229&type=chunk) [Note 14: Preferred Stock](index=47&type=section&id=Note%2014%3A%20Preferred%20Stock) - The Company redeemed all outstanding Series A Preferred Stock on April 1, 2024, for **$52.0 million**[231](index=231&type=chunk) - All outstanding Series B Preferred Stock were redeemed on January 2, 2025, for **$125.0 million**, resulting in $4.2 million in expenses and a $1.2 million excise tax[233](index=233&type=chunk)[234](index=234&type=chunk) - On November 25, 2024, the Company issued 9,200,000 depositary shares of Series E Preferred Stock, raising **$222.7 million in net proceeds**[242](index=242&type=chunk) Dividends on Preferred Stock (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Dividends on preferred stock | $(20,531) | $(16,424) | [Note 15: Share-Based Payment Plans](index=49&type=section&id=Note%2015%3A%20Share-Based%20Payment%20Plans) Share-Based Payment Plan Activity | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :--- | :--- | :--- | | Shares issued to non-executive directors | 3,752 | 2,849 | | ESOP expenses (In thousands) | $389 | $286 | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Shares contributed to ESOP | 30,802 | 23,414 | [Note 16: Earnings Per Share](index=49&type=section&id=Note%2016%3A%20Earnings%20Per%20Share) Earnings Per Share (Three Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Basic EPS | $0.60 | $1.50 | | Diluted EPS | $0.60 | $1.49 | Earnings Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Basic EPS | $1.53 | $3.30 | | Diluted EPS | $1.53 | $3.29 | [Note 17: Segment Information](index=50&type=section&id=Note%2017%3A%20Segment%20Information) - The Company operates in three primary reportable business segments: **Multi-family Mortgage Banking, Mortgage Warehousing, and Banking**, along with an 'Other' segment[250](index=250&type=chunk) Net Income (Loss) by Segment (Three Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $9,269 | $9,037 | | Mortgage Warehousing | $22,986 | $22,270 | | Banking | $14,574 | $52,378 | | Other | $(8,848) | $(7,292) | | Total | $37,981 | $76,393 | Net Income (Loss) by Segment (Six Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $12,682 | $25,646 | | Mortgage Warehousing | $38,384 | $42,460 | | Banking | $61,681 | $108,803 | | Other | $(16,527) | $(13,462) | | Total | $96,220 | $163,447 | [Note 18: Regulatory Matters](index=53&type=section&id=Note%2018%3A%20Regulatory%20Matters) - The Company and Merchants Bank met all regulatory capital adequacy requirements and were categorized as **'well capitalized'** as of June 30, 2025, and December 31, 2024[263](index=263&type=chunk)[461](index=461&type=chunk) Company Capital Ratios (June 30, 2025, In thousands) | Ratio | Actual Amount | Actual Ratio | Minimum Amount to be Well Capitalized with Basel III Buffer | Minimum Ratio to be Well Capitalized with Basel III Buffer | | :--- | :--- | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | $2,280,183 | 13.4% | $1,788,568 | 10.5% | | Tier I capital (to risk-weighted assets) | $2,176,150 | 12.8% | $1,447,889 | 8.5% | | Common Equity Tier I capital (to risk-weighted assets) | $1,624,860 | 9.5% | $1,192,379 | 7.0% | | Tier I capital (to average assets) | $2,176,150 | 11.5% | $948,810 | 5.0% | - Merchants Bank entered into a confidential **Memorandum of Understanding (MOU)** with the FDIC and DFI on June 30, 2025, agreeing to maintain certain capital thresholds and manage asset concentrations[268](index=268&type=chunk)[280](index=280&type=chunk) - The MOU is **not expected to have a material adverse impact** on the Company's financial performance or the Bank's day-to-day operations, but may limit or delay expansion[270](index=270&type=chunk)[281](index=281&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operational results, asset quality, and liquidity for the reporting period [Regulatory Developments Regarding the Bancorp and Bank](index=57&type=section&id=Regulatory%20Developments%20Regarding%20the%20Bancorp%20and%20Bank) - Merchants Bank entered into a confidential **Memorandum of Understanding (MOU)** with the FDIC and DFI on June 30, 2025, requiring the Bank to maintain certain capital thresholds and manage asset concentrations[280](index=280&type=chunk) - As of June 30, 2025, the Bank's capital **exceeded the levels agreed to in the MOU** and was within the asset concentration limits[280](index=280&type=chunk) - Management **does not expect the MOU to have a material adverse impact** on financial performance or day-to-day operations, but it may limit or delay expansion[281](index=281&type=chunk) [Financial Highlights for the Three Months Ended June 30, 2025](index=57&type=section&id=Financial%20Highlights%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025) Financial Highlights (Three Months Ended June 30) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net income | $38.0 million | $76.4 million | -50% | | Diluted earnings per share | $0.60 | $1.49 | -60% | | Provision for credit losses increase | $43.1 million | N/A | 432% | | Tangible book value per common share | $35.42 | $31.27 | 13% | | Total assets | $19.1 billion | $18.8 billion (Dec 31, 2024) | 2% | | Loans receivable, net | $10.4 billion | $10.35 billion (Dec 31, 2024) | 1% | | Core deposits | $11.4 billion | $9.4 billion (Dec 31, 2024) | 22% | | Brokered deposits | $1.3 billion | $2.5 billion (Dec 31, 2024) | -50% | | Net interest margin | 2.83% | 2.99% | -16 bps | | Efficiency ratio | 43.16% | 31.59% | 1157 bps | | Warehouse loans funded volume | $16.3 billion | $10.9 billion | 49% | | Multi-family loan origination/acquisition volume | $1.4 billion | $1.1 billion | 33% | - The **$43.1 million increase in provision for credit losses** was primarily associated with estimated declines on multi-family property values and ongoing investigations of mortgage fraud[282](index=282&type=chunk) [Business Overview](index=58&type=section&id=Business%20Overview) - Merchants Bancorp is a diversified bank holding company operating in **Multi-family Mortgage Banking, Mortgage Warehousing, and Banking** segments[284](index=284&type=chunk) - The Company's business model focuses on originating and selling low-risk, government-program-eligible loans, retaining adjustable-rate loans, and utilizing diverse funding sources to maximize net income and shareholder return[285](index=285&type=chunk) [Critical Accounting Policies and Estimates](index=59&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Key estimates include the **allowance for credit losses** on loans and **fair values** of servicing rights and financial instruments[289](index=289&type=chunk) - There have been **no significant changes** in critical accounting policies or the assumptions and judgments utilized since December 31, 2024[290](index=290&type=chunk) [Financial Condition](index=59&type=section&id=Financial%20Condition) [Comparison of Financial Condition at June 30, 2025 and December 31, 2024](index=59&type=section&id=Comparison%20of%20Financial%20Condition%20at%20June%2030%2C%202025%20and%20December%2031%2C%202024) - Total assets **increased by $335.5 million, or 2%, to $19.1 billion** at June 30, 2025, compared to December 31, 2024[292](index=292&type=chunk) - The increase was primarily due to growth in loans held for sale and in the warehouse and multi-family loan portfolios, despite two loan sales totaling over **$685.4 million**[292](index=292&type=chunk) [Total Assets](index=59&type=section&id=Total%20Assets) Total Assets (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $19,141,204 | | December 31, 2024 | $18,805,732 | - Total assets **increased by $335.5 million, or 2%**, primarily driven by growth in loans held for sale and the warehouse and multi-family loan portfolios[292](index=292&type=chunk) [Cash and Cash Equivalents](index=59&type=section&id=Cash%20and%20Cash%20Equivalents) Cash and Cash Equivalents (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $647,165 | | December 31, 2024 | $476,610 | - Cash and cash equivalents **increased by $170.6 million, or 36%**, including $43.8 million in restricted cash associated with senior credit linked notes[293](index=293&type=chunk) [Mortgage Loans in Process of Securitization](index=59&type=section&id=Mortgage%20Loans%20in%20Process%20of%20Securitization) Mortgage Loans in Process of Securitization (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $402,427 | | December 31, 2024 | $428,206 | - Mortgage loans in process of securitization **decreased by $25.8 million, or 6%**, representing loans pending settlement as mortgage-backed securities[294](index=294&type=chunk) [Securities Available for Sale](index=59&type=section&id=Securities%20Available%20for%20Sale) Securities Available for Sale (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $936,343 | | December 31, 2024 | $980,050 | - Securities available for sale **decreased by $43.7 million, or 4%**, primarily due to $391.8 million in calls, maturities, and repayments, partially offset by $348.1 million in purchases[295](index=295&type=chunk)[297](index=297&type=chunk) - Accumulated other comprehensive loss (AOCL) related to securities available for sale **increased by $0.1 million, or 86%**, to $0.2 million at June 30, 2025[299](index=299&type=chunk) [Securities Held to Maturity](index=60&type=section&id=Securities%20Held%20to%20Maturity) Securities Held to Maturity (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $1,548,211 | | December 31, 2024 | $1,664,686 | - Securities held to maturity **decreased by $116.5 million, or 7%**, due to repayments and amortization[300](index=300&type=chunk) [Loans Held for Sale](index=60&type=section&id=Loans%20Held%20for%20Sale) Loans Held for Sale (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $4,105,765 | | December 31, 2024 | $3,771,510 | - Loans held for sale **increased by $334.3 million, or 9%**, primarily due to an increase in warehouse participations from higher volume[301](index=301&type=chunk) [Loans Receivable, Net](index=60&type=section&id=Loans%20Receivable%2C%20Net) Loans Receivable, Net (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $10,432,117 | | December 31, 2024 | $10,354,002 | - Loans receivable, net of ACL-Loans, **increased by $78.1 million, or 1%**, driven by increases in mortgage warehouse repurchase agreements (up 28%) and multi-family financing loans (up 5%), partially offset by a decrease in residential real estate loans (down 25%) due to a loan sale[302](index=302&type=chunk)[303](index=303&type=chunk) - Approximately **95% of total loans reprice within three months**, reducing interest rate risk[302](index=302&type=chunk) Top 5 Geographic Concentrations for Multi-family and Healthcare Financing (June 30, 2025, In thousands) | Multi-family State | Amount | % of Total | Healthcare State | Amount | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Indiana | $1,244,946 | 26% | Michigan | $347,464 | 24% | | New York | $650,800 | 13% | Ohio | $254,783 | 18% | | Ohio | $251,923 | 5% | Texas | $124,152 | 9% | | Georgia | $233,565 | 5% | South Carolina | $102,500 | 7% | | California | $233,409 | 5% | New Jersey | $88,668 | 6% | [ACL-Loans](index=61&type=section&id=ACL-Loans) ACL-Loans (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $91,811 | | December 31, 2024 | $84,386 | - The ACL-Loans **increased by $7.4 million, or 9%**, primarily due to a $64.0 million increase in provision expense, largely related to estimated declines in multi-family property values and mortgage fraud investigations, partially offset by $56.6 million in charge-offs[308](index=308&type=chunk) [Goodwill](index=61&type=section&id=Goodwill) Goodwill (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $8,014 | | December 31, 2024 | $8,014 | - Goodwill remained **unchanged at $8.0 million** at June 30, 2025, compared to December 31, 2024[309](index=309&type=chunk) [Servicing Rights](index=61&type=section&id=Servicing%20Rights) Servicing Rights (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $193,037 | | December 31, 2024 | $189,935 | - Servicing rights **increased by $3.1 million, or 2%**, with $8.7 million in originated and purchased servicing partially offset by $5.1 million in paydowns and a $0.5 million negative fair market value adjustment due to lower interest rates[310](index=310&type=chunk)[312](index=312&type=chunk) [Other Assets and Receivables](index=62&type=section&id=Other%20Assets%20and%20Receivables) Other Assets and Receivables (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $495,295 | | December 31, 2024 | $571,330 | - Other assets and receivables **decreased by $76.0 million, or 13%**, primarily due to the release of a $125.0 million prepaid asset for the Series B Preferred Stock redemption[313](index=313&type=chunk) [Deposits](index=62&type=section&id=Deposits) Deposits (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $12,686,835 | | December 31, 2024 | $11,919,976 | - Total deposits **increased by $766.9 million, or 6%**, driven by a $2.1 billion increase in demand deposits and $260.7 million in savings deposits, partially offset by a $1.6 billion decrease in certificates of deposit[314](index=314&type=chunk) - Core deposits **increased by $2.0 billion, or 22%, to $11.4 billion**, representing 90% of total deposits, while brokered deposits **decreased by 50% to $1.3 billion**, representing 10% of total deposits[315](index=315&type=chunk)[316](index=316&type=chunk) - Uninsured deposits totaled approximately **$3.1 billion, or 24% of total Bank deposits**, at June 30, 2025[318](index=318&type=chunk) [Borrowings](index=62&type=section&id=Borrowings) Borrowings (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $4,009,474 | | December 31, 2024 | $4,386,122 | - Borrowings **decreased by $376.6 million, or 9%**, primarily due to a $491.4 million reduction in FHLB advances, partially offset by a $125.0 million increase in Federal Reserve discount window usage[319](index=319&type=chunk) - The Company maintains **$5.0 billion in unused borrowing capacity** with the FHLB and Federal Reserve discount window, up from $4.3 billion at December 31, 2024[320](index=320&type=chunk) [Other Liabilities](index=62&type=section&id=Other%20Liabilities) Other Liabilities (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $231,035 | | December 31, 2024 | $231,035 | - Other liabilities remained **essentially unchanged at $231.0 million**[320](index=320&type=chunk) [Total Shareholders' Equity](index=63&type=section&id=Total%20Shareholders'%20Equity) Total Shareholders' Equity (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $2,184,632 | | December 31, 2024 | $2,243,310 | - Total shareholders' equity **decreased by $58.7 million, or 3%**, primarily due to the $125.0 million redemption of 6% Series B Preferred Stock and $29.7 million in dividends, partially offset by $96.2 million in net income[323](index=323&type=chunk) [Asset Quality](index=63&type=section&id=Asset%20Quality) - The allowance for credit losses on loans **increased by $7.4 million, or 9%, to $91.8 million** at June 30, 2025, driven by a $64.0 million provision expense and $56.6 million in charge-offs[325](index=325&type=chunk) - The increase in provision expenses and charge-offs was primarily associated with estimated declines on multi-family property values, new appraisals, and investigations of mortgage fraud[325](index=325&type=chunk) Charge-offs and Recoveries (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Charge-offs | $(56,570) | $(4,377) | | Recoveries | $28 | $16 | - Substandard loans **increased to $417.7 million** at June 30, 2025, from $317.3 million at December 31, 2024, following additional access to information to assess collateral[327](index=327&type=chunk) - Nonperforming loans (nonaccrual and >90 days past due) **decreased to $251.5 million (2.39% of total loans)** at June 30, 2025, from $279.7 million (2.68%) at December 31, 2024[330](index=330&type=chunk) - The ACL-Loans as a percentage of nonperforming loans **increased to 37%** at June 30, 2025, from 30% at December 31, 2024[331](index=331&type=chunk) - The Company has **$2.8 billion in loans subject to credit protection arrangements** (up from $2.3 billion at December 31, 2024), with incremental coverage ranging from 13-14%[333](index=333&type=chunk) [Comparison of Operating Results for the Three Months Ended June 30, 2025 and 2024](index=64&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) [General Operating Results](index=64&type=section&id=General%20Operating%20Results) - Net income **decreased by $38.4 million, or 50%, to $38.0 million**, primarily due to a **$43.1 million (432%) increase** in provision for credit losses[334](index=334&type=chunk) - The decrease in net income also reflected a **$27.0 million (54%) increase** in noninterest expense, partially offset by a **$19.1 million (61%) increase** in noninterest income and an $11.9 million (52%) decrease in provision for income tax[334](index=334&type=chunk) [Net Interest Income](index=66&type=section&id=Net%20Interest%20Income) Net Interest Income and Margin (Three Months Ended June 30) | Metric | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net interest income | $128,719 | $128,119 | $600 | | Interest rate spread | 2.33% | 2.45% | -12 bps | | Net interest margin | 2.83% | 2.99% | -16 bps | - Net interest income **increased slightly by $0.6 million**, reflecting lower interest expense on deposits partially offset by lower interest income and higher interest expense on borrowings[340](index=340&type=chunk) - The net interest margin **decreased by 16 basis points to 2.83%**, negatively impacted by a significant shift in business mix towards lower-margin loans held for sale and warehouse repurchase agreements[341](index=341&type=chunk) [Interest Income](index=66&type=section&id=Interest%20Income) Interest Income (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Loans | $255,641 | $284,421 | -10.1% | | Mortgage loans in process of securitization | $5,304 | $3,044 | 74.3% | | Investment securities available for sale | $12,095 | $14,784 | -18.2% | | Investment securities held to maturity | $23,166 | $19,799 | 17.0% | | Total interest income | $304,399 | $328,273 | -7.3% | - Interest income on loans and loans held for sale **decreased by $28.8 million, or 10%**, due to a 105 basis point decrease in average yield to 6.92%, despite a 3% increase in average loan balance[343](index=343&type=chunk) - Interest income on mortgage loans in process of securitization **increased by $2.3 million, or 74%**, due to a 61% increase in average balance and a 42 basis point increase in average yield[348](index=348&type=chunk) [Interest Expense](index=67&type=section&id=Interest%20Expense) Interest Expense (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Deposits | $131,375 | $179,651 | -26.8% | | Short-term borrowings | $36,981 | $11,612 | 218.5% | | Long-term borrowings | $7,324 | $8,891 | -17.6% | | Total interest expense | $175,680 | $200,154 | -12.2% | - Interest expense on deposits **decreased by $48.3 million, or 27%**, primarily due to lower average balances and rates on certificates of deposit[350](index=350&type=chunk) - Interest expense on borrowings **increased by $23.8 million, or 116%**, due to a 235% increase in overall average borrowings, despite a 285 basis point decrease in the average interest rate to 5.15%[353](index=353&type=chunk) [Provision for Credit Losses](index=68&type=section&id=Provision%20for%20Credit%20Losses) Provision for Credit Losses (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for credit losses | $53,027 | $9,965 | 432.0% | - The **$53.0 million provision for credit losses** consisted of $54.5 million for ACL-Loans, net of a $1.1 million release for ACL-OBCE's and a $0.3 million release for ACL-Guarantees[356](index=356&type=chunk) - The increase was primarily associated with estimated declines on multi-family property values and ongoing investigations of mortgage fraud[357](index=357&type=chunk) [Noninterest Income](index=68&type=section&id=Noninterest%20Income) Noninterest Income (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Gain on sale of loans | $23,342 | $11,168 | 109% | | Loan servicing fees, net | $6,138 | $10,827 | -43% | | Mortgage warehouse fees | $2,039 | $1,524 | 34% | | Syndication and asset management fees | $9,707 | $3,233 | 200% | | Other income | $9,254 | $4,599 | 101% | | Total noninterest income | $50,480 | $31,351 | 61% | - Gain on sale of loans **increased by $12.2 million, or 109%**, driven by higher volume in the multi-family loan portfolio[359](index=359&type=chunk) - Syndication and asset management fees **increased by $6.5 million, or 200%**, due to an increase in managed projects and funds, and new equity raises[362](index=362&type=chunk) - Other noninterest income **increased by $4.7 million, or 101%**, including a $4.3 million positive fair value adjustment to floor derivatives[363](index=363&type=chunk) [Noninterest Expense](index=69&type=section&id=Noninterest%20Expense) Noninterest Expense (Three Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $43,566 | $28,373 | 54% | | Deposit insurance expense | $7,152 | $5,579 | 28% | | Credit risk transfer premium expense | $4,767 | $2,294 | 108% | | Other expense | $12,611 | $5,487 | 130% | | Total noninterest expense | $77,337 | $50,380 | 54% | - Salaries and employee benefits **increased by $15.2 million, or 54%**, including $5.8 million for the addition of production staff[365](index=365&type=chunk) - Other expense **increased by $7.1 million**, primarily related to taxes, insurance, receiver expenses, and legal fees tied to preserving collateral for nonperforming loans[365](index=365&type=chunk) - The efficiency ratio **increased to 43.16% from 31.59%**, with credit default swap premiums, collateral preservation, and production staff additions negatively impacting it by 941 basis points[367](index=367&type=chunk) [Income Taxes](index=70&type=section&id=Income%20Taxes) Income Taxes (Three Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for income taxes | $10,854 | $22,732 | -52% | | Effective tax rate | 22.2% | 22.9% | -0.7 pp | - Income tax expense **decreased by $11.9 million, or 52%**, primarily due to a 51% decrease in pretax income[368](index=368&type=chunk) [Comparison of Operating Results for the Six Months Ended June 30, 2025 and 2024](index=70&type=section&id=Comparison%20of%20Operating%20Results%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) [General Operating Results](index=70&type=section&id=General%20Operating%20Results) - Net income **decreased by $67.2 million, or 41%, to $96.2 million**, primarily due to a $46.1 million increase in provision for credit losses and a $39.7 million increase in noninterest expense[369](index=369&type=chunk) - These were partially offset by a $20.9 million decrease in the provision for income taxes and a $1.9 million increase in noninterest income[369](index=369&type=chunk) [Net Interest Income](index=72&type=section&id=Net%20Interest%20Income) Net Interest Income and Margin (Six Months Ended June 30) | Metric | 2025 | 2024 | Change | | :--- | :--- | :--- | :--- | | Net interest income | $250,915 | $255,175 | -$4,260 | | Interest rate spread | 2.36% | 2.52% | -16 bps | | Net interest margin | 2.86% | 3.07% | -21 bps | - Net interest income **decreased by $4.3 million, or 2%**, reflecting lower interest income and higher interest expense on borrowings, partially offset by lower interest expense on deposits[374](index=374&type=chunk) - The net interest margin **decreased by 21 basis points to 2.86%**, negatively impacted by a shift in business mix towards lower-margin loans held for sale and warehouse repurchase agreements[375](index=375&type=chunk) [Interest Income](index=72&type=section&id=Interest%20Income) Interest Income (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Loans | $494,921 | $556,419 | -11.0% | | Mortgage loans in process of securitization | $9,047 | $4,764 | 89.9% | | Investment securities available for sale | $24,453 | $29,172 | -16.2% | | Investment securities held to maturity | $47,524 | $40,321 | 17.9% | | Total interest income | $591,603 | $642,446 | -7.9% | - Interest income on loans and loans held for sale **decreased by $61.5 million, or 11%**, due to a 106 basis point decrease in average yield to 6.98%, despite a 3% increase in average loan balance[377](index=377&type=chunk) - Interest income on securities held to maturity **increased by $7.2 million, or 18%**, due to a 36% increase in average balance, partially offset by a 92 basis point decrease in average yield[381](index=381&type=chunk) [Interest Expense](index=73&type=section&id=Interest%20Expense) Interest Expense (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Deposits | $255,316 | $350,673 | -27.2% | | Short-term borrowings | $70,345 | $18,834 | 273.5% | | Long-term borrowings | $15,027 | $17,764 | -15.4% | | Total interest expense | $340,688 | $387,271 | -12.0% | - Interest expense on deposits **decreased by $95.4 million, or 27%**, primarily due to lower average balances and rates for certificate of deposit accounts[384](index=384&type=chunk) - Interest expense on borrowings **increased by $48.8 million, or 133%**, due to a 277% increase in average balances, despite a 319 basis point decrease in the average rate to 5.23%[388](index=388&type=chunk) [Provision for Credit Losses](index=74&type=section&id=Provision%20for%20Credit%20Losses) Provision for Credit Losses (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for credit losses | $60,754 | $14,691 | 313.5% | - The **$60.8 million provision for credit losses** consisted of $64.0 million for ACL-Loans, net of a $2.8 million release for ACL-OBCE's and a $0.4 million release for ACL-Guarantees[392](index=392&type=chunk) - The increase was primarily associated with estimated declines on multi-family property values, ongoing investigations of mortgage fraud, and certain types of subordinated loans[391](index=391&type=chunk) [Noninterest Income](index=74&type=section&id=Noninterest%20Income) Noninterest Income (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Gain on sale of loans | $34,961 | $20,524 | 70% | | Loan servicing fees, net | $10,148 | $30,229 | -66% | | Mortgage warehouse fees | $3,552 | $2,506 | 42% | | Syndication and asset management fees | $13,096 | $8,536 | 53% | | Other income | $12,416 | $10,538 | 18% | | Total noninterest income | $74,173 | $72,225 | 3% | - Gain on sale of loans **increased by $14.4 million, or 70%**, driven by higher volume in the multi-family loan portfolio[394](index=394&type=chunk) - Loan servicing fees **decreased by $20.1 million, or 66%**, including a $0.5 million negative fair market value adjustment to servicing rights (compared to a $19.0 million positive adjustment in 2024)[400](index=400&type=chunk) - Syndication and asset management fees **increased by $4.6 million, or 53%**, due to an increase in managed projects and funds, and new equity raises[398](index=398&type=chunk) [Noninterest Expense](index=75&type=section&id=Noninterest%20Expense) Noninterest Expense (Six Months Ended June 30, In thousands) | Source | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | $79,985 | $57,969 | 38% | | Deposit insurance expense | $14,380 | $10,704 | 34% | | Credit risk transfer premium expense | $8,629 | $2,294 | 276% | | Other expense | $18,349 | $10,532 | 74% | | Total noninterest expense | $139,001 | $99,292 | 40% | - Salaries and employee benefits **increased by $22.0 million, or 38%**, including $8.3 million for the addition of production staff[403](index=403&type=chunk) - Credit risk transfer premium expense **increased by $6.3 million, or 276%**, stemming from credit default swaps[403](index=403&type=chunk) - The efficiency ratio **increased to 42.76% from 30.33%**, with credit default swap premiums, collateral preservation, and production staff additions negatively impacting it by 714 basis points[404](index=404&type=chunk) [Income Taxes](index=76&type=section&id=Income%20Taxes) Income Taxes (Six Months Ended June 30, In thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Provision for income taxes | $29,113 | $49,970 | -42% | | Effective tax rate | 23.2% | 23.4% | -0.2 pp | - Income tax expense **decreased by $20.9 million, or 42%**, reflecting a 41% lower pre-tax income[405](index=405&type=chunk) [Our Segments](index=76&type=section&id=Our%20Segments) - The Company's three primary segments are **Multi-family Mortgage Banking, Mortgage Warehousing, and Banking**, which offer distinct but complementary products and services and provide synergies across the Bank[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) Net Income (Loss) by Segment (Three Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $9,269 | $9,037 | | Mortgage Warehousing | $22,986 | $22,270 | | Banking | $14,574 | $52,378 | | Other | $(8,848) | $(7,292) | Net Income (Loss) by Segment (Six Months Ended June 30, In thousands) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $12,682 | $25,646 | | Mortgage Warehousing | $38,384 | $42,460 | | Banking | $61,681 | $108,803 | | Other | $(16,527) | $(13,462) | [Multi-family Mortgage Banking](index=76&type=section&id=Multi-family%20Mortgage%20Banking) - Net income for the three months ended June 30, 2025, **increased by 3% to $9.3 million**, driven by a $9.0 million increase in gain on sale of loans and a $6.5 million increase in syndication and asset management fees, despite a $12.9 million increase in noninterest expense[416](index=416&type=chunk) - Loan volume originated and acquired **increased by 33% to $1.4 billion** for the three months ended June 30, 2025[419](index=419&type=chunk) - Net income for the six months ended June 30, 2025, **decreased by 51% to $12.7 million**, primarily due to a $17.9 million increase in noninterest expense and a $15.3 million decrease in loan servicing fees[420](index=420&type=chunk) - The total servicing portfolio had an unpaid principal balance of **$31.0 billion** at June 30, 2025, primarily Ginnie Mae multi-family servicing rights[407](index=407&type=chunk) [Mortgage Warehousing](index=78&type=section&id=Mortgage%20Warehousing) - Net income for the three months ended June 30, 2025, **increased by 3% to $23.0 million**, reflecting an increase in other noninterest income (including a $4.3 million positive fair market value adjustment to derivatives)[423](index=423&type=chunk)[424](index=424&type=chunk) - The volume of loans funded **increased by 49% to $16.3 billion** for the three months ended June 30, 2025[425](index=425&type=chunk) - Net income for the six months ended June 30, 2025, **decreased by 10% to $38.4 million**, primarily due to an increase in noninterest expense related to premiums for credit risk transfers[427](index=427&type=chunk) - The volume of loans funded **increased by 49% to $28.1 billion** for the six months ended June 30, 2025[429](index=429&type=chunk) [Banking](index=79&type=section&id=Banking) - Net income for the three months ended June 30, 2025, **decreased by 72% to $14.6 million**, primarily due to an increase in provision for credit losses[430](index=430&type=chunk) - Net income for the six months ended June 30, 2025, **decreased by 43% to $61.7 million**, also primarily due to the increase in provision for credit losses[432](index=432&type=chunk) - The Bank has established a limit not to increase its commercial real estate portfolio by **more than 10%** from the prior calendar year-end[433](index=433&type=chunk) [Other Segment](index=77&type=section&id=Other%20Segment) - The 'Other' segment includes general and administrative expenses, internal funds transfer pricing offsets, elimination entries, and investments in low-income housing tax credit limited partnerships or LLCs[414](index=414&type=chunk) [Liquidity and Capital Resources](index=79&type=section&id=Liquidity%20and%20Capital%20Resources) [Liquidity](index=79&type=section&id=Liquidity) - The Company had **$5.0 billion in available unused borrowing capacity** with the FHLB and Federal Reserve discount window at June 30, 2025, up from $4.3 billion at December 31, 2024[436](index=436&type=chunk) - Liquid assets (cash, short-term investments, mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit) totaled **$11.9 billion, or 62% of total assets**, at June 30, 2025[437](index=437&type=chunk) - Uninsured deposits totaled approximately **$3.1 billion, or 24% of total Bank deposits**, which are well-covered by the Company's liquidity, including a Federal Reserve line of credit that could fund 106% of uninsured deposits[438](index=438&type=chunk) - Net cash provided by operating activities was **$26.9 million** for the six months ended June 30, 2025, a significant improvement from $(332.7) million used in the prior year[439](index=439&type=chunk) [Off-Balance Sheet Arrangements](index=80&type=section&id=Off-Balance%20Sheet%20Arrangements) - The Company had **$3.9 billion in outstanding commitments to extend credit** and $3.6 billion in commitments subject to certain performance criteria and cancellation at June 30, 2025[442](index=442&type=chunk) - The business model is designed to continuously sell a significant portion of its loans, providing flexibility in managing liquidity[444](index=444&type=chunk) [Capital Resources](index=81&type=section&id=Capital%20Resources) - The Company filed a shelf registration statement on Form S-3, effective June 4, 2025, to issue up to **$500 million** in registered securities to finance growth objectives[445](index=445&type=chunk) - The Company aims to maintain a strong capital base to support growth, provide stability, and promote public confidence[446](index=446&type=chunk) [Shareholders' Equity](index=81&type=section&id=Shareholders'%20Equity) Total Shareholders' Equity (In thousands) | Date | Amount | | :--- | :--- | | June 30, 2025 | $2,184,632 | | December 31, 2024 | $2,243,310 | - Total shareholders' equity **decreased by $58.7 million, or 3%**, primarily due to the $125.0 million redemption of 6% Series B Preferred Stock and $29.7 million in dividends, partially offset by $96.2 million in net income[447](index=447&type=chunk) [Preferred Stock/Dividends](index=81&type=section&id=Preferred%20Stock%2FDividends) - The Company redeemed all outstanding Series A Preferred Stock on April 1, 2024, for **$52 million**[448](index=448&type=chunk) - All outstanding Series B Preferred Stock were redeemed on January 2, 2025, for **$125.0 million**, resulting in $4.2 million in expenses and a $1.2 million excise tax[449](index=449&type=chunk) - On November 25, 2024, the Company issued 9,200,000 depositary shares of 7.625% Series E Preferred Stock, raising **$222.7 million in net proceeds**[451](index=451&type=chunk) - Dividends declared to preferred shareholders for the six months ended June 30, 2025, totaled **$10.3 million**[454](index=454&type=chunk) [Common Shares/Dividends](index=82&type=section&id=Common%20Shares%2FDividends) - As of June 30, 2025, the Company had **45,885,458 common shares** issued and outstanding[455](index=455&type=chunk) - The Board declared a quarterly dividend of **$0.10 per share** for the first two quarters of 2025[455](index=455&type=chunk) [Capital Adequacy](index=82&type=section&id=Capital%20Adequacy) - Both the Company and Merchants Bank met all capital adequacy requirements and were categorized as **'well capitalized'** as of June 30, 2025, and December 31, 2024[460](index=460&type=chunk)[461](index=461&type=chunk) - The Bank's capital **exceeded the levels agreed to in the MOU** as of June 30, 2025[461](index=461&type=chunk) - Merchants Bank has established a **minimum leverage ratio of 9.0%** and a **minimum total capital ratio of 12.5%**[462](index=462&type=chunk) - Dividend payments to shareholders are limited by Indiana law (retained net income) and the MOU (if capital ratios fall below minimums)[463](index=463&type=chunk)[465](index=465&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) [Market Risk Overview](index=84&type=section&id=Market%20Risk%20Overview) - Market risk is the risk of loss due to changes in market values of assets and liabilities, primarily from interest rate risk and price risk related to market demand[466](index=466&type=chunk) - Interest rate risk arises from reprice risk, option risk, yield curve risk, and changes in spread relationships[467](index=467&type=chunk) [Interest Rate Risk Management](index=84&type=section&id=Interest%20Rate%20Risk%20Management) - The Company manages interest rate risk by funding low-risk, government-backed loans (originate-to-sell model) and retaining adjustable-rate loans as held for investment[468](index=468&type=chunk) - The Asset-Liability Committee (ALCO) manages interest rate risk within board-established policy limits, meeting quarterly to monitor sensitivity and ensure compliance[469](index=469&type=chunk) [Income Simulation and Economic Value Analysis](index=84&type=section&id=Income%20Simulation%20and%20Economic%20Value%20Analysis) - The Company uses Net Interest Income at Risk (NII at Risk) and Economic Value of Equity (EVE) models to measure interest rate risk[473](index=473&type=chunk) Net Interest Income Sensitivity (Twelve Months Forward, June 30, 2025, In thousands) | Scenario | Dollar change | Percent change | | :--- | :--- | :--- | | -200 bps | $(84,289) | -15.9% | | -100 bps | $(44,357) | -8.3% | | +100 bps | $42,895 | 8.1% | | +200 bps | $85,982 | 16.2% | Economic Value of Equity Sensitivity (Immediate Change in Rates, June 30, 2025, In thousands) | Scenario | Dollar change | Percent change | | :--- | :--- | :--- | | -200 bps | $54,849 | 2.6% | | -100 bps | $36,112 | 1.7% | | +100 bps | $2,604 | 0.1% | | +200 bps | $4,897 | 0.2% | - At June 30, 2025, the Company was **within policy limits** for both NII at Risk (20% for +/- 100 bps, 30% for +/- 200 bps) and EVE (15% for +/- 100 bps, 20% for +/- 200 bps)[478](index=478&type=chunk)[480](index=480&type=chunk) [Non-GAAP Financial Measures](index=85&type=section&id=Non-GAAP%20Financial%20Measures) - The Company provides non-GAAP financial measures, such as tangible book value per common share, to supplement GAAP reporting and assist users in assessing operating performance[483](index=483&type=chunk) Non-GAAP Financial Measures (In thousands, except share data) | Metric | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total equity | $2,184,632 | $1,888,147 | | Less: goodwill and intangibles | $(8,062) | $(8,108) | | Less: preferred stock | $(551,291) | $(449,387) | | Tangible common shareholders' equity | $1,625,279 | $1,430,652 | | Assets | $19,141,204 | $18,212,422 | | Less: goodwill and intangibles | $(8,062) | $(8,108) | | Tangible assets | $19,133,142 | $18,204,314 | | Ending common shares | 45,885,458 | 45,757,567 | | Tangible book value per common share | $35.42 | $31.27 | [Item 3 Quantitative and Qualitative Disclosures About Market Risk](index=86&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the detailed discussion of market risk within Item 2 of this Form 10-Q - The required information is included in Item 2 under the headings "Liquidity and Capital Resources" and "Interest Rate Risk"[486](index=486&type=chunk) [Item 4 Controls and Procedures](index=86&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025 - The Company's disclosure controls and procedures were **effective** as of June 30, 2025[486](index=486&type=chunk) - There have been **no material changes** in the Company's internal control over financial reporting during the period[487](index=487&type=chunk) PART II – OTHER INFORMATION [Item 1 Legal Proceedings](index=87&type=section&id=Item%201%20Legal%20Proceedings) There are no legal proceedings to report for the period - None[490](index=490&type=chunk) [Item 1A Risk Factors](index=87&type=section&id=Item%201A%20Risk%20Factors) There have been no material changes from risk factors previously disclosed in the Company's Annual Report - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[491](index=491&type=chunk) [Item 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=87&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There are no unregistered sales of equity securities or use of proceeds to report for the period - None[492](index=492&type=chunk) [Item 3 Defaults Upon Senior Securities](index=87&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) There are no defaults upon senior securities to report for the period - None[493](index=493&type=chunk) [Item 4 Mine Safety Disclosures](index=87&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Not applicable[494](index=494&type=chunk) [Item 5 Other Information](index=87&type=section&id=Item%205%20Other%20Information) There is no other information to report for the period - None[495](index=495&type=chunk) [Item 6 Exhibits](index=88&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL data files - Exhibits include Second Amended and Restated Articles of Incorporation, Articles of Amendment for Preferred Stock, Second Amended and Restated By-Laws, CEO and CFO Certifications (Sarbanes-Oxley Act), and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[497](index=497&type=chunk) SIGNATURES [SIGNATURES](index=89&type=section&id=SIGNATURES) The report is duly signed by the Chairman & CEO and the CFO as of August 11, 2025 - The report was signed by Michael F. Petrie (Chairman & Chief Executive Officer) and Sean A. Sievers (Chief Financial Officer) on August 11, 2025[501](index=501&type=chunk)