NASDAQ: MBIN November 2019 Sandler O'Neill + Partners, L.P. 2019 East Coast Financial Services Conference Disclaimers This presentation may contain "forward-looking statements" within the meaning of meaning of Section 27A of the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect management's current views with respect to, among other things, future events and our financial per ...

Table of Contents 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, 2019 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) ...

Financial Performance - Net income for the three months ended June 30, 2019, was $16,439 thousand, compared to $15,652 thousand for the same period in 2018, reflecting a growth of 5%[9]. - Comprehensive income for the three months ended June 30, 2019, was $16,925 thousand, compared to $15,749 thousand for the same period in 2018, an increase of approximately 7%[9]. - Net income for the six months ended June 30, 2019, was $27.0 million, a decrease from $30.7 million in the same period of 2018, representing a decline of approximately 8.8%[15]. - Net income for the three months ended June 30, 2019, was $16,439,000, compared to $15,652,000 for the same period in 2018, showing a growth of 5%[151]. - Income before income taxes for the three months ended June 30, 2019, was $21,767,000, compared to $20,838,000 in 2018, showing an increase of 4%[151]. Assets and Liabilities - Total assets increased to $5,287,390 thousand as of June 30, 2019, up from $3,884,163 thousand at December 31, 2018, representing a growth of approximately 36%[7]. - Total liabilities increased to $4,772,377 thousand as of June 30, 2019, from $3,462,926 thousand at December 31, 2018, an increase of approximately 38%[7]. - Total assets as of June 30, 2019, were $5,287,390,000, compared to $3,786,682,000 as of June 30, 2018, marking an increase of 40%[151]. - Total shareholders' equity increased by $93.8 million, or 22%, to $515.0 million at June 30, 2019[196]. Deposits - Total deposits rose to $4,655,990 thousand as of June 30, 2019, from $3,231,086 thousand at December 31, 2018, marking an increase of approximately 44%[7]. - Brokered deposits increased by $1.0 billion, or 102%, to $2.0 billion at June 30, 2019, from $988.2 million at December 31, 2018, representing 43% of total deposits[193]. - Certificates of deposit accounts surged by $1.1 billion, or 155%, to $1.7 billion at June 30, 2019[192]. - Interest-bearing deposits rose by $1.4 billion, or 46%, to $4.5 billion at June 30, 2019[194]. Loans - Total loans receivable amounted to $2,360,510, an increase of 14.7% from $2,058,127 on December 31, 2018[48]. - Loans held for sale amounted to $1,908,526,000 as of June 30, 2019, compared to $820,569,000 as of December 31, 2018, indicating a significant increase of approximately 132%[144]. - The net change in deposits for the six months ended June 30, 2019, was $1.42 billion, compared to $195.9 million in 2018, showing significant growth[15]. - The average balance of loans increased by $1.1 billion, or 46%, to $3.6 billion for the three months ended June 30, 2019[200]. Interest Income and Expense - Net interest income for the three months ended June 30, 2019, was $27,922 thousand, a 26% increase from $22,206 thousand in the same period of 2018[8]. - Total interest income for the three months ended June 30, 2019, was $48,761,000, an increase from $34,123,000 in the same period of 2018, representing a growth of 43%[151]. - Total interest expense for the three months ended June 30, 2019, was $20,839,000, an increase from $11,917,000 in 2018, representing a rise of 75%[151]. - Interest expense on deposits increased by $9.6 million, or 99%, to $19.3 million for the three months ended June 30, 2019[205]. Acquisitions - The Company acquired Farmers-Merchants National Bank of Paxton on October 1, 2018, enhancing its market presence and deposit base[18]. - On October 1, 2018, the Company acquired FM Bancorp, Inc. for a total purchase price of $21.9 million, compensating shareholders $795.29 per share[28]. - The Company recorded goodwill and intangible assets totaling $1.47 million in connection with the acquisition of FMBI[27]. - The acquisition of FM Bancorp did not materially impact the Company's financial position, results of operations, or cash flows[30]. Securities - The fair value of available-for-sale securities as of June 30, 2019, was $261.5 million, with gross unrealized gains of $915,000 and losses of $109,000[35]. - The fair value of trading securities was $101,514, a decrease from $163,419 on December 31, 2018, representing a decline of approximately 38%[106]. - The fair value of available-for-sale securities, including federal agencies, was $208,868 as of June 30, 2019, down from $236,930 at the end of 2018, indicating a decrease of about 12%[106]. Loan Losses and Impairments - The provision for loan losses for the three months ended June 30, 2019, was $105 thousand, significantly lower than $998 thousand in the same period of 2018[8]. - The allowance for loan losses at the end of the period was $12,604, a slight decrease from $12,704 at the end of 2018[48]. - The provision for loan losses for the six months ended June 30, 2019, was $754,000, compared to a provision of $2,404,000 for the same period in 2018, indicating improved credit quality[70]. - The total past due loans as of June 30, 2019, were $5,642,000, with a significant portion being current loans at $2,354,868,000[79].

Financial Performance - Net income decreased to $10,570 thousand for Q1 2019, down 29.8% from $15,061 thousand in Q1 2018[10]. - Basic earnings per share for Q1 2019 was $0.34, down from $0.50 in Q1 2018, reflecting a decrease of 32.0%[9]. - Comprehensive income for Q1 2019 was $11,034 thousand, down from $14,743 thousand in Q1 2018, indicating a decrease of 25.0%[10]. - Net income for the three months ended March 31, 2019, was $10.57 million, a decrease of 29.8% from $15.06 million in the same period of 2018[17]. - Total interest income for Q1 2019 was $39,674,000, an increase of 36.6% from $29,038,000 in Q1 2018[156]. - Total noninterest income for Q1 2019 was $3,664,000, compared to $11,313,000 in Q1 2018, reflecting a significant decline of 67.6%[156]. - Total noninterest expense for Q1 2019 was $13,035,000, an increase from $10,270,000 in Q1 2018, marking a rise of 26.8%[156]. Assets and Liabilities - Total assets increased to $3,976,725 thousand as of March 31, 2019, up from $3,884,163 thousand at December 31, 2018, representing a growth of 2.4%[8]. - Total liabilities increased to $3,498,894 thousand as of March 31, 2019, compared to $3,462,926 thousand at December 31, 2018, marking a rise of 1.0%[8]. - Shareholders' equity increased to $477,831 thousand as of March 31, 2019, up from $421,237 thousand at December 31, 2018, representing a growth of 13.4%[8]. - Cash and cash equivalents at the end of the period were $313.45 million, compared to $287.73 million at the end of the same period in 2018[17]. - Total available-for-sale securities amounted to $296,503,000, with a fair value of $296,669,000, reflecting a gross unrealized gain of $595,000 and unrealized losses of $429,000[35]. Deposits and Borrowings - Total deposits decreased to $3,121,027 thousand as of March 31, 2019, down 3.4% from $3,231,086 thousand at December 31, 2018[8]. - The Company recorded a net change in deposits of $(110.03) million, contrasting with an increase of $82.11 million in the same period last year[17]. - Demand deposits decreased by $156.0 million, or 10%, to $1.4 billion at March 31, 2019, while brokered demand accounts decreased by $250.1 million, or 83%[204]. - Borrowings increased by $142.6 million, or 73%, to $338.0 million at March 31, 2019, to maintain an appropriate level of cash for business funding[206]. Loan Performance - The provision for loan losses was $649 thousand for Q1 2019, a decrease of 53.8% from $1,406 thousand in Q1 2018[9]. - The allowance for loan losses increased from $12,704,000 at the beginning of the period to $13,356,000 at the end of the period, reflecting a provision for loan losses of $649,000[71]. - The total recorded investment in loans as of March 31, 2019, was $2,181,612,000, with a significant portion in mortgage loans (MTG) at $412,171,000[71]. - The total amount of substandard loans was $13,410,000 as of March 31, 2019, highlighting loans that are inadequately protected by the borrower's financial capacity[79]. - The total impaired loans recorded investment was $13,410 thousand, with a specific allowance of $745 thousand[83]. Capital Adequacy - The Company met all capital adequacy requirements as of March 31, 2019, and was categorized as well capitalized by regulatory authorities[91]. - The total capital to risk-weighted assets ratio for the Company was 13.3%, with total capital amounting to $453,361 thousand, exceeding the adequately capitalized requirement of 8.0%[95]. - The Tier 1 capital to risk-weighted assets ratio for the Company was 12.9%, with Tier 1 capital amounting to $440,007 thousand, surpassing the minimum requirement of 6.0%[95]. - The Common Equity Tier 1 capital to risk-weighted assets ratio for the Company was 10.3%, with Common Equity Tier 1 capital of $350,157 thousand, well above the minimum requirement of 4.5%[95]. Business Segments - The Multi-family Mortgage Banking segment reported a net loss of $712,000 in Q1 2019, compared to a net income of $5,484,000 in Q1 2018[155]. - The Mortgage Warehousing segment generated net income of $3,832,000 in Q1 2019, up from $4,630,000 in Q1 2018, a decrease of 17.3%[155]. - The Banking segment contributed $8,769,000 to net income in Q1 2019, down from $5,980,000 in Q1 2018, reflecting a 46.5% increase[155]. Regulatory Changes - The Company expects the adoption of ASU 2016-01 to have no material impact on its financial position or results of operations[163]. - The new lease guidance under ASU 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases, effective after December 15, 2019[167]. - ASU 2016-13 introduces a new methodology for estimating expected credit losses over the life of loans, effective for fiscal years beginning after December 15, 2021[169]. - The Company is developing a project plan to ensure compliance with ASU 2016-13, which may increase the allowance for loan losses[169].

Employee and Workplace Recognition - As of December 31, 2018, the company had approximately 259 employees and has been recognized as one of the "Best Places to Work in Indiana" since 2016[32]. Competitive Landscape - The company operates in highly competitive sectors including commercial and retail banking, residential mortgages, and multi-family loan originations, facing competition from both local and online financial institutions[31]. Capitalization and Financial Health - At December 31, 2018, Merchants Bank and FMBI were classified as "well capitalized" according to FDIC regulations, meeting all required capital ratios[60]. - The total assets of Merchants Bancorp increased to $3,884,163 thousand from $3,393,133 thousand in 2017, representing a growth of approximately 14.5%[353]. - The total shareholders' equity increased to $421,237 thousand in 2018 from $367,474 thousand in 2017, representing a growth of approximately 14.6%[353]. - The company reported a basic earnings per share of $2.08 for 2018, compared to $2.28 in 2017, reflecting a decrease in earnings per share despite higher net income[356]. - The company reported a total of $2,058,127,000 in loans as of December 31, 2018, indicating growth in the overall loan portfolio[462]. Regulatory Environment - The company is subject to extensive regulation under federal and state laws, which can impact growth and earnings performance[35]. - The Federal Reserve requires bank holding companies to serve as a source of financial and managerial strength to their subsidiary banks[49]. - The company faces regulatory scrutiny that includes regular examinations by regulatory agencies, impacting its operations and growth[37]. - The company is governed by the Bank Holding Company Act, which regulates acquisitions and control of banks and nonbanking companies[40]. Interest Rate Risk Management - Interest rate risk management is a key focus for Merchants Bank, with the Asset-Liability Committee monitoring sensitivity to interest rate changes quarterly[332]. - As of December 31, 2018, a +200 basis point increase in interest rates could result in a $22.4 million (21.4%) increase in net interest income, while a -200 basis point decrease could lead to a $25.2 million (24.1%) decrease[338]. - The bank's interest rate risk management policy limits changes in net interest income to 20% for +/- 100 basis point moves and 30% for +/- 200 basis point moves, remaining within policy limits as of December 31, 2018[338]. Financial Performance - The net income for the year ended December 31, 2018, was $62,874 thousand, an increase of 14.0% compared to $54,684 thousand in 2017[356]. - Total interest income rose to $140,563 thousand in 2018, up 48.9% from $94,387 thousand in 2017, driven primarily by an increase in loans[356]. - Noninterest income for 2018 was $49,585 thousand, a slight increase from $47,680 thousand in 2017, reflecting stable performance in loan sales and servicing fees[356]. - The provision for loan losses increased to $4,629 thousand in 2018, compared to $2,472 thousand in 2017, indicating a rise in expected credit losses[356]. Acquisitions and Market Expansion - The company completed acquisitions of FMBI and FMNBP, expanding its market presence in Indiana and Illinois[364]. - The acquisition of FMBI on January 2, 2018, cost approximately $5.5 million, with recorded goodwill of $988,000 and intangible assets of $478,000[373]. - The merger with FM Bancorp, Inc. on October 1, 2018, had a total purchase price of $21.9 million, with goodwill of $7.2 million and intangible assets of $1.9 million[374]. - The acquisition of NattyMac, LLC on December 31, 2018, resulted in goodwill of $5.0 million, aimed at increasing the geographic footprint in the warehouse business[375]. Loan Portfolio and Quality - The total loans receivable amounted to $2,045,423 thousand, an increase from $1,366,349 thousand in 2017, representing a growth of 49.6%[443]. - The allowance for loan losses at the end of 2018 was $12,704 thousand, up from $8,311 thousand in 2017, indicating a 53.5% increase[443]. - The company reported a total of $90,604,000 in loans classified as special mention (watch) as of December 31, 2018, compared to $16,294,000 in 2017, indicating increased risk in the loan portfolio[462]. - The total amount of loans classified as acceptable and above was $1,956,338,000 in 2018, up from $1,351,030,000 in 2017, showing improvement in loan quality[462]. Compliance and Risk Management - The company maintains an anti-money laundering program in compliance with the Bank Secrecy Act and the USA Patriot Act, including reporting cash transactions exceeding $10,000[56]. - The company is required to provide prior written notice to the Federal Reserve for any purchase or redemption of its own equity securities if it exceeds 10% of its consolidated net worth[50]. - The allowance for loan losses is evaluated regularly and is based on management's review of the collectability of loans, considering historical experience and current economic conditions[401][402]. Shareholder Returns - Dividends on common stock increased to $0.24 per share in 2018 from $0.20 per share in 2017, representing a 20% increase[360]. - The company paid dividends of $10,216,000, an increase from $7,950,000 in the previous year, reflecting a commitment to returning value to shareholders[362].