Merchants Bancorp(MBIN) - 2024 Q4 - Annual Report

Employee Relations and Engagement - As of December 31, 2024, the company had approximately 663 employees, with 388 located in Central Indiana[46] - The company achieved a turnover rate of only 9% in 2024, reflecting positive employee relations[47] - The company was recognized as one of the "Best Places to Work in Indiana" from 2016 to 2023 and as a "Top Workplace" by The Indianapolis Star in 2023 and 2024[47] - The company has established an Employee Stock Ownership Plan (ESOP) to align employee interests with shareholders, contributing 3% of eligible compensation under the 401(k) plan[47] - The company is committed to employee engagement and inclusion initiatives, fostering creativity and innovation[53] Financial Performance - Net income for 2024 reached $320,386, an increase of 14.7% compared to $279,234 in 2023[472] - Total interest income increased to $1,302,720 in 2024, up 20.8% from $1,077,798 in 2023[470] - Net interest income after provision for credit losses was $498,342, reflecting a 22.2% increase from $407,840 in 2023[470] - Noninterest income rose to $148,112, a 29.1% increase compared to $114,668 in 2023[470] - Total noninterest expense increased to $223,812, up 28.2% from $174,601 in 2023[470] - Basic earnings per share for 2024 was $6.32, compared to $5.66 in 2023, representing an increase of 11.6%[470] - Comprehensive income for 2024 was $322,741, an increase from $287,267 in 2023, reflecting an increase of 12.4%[472] Asset and Liability Management - The total assets of Merchants Bancorp as of December 31, 2024, were $18.81 billion, an increase from $16.95 billion in 2023, representing a growth of approximately 10.9%[467] - The loan portfolio totaled $10.4 billion as of December 31, 2024, with an allowance for credit losses (ACL) of $84.4 million, indicating a ratio of approximately 0.81%[460] - Total deposits decreased to $11.92 billion in 2024 from $14.06 billion in 2023, reflecting a decline of about 15.2%[467] - Shareholders' equity increased to $2.24 billion in 2024, up from $1.70 billion in 2023, marking a growth of approximately 31.9%[467] - The total borrowings increased significantly to $4.39 billion in 2024 from $964.1 million in 2023, reflecting a rise of approximately 355.5%[467] Regulatory Environment - The company is subject to extensive regulation under federal and state laws, impacting its growth and earnings performance[56] - The company has been continuously monitored since exceeding $10 billion in total assets, affecting its operations and results[58] - Merchants Bank was categorized as "well capitalized" as of December 31, 2024, meeting all regulatory capital requirements[86] - The bank's total risk-based capital ratio is at least 10.5%, with a Tier 1 risk-based capital ratio of at least 8.5% under Basel III standards[85] - The Dodd-Frank Act has imposed more stringent capital requirements on bank holding companies, affecting operational practices and potential revenue[99] Interest Rate Risk Management - Interest rate risk management is a priority, with the objective to limit changes in net interest income to 20% for +/- 100 basis points and 30% for +/- 200 basis points[447] - As of December 31, 2024, the projected dollar change in net interest income sensitivity for a +200 basis point shift is $68,263, reflecting a 13.1% increase[447] - The Economic Value of Equity (EVE) is projected to decrease by $2,990 for a +200 basis point shift in interest rates as of December 31, 2024[449] - The company’s Asset-Liability Committee meets quarterly to monitor interest rate risk sensitivity and ensure compliance with board-approved limits[442] - The company has identified two primary sources of market risk: interest rate risk and price risk related to market demand[439] Mortgage and Loan Operations - The company reported a significant increase in mortgage loans in process of securitization, rising to $428.2 million in 2024 from $110.6 million in 2023[467] - Provision for credit losses decreased to $24,278 in 2024 from $40,231 in 2023, a reduction of 39.7%[470] - The company recognizes gains on loan sales in noninterest income, which may include placement and origination fees, capitalized servicing rights, and trading gains[505] - The Company holds mortgage loans at the lower of cost or fair value, with net unrealized losses recognized through a valuation allowance included in noninterest income[504] Compliance and Legal Matters - The company must comply with various federal consumer protection laws, including the Fair Debt Collection Practices Act and the Truth in Lending Act, which regulate consumer interactions and disclosures[110] - The company does not anticipate significant operational impacts from the CFPB's rules, aside from increased compliance costs[105] - The company has emphasized the importance of maintaining strong internal controls over financial reporting as of December 31, 2024, to ensure compliance and accuracy[455] Cash Flow and Financing Activities - Net cash used in operating activities was $(835,278) in 2024, compared to $(356,402) in 2023, indicating a decline in cash flow from operations[1] - The company reported a net cash provided by financing activities of $1,601,741 in 2024, down from $3,974,741 in 2023[1] - Cash and cash equivalents at the end of the period decreased to $476,610 in 2024 from $584,422 in 2023, a decline of 18.4%[1] Tax and Accounting Policies - The Company adopted the Current Expected Credit Loss (CECL) model on January 1, 2022, which replaced the previous standard for measuring credit losses[514] - The Company recognizes interest and penalties related to uncertain tax positions as other noninterest expense[545] - The updates in FASB ASU 2023-09 regarding income tax disclosures will be effective for annual periods beginning after December 15, 2024[558]