MERCHANTS(MBINM) - 2024 Q4 - Annual Results

Financial Performance Highlights Merchants Bancorp achieved record full-year 2024 net income and diluted EPS, with strong Q4 growth driven by a significant increase in noninterest income and record total assets Q4 and Full-Year 2024 Key Results Merchants Bancorp achieved record full-year 2024 net income and diluted EPS, with strong Q4 growth driven by a significant increase in noninterest income and record total assets Full Year 2024 vs. 2023 Performance | Metric | FY 2024 | Change vs. FY 2023 | | :--- | :--- | :--- | | Net Income | $320.4 million | ▲ 15% | | Diluted EPS | $6.30 | ▲ 12% | Q4 2024 Performance Highlights | Metric | Q4 2024 | Change vs. Q4 2023 | Change vs. Q3 2024 | | :--- | :--- | :--- | :--- | | Net Income | $95.7 million | ▲ 23% | ▲ 56% | | Diluted EPS | $1.85 | ▲ 17% | ▲ 58% | | Noninterest Income | - | - | ▲ 253% | Key Balance Sheet and Value Metrics (as of Dec 31, 2024) | Metric | Value | Change vs. Dec 31, 2023 | Change vs. Sep 30, 2024 | | :--- | :--- | :--- | :--- | | Total Assets | $18.8 billion | ▲ 11% | ▲ 1% | | Tangible Book Value per Share | $34.15 | ▲ 25% | ▲ 5% | - Q4 2024 results were positively impacted by favorable fair market value adjustments to servicing rights ($10.4 million) and interest rate floor derivatives ($2.6 million), contributing approximately $0.21 per diluted common share, effectively reversing the negative impact of $0.24 per share from similar adjustments in Q3 2024[1] Management Commentary Management attributed record 2024 performance to a superior business model, emphasizing effective capital management, shareholder value, and strategic risk mitigation despite increased nonperforming loans - Chairman and CEO Michael F. Petrie attributed the record-breaking 2024 performance to a superior business model that enables growth in any environment, emphasizing the focus on managing capital and delivering value to shareholders[3] - President and COO Michael J. Dunlap stated that despite recent increases in nonperforming loans, delinquencies have declined and charge-offs have been minimal, expressing confidence in the team's ability to deliver profitable growth, supported by strategic risk mitigation and capital strengthening actions[4] Financial Condition Analysis The company's financial condition at year-end 2024 reflects record asset growth, strategic deposit mix shifts, and active credit risk management, despite an increase in non-performing loans Total Assets Total assets reached a record $18.8 billion by year-end 2024, growing 11% YoY, primarily from loan portfolio expansion, with Q4 return on average assets at 2.07% Total Assets Growth | Date | Total Assets | Change (YoY) | Change (QoQ) | | :--- | :--- | :--- | :--- | | Dec 31, 2024 | $18.8 billion | ▲ 11% | ▲ 1% | - The year-over-year increase in assets was mainly due to growth in loans held for sale and in the warehouse and multi-family loan portfolios[7] Return on Average Assets (ROA) | Period | ROA | | :--- | :--- | | Q4 2024 | 2.07% | | Q3 2024 | 1.34% | | Q4 2023 | 1.86% | | FY 2024 | 1.79% | | FY 2023 | 1.85% | Asset Quality and Credit Risk Asset quality showed mixed signals with a 18% YoY increase in allowance for credit losses and a rise in non-performing loans to 2.68%, though total delinquencies declined sequentially, supported by active credit risk management Allowance for Credit Losses on Loans | Date | Allowance | Change (YoY) | Change (QoQ) | | :--- | :--- | :--- | :--- | | Dec 31, 2024 | $84.4 million | ▲ 18% | ▼ $163,000 | Non-Performing Loans (NPLs) | Date | NPLs | NPLs as % of Gross Loans | | :--- | :--- | :--- | | Dec 31, 2024 | $279.7 million | 2.68% | | Sep 30, 2024 | $210.9 million | 2.04% | | Dec 31, 2023 | $82.0 million | 0.80% | - The increase in NPLs was primarily driven by multi-family and healthcare customers with variable rate loans impacted by higher interest rates[12] - Despite the rise in NPLs, total loan delinquency levels declined by $56.3 million to $324.6 million compared to the previous quarter[12] - The company has been actively reducing credit risk through credit protection arrangements, including credit default swaps, with $2.3 billion in loans covered as of December 31, 2024[14] Securities Portfolio The securities portfolio showed divergent trends, with available-for-sale securities decreasing 12% to $980.0 million and held-to-maturity securities increasing 38% to $1.7 billion by year-end 2024 - Total securities available for sale stood at $980.0 million, a decrease of 12% compared to December 31, 2023, mainly due to maturities and repayments[15] - Total securities held to maturity reached $1.7 billion, an increase of 38% compared to December 31, 2023, driven by purchases of senior investment securities from the company's own credit risk transfer securitizations[16] Deposits and Liquidity The company strategically reduced total deposits by 15% to $11.9 billion by year-end 2024, significantly decreasing brokered deposits while growing core deposits by 16% to comprise 79% of the total, maintaining strong liquidity Deposit Composition Changes (YoY) | Deposit Type | Dec 31, 2024 | Change vs. Dec 31, 2023 | | :--- | :--- | :--- | | Total Deposits | $11.9 billion | ▼ 15% | | Core Deposits | $9.4 billion | ▲ 16% | | Brokered Deposits | $2.5 billion | ▼ 58% | - Core deposits as a percentage of total deposits increased significantly, from 58% at year-end 2023 to 79% at year-end 2024[19] - The company reported significant borrowing capacity with unused lines of credit totaling $4.3 billion as of December 31, 2024, with Federal Reserve Bank of Chicago availability alone able to fund 111% of its uninsured deposits[21] Results of Operations The company achieved record net income in FY 2024, driven by strong growth in both net interest and noninterest income, with significant Q4 sequential improvements from fair value adjustments Comparison for the Three Months Ended (Q4 2024 vs. Q4 2023) Q4 2024 net income increased 23% YoY to $95.7 million, driven by an 8% rise in net interest income and a 72% surge in noninterest income, partially offset by a 20% increase in noninterest expense Net Interest Income (YoY) Net interest income grew 8% YoY to $134.6 million, primarily from higher average balances in loans and securities, despite a 6 basis point decrease in net interest margin to 2.99% - Net interest income rose $10.3 million, or 8%, to $134.6 million, driven by higher average balances of loans and securities held to maturity[25] Key Net Interest Income Drivers (Q4 2024 vs Q4 2023) | Metric | Q4 2024 | Change vs. Q4 2023 | | :--- | :--- | :--- | | Net Interest Margin | 2.99% | ▼ 6 bps | | Avg. Loans & LHF Sale | $14.3 billion | ▲ 4% | | Avg. Yield on Loans | 7.43% | ▼ 55 bps | | Avg. Borrowings | $3.0 billion | ▲ 323% | Noninterest Income (YoY) Noninterest income surged 72% YoY to $59.1 million, primarily driven by a $17.1 million increase in net loan servicing fees, including a positive fair value adjustment, and gains on loan sales and syndication fees - Noninterest income increased by $24.7 million (72%), driven by a $17.1 million increase in net loan servicing fees, a $5.7 million increase in gain on sale of loans, and a $4.4 million increase in syndication and asset management fees[29] - Loan servicing fees in Q4 2024 included a $10.4 million positive fair market value adjustment to servicing rights, compared to a $7.6 million negative adjustment in Q4 2023[33][4] Noninterest Expense (YoY) Noninterest expense rose 20% YoY to $63.2 million, primarily due to increased salaries, a 61% rise in deposit insurance expenses, and higher credit risk transfer premium expense - Noninterest expense rose by $10.6 million (20%), primarily due to increased salaries, a $2.4 million (61%) rise in deposit insurance expenses, and a $1.9 million increase in credit risk transfer premium expense[30] - The efficiency ratio improved slightly, decreasing by 49 basis points to 32.62% compared to 33.11% in Q4 2023[30] Comparison for the Three Months Ended (Q4 2024 vs. Q3 2024) Q4 2024 net income surged 56% sequentially to $95.7 million, primarily driven by a 253% increase in noninterest income due to significant positive fair market value adjustments, with modest increases in net interest income and noninterest expense Net Interest Income (QoQ) Net interest income increased modestly by 1% sequentially to $134.6 million, attributed to higher average borrowing balances at lower rates, with the net interest margin remaining flat at 2.99% - Net interest income increased by $1.8 million (1%) compared to the third quarter, with the net interest margin remaining flat at 2.99%[32] - Interest expense decreased by 9% sequentially, driven by lower average balances and rates on certificates of deposit[35] Noninterest Income (QoQ) Noninterest income dramatically increased 253% sequentially to $59.1 million, primarily due to significant positive fair market value adjustments in net loan servicing fees and other income, reversing prior quarter's negative adjustments - Noninterest income increased by $42.4 million, or 253%, from Q3 2024, driven by increases in net loan servicing fees, other income, gain on sale of loans, and syndication fees[36] - Loan servicing fees included a $10.4 million positive fair market value adjustment to servicing rights, compared to a $6.7 million negative adjustment in Q3 2024[36] - Other income included a $2.6 million positive fair market value adjustment to derivatives, compared to a $7.7 million negative adjustment in Q3 2024[40] Noninterest Expense (QoQ) Noninterest expense increased 3% sequentially to $63.2 million, driven by higher salaries and professional fees, while the efficiency ratio significantly improved to 32.62% due to the surge in income - Noninterest expense increased by $1.9 million (3%), driven by a $2.3 million (7%) increase in salaries and employee benefits and a 49% increase in professional fees[38] - The efficiency ratio improved dramatically, decreasing by 838 basis points to 32.62% from 41.00% in Q3 2024[38] Comparison for the Twelve Months Ended (FY 2024 vs. FY 2023) Full-year 2024 net income reached a record $320.4 million, a 15% increase, driven by 17% growth in net interest income and 29% in noninterest income, alongside a 40% decrease in provision for credit losses, despite a 28% rise in noninterest expense Full Year 2024 vs. 2023 Income Statement Highlights | Metric | FY 2024 | FY 2023 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $522.6 million | $448.1 million | ▲ 17% | | Provision for credit losses | $24.3 million | $40.2 million | ▼ 40% | | Noninterest Income | $148.1 million | $114.7 million | ▲ 29% | | Noninterest Expense | $223.8 million | $174.6 million | ▲ 28% | | Net Income | $320.4 million | $279.2 million | ▲ 15% | | Diluted EPS | $6.30 | $5.64 | ▲ 12% | Supplemental Information This section provides key operating and non-GAAP metrics, detailed segment performance, and an in-depth analysis of the loan portfolio and credit quality Key Operating and Non-GAAP Metrics Key operating metrics demonstrated strength in Q4 2024, with ROA at 2.07%, ROATCE at 22.10%, and tangible book value per share growing 25% YoY to $34.15, alongside improved capital ratios including a 9.1% CET1 ratio Key Performance Ratios | Metric | Q4 2024 | Q3 2024 | Q4 2023 | | :--- | :--- | :--- | :--- | | Return on average assets | 2.07% | 1.34% | 1.86% | | Return on average tangible common equity | 22.10% | 14.43% | 23.60% | | Efficiency ratio | 32.62% | 41.00% | 33.11% | Capital and Value Metrics | Metric | Dec 31, 2024 | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | | Tangible book value per common share | $34.15 | $32.38 | $27.40 | | Common Equity Tier 1 capital ratio | 9.1% | 8.9% | 7.8% | | Total capital ratio | 13.6% | 12.2% | 11.6% | Segment Performance All operating segments contributed positively to record 2024 earnings, with Banking as the largest contributor at $210.1 million net income and holding 63% of total assets, followed by Mortgage Warehousing and Multi-family Mortgage Banking Net Income by Segment (Full Year) | Segment | FY 2024 Net Income | FY 2023 Net Income | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $55.9 million | $36.5 million | | Mortgage Warehousing | $82.8 million | $73.5 million | | Banking | $210.1 million | $194.4 million | Total Assets by Segment (as of Dec 31, 2024) | Segment | Total Assets | % of Total | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $479.1 million | 2% | | Mortgage Warehousing | $6.0 billion | 32% | | Banking | $11.8 billion | 63% | Loan Portfolio and Credit Quality Details The total loan portfolio was $14.1 billion at year-end 2024, with a shift in credit risk profile as 'Pass' rated loans decreased to 93.4% and nonperforming loans rose to 2.68%, though total delinquent loans decreased sequentially Loan Portfolio Composition (Dec 31, 2024) | Loan Type | Balance | | :--- | :--- | | Multi-family financing | $4.6 billion | | Healthcare financing | $1.5 billion | | Commercial and CRE | $1.5 billion | | Mortgage warehouse repurchase | $1.4 billion | | Residential real estate | $1.3 billion | Loan Credit Risk Profile (% of Loans Receivable) | Risk Rating | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Pass | 93.4% | 96.9% | | Special mention | 3.6% | 1.9% | | Substandard | 3.0% | 1.2% | Key Credit Quality Ratios | Metric | Dec 31, 2024 | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | :--- | | Nonperforming loans to total loans receivable | 2.68% | 2.04% | 0.80% | | Delinquent loans to total loans | 2.28% | 2.69% | 1.50% | Consolidated Financial Statements This section presents the unaudited Consolidated Balance Sheets and Statements of Income, offering a comprehensive overview of the company's financial position and operational results Consolidated Balance Sheets This section presents the unaudited Consolidated Balance Sheets, detailing the company's assets, liabilities, and shareholders' equity as of December 31, 2024, and for the four preceding quarters - The Consolidated Balance Sheets provide a detailed snapshot of the company's financial position at the end of each reported period[43] Consolidated Statement of Income This section presents the unaudited Consolidated Statement of Income, outlining revenues, expenses, and net income for Q4 and full-year 2024, with comparative periods - The Consolidated Statement of Income details the company's operational performance, including interest and noninterest income and expenses, leading to net income for the reported periods[46][48]