MERCHANTS BANCOR(MBINN) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Interim Financial Statements (Unaudited) This section presents Merchants Bancorp's unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, for the periods ended June 30, 2024 Condensed Consolidated Balance Sheets Total assets increased to $18.21 billion by June 30, 2024, driven by loan growth, with liabilities and equity also rising Condensed Consolidated Balance Sheet Highlights (in thousands of dollars) | Metric | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $18,212,422 | $16,952,516 | | Loans held for sale | $3,483,076 | $3,144,756 | | Loans receivable, net | $10,933,189 | $10,127,801 | | Total Liabilities | $16,324,275 | $15,251,432 | | Total deposits | $14,917,067 | $14,061,460 | | Borrowings | $1,159,206 | $964,127 | | Total Shareholders' Equity | $1,888,147 | $1,701,084 | Condensed Consolidated Statements of Income Net income for Q2 2024 increased to $76.4 million, driven by higher net interest income and reduced credit loss provisions Key Income Statement Data (in thousands of dollars, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $128,119 | $105,617 | $255,175 | $206,310 | | Provision for credit losses | $9,965 | $22,603 | $14,691 | $29,470 | | Net Income | $76,393 | $65,302 | $163,447 | $120,257 | | Net Income Available to Common Shareholders | $66,813 | $56,634 | $145,200 | $102,922 | | Diluted Earnings Per Share | $1.49 | $1.31 | $3.29 | $2.38 | Condensed Consolidated Statements of Cash Flows Net cash decreased by $43.5 million for H1 2024, with financing inflows offsetting operating and investing outflows Net Cash Flow Summary for Six Months Ended June 30 (in thousands of dollars) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(332,653) | $(543,020) | | Net cash used in investing activities | $(1,012,173) | $(2,356,545) | | Net cash provided by financing activities | $1,301,286 | $3,050,711 | | Net Change in Cash and Cash Equivalents | $(43,540) | $151,146 | Notes to Condensed Consolidated Financial Statements Detailed notes explain financial statements, covering branch sales, loan portfolios, credit losses, fair value, and regulatory capital - On January 26, 2024, the Company completed the sale of its Farmers-Merchants Bank of Illinois (FMBI) branches, selling approximately $60.8 million in assets and $230.6 million in liabilities. This resulted in a net gain of $715,000, which included a $10.1 million deposit premium and the extinguishment of $7.8 million in goodwill[23][24][26] - The loan portfolio grew to $11.01 billion at June 30, 2024, from $10.20 billion at year-end 2023. The largest segments are Multi-family financing ($4.16 billion), Healthcare financing ($2.50 billion), and Commercial/CRE ($1.57 billion)[60] - The Allowance for Credit Losses on Loans (ACL-Loans) increased to $81.0 million as of June 30, 2024, from $71.8 million at the beginning of the year. The provision for credit losses for the first six months of 2024 was $14.2 million[82] - The Company redeemed all outstanding shares of its 7.00% Series A Preferred Stock on April 1, 2024, for $52 million[175] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting a 17% net income increase in Q2 2024, asset growth, and strong liquidity and capital positions Financial Highlights and Condition Q2 2024 net income increased 17% to $76.4 million, with total assets reaching $18.2 billion and strong liquidity Q2 2024 Financial Highlights vs. Q2 2023 | Metric | Q2 2024 | Change vs Q2 2023 | | :--- | :--- | :--- | | Net Income | $76.4 million | +17% | | Diluted EPS | $1.49 | +14% | | Net Interest Income | $128.1 million | +21% | | Total Assets (vs YE 2023) | $18.2 billion | +7% | | Tangible Book Value/Share | $31.27 | +30% | - On May 13, 2024, the Company completed a common stock offering of 2.4 million shares, resulting in net proceeds of $97.7 million, which contributed to an estimated 70 basis point increase in the common equity tier I capital ratio[214] - The company redeemed all outstanding Series A Preferred Stock on April 1, 2024, for $52 million[214] - As of June 30, 2024, the company had $7.0 billion in unused borrowing capacity with the FHLB and Federal Reserve, and its line of credit with the Fed alone could fund 118% of uninsured deposits[207][332] Asset Quality Nonperforming loans increased to $143.5 million (1.30% of total loans) by June 30, 2024, driven by variable-rate loan delinquencies Asset Quality Indicators | Metric | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Nonperforming Loans | $143.5 million | $82.0 million | | NPLs as % of Total Loans | 1.30% | 0.80% | | Special Mention Loans | $244.0 million | $191.3 million | | Substandard Loans | $246.8 million | $128.6 million | | Net Charge-offs (Q2) | $3.5 million | N/A | Results of Operations Q2 2024 net interest income grew 21% to $128.1 million, with net income increasing 17% to $76.4 million Comparison of Operating Results (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $128.1M | $105.6M | +21% | | Provision for Credit Losses | $10.0M | $22.6M | -56% | | Noninterest Income | $31.4M | $29.9M | +5% | | Noninterest Expense | $50.4M | $44.3M | +14% | | Net Income | $76.4M | $65.3M | +17% | - The efficiency ratio improved to 31.59% for Q2 2024 from 32.71% in Q2 2023[279] - For the six months ended June 30, 2024, loan servicing fees included a $19.0 million positive fair value adjustment on servicing rights, compared to a $0.5 million positive adjustment in the same period of 2023[304] Segment Analysis The Banking segment contributed $52.4 million to Q2 2024 net income, while Mortgage Warehousing saw 20% growth Net Income by Segment (Q2 2024 vs Q2 2023, in thousands of dollars) | Segment | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Multi-family Mortgage Banking | $9,037 | $11,242 | | Mortgage Warehousing | $22,270 | $18,596 | | Banking | $52,378 | $42,650 | | Other | $(7,292) | $(7,186) | | Total | $76,393 | $65,302 | - Mortgage Warehousing loan volume increased 30% YoY to $10.9 billion in Q2 2024, outperforming the industry's 7% decrease[323] - Multi-family Mortgage Banking loan origination volume for sale decreased 49% YoY to $338.7 million in Q2 2024[319] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk using NII and EVE models, with results within policy limits as of June 30, 2024 Net Interest Income (NII) Sensitivity Analysis (as of June 30, 2024) | Rate Shock | Dollar Change (in thousands of dollars) | Percent Change | | :--- | :--- | :--- | | +200 bps | $70,343 | 13.3% | | +100 bps | $36,099 | 6.8% | | -100 bps | $(44,404) | (8.4)% | | -200 bps | $(89,293) | (16.8)% | Economic Value of Equity (EVE) Sensitivity Analysis (as of June 30, 2024) | Rate Shock | Dollar Change (in thousands of dollars) | Percent Change | | :--- | :--- | :--- | | +200 bps | $(65,403) | (3.6)% | | +100 bps | $(25,446) | (1.4)% | | -100 bps | $77,540 | 4.2% | | -200 bps | $148,524 | 8.1% | - The company's interest rate risk management policy limits are within tolerance for all tested scenarios (+/- 100 bps and +/- 200 bps)[381][383] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes - Management concluded that as of June 30, 2024, the Company's disclosure controls and procedures were effective[387] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the Company's internal controls[388] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company reports no legal proceedings - None[390] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year 2023 - There have been no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023[391] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities - None[392] Item 5. Other Information The company reports no other information - None[395] Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed include CEO and CFO certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[396]