PART I – FINANCIAL INFORMATION Interim Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2023 Condensed Consolidated Balance Sheets Total assets grew to $15.9 billion, driven by increases in loans and funded by a significant rise in total deposits Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total assets | $ 15,874,872 | $ 12,615,227 | | Cash and cash equivalents | $ 377,310 | $ 226,164 | | Loans held for sale | $ 3,058,013 | $ 2,910,576 | | Loans receivable, net | $ 9,854,018 | $ 7,426,858 | | Total liabilities | $ 14,314,572 | $ 11,155,488 | | Total deposits | $ 13,059,864 | $ 10,071,345 | | Borrowings | $ 1,016,836 | $ 930,392 | | Total shareholders' equity | $ 1,560,300 | $ 1,459,739 | Condensed Consolidated Statements of Income Net income rose for Q2 and the six-month period, driven by higher net interest income despite increased credit loss provisions Financial Performance Summary (in thousands, except per share data) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $ 105,617 | $ 72,031 | $ 206,310 | $ 137,756 | | Provision for credit losses | $ 22,603 | $ 6,212 | $ 29,470 | $ 8,663 | | Total noninterest income | $ 29,882 | $ 39,171 | $ 44,146 | $ 73,768 | | Total noninterest expense | $ 44,320 | $ 32,957 | $ 79,092 | $ 63,990 | | Net Income | $ 65,302 | $ 53,935 | $ 120,257 | $ 104,077 | | Diluted Earnings Per Share | $ 1.31 | $ 1.11 | $ 2.38 | $ 2.14 | Condensed Consolidated Statements of Comprehensive Income Comprehensive income increased year-over-year, primarily due to higher net income and smaller other comprehensive losses Comprehensive Income (in thousands) | | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $ 65,302 | $ 53,935 | $120,257 | $104,077 | | Other comprehensive income (loss) | 693 | (1,766) | 3,485 | (6,616) | | Comprehensive Income | $ 65,995 | $ 52,169 | $123,742 | $ 97,461 | Condensed Consolidated Statements of Cash Flows Cash from financing activities increased significantly, offsetting cash used in operating and investing activities Cash Flow Summary (in thousands) | | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $ (543,020) | $ 874,775 | | Net cash used in investing activities | $ (2,356,545) | $ (1,351,878) | | Net cash provided by (used in) financing activities | $ 3,050,711 | $ (297,365) | | Net Change in Cash and Cash Equivalents | $ 151,146 | $ (774,468) | Notes to Condensed Consolidated Financial Statements This section details accounting policies, segment information, and data composition for the financial statements - The Company adopted the Current Expected Credit Losses (CECL) standard on January 1, 2022, which resulted in a $3.6 million decrease to retained earnings, net of taxes2830 - The company's loan portfolio is segmented into Mortgage warehouse, Residential real estate, Multi-family, Healthcare, Commercial, Agricultural, and Consumer loans5877 - The company operates in three primary business segments: Multi-family Mortgage Banking, Mortgage Warehousing, and Banking169 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strong growth in net income and assets, driven by increased net interest income Financial Highlights Q2 2023 net income and total assets grew significantly, supported by strong liquidity and manageable uninsured deposit levels - Net income for Q2 2023 rose 21% YoY to $65.3 million, with diluted EPS up 18% to $1.31186 - Total assets reached $15.9 billion, a 26% increase from December 31, 2022186 - The company maintained strong liquidity with $5.3 billion in unused borrowing capacity and uninsured deposits accounting for less than 20% of total deposits186 Financial Condition Asset growth was driven by a $2.4 billion increase in loans receivable, funded by a $3.0 billion rise in deposits - Total assets increased by $3.3 billion (26%) to $15.9 billion at June 30, 2023, from December 31, 2022, driven by loan growth196 - Loans receivable grew by $2.4 billion (33%), with significant increases in mortgage warehouse lines of credit (+$737.1M), multi-family financing (+$610.8M), and healthcare financing (+$524.0M)203206207 - Total deposits increased by $3.0 billion (30%), fueled by a $2.2 billion increase in certificates of deposit, including a $2.0 billion rise in brokered deposits215217222 - The Allowance for Credit Losses on Loans (ACL-Loans) increased by $19.0 million to $63.0 million, mainly due to loan growth and economic forecasts208212 Asset Quality Asset quality metrics showed some deterioration, with an increase in nonperforming loans and net charge-offs - Total nonperforming loans rose to $68.4 million (0.69% of total loans) at June 30, 2023, up from $26.7 million (0.36%) at Dec 31, 2022, mainly attributed to 3 customers225 - Net charge-offs for Q2 2023 were $9.5 million, compared to net recoveries of $604,000 in Q2 2022227 - Special Mention (Watch) loans increased to $188.5 million from $137.8 million at year-end 2022227 Results of Operations Net income growth was driven by higher net interest income, partially offset by lower noninterest income and a higher credit provision - For Q2 2023, net income increased 21% YoY to $65.3 million, driven by a 47% rise in net interest income to $105.6 million229230 - The provision for credit losses for Q2 2023 was $22.6 million, a significant increase from $6.2 million in Q2 2022, due to loan growth and specific reserves253256 - Noninterest income for Q2 2023 decreased 24% to $29.9 million, mainly due to a $10.2 million (47%) drop in gain on sale of loans255 - A tax benefit of $13.0 million was recorded in Q2 2023 related to changes in state tax apportionment calculations, reducing the effective tax rate for the quarter to 4.8%260261262 Segment Analysis The Banking and Mortgage Warehousing segments reported strong net income growth, while the Multi-family Mortgage Banking segment declined Net Income by Segment (in thousands) | Segment | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Multi-family Mortgage Banking | $ 11,242 | $ 19,556 | $ 13,208 | $ 31,048 | | Mortgage Warehousing | $ 18,596 | $ 11,868 | $ 27,237 | $ 25,027 | | Banking | $ 42,650 | $ 25,932 | $ 91,957 | $ 54,696 | | Other | $ (7,186) | $ (3,421) | $ (12,145) | $ (6,694) | | Total | $ 65,302 | $ 53,935 | $ 120,257 | $ 104,077 | - Multi-family Mortgage Banking: Net income fell 43% in Q2 2023 due to a $19.2 million decrease in gain on sale of loans, despite a 64% increase in loan origination volume304306 - Mortgage Warehousing: Net income grew 57% in Q2 2023, driven by a $41.0 million increase in interest income from higher yields and volumes310312 - Banking: Net income surged 64% in Q2 2023, fueled by a $28.6 million increase in net interest income and a $9.0 million increase in gain on sale of loans315 Liquidity and Capital Resources The company maintains a strong liquidity position and capital ratios well above regulatory requirements - At June 30, 2023, the company had $5.3 billion in unused borrowing capacity with the FHLB and Federal Reserve322 - Uninsured deposits totaled approximately $2.0 billion, representing less than 20% of total deposits324 - Shareholders' equity increased by $100.6 million since year-end 2022 to $1.6 billion, primarily from net income333 Company Capital Ratios as of June 30, 2023 | Ratio | Actual | Minimum for Adequately Capitalized | | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 11.3 % | 8.0 % | | Tier I capital (to risk-weighted assets) | 10.8 % | 6.0 % | | Common Equity Tier I capital (to risk-weighted assets) | 7.3 % | 4.5 % | | Tier I capital (to average assets) | 10.6 % | 4.0 % | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is managed within established policy limits - The company's primary market risk is interest rate risk, arising from timing differences in repricing assets and liabilities356 Net Interest Income (NII) Sensitivity Analysis (June 30, 2023) | Rate Shock | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +200 bps | $ 60,629 | 13.7 % | | +100 bps | $ 32,156 | 7.3 % | | -100 bps | $ (46,622) | (10.5)% | | -200 bps | $ (93,023) | (21.0)% | Economic Value of Equity (EVE) Sensitivity Analysis (June 30, 2023) | Rate Shock | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | +200 bps | $ (23,514) | (1.6)% | | +100 bps | $ (3,703) | (0.3)% | | -100 bps | $ 1,024 | 0.1 % | | -200 bps | $ 1,101 | 0.1 % | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Based on an evaluation by management, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023371 - No material changes in the Company's internal control over financial reporting occurred during the quarter372 PART II – OTHER INFORMATION Legal Proceedings The company reports no legal proceedings - None375 Risk Factors No material changes to risk factors have been identified since the last annual report - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022376 Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds - None377 Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL interactive data files380
Merchants Bancorp(MBINL) - 2023 Q2 - Quarterly Report