PART I – FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's analysis of financial condition and results of operations Item 1. Interim Financial Statements (Unaudited) This section presents Merchants Bancorp's unaudited condensed consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flow statements, with explanatory notes Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time - Total assets grew by 31% to $16.5 billion as of September 30, 2023, from $12.6 billion at December 31, 2022, primarily driven by a 33% increase in net loans receivable10 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $407,238 | $226,164 | 80.1% | | Loans receivable, net | $9,910,681 | $7,426,858 | 33.4% | | Total assets | $16,495,236 | $12,615,227 | 30.8% | | Liabilities & Equity | | | | | Total deposits | $13,007,338 | $10,071,345 | 29.2% | | Borrowings | $1,654,075 | $930,392 | 77.8% | | Total liabilities | $14,862,521 | $11,155,488 | 33.2% | | Total shareholders' equity | $1,632,715 | $1,459,739 | 11.8% | Condensed Consolidated Statements of Income This statement details the company's revenues, expenses, and net income over specific reporting periods - Net income for Q3 2023 rose 39% year-over-year to $81.5 million, driven by a 38% increase in Net Interest Income. Diluted EPS for the quarter was $1.68, up from $1.22 in Q3 202212 Consolidated Statements of Income Summary (in thousands, except per share data) | Metric | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $117,436 | $85,385 | $323,746 | $223,141 | | Provision for credit losses | $4,014 | $2,225 | $33,484 | $10,888 | | Noninterest Income | $36,068 | $29,186 | $80,214 | $102,954 | | Noninterest Expense | $42,930 | $34,951 | $122,022 | $98,941 | | Net Income | $81,504 | $58,488 | $201,761 | $162,565 | | Diluted EPS | $1.68 | $1.22 | $4.06 | $3.36 | Condensed Consolidated Statements of Cash Flows This statement reports the cash generated and used by operating, investing, and financing activities over specific periods - For the nine months ended September 30, 2023, the company experienced a net cash outflow from operating activities of $1.1 billion, a significant shift from the $1.8 billion inflow in the same period of 2022, primarily due to changes in loans originated for sale. Financing activities provided $3.6 billion in cash, mainly from a net increase in deposits17 Net Cash Flow by Activity (in thousands) | Activity | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,070,774) | $1,833,916 | | Net cash used in investing activities | $(2,371,045) | $(3,049,944) | | Net cash provided by financing activities | $3,622,893 | $507,375 | | Net Change in Cash and Cash Equivalents | $181,074 | $(708,653) | Notes to Condensed Consolidated Financial Statements These notes provide additional information and explanations essential for understanding the condensed consolidated financial statements - On September 7, 2023, the Company entered into agreements to sell its Farmers-Merchants Bank of Illinois branch locations, which includes approximately $219 million in deposits and $49 million in loans, to focus on its core mortgage lending business2526 - The company adopted the CECL accounting standard on January 1, 2022, resulting in a $3.6 million decrease to retained earnings, net of taxes33 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's financial condition, asset quality, operational results, segment performance, and liquidity and capital resources for the reported periods Financial Highlights This section summarizes key financial performance indicators and significant achievements for the reporting period - Net income for Q3 2023 increased 39% YoY to $81.5 million, with diluted EPS up 38% to $1.68176 - Total assets reached $16.5 billion, a 31% increase from December 31, 2022, while tangible book value per common share grew 24% YoY to $25.82176 - The company maintains strong liquidity, with $5.4 billion in unused borrowing capacity and uninsured deposits representing less than 20% of total deposits176 Financial Condition This section details changes in the company's assets, liabilities, and equity over the reporting period - Total assets increased by $3.9 billion (31%) to $16.5 billion at September 30, 2023, compared to year-end 2022, driven by significant growth in healthcare, commercial, multi-family, and mortgage warehouse loan portfolios187 - Loans receivable grew by $2.5 billion (33%) since year-end 2022, with notable increases in mortgage warehouse lines of credit (+120%), commercial and commercial real estate (+59%), and healthcare financing (+38%)194203 - Total deposits rose by $2.9 billion (29%) to $13.0 billion, supported by a $1.6 billion increase in brokered deposits. Uninsured deposits were under 20% of total deposits207208209 - The Allowance for Credit Losses on Loans (ACL-Loans) increased to $66.9 million from $44.0 million at year-end 2022, primarily due to loan growth and changes in economic forecasts200 Asset Quality This section assesses the quality of the company's loan portfolio and its exposure to credit risk - Total nonperforming loans increased to $60.2 million, or 0.60% of total loans, at September 30, 2023, up from $26.7 million (0.36%) at year-end 2022, primarily due to three specific customers218 - The ACL-Loans coverage of nonperforming loans was 111% at September 30, 2023, a decrease from 165% at year-end 2022, reflecting the increase in nonperforming loans219 - For the nine months ended September 30, 2023, net charge-offs were $9.56 million, a significant increase from $0.5 million in the prior-year period, primarily related to one customer222 Results of Operations This section analyzes the company's revenues, expenses, and profitability for the reported periods Q3 2023 vs Q3 2022 Performance | Metric | Q3 2023 (in millions) | Q3 2022 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $117.4M | $85.4M | +38% | | Provision for Credit Losses | $4.0M | $2.2M | +82% | | Noninterest Income | $36.1M | $29.2M | +24% | | Noninterest Expense | $42.9M | $35.0M | +23% | | Net Income | $81.5M | $58.5M | +39% | - For Q3 2023, the net interest margin decreased by 6 basis points to 2.99% compared to Q3 2022, as the 268% increase in interest expense outpaced the 121% increase in interest income226227 YTD 2023 vs YTD 2022 Performance | Metric | YTD 2023 (in millions) | YTD 2022 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $323.7M | $223.1M | +45% | | Provision for Credit Losses | $33.5M | $10.9M | +208% | | Noninterest Income | $80.2M | $103.0M | -22% | | Noninterest Expense | $122.0M | $98.9M | +23% | | Net Income | $201.8M | $162.6M | +24% | - For YTD 2023, the net interest margin increased by 17 basis points to 3.07% compared to YTD 2022. The 22% decrease in noninterest income was primarily due to a $24.0 million (45%) decline in gain on sale of loans258282 Segment Analysis This section provides a detailed breakdown of financial performance across the company's distinct business segments Net Income by Segment (in thousands) | Segment | Q3 2023 (in thousands) | Q3 2022 (in thousands) | YTD 2023 (in thousands) | YTD 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Multi-family Mortgage Banking | $14,685 | $13,366 | $27,893 | $44,414 | | Mortgage Warehousing | $19,926 | $11,801 | $47,163 | $36,828 | | Banking | $52,445 | $39,344 | $144,402 | $94,040 | - Multi-family Mortgage Banking: Q3 net income rose 10% YoY, despite a 39% decrease in total loan origination volume. For YTD, net income fell 37% due to a significant decrease in gain on sale of loans296300301 - Mortgage Warehousing: Q3 net income surged 69% YoY, driven by a $11.5 million increase in net interest income. Warehouse loan volume grew 23% in Q3, outperforming the industry305307 - Banking: Q3 net income increased 33% YoY, fueled by a $19.2 million rise in net interest income. YTD net income grew 54% to $144.4 million310312 Liquidity and Capital Resources This section evaluates the company's ability to meet its short-term obligations and maintain adequate capital levels - The company maintains a strong liquidity position with $5.4 billion in unused borrowing capacity from the FHLB and Federal Reserve as of September 30, 2023315 - Liquid assets combined with unused borrowing capacity totaled $10.7 billion, representing 65% of total assets and significantly exceeding the approximately $2 billion in uninsured deposits318319 - Shareholders' equity increased by $173.0 million (12%) to $1.6 billion since year-end 2022, primarily from net income of $201.8 million, partially offset by $36.4 million in dividends330 - The Company, Merchants Bank, and FMBI all met the requirements to be categorized as well capitalized under regulatory frameworks as of September 30, 2023351352 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company actively manages interest rate risk through its Asset-Liability Committee (ALCO), with NII being asset-sensitive and EVE liability-sensitive within policy limits Net Interest Income (NII) Sensitivity Analysis (Twelve Months Forward) | Rate Change (bps) | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | -200 | $(82,126) | (16.7)% | | -100 | $(40,859) | (8.3)% | | +100 | $26,931 | 5.5% | | +200 | $51,728 | 10.5% | Economic Value of Equity (EVE) Sensitivity Analysis (Immediate Shock) | Rate Change (bps) | Dollar Change (in thousands) | Percent Change | | :--- | :--- | :--- | | -200 | $34,279 | 2.2% | | -100 | $19,426 | 1.2% | | +100 | $(25,408) | (1.6)% | | +200 | $(65,764) | (4.2)% | Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2023, the Company's disclosure controls and procedures were effective371 - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls372 PART II – OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, equity sales, and other relevant information Item 1. Legal Proceedings The company reports no legal proceedings for the period - There are no legal proceedings to report375 Item 1A. Risk Factors No material changes occurred from the risk factors disclosed in the prior Annual Report on Form 10-K - No material changes from the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022376 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities or use of proceeds for the period - There were no unregistered sales of equity securities377 Item 5. Other Information The company reports no other information for the period - There is no other information to report380 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and required certifications - The report includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, along with XBRL data files381
Merchants Bancorp(MBINL) - 2023 Q3 - Quarterly Report