Merchants Bancorp(MBIN) - 2024 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Interim Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the period ending March 31, 2024 Condensed Consolidated Balance Sheets Total assets grew to $17.82 billion, driven by increases in loans, while liabilities rose due to higher borrowings Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $17,822,576 | $16,952,516 | | Cash and cash equivalents | $508,755 | $584,422 | | Loans held for sale | $3,503,131 | $3,144,756 | | Loans receivable, net | $10,690,513 | $10,127,801 | | Total Liabilities | $16,046,108 | $15,251,432 | | Total deposits | $13,975,661 | $14,061,460 | | Borrowings | $1,835,985 | $964,127 | | Total Shareholders' Equity | $1,776,468 | $1,701,084 | Condensed Consolidated Statements of Income Net income increased to $87.1 million for the quarter, driven by growth in both net interest and noninterest income Condensed Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Total Interest Income | $314,173 | $211,294 | | Total Interest Expense | $187,117 | $110,601 | | Net Interest Income | $127,056 | $100,693 | | Provision for credit losses | $4,726 | $6,867 | | Total Noninterest Income | $40,874 | $14,264 | | Total Noninterest Expense | $48,912 | $34,772 | | Net Income | $87,054 | $54,955 | | Diluted Earnings Per Share | $1.80 | $1.07 | Notes to Condensed Consolidated Financial Statements Notes detail key events including a branch sale, loan portfolio composition, and the redemption of Series A Preferred Stock - On January 26, 2024, the company completed the sale of its Farmers-Merchants Bank of Illinois branches, selling approximately $60.8 million in assets and $230.6 million in liabilities, recognizing a net gain of $715,000[20][21][22] - The Allowance for Credit Losses on Loans (ACL-Loans) increased to $75.7 million at March 31, 2024, from $71.8 million at year-end 2023[82] - The company redeemed all outstanding shares of its 7% Series A Preferred Stock on April 1, 2024, at its liquidation preference of $25.00 per share[196][214] Loan Portfolio Summary (in thousands) | Loan Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Mortgage warehouse repurchase agreements | $1,142,994 | $752,468 | | Residential real estate | $1,321,300 | $1,324,305 | | Multi-family financing | $4,096,606 | $4,006,160 | | Healthcare financing | $2,464,685 | $2,356,689 | | Commercial and commercial real estate | $1,666,751 | $1,643,081 | | Total Loans | $10,766,225 | $10,199,553 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes Q1 2024 performance, highlighting significant net income growth, balance sheet expansion, and strong liquidity - Net income for Q1 2024 was $87.1 million, a 58% increase from Q1 2023, driven by a $26.4 million increase in net interest income and a $17.0 million increase in loan servicing fees[226][267] - Total assets reached $17.8 billion, a 5% increase from December 31, 2023, primarily due to growth in warehouse, healthcare, and multi-family loan portfolios[235] - The company maintains strong liquidity with $10.9 billion in liquid assets and unused borrowing capacity, representing 61% of total assets[311][312] - Nonperforming loans increased to $131.8 million, or 1.22% of loans receivable, up from 0.80% at year-end 2023, attributed to three specific customers[263] Financial Condition Total assets grew 5% to $17.8 billion, funded by a 6% increase in loans and a 90% surge in borrowings - The increase in net loans was driven by a $390.5 million (52%) rise in mortgage warehouse repurchase agreements and growth in healthcare and multi-family financing[244][245][248] - The significant increase in borrowings was primarily due to a $654.9 million rise in FHLB advances and new borrowings used as a liquidity management alternative[260] Key Balance Sheet Changes (Q1 2024 vs YE 2023) | Account | Change ($M) | Change (%) | | :--- | :--- | :--- | | Total Assets | +$870.1 | +5% | | Loans Receivable, Net | +$562.7 | +6% | | Loans Held for Sale | +$358.4 | +11% | | Deposits | -$85.8 | -1% | | Borrowings | +$871.9 | +90% | | Shareholders' Equity | +$75.4 | +4% | Results of Operations Q1 2024 net income rose 58% year-over-year, fueled by a 26% increase in net interest income and a 187% surge in noninterest income - The significant increase in noninterest income was primarily driven by a $17.0 million rise in loan servicing fees, which included a $14.0 million positive fair market value adjustment on servicing rights[290][291] - The 41% increase in noninterest expense was mainly due to a $7.5 million rise in salaries and benefits from higher production commissions and a $2.9 million increase in FDIC deposit insurance expenses[293] Key Operating Results (Q1 2024 vs Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net Interest Income | $127.1M | $100.7M | +26% | | Net Interest Margin | 3.14% | 3.27% | -13 bps | | Provision for Credit Losses | $4.7M | $6.9M | -31% | | Noninterest Income | $40.9M | $14.3M | +187% | | Noninterest Expense | $48.9M | $34.8M | +41% | | Net Income | $87.1M | $55.0M | +58% | Segment Performance All business segments reported significant year-over-year net income growth, led by mortgage banking and warehousing - The Multi-family Mortgage Banking segment's performance was boosted by a $13.2 million positive fair value adjustment on servicing rights in Q1 2024[303] - The Mortgage Warehousing segment's loan volume grew 46% to $7.9 billion, significantly outperforming the 13% industry average increase[305] Net Income by Segment (in thousands) | Segment | Q1 2024 | Q1 2023 | Change (%) | | :--- | :--- | :--- | :--- | | Multi-family Mortgage Banking | $16,609 | $1,966 | +745% | | Mortgage Warehousing | $20,190 | $8,641 | +134% | | Banking | $56,425 | $49,307 | +14% | | Total Net Income | $87,054 | $54,955 | +58% | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk using NII and EVE models, with all simulations remaining within policy limits - The company's strategy to mitigate interest rate risk involves originating fixed-rate loans for sale while retaining adjustable-rate loans for investment[344] Net Interest Income (NII) Sensitivity at March 31, 2024 | Rate Change (bps) | Dollar Change ($ thousands) | Percent Change | | :--- | :--- | :--- | | +200 | $56,508 | +10.9% | | +100 | $29,134 | +5.6% | | -100 | $(37,381) | -7.2% | | -200 | $(75,217) | -14.5% | Economic Value of Equity (EVE) Sensitivity at March 31, 2024 | Rate Change (bps) | Dollar Change ($ thousands) | Percent Change | | :--- | :--- | :--- | | +200 | $(77,259) | -4.6% | | +100 | $(31,781) | -1.9% | | -100 | $90,058 | +5.3% | | -200 | $173,967 | +10.2% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[358] - 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[359] PART II – OTHER INFORMATION Item 1. Legal Proceedings No material legal proceedings were reported during the period - None[362] Item 1A. Risk Factors No material changes were made to the risk factors disclosed in the 2023 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, 2023[363] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the period - None[364] Item 5. Other Information No other material information was required to be disclosed for the period - None[367] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including required CEO and CFO certifications - The report includes CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, along with XBRL interactive data files[369]