[10-Q] Merchants Bancorp Depositary Shares Each Representing a 1/40th Interest in a Share of Series B Fixed-to-Floating Rate Quarterly Earnings Report
Merchants Bancorp reported total assets of $19.14 billion and deposits of $12.69 billion at June 30, 2025. Loans receivable totaled $10.52 billion (net of an allowance for credit losses on loans of $91.8 million), and loans held for sale rose to $4.106 billion. Cash and cash equivalents increased to $647.2 million from $476.6 million at year-end 2024.
For the three months ended June 30, 2025, net income was $37.98 million versus $76.39 million a year earlier; basic EPS declined to $0.60 from $1.50. The quarter included a $53.0 million provision for credit losses and noninterest expense of $77.34 million. Net interest income was essentially flat at $128.72 million and total noninterest income rose to $50.48 million, including a higher $23.34 million gain on sale of loans.
Merchants Bancorp ha registrato un attivo totale di $19.14 miliardi e depositi per $12.69 miliardi al 30 giugno 2025. I prestiti verso la clientela ammontavano a $10.52 miliardi (al netto di un fondo per perdite su crediti di $91.8 milioni) e i prestiti detenuti per la vendita sono saliti a $4.106 miliardi. La liquidità e le disponibilità liquide sono aumentate a $647.2 milioni rispetto a $476.6 milioni alla fine del 2024.
Per i tre mesi chiusi il 30 giugno 2025, l'utile netto è stato di $37.98 milioni rispetto a $76.39 milioni dell'anno precedente; l'EPS base è sceso a $0.60 da $1.50. Il trimestre ha incluso una rettifica per perdite su crediti di $53.0 milioni e spese non da interesse per $77.34 milioni. Il reddito netto da interessi è rimasto sostanzialmente invariato a $128.72 milioni, mentre i proventi non da interessi sono saliti a $50.48 milioni, comprendendo una plusvalenza sulla vendita di prestiti più elevata di $23.34 milioni.
Merchants Bancorp informó activos totales por $19.14 mil millones y depósitos por $12.69 mil millones al 30 de junio de 2025. Los préstamos por cobrar sumaron $10.52 mil millones (netos de una provisión para pérdidas crediticias sobre préstamos de $91.8 millones), y los préstamos mantenidos para la venta subieron a $4.106 mil millones. El efectivo y equivalentes de efectivo aumentaron a $647.2 millones desde $476.6 millones al cierre de 2024.
Para los tres meses terminados el 30 de junio de 2025, la utilidad neta fue de $37.98 millones frente a $76.39 millones un año antes; el BPA básico disminuyó a $0.60 desde $1.50. El trimestre incluyó una provisión por pérdidas crediticias de $53.0 millones y gastos no relacionados con intereses por $77.34 millones. El ingreso neto por intereses se mantuvo prácticamente estable en $128.72 millones, y el ingreso total no por intereses aumentó a $50.48 millones, incluyendo una mayor ganancia por la venta de préstamos de $23.34 millones.
Merchants Bancorp는 2025년 6월 30일 기준 총자산이 $19.14 billion, 예금이 $12.69 billion이라고 보고했습니다. 받을어음(대출금)은 대손충당금 $91.8 million을 차감한 순액으로 $10.52 billion이었고, 매각예정 대출은 $4.106 billion으로 증가했습니다. 현금 및 현금성자산은 2024년 말의 $476.6 million에서 $647.2 million으로 늘었습니다.
2025년 6월 30일로 끝나는 3개월 동안 순이익은 $37.98 million으로 전년 동기 $76.39 million보다 감소했고, 기본 주당순이익은 $1.50에서 $0.60로 하락했습니다. 해당 분기에는 $53.0 million의 대손충당금 전입과 $77.34 million의 비이자비용이 포함되었습니다. 순이자수익은 $128.72 million으로 사실상 변동이 없었고, 총 비이자수익은 $50.48 million으로 증가했으며 그중 대출 매각이익이 $23.34 million로 증대되었습니다.
Merchants Bancorp a déclaré un total d'actifs de $19.14 milliards et des dépôts de $12.69 milliards au 30 juin 2025. Les prêts à recevoir s'élevaient à $10.52 milliards (nets d'une provision pour pertes sur prêts de $91.8 millions), et les prêts détenus en vue de la vente ont augmenté à $4.106 milliards. Les liquidités et équivalents de trésorerie sont passés à $647.2 millions contre $476.6 millions à la fin de 2024.
Pour les trois mois clos le 30 juin 2025, le bénéfice net s'est élevé à $37.98 millions contre $76.39 millions un an plus tôt ; le BPA de base est passé de $1.50 à $0.60. Le trimestre comprend une provision pour pertes sur prêts de $53.0 millions et des charges hors intérêts de $77.34 millions. Le produit net d'intérêts est resté pratiquement stable à $128.72 millions et le total des revenus hors intérêts est passé à $50.48 millions, incluant une plus-value sur la vente de prêts plus élevée de $23.34 millions.
Merchants Bancorp meldete zum 30. Juni 2025 eine Bilanzsumme von $19.14 Milliarden und Einlagen von $12.69 Milliarden. Forderungen aus Darlehen beliefen sich auf $10.52 Milliarden (netto nach einer Kreditrisikovorsorge von $91.8 Millionen), und zur Veräußerung gehaltene Darlehen stiegen auf $4.106 Milliarden. Zahlungsmittel und Zahlungsmitteläquivalente erhöhten sich auf $647.2 Millionen gegenüber $476.6 Millionen zum Jahresende 2024.
Für die drei Monate zum 30. Juni 2025 betrug der Nettogewinn $37.98 Millionen gegenüber $76.39 Millionen im Vorjahr; das unverwässerte Ergebnis je Aktie (Basic EPS) sank von $1.50 auf $0.60. Das Quartal beinhaltete eine Kreditverlustvorsorge in Höhe von $53.0 Millionen sowie Nichtzinsaufwendungen von $77.34 Millionen. Die Nettozinserträge blieben mit $128.72 Millionen im Wesentlichen unverändert, während die gesamten Nichtzinserträge auf $50.48 Millionen anstiegen, darunter ein höherer Veräußerungsgewinn aus Darlehensverkäufen von $23.34 Millionen.
- Deposits growth to $12.687 billion from $11.920 billion at year-end 2024, supporting liquidity
- Cash and cash equivalents increased to $647.2 million from $476.6 million, strengthening short-term liquidity
- Net interest income was stable at $128.72 million for the quarter, near prior-year levels
- Noninterest income expanded to $50.48 million, aided by higher gains on sale of loans ($23.34 million)
- Net income declined to $37.98 million from $76.39 million year-over-year for the quarter, lowering EPS to $0.60 from $1.50
- Provision for credit losses spiked to $53.03 million in the quarter, materially increasing reserve levels
- Noninterest expense rose to $77.34 million, up from $50.38 million, compressing pre-tax income
- Total shareholders' equity decreased to $2.185 billion from $2.243 billion at December 31, 2024
Insights
TL;DR: Q2 results show materially lower net income and EPS driven by a large credit loss provision and higher operating expenses.
The company's three-month net income fell to $37.98M and basic EPS to $0.60, compared with prior-year results of $76.39M and $1.50. The quarter includes a $53.0M provision for credit losses and elevated noninterest expense of $77.34M, which more than offset stable net interest income of $128.72M and stronger noninterest income of $50.48M (including increased loan sale gains). Balance sheet growth in deposits to $12.69B and loans held for sale to $4.106B supports origination activity, but profitability compression this quarter is material to near-term earnings.
TL;DR: Provision for credit losses surged and the allowance for loans rose, indicating heightened credit vigilance in the portfolio.
The Company recorded a $53.0M provision in the quarter, driving ACL-Loans to $91.811M. Multi-family financing remains the largest ACL component ($63.47M allocated) and the firm classified one held-to-maturity securitization as Special Mention due to delinquencies in underlying loans (average LTV ~61%). While management reports timely interest on that security and no ACL recorded for held-to-maturity securities, the increased reserves and classification changes indicate elevated credit monitoring and potential portfolio sensitivity in stressed assets.
Merchants Bancorp ha registrato un attivo totale di $19.14 miliardi e depositi per $12.69 miliardi al 30 giugno 2025. I prestiti verso la clientela ammontavano a $10.52 miliardi (al netto di un fondo per perdite su crediti di $91.8 milioni) e i prestiti detenuti per la vendita sono saliti a $4.106 miliardi. La liquidità e le disponibilità liquide sono aumentate a $647.2 milioni rispetto a $476.6 milioni alla fine del 2024.
Per i tre mesi chiusi il 30 giugno 2025, l'utile netto è stato di $37.98 milioni rispetto a $76.39 milioni dell'anno precedente; l'EPS base è sceso a $0.60 da $1.50. Il trimestre ha incluso una rettifica per perdite su crediti di $53.0 milioni e spese non da interesse per $77.34 milioni. Il reddito netto da interessi è rimasto sostanzialmente invariato a $128.72 milioni, mentre i proventi non da interessi sono saliti a $50.48 milioni, comprendendo una plusvalenza sulla vendita di prestiti più elevata di $23.34 milioni.
Merchants Bancorp informó activos totales por $19.14 mil millones y depósitos por $12.69 mil millones al 30 de junio de 2025. Los préstamos por cobrar sumaron $10.52 mil millones (netos de una provisión para pérdidas crediticias sobre préstamos de $91.8 millones), y los préstamos mantenidos para la venta subieron a $4.106 mil millones. El efectivo y equivalentes de efectivo aumentaron a $647.2 millones desde $476.6 millones al cierre de 2024.
Para los tres meses terminados el 30 de junio de 2025, la utilidad neta fue de $37.98 millones frente a $76.39 millones un año antes; el BPA básico disminuyó a $0.60 desde $1.50. El trimestre incluyó una provisión por pérdidas crediticias de $53.0 millones y gastos no relacionados con intereses por $77.34 millones. El ingreso neto por intereses se mantuvo prácticamente estable en $128.72 millones, y el ingreso total no por intereses aumentó a $50.48 millones, incluyendo una mayor ganancia por la venta de préstamos de $23.34 millones.
Merchants Bancorp는 2025년 6월 30일 기준 총자산이 $19.14 billion, 예금이 $12.69 billion이라고 보고했습니다. 받을어음(대출금)은 대손충당금 $91.8 million을 차감한 순액으로 $10.52 billion이었고, 매각예정 대출은 $4.106 billion으로 증가했습니다. 현금 및 현금성자산은 2024년 말의 $476.6 million에서 $647.2 million으로 늘었습니다.
2025년 6월 30일로 끝나는 3개월 동안 순이익은 $37.98 million으로 전년 동기 $76.39 million보다 감소했고, 기본 주당순이익은 $1.50에서 $0.60로 하락했습니다. 해당 분기에는 $53.0 million의 대손충당금 전입과 $77.34 million의 비이자비용이 포함되었습니다. 순이자수익은 $128.72 million으로 사실상 변동이 없었고, 총 비이자수익은 $50.48 million으로 증가했으며 그중 대출 매각이익이 $23.34 million로 증대되었습니다.
Merchants Bancorp a déclaré un total d'actifs de $19.14 milliards et des dépôts de $12.69 milliards au 30 juin 2025. Les prêts à recevoir s'élevaient à $10.52 milliards (nets d'une provision pour pertes sur prêts de $91.8 millions), et les prêts détenus en vue de la vente ont augmenté à $4.106 milliards. Les liquidités et équivalents de trésorerie sont passés à $647.2 millions contre $476.6 millions à la fin de 2024.
Pour les trois mois clos le 30 juin 2025, le bénéfice net s'est élevé à $37.98 millions contre $76.39 millions un an plus tôt ; le BPA de base est passé de $1.50 à $0.60. Le trimestre comprend une provision pour pertes sur prêts de $53.0 millions et des charges hors intérêts de $77.34 millions. Le produit net d'intérêts est resté pratiquement stable à $128.72 millions et le total des revenus hors intérêts est passé à $50.48 millions, incluant une plus-value sur la vente de prêts plus élevée de $23.34 millions.
Merchants Bancorp meldete zum 30. Juni 2025 eine Bilanzsumme von $19.14 Milliarden und Einlagen von $12.69 Milliarden. Forderungen aus Darlehen beliefen sich auf $10.52 Milliarden (netto nach einer Kreditrisikovorsorge von $91.8 Millionen), und zur Veräußerung gehaltene Darlehen stiegen auf $4.106 Milliarden. Zahlungsmittel und Zahlungsmitteläquivalente erhöhten sich auf $647.2 Millionen gegenüber $476.6 Millionen zum Jahresende 2024.
Für die drei Monate zum 30. Juni 2025 betrug der Nettogewinn $37.98 Millionen gegenüber $76.39 Millionen im Vorjahr; das unverwässerte Ergebnis je Aktie (Basic EPS) sank von $1.50 auf $0.60. Das Quartal beinhaltete eine Kreditverlustvorsorge in Höhe von $53.0 Millionen sowie Nichtzinsaufwendungen von $77.34 Millionen. Die Nettozinserträge blieben mit $128.72 Millionen im Wesentlichen unverändert, während die gesamten Nichtzinserträge auf $50.48 Millionen anstiegen, darunter ein höherer Veräußerungsgewinn aus Darlehensverkäufen von $23.34 Millionen.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended |
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to _______________
Commission File No.
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| (Exact name of registrant as specified in its charter) | |
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(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification Number) |
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(Address of principal | | (Zip Code) |
executive office) | | |
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(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Accelerated filer ☐ | Non-accelerated filer ☐ | Smaller reporting company | |
| | | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.). Yes
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
As of August 1, 2025, the latest practicable date,
Table of Contents
Merchants Bancorp
Index to Quarterly Report on Form 10-Q
PART I – FINANCIAL INFORMATION | |
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Item 1 Interim Financial Statements (Unaudited) | |
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Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024 | 5 |
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Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2025 and 2024 | 6 |
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Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2025 and 2024 | 7 |
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Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2025 and 2024 | 8 |
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2025 and 2024 | 9 |
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Notes to Condensed Consolidated Financial Statements | 10 |
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Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations | 57 |
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Item 3 Quantitative and Qualitative Disclosures About Market Risk | 86 |
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Item 4 Controls and Procedures | 86 |
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PART II – OTHER INFORMATION | 87 |
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Item 1 Legal Proceedings | 87 |
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Item 1A Risk Factors | 87 |
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Item 2 Unregistered Sales of Equity Securities and Use of Proceeds | 87 |
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Item 3 Defaults Upon Senior Securities | 87 |
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Item 4 Mine Safety Disclosures | 87 |
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Item 5 Other Information | 87 |
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Item 6 Exhibits | 88 |
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SIGNATURES | 89 |
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Glossary of Defined Terms
As used in this report, references to “Merchants” “the Company,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of Merchants Bancorp and its wholly owned subsidiaries. Merchants Bancorp refers solely to the parent holding company, and Merchants Bank refers to Merchants Bancorp’s bank subsidiary, Merchants Bank of Indiana.
The acronyms and abbreviations identified below are used throughout this report, including the Notes to Consolidated Financial Statements
ACL: allowance for credit losses
ACL-Guarantees: allowance for credit losses on guarantees
ACL-Loans: allowance for credit losses-loans
ACL-OBCE: allowance for credit losses-off-balance sheet credit exposures
AFX: American Financial Exchange
Agency: government agency
AOCL: accumulated other comprehensive loss
ARM: adjustable-rate mortgage
ASC: Accounting Standards Codification
ASU: Accounting Standards Update
Bank: Merchants Bank of Indiana
CCO: Chief Credit Officer
CDS: credit default swap
CMT: constant maturity rate
CODM: chief operating decision maker
Company: Merchants Bancorp
DFI: Indiana Department of Financial Institutions
ESOP: Employee Stock Ownership Plan
Farmer Mac: Federal Agricultural Mortgage Corporation
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCB: Federal Farm Credit Bank
FDIC: Federal Deposit Insurance Corporation
Federal Reserve: Board of Governors of the Federal Reserve System
FHA: Federal Housing Authority
FHLB: Federal Home Loan Bank
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Table of Contents
FMBI: Farmers-Merchants Bank of Illinois, a wholly owned subsidiary of Merchants Bancorp until all branches were sold and the charter collapsed into Merchants Bank in January 2024
Freddie Mac: Federal Home Loan Mortgage Corporation
GAAP: United States generally accepted accounting principles
Ginnie Mae: Government National Mortgage Association
GSE: government sponsored entities, including Fannie Mae and Freddie Mac
HUD: Department of Housing and Urban Development
LIHTC: low-income housing tax credits
LLC: limited liability companies
MAM: Merchants Asset Management, LLC, a wholly owned subsidiary of Merchants Bancorp
MCC: Merchants Capital Corporation, a wholly owned subsidiary of Merchants Bank
MCI: Merchants Capital Investments, LLC, a wholly owned subsidiary of Merchants Bank
MCS: Merchants Capital Servicing, LLC, a wholly owned subsidiary of Merchants Bank
MOU: Memorandum of Understanding
N/A: not applicable
NASDAQ: NASDAQ Capital Market
REMIC: real estate mortgage investment conduit
ROU: right of use
SBA: Small Business Administration
SEC: Securities and Exchange Commission
SOFR: Secured Overnight Financing Rate
SPE: Special Purpose Entity
Treasury: US Department of Treasury
TLM: troubled loan modification
VIE: variable interest entity
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Part I – Financial Information
Item 1. Financial Statements
Merchants Bancorp
Condensed Consolidated Balance Sheets
June 30, 2025 (Unaudited) and December 31, 2024
(In thousands, except share data)
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Assets |
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Cash and due from banks | | $ | | | $ | |
Interest-earning demand accounts | |
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Cash and cash equivalents | |
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Securities purchased under agreements to resell | |
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Mortgage loans in process of securitization | |
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Securities available for sale ($ | |
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Securities held to maturity ($ | | | | | | |
Federal Home Loan Bank (FHLB) stock and other equity securities | |
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Loans held for sale (includes $ | |
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Loans receivable, net of allowance for credit losses on loans of $ | |
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Premises and equipment, net | |
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Servicing rights | |
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Interest receivable | |
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Goodwill | |
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Other assets and receivables | |
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Total assets | | $ | | | $ | |
Liabilities and Shareholders' Equity | |
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Liabilities | |
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Deposits | |
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Noninterest-bearing | | $ | | | $ | |
Interest-bearing | |
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Total deposits | |
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Borrowings | |
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Deferred tax liabilities | |
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Other liabilities | |
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Total liabilities | |
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Commitments and Contingencies | |
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Shareholders' Equity | |
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Common stock, without par value | |
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Authorized - | |
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Issued and outstanding - | |
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Preferred stock, without par value - | | | | | | |
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Authorized - | |
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Issued and outstanding - | |
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Authorized - | | | | | | |
Issued and outstanding - | | | | | | |
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Authorized - | | | | | | |
Issued and outstanding - | | | | | | |
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Authorized - | | | | | | |
Issued and outstanding - | | | | | | |
Retained earnings | |
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Accumulated other comprehensive loss | |
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Total shareholders' equity | |
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Total liabilities and shareholders' equity | | $ | | | $ | |
*
See notes to condensed consolidated financial statements.
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Merchants Bancorp
Condensed Consolidated Statements of Income (Unaudited)
For the Three and Six Months Ended June 30, 2025 and 2024
(In thousands, except share data)
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Interest Income |
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Loans | | $ | | | $ | | | $ | | | $ | |
Mortgage loans in process of securitization | |
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Investment securities: | |
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Available for sale | |
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Held to maturity | | | | | | | | | | | | |
FHLB stock and other equity securities (dividends) | |
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Other | |
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Total interest income | |
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Interest Expense | |
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Deposits | |
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Short-term borrowings | | | | |
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Long-term borrowings | |
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Total interest expense | |
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Net Interest Income | |
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Provision for credit losses | |
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Net Interest Income After Provision for Credit Losses | |
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Noninterest Income | |
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Gain on sale of loans | |
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Loan servicing fees, net | |
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Mortgage warehouse fees | |
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Losses on sale of investments available for sale (includes $ | |
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Syndication and asset management fees | | | | | | | | | | | | |
Other income | |
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Total noninterest income | |
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Noninterest Expense | |
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Salaries and employee benefits | |
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| | |
| | |
| |
Loan expense | |
| | |
| | |
| | |
| |
Occupancy and equipment | |
| | |
| | |
| | |
| |
Professional fees | |
| | |
| | |
| | |
| |
Deposit insurance expense | |
| | |
| | |
| | |
| |
Technology expense | |
| | |
| | |
| | |
| |
Credit risk transfer premium expense | | | | | | | |
| | |
| |
Other expense | |
| | |
| | |
| | |
| |
Total noninterest expense | |
| | |
| | |
| | |
| |
Income Before Income Taxes | |
| | |
| | |
| | |
| |
Provision for income taxes (includes $ | |
| | |
| | |
| | |
| |
Net Income | | $ | | | $ | | | $ | | | $ | |
Dividends on preferred stock | | | ( | | | ( | | | ( | | | ( |
Impact of preferred stock redemption | | | — | | | ( | | | ( | | | ( |
Net Income Allocated to Common Shareholders | | | | | | | | | | | | |
Basic Earnings Per Share | | $ | | | $ | | | $ | | | $ | |
Diluted Earnings Per Share | | $ | | | $ | | | $ | | | $ | |
Weighted-Average Shares Outstanding | |
|
| |
|
| |
|
| |
|
|
Basic | |
| | |
| | |
| | |
| |
Diluted | |
| | |
| | |
| | |
| |
See notes to condensed consolidated financial statements.
6
Table of Contents
Merchants Bancorp
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
For the Three and Six Months Ended June 30, 2025 and 2024
(In thousands)
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2025 |
| 2024 |
| 2025 |
| 2024 | ||||
Net Income | | $ | | | $ | | | $ | | | $ | |
Other Comprehensive Income: | |
|
| |
| | |
|
| |
|
|
Net unrealized (losses) gains on investment securities available for sale, net of tax (benefit) expense of $ | |
| ( | |
| | |
| ( | |
| |
Add: Reclassification adjustment for losses included in net income, net of tax benefit of $ | |
| — | |
| — | |
| — | |
| |
Other comprehensive (loss) income for the period | |
| ( | |
| | |
| ( | |
| |
Comprehensive Income | | $ | | | $ | | | $ | | | $ | |
See notes to condensed consolidated financial statements.
7
Table of Contents
Merchants Bancorp
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
For the Three and Six Months Ended June 30, 2025 and 2024
(In thousands, except share data)
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Six Months Ended | ||||||||||||||||
| | June 30, | | | June 30, | ||||||||||||||||
|
| 2025 |
| 2024 | |
| 2025 |
| 2024 | ||||||||||||
| | Shares | | | Amount | | Shares | | | Amount | | | Shares | | | Amount | | Shares | | | Amount |
Common Stock |
| | | |
|
| | | |
| |
| | | |
| | | | | |
Balance beginning of period | | | | $ | | | | | $ | | | | | | $ | | | | | $ | |
Distribution to employee stock ownership plan | | - | | | - | | - | | | - | | | | | | | | | | | |
Issuance of common stock, net of $ | | - | | | - | | | | | | | | - | | | - | | | | | |
Shares issued for stock compensation plans, net of taxes withheld to satisfy tax obligations | | | | | | | | | | | | | | | | | | | | | ( |
Balance end of period | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance beginning of period | | - | | | - | | | | | | | | - | | | - | | | | | |
Redemption of | | - | | | - | | ( | | | ( | | | - | | | - | | ( | | | ( |
Balance at beginning and end of period | | - | | | - | | - | | | - | | | - | | | - | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance beginning of period | | - | | | - | | | | | | | | | | | | | | | | |
Redemption of | | - | | | - | | - | | | - | | | ( | | | ( | | - | | | - |
Balance at end of period | | - | | | - | | | | | | | | - | | | - | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at beginning and end of period | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at beginning and end of period | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Balance at beginning and end of period | | | | | | | - | | | - | | | | | | | | - | | | - |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Retained Earnings | | | | | | | | | | | | | | | | | | | | | |
Balance beginning of period | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | | | | | | |
Dividends on | | | | | - | | | | | - | | | | | | - | | | | | ( |
Dividends on | | | | | - | | | | | ( | | | | | | - | | | | | ( |
Dividends on | | | | | ( | | | | | ( | | | | | | ( | | | | | ( |
Dividends on | | | | | ( | | | | | ( | | | | | | ( | | | | | ( |
Dividends on | | | | | ( | | | | | - | | | | | | ( | | | | | - |
Dividends on common stock, $ | | | | | ( | | | | | ( | | | | | | ( | | | | | ( |
Impact of | | | | | - | | | | | ( | | | | | | - | | | | | ( |
Impact of | | | | | - | | | | | - | | | | | | ( | | | | | - |
Excise tax on preferred stock redemption | | | | | - | | | | | - | | | | | | ( | | | | | - |
Balance end of period | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss | | | | | | | | | | | | | | | | | | | | | |
Balance beginning of period | | | | | ( | | | | | ( | | | | | | ( | | | | | ( |
Other comprehensive (loss) income | | | | | ( | | | | | | | | | | | ( | | | | | |
Balance end of period | | | | | ( | | | | | ( | | | | | | ( | | | | | ( |
| | | | | | | | | | | | | | | | | | | | | |
Total shareholders' equity | | | | $ | | | | | $ | | | | | | $ | | | | | $ | |
See notes to condensed consolidated financial statements.
8
Table of Contents
Merchants Bancorp
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 2025 and 2024
(In thousands)
| | | | | | |
| | Six Months Ended | ||||
| | June 30, | ||||
|
| 2025 |
| 2024 | ||
Operating activities: |
| |
|
| |
|
Net income | | $ | | | $ | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
| | |
| |
Depreciation | |
| | |
| |
Provision for credit losses | |
| | |
| |
Loss on sale of securities | |
| — | |
| |
Gain on sale of loans | |
| ( | |
| ( |
Proceeds from sales of loans | |
| | |
| |
Loans and participations originated and purchased for sale | |
| ( | |
| ( |
Proceeds from sale of low-income housing tax credits | | | | | | |
Purchases of low-income housing tax credits for sale | | | ( | | | ( |
Change in servicing rights for paydowns and fair value adjustments | |
| | |
| ( |
Net change in: | |
| | |
| |
Mortgage loans in process of securitization | |
| | |
| ( |
Other assets and receivables | |
| ( | |
| ( |
Other liabilities | |
| ( | |
| |
Other | |
| | |
| |
Net cash provided by (used in) operating activities | |
| | |
| ( |
Investing activities: | |
| | |
| |
Net change in securities purchased under agreements to resell | |
| | |
| |
Purchases of securities available for sale | |
| ( | |
| ( |
Purchases of securities held to maturity | | | — | | | ( |
Purchases of mortgage servicing rights | | | ( | | | — |
Proceeds from the sale of securities available for sale | |
| — | |
| |
Proceeds from calls, maturities and paydowns of securities available for sale | |
| | |
| |
Proceeds from calls, maturities and paydowns of securities held to maturity | | | | | | |
Purchases of loans | |
| ( | |
| ( |
Net change in loans receivable | |
| ( | |
| ( |
Proceeds from loans held for sale previously classified as loans receivable | |
| | |
| |
Purchase of FHLB stock | |
| ( | |
| ( |
Proceeds from sale of FHLB stock | |
| — | |
| |
Purchases of premises and equipment | |
| ( | |
| ( |
Purchase of limited partnership interests | | | ( | | | ( |
Net cash paid on sale of branches | | | — | | | ( |
Other investing activities | |
| | | | |
Net cash used in investing activities | |
| ( | |
| ( |
Financing activities: | |
|
| |
|
|
Net change in deposits | |
| | |
| |
Proceeds from borrowings | |
| | |
| |
Repayment of borrowings | |
| ( | |
| ( |
Proceeds from notes payable | |
| — | |
| |
Proceeds from issuance of common stock | |
| — | |
| |
Payment of credit linked notes | |
| ( | |
| ( |
Repurchase of preferred stock | |
| — | |
| ( |
Dividends | | | ( | | | ( |
Net cash provided by financing activities | |
| | |
| |
Net Change in Cash and Cash Equivalents | |
| | |
| ( |
Cash and Cash Equivalents, Beginning of Period | |
| | |
| |
Cash and Cash Equivalents, End of Period | | $ | | | $ | |
Supplemental Cash Flows Information: | |
| | |
| |
Interest paid | | $ | | | $ | |
Income taxes paid, net of refunds | |
| | |
| |
Change in payable for limited partnership interest of LLCs | | | | | | — |
Change in ROU assets due to lease renegotiation | | | — | | | ( |
Investments received in securitization of loans sold | | | | | | — |
Liabilities accrued for additions in premises and equipment | | | | | | — |
Beneficial interests received in exchange for LIHTC's sold | | | | | | — |
Liabilities accrued for excise tax on preferred stock repurchase | | | | | | — |
Change in prepaid assets for preferred stock repurchase | | | | | | — |
Deposits received upon loan origination | | | | | | — |
Transfer of loans from loans held for sale to loans receivable | | | | | | |
Transfer of loans from loans receivable to loans held for sale | | | | | | |
See notes to condensed consolidated financial statements.
9
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Merchants Bancorp, a registered bank holding company (the “Company”) and its wholly owned subsidiaries, Merchants Bank, FMBI (whose branches were sold to unaffiliated third parties and its remaining charter collapsed into Merchants Bank on January 26, 2024), and MAM. Merchants Bank’s primary operating subsidiaries include MCC, MCS, and MCI. All directly and indirectly owned subsidiaries of Merchants Bancorp are collectively referred to as the “Company”.
The accompanying unaudited condensed consolidated balance sheets of the Company as of December 31, 2024, which has been derived from audited consolidated financial statements, and unaudited condensed consolidated financial statements of the Company as of June 30, 2025 and for the three and six months ended June 30, 2025 and 2024, were prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with GAAP. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company as of and for the year ended December 31, 2024 in its Annual Report on Form 10-K. Reference is made to the accounting policies of the Company described in the Notes to the Financial Statements contained in the Annual Report on Form 10-K.
All adjustments, which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported, have been included in the accompanying unaudited condensed consolidated financial statements. All interim amounts have not been audited and the results of operations for the three and six months ended June 30, 2025, herein are not necessarily indicative of the results of operations to be expected for the entire year.
Principles of Consolidation
The unaudited condensed consolidated financial statements as of and for the period ended June 30, 2025 and 2024 include results from the Company, and its wholly owned subsidiaries, Merchants Bank, FMBI (until its branches were sold and its bank charter merged into Merchants Bank on January 26, 2024), and MAM. Also included are Merchants Bank’s primary operating subsidiaries, MCC, MCS, and MCI, as well as all direct and indirectly owned subsidiaries owned by Merchants Bancorp.
The results of Merchants Foundation, Inc., a nonprofit corporation, are consolidated with the Company’s unaudited condensed consolidated financial statements in all periods presented.
In addition, when the Company makes an equity investment in or has a relationship with an entity for which it holds a variable interest, it is evaluated for consolidation requirements under ASC Topic 810. Accordingly, the Company assesses the entities for potential consolidation as a VIE and would only consolidate those entities for which it is a primary beneficiary. A primary beneficiary is defined as the party that has both the power to direct the activities that most significantly impact the entity, and an interest that could be significant to the entity. To determine if an interest could be significant to the entity, both qualitative and quantitative factors regarding the nature, size and form of the Company’s involvement with the entity are evaluated. Alternatively, under the voting interest model, it would only consolidate those entities for which it has a controlling interest.
The Company holds a variable interest in an investment for which it is the primary beneficiary, and its results have been consolidated in all periods presented. Additionally, the Company has certain variable interest investments that it was deemed not to be a primary beneficiary of as of June 30, 2025 and December 31, 2024. These VIEs are not consolidated and the equity method or proportional amortization method of accounting has been applied. The Company will analyze whether the primary beneficiary designation has changed through triggering events on a prospective basis. Changes in facts and circumstances occurring since the previous primary beneficiary determination will be considered as part of this ongoing assessment. See Note 8: Variable Interest Entities (VIEs) for additional information about VIEs.
10
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for credit losses on loans and fair values of servicing rights and financial instruments.
Significant Accounting Policies
The significant accounting policies followed by the Company for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. For additional information regarding significant accounting policies, see the Company’s 2024 Annual Report on Form 10–K.
Restricted Cash
Included in cash equivalents is an account restricted as collateral for the potential risk of loss on senior credit linked notes issued by the Company in March 2023. The balance of the notes as of June 30, 2025 and December 31, 2024 was $
Reclassifications
Certain reclassifications have been made to the 2024 financial statements to conform to the financial statement presentation as of and for the three and six months ended June 30, 2025. These reclassifications had no effect on net income.
Other
The Company and its subsidiaries can be parties to various claims and proceedings arising in the normal course of business. Management, after consultation with legal counsel, believes that the contingent liabilities, if any, arising from such proceedings and claims will not be material to the Company’s consolidated financial position or results of operations.
Recent Accounting Pronouncements
The Company continually monitors for potential accounting standards updates and SEC releases. The following updates and releases have been deemed to have the most applicability to the Company’s financial statements:
FASB ASU 2023-09 - Income Taxes (Topic 740): Improvements to Income Tax Disclosures
In December 2023, the FASB issued an ASU that will require public business entity’s disclosures to include an enhanced tabular tax rate reconciliation. The update will also require all public entities disclose income tax expense and taxes paid broken down by federal, state, and foreign with a disaggregation for jurisdictions that exceed 5% of income for taxes paid.
11
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The updates in ASU 2023-09 are effective for annual periods beginning after December 15, 2024. An entity shall apply the ASU on a prospective basis to financial statements for annual periods beginning after the effective date. The Company does not expect it to have a material impact on the Company’s financial position or results of operations.
FASB ASU 2024-03 - Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
In November 2024, the FASB issued an ASU which is intended to provide more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation and amortization) included in certain expense captions presented on the face of our consolidated statements of income.
The updates in ASU 2024-03 are effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. An entity may apply the ASU on a prospective basis to financial statements for annual periods beginning after the effective date. The Company is continuing to evaluate the impact of adopting this new guidance.
Note 2: Investment Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities available for sale and held to maturity were as follows:
| | | | | | | | | | | | |
| | June 30, 2025 | ||||||||||
| | | | | Gross | | Gross | | | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
|
| Cost |
| Gains |
| Losses |
| Value | ||||
| | (In thousands) | ||||||||||
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Treasury notes | | $ | | | $ | | | $ | | | $ | |
Federal Agencies | |
| | |
| | |
| | |
| |
Mortgage-backed - Government Agency (2) - multi-family | | | | | | — | | | — | | | |
Mortgage-backed - Non-Agency - residential - fair value option (1) | | | | | | — | | | — | | | |
Mortgage-backed - Agency - residential - fair value option (1) | | | | | | — | | | — | | | |
Total securities available for sale | | $ | | | $ | | | $ | | | $ | |
Securities held to maturity: | | | | | | | | | | | | |
Mortgage-backed - Non-Agency - multi-family | | $ | | | $ | — | | $ | | | $ | |
Mortgage-backed - Non-Agency - residential | | | | | | | | | | | | |
Mortgage-backed - Non-Agency - healthcare | | | | | | | | | — | | | |
Mortgage-backed - Agency - multi-family | | | | | | — | | | | | | |
Total securities held to maturity | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
FHLB and other equity securities (3) | | $ | | | | | | | | | | |
| (1) | Fair value option securities represent securities which the Company has elected to carry at fair value with changes in the fair value recognized in earnings as they occur. |
| (2) | Agency includes government sponsored entities, such as Fannie Mae, Freddie Mac, Ginnie Mae, FHLB and FCB. |
| (3) | The Company reports the carrying value utilizing the measurement alternative election, reflecting any impairments or other adjustments if observable price changes occur for identical or similar investments of the same issuer. |
12
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | |
| | December 31, 2024 | ||||||||||
| | | | | Gross | | Gross | | | |||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
|
| Cost |
| Gains |
| Losses |
| Value | ||||
| | (In thousands) | ||||||||||
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
Treasury notes | | $ | | | $ | | | $ | — | | $ | |
Federal Agencies | |
| | |
| — | |
| | |
| |
Mortgage-backed - Government Agency (2) - multi-family | | | | | | — | | | — | | | |
Mortgage-backed - Non-Agency - residential - fair value option (1) | | | | | | — | | | — | | | |
Mortgage-backed - Agency - residential - fair value option (1) | | | | | | — | | | — | | | |
Total securities available for sale | | $ | | | $ | | | $ | | | $ | |
Securities held to maturity: | | | | | | | | | | | | |
Mortgage-backed - Non-Agency - multi-family | | $ | | | $ | — | | $ | | | $ | |
Mortgage-backed - Non-Agency - residential | | | | | | | | | | | | |
Mortgage-backed - Non-Agency - healthcare | | | | | | | | | — | | | |
Mortgage-backed - Agency - multi-family | | | | | | — | | | | | | |
Total securities held to maturity | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
FHLB and other equity securities (3) | | $ | | | | | | | | | | |
| (1) | Fair value option securities represent securities which the Company has elected to carry at fair value with changes in the fair value recognized in earnings as they occur. |
| (2) | Agency includes government sponsored entities, such as Fannie Mae, Freddie Mac, Ginnie Mae, FHLB, and FCB. |
(3) | The Company reports the carrying value utilizing the measurement alternative election, reflecting any impairments or other adjustments if observable price changes occur for identical or similar investments of the same issuer. |
Accrued interest on securities available for sale totaled $
Accrued interest on securities held to maturity totaled $
The amortized cost and fair value of securities available for sale at June 30, 2025 and December 31, 2024, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may
13
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.
| | | | | | | | | | | | |
| | June 30, 2025 | | December 31, 2024 | ||||||||
| | Amortized | | Fair | | Amortized | | Fair | ||||
|
| Cost |
| Value |
| Cost |
| Value | ||||
| | (In thousands) | ||||||||||
Securities available for sale: | | | ||||||||||
Within one year | | $ | | | $ | | | $ | | | $ | |
After one through five years | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| |
Mortgage-backed - Agency - multi-family | | | | | | | | | | | | |
Mortgage-backed - Non-Agency residential - fair value option | | | | | | | | | | | | |
Mortgage-backed - Agency - residential - fair value option | | | | | | | | | | | | |
| | $ | | | $ | | | $ | | | $ | |
Securities held to maturity: | | | | | | | | | | | | |
Mortgage-backed - Non-Agency - multi-family | | $ | | | $ | | | $ | | | $ | |
Mortgage-backed - Non-Agency - residential | | | | | | | | | | | | |
Mortgage-backed - Non-Agency - healthcare | | | | | | | | | | | | |
Mortgage-backed - Agency - multi-family | | | | | | | |
| | |
| |
| | $ | | | $ | | | $ | | | $ | |
During the three and six months ended June 30, 2025,
The following tables show the Company’s gross unrealized losses and fair value of the Company’s investment securities with unrealized losses for which an ACL has not been recorded, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2025 and December 31, 2024:
| | | | | | | | | | | | | | | | | | |
| | June 30, 2025 | ||||||||||||||||
| | | | | | | | 12 Months or | | | | | | | ||||
| | Less than 12 Months | | Longer | | Total | ||||||||||||
| | | | | Gross | | | | | Gross | | | | | Gross | |||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
|
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||
| | (In thousands) | ||||||||||||||||
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Treasury notes | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Federal Agencies | | | | | | | | | — | | | — | | | | | | |
| | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | |
| | December 31, 2024 | ||||||||||||||||
| | | | | | | | 12 Months or | | | | | | | ||||
| | Less than 12 Months | | Longer | | Total | ||||||||||||
|
| | |
| Gross |
| | |
| Gross |
| | |
| Gross | |||
| | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | ||||||
| | Value | | Losses | | Value | | Losses | | Value | | Losses | ||||||
| | (In thousands) | ||||||||||||||||
Securities available for sale: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Federal Agencies | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
14
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Allowance for Credit Losses
For securities available for sale with an unrealized loss position, the Company evaluates the securities to determine whether the decline in the fair value below the amortized cost basis is due to credit-related factors or noncredit-related factors. Any expected loss that is not credit-related is recognized in accumulated other comprehensive loss, net of tax. Credit-related expected losses are recognized as an ACL for securities available for sale on the balance sheet, limited to the amount by which the amortized cost basis exceeds the fair value, with a corresponding adjustment to earnings. Accrued interest receivable is excluded from the estimate of credit losses. Both the ACL and the adjustment to net income may be reversed if conditions change. However, if the Company expects, or is required, to sell a security available for sale before recovering its amortized cost basis, the entire expected credit loss amount would be recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. Because the security’s amortized cost basis is adjusted to fair value, there is
In evaluating securities available for sale in unrealized loss positions for credit losses and the criteria regarding its intent or requirement to sell such securities, the Company considers the extent to which fair value is less than amortized cost, whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuers’ financial condition, among other factors. Unrealized losses on the Company’s investment securities portfolio have not been recognized as an expense because the securities are of high credit quality, and the decline in fair values is attributable to changes in the prevailing interest rate environment since the purchase date. Fair value is expected to recover as securities reach maturity and/or the interest rate environment returns to conditions similar to when these securities were purchased. There were
Securities held to maturity are primarily comprised of non-Agency mortgage-backed senior securities secured by multi-family, single-family or healthcare properties, and agency mortgage-backed securities secured by multi-family properties. The agency securities held to maturity are Ginnie Mae mortgage-backed securities and backed by the full faith and credit of the U.S. government and have an implicit or explicit government guarantee. Accordingly,
For non-Agency mortgage-backed senior securities, qualitative factors are evaluated, including the timeliness of principal and interest payments under the contractual terms of the securities, as well as the investment ratings assigned to the securities by third parties and their qualification to be pledged to FHLB as collateral. In the event credit stress in the underlying loans is identified in any single security, risk grades and collateral values are evaluated to determine whether the bank has exposure to credit losses.
The Company has a held to maturity mortgage-backed security with an amortized cost value of $
Note 3: Mortgage Loans in Process of Securitization
Mortgage loans in process of securitization are recorded at fair value with changes in fair value recorded in earnings. These include multi-family rental real estate loan originations to be sold as Ginnie Mae mortgage-backed
15
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
securities and Fannie Mae and Freddie Mac participation certificates, all of which are pending settlement under firm investor commitments to purchase the securities, typically occurring within 30 days. The aggregate positive fair value adjustment recorded in mortgage loans in process of securitization was $
Note 4: Loans and Allowance for Credit Losses on Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost at their outstanding principal balances adjusted for unearned income, charge-offs, the ACL-Loans, any unamortized deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans.
For loans at amortized cost, interest income is accrued based on the unpaid principal balance.
The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and reports accrued interest separately from the related loan balance on the unaudited condensed consolidated balance sheets. Accrued interest on loans totaled $
The Company also elected not to measure an allowance for credit losses for accrued interest receivables. The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past-due status is based on contractual terms of the loan. Loans may be placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest subsequently collected on these loans is applied to the principal balance until the loan can be returned to an accrual status, which is no less than six months. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
For all loan portfolio segments, the Company charges off loans, or portions thereof, when available information confirms that specific loans are uncollectable based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations.
For loan modifications, interest income is recognized on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms.
The Company offers mortgage warehouse repurchase agreements to third parties to fund mortgage loans held for sale from closing until sale to an investor. Under a warehousing arrangement, the Company funds a mortgage loan as secured financing. The warehousing arrangement is secured by the underlying mortgages and a combination of deposits, personal guarantees and advance rates, and may be cross-collateralized with other loans. The Company typically holds the collateral until it is sent under a bailee arrangement instructing the investor to send proceeds to the Company. Typical investors are large financial institutions or government agencies. Interest earned from the time of funding to the time of sale is recognized as interest income as accrued. Warehouse fees are accrued as noninterest income.
16
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Loan Portfolio Summary
Loans receivable at June 30, 2025 and December 31, 2024 include:
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2025 |
| 2024 | ||
| | (In thousands) | ||||
Mortgage warehouse repurchase agreements | | $ | | | $ | |
Residential real estate(1) | |
| | |
| |
Multi-family financing | |
| | |
| |
Healthcare financing | | | | | | |
Commercial and commercial real estate(2)(3) | |
| | |
| |
Agricultural production and real estate | |
| | |
| |
Consumer and margin loans | |
| | |
| |
Loans Receivable | |
| | |
| |
Less: | |
|
| |
|
|
ACL-Loans | |
| | |
| |
| | | | | | |
Loans Receivable, net | | $ | | | $ | |
| (1) | Includes $ |
| (2) | Includes $ |
| (3) | Includes only $ |
Risk characteristics applicable to each segment of the loan portfolio are described as follows.
Mortgage Warehouse Repurchase Agreements (MTG WHRA): Under its warehouse program, the Company provides warehouse financing arrangements to approved mortgage companies for their origination and sale of residential mortgage and multi-family loans. Loans secured by mortgages placed on existing one-to-four family dwellings may be originated or purchased and placed through each mortgage warehouse facility.
As a secured repurchase agreement, collateral pledged to the Company secures each individual mortgage until the mortgage company sells the loan in the secondary market. A traditional secured warehouse facility typically carries a base interest rate of the SOFR, or mortgage note rate, and a margin.
Risk is evident if there is a change in the fair value of mortgage loans originated by mortgage companies in warehouse, the sale of which is the expected source of repayment under a warehouse facility. However, the warehouse customers are required to hedge the change in value of these loans to mitigate the risk, typically through forward sales contracts.
Residential Real Estate Loans (RES RE): Real estate loans are secured primarily by owner-occupied one-to-four family residences. Repayment of residential real estate loans is primarily dependent on the personal income and assets of the borrowers. Credit risk for these loans is driven by those factors, as well as the credit rating of the borrowers and property values. In addition to loans originated for sale, and some loans held for investment, included in this segment are All-in-One© first-lien HELOC products that integrate a borrower’s mortgage and deposit account into a single facility and have typically carried a base interest rate of One-Year CMT, plus a margin. New originations are tied to 30-day SOFR, plus a margin.
17
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Multi-Family Financing (MF FIN): The Company specializes in originating multi-family financing that can be Market Rate or Affordable. The portfolio includes loans for construction, acquisition, refinance, or permanent financing. Loans are typically secured by real estate mortgages, assignment of LIHTCs, and/or equity interest in the underlying properties. All loans are assessed and reviewed at a minimum based on borrower strength/experience, historical property performance, market trends, projected financial performance with regards to intended strategy, and source of repayment. Independent third-party reports are used to ensure legal conformity and support valuations of the assets. Exit strategies and sources of repayment are provided through the secondary market via governmental programs, strategic refinances, LIHTC equity installments, and cashflow from the properties. Repayment of these loans depends on the successful operation of a business or property and the borrower’s cash flows. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economy in the related market area. These loans are well-collateralized and underwritten to agency guidelines. Loans included in this segment typically carry a base rate of 30-day SOFR that adjusts on a monthly basis, and a margin. The Company focuses on loan classes that are government backed or can be sold in the secondary market.
Healthcare Financing (HC FIN): The healthcare financing portfolio includes customized loan products for independent living, assisted living, memory care and skilled nursing projects. A variety of loan products are available to accommodate rehabilitation, acquisition, and refinancing of healthcare properties. Credit risk in these loans is primarily driven by local demographics and the expertise of the operators of the facilities. Repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent agency-eligible financing is obtained, as well as successful operation of a business or property and the borrower’s cash flows. These loans are well-collateralized and underwritten to agency guidelines. Loans included in this segment typically carry a base rate of 30-day SOFR that adjusts on a monthly basis, and a margin. The Company focuses on loan classes that are government backed or can be sold in the secondary market.
Commercial Lending and Commercial Real Estate Loans (CML & CRE): The commercial lending and commercial real estate portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions, as well as loans to commercial customers to finance land and improvements. It also includes lines of credit collateralized by mortgage servicing rights that are assessed for fair value quarterly at the Company’s request. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations. SBA loans are included in this category. An immaterial portion of commercial and commercial real estate loans are typically made up of non-owner occupied commercial real estate loans.
Agricultural Production and Real Estate Loans (AG & AGRE): Agricultural production loans are generally comprised of seasonal operating lines of credit to grain farmers to plant and harvest corn and soybeans and term loans to fund the purchase of equipment. The Company also offers long-term financing to purchase agricultural real estate. Specific underwriting standards have been established for agricultural-related loans including the establishment of projections for each operating-year based on industry-developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary. The Company is approved to sell agricultural loans in the secondary market through Farmer Mac and uses this relationship to manage interest rate risk within the portfolio. Agricultural real estate loans included in this segment are typically structured with a one-year ARM, three-year ARM or five-year ARM indexed to CMT and a margin. Agriculture production, livestock, and equipment loans are structured with variable rates that are indexed to prime or fixed for terms not exceeding five years.
Consumer and Margin Loans (CON & MAR): Consumer loans are those loans secured by household assets. Margin loans are those loans secured by marketable securities. The term and maximum amount for these loans are determined by considering the purpose of the loan, the margin (advance percentage against value) in all collateral, the primary source of repayment, and the borrower’s other related cash flow.
18
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
ACL-Loans
The ACL-Loans is the Company’s estimate of current expected life of loan credit losses. Loans receivable is presented net of the allowance to reflect the principal balance expected to be collected over the contractual term of the loans. This life of loan allowance is established through a provision for credit losses included in net interest income after provision for credit losses as loans are recorded in the unaudited condensed consolidated financial statements. The provision for a reporting period also reflects increases or decreases in the allowance related to changes in credit loss expectations. Actual credit losses are charged against the allowance when management believes the loan balance, or a portion thereof, is uncollectible. Subsequent recoveries, if any, are credited to the allowance.
The ACL-Loans is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans considering relevant available information from internal and external sources, including historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. The allowance also incorporates reasonable and supportable forecasts. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. The level of the ACL-Loans is believed to be adequate to absorb expected future losses in the loan portfolio as of the measurement date.
The ACL-Loans consists of individually evaluated loans and pooled loan components. The Company’s primary portfolio segmentation is by loans with similar risk characteristics. Loans risk graded substandard and worse are individually evaluated for expected credit losses. For individually evaluated loans that are collateral dependent, the Company may use the fair value of the collateral, less estimated costs to sell, as a practical expedient as of the reporting date to determine the carrying amount of an asset and the allowance for credit losses, as applicable. A loan is considered to be collateral dependent when repayment is expected to be provided substantially through the operation or the sale of the collateral when the borrower is experiencing financial difficulty as of the reporting date.
To calculate the ACL-Loans, the portfolio is segmented by loans with similar risk characteristics.
| | |
Loan Portfolio Segment |
| ACL-Loans Methodology |
| | |
Mortgage warehouse repurchase agreements | | Remaining Life Method |
Residential real estate loans | | Discounted Cash Flow |
Multi-family financing | | Discounted Cash Flow |
Healthcare financing | | Discounted Cash Flow |
Commercial and commercial real estate | | Discounted Cash Flow |
Agricultural production and real estate | | Remaining Life Method |
Consumer and margin loans | | Remaining Life Method |
Loan characteristics used in determining the segmentation include the underlying collateral, type or purpose of the loan, and expected credit loss patterns. The initial estimation of expected credit losses for each segment is based on historical credit loss experience and management’s judgement. Given the Company’s modest historical credit loss experience, peer and industry data was incorporated into the measurement. Expected life of loan credit losses are quantified using discounted cash flows and remaining life methodologies.
Model results are supplemented by qualitative adjustments for risk factors relevant in assessing the expected credit losses within the portfolio segments. These adjustments may increase or decrease the estimate of expected credit losses based upon the assessed level of risk for each qualitative factor.
The models utilized and the applicable qualitative adjustments require assumptions and management judgement that can be subjective in nature. The above measurement approach is also used to estimate the expected credit losses associated with unfunded loan commitments, which also incorporates expected utilization rates.
19
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables present, by loan portfolio segment, the activity in the ACL-Loans for the three and six months ended June 30, 2025 and 2024:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2025 | ||||||||||||||||||||||
|
| MTG WHRA |
| RES RE |
| MF FIN |
| HC FIN | | CML & CRE |
| AG & AGRE |
| CON & MAR |
| TOTAL | ||||||||
| | (In thousands) | ||||||||||||||||||||||
ACL-Loans | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | |
| $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Provision for credit losses | |
| | |
| ( |
| | | | | | |
| | |
| | |
| ( | |
| |
Loans charged to the allowance | |
| — | |
| — |
| | ( | | | ( | |
| ( | |
| — | |
| — | |
| ( |
Recoveries of loans previously charged-off | |
| — | |
| — |
| | — | | | — | |
| — | |
| — | |
| — | |
| — |
Balance, end of period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2024 | ||||||||||||||||||||||
|
| MTG WHRA |
| RES RE |
| MF FIN |
| HC FIN | | CML & CRE |
| AG & AGRE |
| CON & MAR |
| TOTAL | ||||||||
| | (In thousands) | ||||||||||||||||||||||
ACL-Loans | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | |
| $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Provision for credit losses | |
| | |
| ( |
| | | | | ( | |
| | |
| | |
| ( | |
| |
Loans charged to the allowance | |
| — | |
| — |
| | ( | | | — | |
| ( | |
| — | |
| — | |
| ( |
Recoveries of loans previously charged-off | |
| — | |
| |
| | — | | | — | |
| | |
| — | |
| — | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
The Company recorded a total provision for credit losses of $
The Company recorded a total provision for credit losses of $
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2025 | ||||||||||||||||||||||
|
| MTG WHRA |
| RES RE |
| MF FIN |
| HC FIN | | CML & CRE |
| AG & AGRE |
| CON & MAR |
| TOTAL | ||||||||
| | (In thousands) | ||||||||||||||||||||||
ACL-Loans | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Provision for credit losses | |
| | | | ( | | | | | | | | | | | | | | | ( | | | |
Loans charged to the allowance | |
| — | | | — | | | ( | | | ( | | | ( | | | — | | | — | | | ( |
Recoveries of loans previously charged-off | |
| — | | | — | | | — | | | — | | | | | | — | | | — | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2024 | ||||||||||||||||||||||
|
| MTG WHRA |
| RES RE |
| MF FIN |
| HC FIN | | CML & CRE |
| AG & AGRE |
| CON & MAR |
| TOTAL | ||||||||
| | (In thousands) | ||||||||||||||||||||||
ACL-Loans | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
FMBI's ACL for loans sold | | | — | | | ( | | | ( | | | ( | | | ( | | | ( | | | ( | | | ( |
Provision for credit losses | |
| | | | ( | | | | | | | | | | | | | | | ( | |
| |
Loans charged to the allowance | |
| — | | | — | | | ( | | | — | | | ( | | | — | | | — | |
| ( |
Recoveries of loans previously charged-off | |
| — | | | | | | — | | | — | | | | | | — | | | — | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
The Company recorded a total provision for credit losses of $
20
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
net of $
The Company recorded a total provision for credit losses of $
The following table presents, by loan portfolio segment, the activity in the ACL-Loans, for the year-ended December 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2024 | ||||||||||||||||||||||
|
| MTG WHRA |
| RES RE |
| MF FIN |
| HC FIN | | CML & CRE |
| AG & AGRE |
| CON & MAR |
| TOTAL | ||||||||
| | (In thousands) | ||||||||||||||||||||||
ACL-Loans | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | |
| $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
FMBI's ACL for loans sold | | | — | | | ( | | | ( | | | ( | | | ( | | | ( | | | ( | | | ( |
Provision for credit losses | |
| | |
| ( |
| | | | | ( | |
| | |
| | |
| ( | |
| |
Loans charged to the allowance | |
| — | |
| — |
| | ( | | | ( | |
| ( | |
| — | |
| — | |
| ( |
Recoveries of loans previously charged-off | |
| — | |
| |
| | | | | — | |
| | |
| — | |
| — | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
The Company recorded a total provision for credit losses of $
The table below presents the amortized cost basis and ACL-Loans allocated for collateral dependent loans, which are individually evaluated to determine expected credit losses as of June 30, 2025 and December 31, 2024:
| | | | | | | | | | | | | | | |
| | June 30, 2025 | |||||||||||||
|
| Real Estate |
| Accounts Receivable / Equipment |
| Other |
| Total |
| ACL-Loans Allocation | |||||
| | (In thousands) | |||||||||||||
RES RE | | $ | | | $ | — | | $ | — | | $ | | | $ | |
MF FIN | | | | | | — | | | | | | | | | |
HC FIN | |
| | |
| — | |
| — | |
| | |
| |
CML & CRE | |
| | |
| | |
| | |
| | |
| |
AG & AGRE | |
| | |
| | |
| — | |
| | |
| |
Total collateral dependent loans | | $ | | | $ | | | $ | | | $ | | | $ | |
There were no significant changes to the types of collateral securing the Company’s collateral dependent loans compared to December 31, 2024.
| | | | | | | | | | | | | | | |
| | December 31, 2024 | |||||||||||||
|
| Real Estate |
| Accounts Receivable / Equipment |
| Other |
| Total |
| ACL-Loans Allocation | |||||
| | (In thousands) | |||||||||||||
RES RE | | $ | | | $ | — | | $ | — | | $ | | | $ | |
MF FIN | | | | | | — | | | | | | | | | |
HC FIN | | | | | | — | | | — | | | | | | |
CML & CRE | |
| | |
| | |
| | |
| | |
| |
AG & AGRE | |
| — | |
| | |
| — | |
| | |
| |
Total collateral dependent loans | | $ | | | $ | | | $ | | | $ | | | $ | |
21
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Internal Risk Categories
The Company evaluates the loan risk grading system definitions and ACL-Loans methodology on an ongoing basis. In adherence with policy, the Company uses the following internal risk grading categories and definitions for loans:
Pass - Loans that are considered to be of acceptable credit quality, and not classified as Special Mention, Substandard or Doubtful. Also included are loans classified as Watch loans, which represent loans that remain sound and collectible but contain elevated risk that requires management’s attention.
Special Mention – Loans classified as Special Mention have potential weaknesses that deserve management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention loans are not adversely classified and do not warrant adverse classification. Loans with questions or concerns regarding collateral, adverse market conditions impacting future performance, and declining financial trends would be considered for Special Mention.
Substandard - Loans classified as Substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. When a loan in the form of a line of credit is downgraded to Substandard, it is evaluated for credit losses and future draws under the line of credit require the approval of an officer of Senior Credit Officer or above.
Doubtful - Loans classified as Doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
22
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables present the credit risk profile of the Company’s loan portfolio based on internal risk rating category and origination year as of June 30, 2025 and December 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2025 | ||||||||||||||||||||||
|
| 2025 |
| 2024 |
| 2023 | | 2022 |
| 2021 |
| Prior |
| Revolving Loans |
| TOTAL | ||||||||
| | (In thousands) | ||||||||||||||||||||||
MTG WHRA | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | | | $ | |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | | | $ | |
RES RE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Substandard | | | — | | | — | | | — | | | | | | — | | | | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
MF FIN | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Special Mention | | | | | | | | | — | | | | | | — | | | | | | | | | |
Substandard | | | | | | | | | | | | | | | — | | | — | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Charge-offs | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | | | $ | — | | $ | |
HC FIN | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Special Mention | | | | | | | | | — | | | | | | — | | | — | | | | | | |
Substandard | | | — | | | | | | | | | | | | | | | — | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | |
Charge-offs | | $ | — | | $ | — | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | |
CML & CRE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Special Mention | | | | | | — | | | | | | | | | | | | | | | | | | |
Substandard | | | — | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Charge-offs | | $ | — | | $ | — | | $ | | | $ | | | $ | | | $ | — | | $ | — | | $ | |
AG & AGRE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Special Mention | | | | | | — | | | — | | | — | | | — | | | — | | | — | | | |
Substandard | | | — | | | — | | | | | | | | | — | | | — | | | — | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
CON & MAR | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Total Special Mention | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Total Substandard | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Total Loans | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Total Charge-offs | | $ | — | | $ | — | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | |
The table above excludes
23
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2024 | ||||||||||||||||||||||
|
| 2024 |
| 2023 |
| 2022 |
| 2021 |
| 2020 |
| Prior |
| Revolving Loans |
| TOTAL | ||||||||
| | (In thousands) | ||||||||||||||||||||||
MTG WHRA | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | | | $ | |
Total | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | | | $ | |
RES RE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Substandard | | | — | | | — | | | | | | — | | | — | | | | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
MF FIN | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Special Mention | | | | | | | | | | | | — | | | — | | | | | | | | | |
Substandard | | | | | | | | | | | | | | | — | | | — | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Charge-offs | | $ | — | | $ | | | $ | | | $ | — | | $ | — | | $ | — | | $ | — | | $ | |
HC FIN | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | — | | $ | — | | $ | — | | $ | | | $ | |
Special Mention | | | | | | — | | | | | | — | | | — | | | — | | | | | | |
Substandard | | | | | | | | | — | | | | | | — | | | — | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | — | | $ | | | $ | |
Charge-offs | | $ | — | | $ | — | | $ | — | | $ | | | $ | — | | $ | — | | $ | — | | $ | |
CML & CRE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Special Mention | | | — | | | — | | | | | | | | | — | | | | | | | | | |
Substandard | | | | | | | | | | | | | | | — | | | | | | | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Charge-offs | | $ | — | | $ | — | | $ | | | $ | | | $ | — | | $ | | | $ | — | | $ | |
AG & AGRE | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Substandard | | | — | | | | | | — | | | — | | | — | | | — | | | — | | | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
CON & MAR | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | | | $ | |
Total | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total Pass | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Total Special Mention | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | | | $ | |
Total Substandard | | $ | | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | | | $ | |
Total Loans | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Total Charge-offs | | $ | — | | $ | | | $ | | | $ | | | $ | — | | $ | | | $ | — | | $ | |
The table above excludes
24
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Delinquent Loans
The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of June 30, 2025 and December 31, 2024.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2025 | | |||||||||||||||||||||
|
| 30-59 Days | |
| 60-89 Days | |
| 90+ Days | |
| Total | |
| | |
| Total | | ||||||
| | Past Due | | | Past Due | | | Past Due | | | Past Due | | | Current | | | Loans | | ||||||
| | (Dollars in thousands) | | |||||||||||||||||||||
MTG WHRA | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | | | | $ | | |
RES RE | | | | | | | | | |
| | | |
| | | |
| | | |
| | |
MF FIN | | | | | | | — | | |
| | | |
| | | |
| | | |
| | |
HC FIN | | | | | | | — | | | | | | | | | | | | | | | | | |
CML & CRE | | | — | | | | | | |
| | | |
| | | |
| | | |
| | |
AG & AGRE | | | — | | | | — | | |
| | | |
| | | |
| | | |
| | |
CON & MAR | | | — | | | | — | | |
| — | | |
| — | | |
| | | |
| | |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | — | % | | | — | % | | | | % | | | | % | | | | % | | | | % |
The Company did not have any loans classified as held for sale that were past due as of June 30, 2025.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2024 | | |||||||||||||||||||||
|
| 30-59 Days | |
| 60-89 Days | |
| 90+ Days | |
| Total | |
| | |
| Total | | ||||||
| | Past Due | | | Past Due | | | Past Due | | | Past Due | | | Current | | | Loans | | ||||||
| | (Dollars in thousands) | | |||||||||||||||||||||
MTG WHRA | | $ | — | |
| $ | — | | | $ | — | | | $ | — | | | $ | | | | $ | | |
RES RE | | | | |
| | | | |
| | | |
| | | |
| | | |
| | |
MF FIN | | | | |
| | | | |
| | | |
| | | |
| | | |
| | |
HC FIN | | | — | | | | — | | | | | | | | | | | | | | | | | |
CML & CRE | | | | |
| | | | |
| | | |
| | | |
| | | |
| | |
AG & AGRE | | | | |
| | — | | |
| | | |
| | | |
| | | |
| | |
CON & MAR | | | — | |
| | — | | |
| — | | |
| — | | |
| | | |
| | |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | — | % | | | — | % | | | | % | | | | % | | | | % | | | | % |
The table above excludes
Nonperforming Loans and Assets
Nonaccrual loans, including modified loans to borrowers experiencing financial difficulty that have not met the six-month minimum performance criterion, are reported as nonperforming loans. For all loan classes, it is the Company’s policy to have any modified loans which are on nonaccrual status prior to being modified, remain on nonaccrual status until six months of satisfactory borrower performance, at which time management would consider its return to accrual status. A loan is generally classified as nonaccrual when the Company believes that receipt of principal and interest is doubtful under the terms of the loan agreement. Generally, this is at 90 days or more past due. Interest income of $
25
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the Company’s nonperforming loans and nonperforming assets at June 30, 2025 and December 31, 2024.
| | | | | | | | | | | | |
| | June 30, 2025 | | December 31, 2024 | ||||||||
| | | | | Total Loans > | | | | | Total Loans > | ||
| | | | | 90 Days & | | | | | 90 Days & | ||
| | Nonaccrual | | Accruing | | Nonaccrual | | Accruing | ||||
| | (In thousands) | ||||||||||
RES RE | | $ | | | $ | | | $ | | | $ | — |
MF FIN | |
| | | | | |
| | |
| — |
HC FIN | | | | | | — | | | | | | — |
CML & CRE | | | | | | — | | | | | | — |
AG & AGRE | | | | | | — | | | | | | |
CON & MAR | | | — | | | — | | | — | | | — |
| | $ | | | $ | | | $ | | | $ | |
The Company did not have any loans classified as held for sale on nonaccrual or past due as of June 30, 2025. The table above excludes
The Company did not have any nonaccrual loans without an estimated ACL at June 30, 2025 or December 31, 2024.
Modifications to Borrowers Experiencing Financial Difficulty
Occasionally, the Company modifies loans to borrowers in financial difficulty by providing principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reduction. In some cases, the Company provides multiple types of modifications on one loan. Typically, one type of modification, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another modification, such as principal forgiveness, may be granted, but is rare.
The following tables present the amortized cost basis of loans at June 30, 2025 and June 30, 2024 that were both experiencing financial difficulty and modified during the three and six months ended June 30, 2025 and June 30, 2024, by class and by type of modification. The percentage of the amortized cost basis of loans that were modified to borrowers in financial distress as compared to the amortized cost basis of each class of financing receivable is also presented below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended June 30, 2025 | | | Six Months Ended June 30, 2025 | | |||||||||||||||||||||||
|
| Payment Delay | | Term Extension | | Combination - Term Extension and Payment Delay | | Total Class of Financing Receivable | | % of Total Class of Financing Receivable |
| | | Payment Delay | Term Extension | | Combination - Term Extension and Payment Delay | | Total Class of Financing Receivable | | % of Total Class of Financing Receivable |
| ||||||||||
| | (In thousands) | | | | | | (In thousands) | ||||||||||||||||||||||||
MF FIN | | $ | — | | $ | | | $ | — | | $ | | | | | % | | $ | — | | $ | | | $ | | | $ | | | | | % |
CML & CRE | | | — | | | — | | | — | | | — | | | — | | | | — | | | — | | | | | | | | | — | |
Total | | $ | — | | $ | | | $ | — | | $ | | | | | % | | $ | — | | $ | | | $ | | | $ | | | | | % |
26
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2024 | | | Six Months Ended June 30, 2024 | | ||||||||||||||||||||||||||
| | Payment Delay | | Term Extension | | Combination - Term Extension and Payment Delay | | Total Class of Financing Receivable | | % of Total Class of Financing Receivable |
| | | Payment Delay | Term Extension | | Combination - Term Extension and Payment Delay | | Total Class of Financing Receivable | | % of Total Class of Financing Receivable |
| ||||||||||
| | (In thousands) | | | | | | (In thousands) | | |||||||||||||||||||||||
MF FIN | | $ | | | $ | | | $ | — | | $ | | | | | % | | $ | | | $ | | | $ | — | | $ | | | | | % |
HC FIN | |
| — | | | | | | — | | | | | | — | % | |
| — | |
| | | | — | | | | | | — | % |
Total | | $ | | | $ | | | $ | — | | $ | | | | | % | | $ | | | $ | | | $ | — | | $ | | | | | % |
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty. Loans with risk classifications of Pass and Special Mention were part of the pooled loan ACL analysis. Loans classified as Substandard or worse were individually evaluated for credit losses and specific reserves were established, if applicable. During the three and six months ended June 30, 2025, there were
| | | | |
| | Three Months Ended June 30, 2025 | ||
| | Term Extension | | Combination - Term Extension and Forbearance |
Loan Type | | Financial Effect | | Financial Effect |
MF FIN | | Added a weighted average | | |
| | | | |
| | Six Months Ended June 30, 2025 | ||
| | Term Extension | | Combination - Term Extension and Forbearance |
Loan Type | | Financial Effect | | Financial Effect |
MF FIN | | Added a weighted average | | Term extension and forbearance added a weighted average of |
CML & CRE | | | | Term extension added a weighted average of |
| | | | |
| | Three Months Ended June 30, 2024 | ||
| | Term Extension | | Payment Delay |
Loan Type | | Financial Effect | | Financial Effect |
MF FIN | | Added a weighted average | | Forbearance average of |
HC FIN | | Added a weighted average | | |
| | | | |
| | Six Months Ended June 30, 2024 | ||
| | Term Extension | | Payment Delay |
Loan Type | | Financial Effect | | Financial Effect |
MF FIN | | Added a weighted average | | Forbearance average of |
HC FIN | | Added a weighted average | | |
27
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance of such loans that have been modified in the last twelve months as of June 30, 2025:
| | | | | | | | | | | | | | | |
| | |
| | | 30 - 89 Days |
| 90+ Days |
| Total | |||||
| | | | Current | | Past Due | | Past Due | | Loans | |||||
| | | | | (In thousands) | ||||||||||
MF FIN | | | | | $ | | | $ | — | | $ | | | $ | |
HC FIN | | | | | | — | | | — | | | | | | |
CML & CRE | | | | | | | | | — | | | — | | | |
Total | | | | | $ | | | $ | — | | $ | | | $ | |
Multi-family loans totaling $
Immaterial Revision of Prior Period Footnote Disclosures Regarding Troubled Loan Modifications
The Company revised amounts reported in the previously issued Form 10-Q for the period end June 30, 2024 related to TLMs in the above notes to the unaudited condensed consolidated financial statements due to incorrectly classifying
Foreclosures
There were $
Significant Loan Sales
On June 5, 2025, the Company completed a $
On June 27, 2025, the Company completed a $
28
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Loans Purchased
The Company purchased $
Loan Guarantees
The Company issues instruments, in the normal course of business with customers, that are considered financial guarantees. Standby letters of credit guarantees are issued in connection with agreements made by customers to counterparties. Standby letters of credit are contingent upon failure of the customer to perform the terms of the underlying contract. Credit risk associated with the standby letters of credit is essentially the same as that associated with extending loans to customers and is subject to normal credit policies. The terms of these standby letters of credit range from less than one to
Note 5: Qualified Affordable Housing and Other Tax Credits
The Company invests in LIHTC limited liability partnerships and LLCs. The primary purpose of these investments is to earn an adequate return of capital through the receipt of low-income housing tax credits. Those investments are recorded at cost and then amortized using the proportional amortization method. The investments are included in other assets on the unaudited condensed consolidated balance sheets, with any unfunded commitments included in other liabilities. The investments are amortized as a component of income tax expense.
The Company also has a pool of investments that are held for sale and are accounted for at the lower of cost or market. These investments include projects that are awaiting syndication in LIHTC funds through our MCI subsidiary. The investments are included in other assets on the unaudited condensed consolidated balance sheets.
The Company is the primary beneficiary in one of its joint venture investments, therefore the results of this entity are consolidated and the benefits of the new market fund are recognized through tax credits as a component of income tax expense.
| | | | | | | | | | | | | |
| | | June 30, 2025 | | December 31, 2024 | ||||||||
| | | (In thousands) | ||||||||||
Investment | Accounting Method | | Investment | | Unfunded Commitments | | Investment | | Unfunded Commitments | ||||
LIHTC | Proportional amortization | | $ | | | $ | | | $ | | | $ | |
LIHTC (1) | Lower of cost or market | | | | | | — | | | | | | — |
LIHTC subtotal | | | $ | | | $ | | | $ | | | $ | |
Joint Venture | Consolidated | | | | | | — | | | | | | — |
Total | | | $ | | | $ | | | $ | | | $ | |
| (1) | LIHTC projects held for future syndication. |
29
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the amortization expense and tax credits recognized for the Company’s low-income housing investments for the three and six months ended June 30, 2025 and 2024.
| | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended | ||||||||
| | | June 30, | | June 30, | ||||||||
| | | 2025 | | 2024 | | 2025 | | 2024 | ||||
| | | (In thousands) | | (In thousands) | ||||||||
Amortization expense | | | $ | | | $ | | | $ | | | $ | |
Expected tax credits | | | $ | | | $ | | | $ | | | $ | |
The Company serves as a general partner for several syndicated low-income housing tax credit funds that are owned by one investor, holding
Note 6: Leases
The Company has operating leases for various locations with terms ranging from one to
Supplemental balance sheet information related to leases is presented in the table below as of June 30, 2025 and December 31, 2024:
| | | | | |
| | June 30, 2025 | | | December 31, 2024 |
| | (In thousands) | |||
Balance Sheet | | | |||
Operating lease ROU asset (in other assets) | $ | | | $ | |
Operating lease liability (in other liabilities) | | | | | |
| | | | | |
Weighted average remaining lease term (years) | | | | ||
Weighted average discount rate | | | | ||
30
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below presents the components of lease expenses for the three and six months ended June 30, 2025 and 2024. Operating lease expenses are included in occupancy and equipment expense on the unaudited condensed consolidated income statement.
| | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||
| | June 30, | | June 30, | ||||||
| | 2025 | | | 2024 | | 2025 | | | 2024 |
| | (In thousands) | | (In thousands) | ||||||
Statement of Income | | | | | ||||||
Components of lease expense: | | | | | | | | | | |
Operating lease cost | $ | | | $ | | | | | $ | |
Supplemental cash flow information related to leases is presented in the tables below.
| | | | | |
Maturities of lease liabilities: | | | | June 30, 2025 | |
| | | | | (In thousands) |
One year or less | | | | $ | |
Year two | | | | | |
Year three | | | | | |
Year four | | | | | |
Year five | | | | | |
Thereafter | | | | | |
Total future minimum lease payments | | | | | |
Less: imputed interest | | | | | |
Total | | | | $ | |
| | | | | |
| | Six Months Ended | |||
| | June 30, | |||
| | 2025 | | | 2024 |
| | (In thousands) | |||
Cash Flow Statement | | | |||
Supplemental cash flow information: | | | | | |
Operating cash flows for operating leases | $ | | | $ | |
Note 7: Other Assets and Receivables
The following items are included in other assets and receivables on the consolidated balance sheets.
Joint Ventures
The Company has investments in various joint ventures totaling $
31
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Qualified Affordable Housing
Information regarding qualified affordable housing investments is disclosed elsewhere in Note 5: Qualified Affordable Housing and Other Tax Credits.
Freestanding Credit Enhancements
In December 2024, the Company executed a CDS on a reference pool of warehouse loans with an initial principal balance of $
The CDS is not accounted for as a derivative. A scope exception within ASC 815 – Derivatives and Hedging for certain financial guarantees is utilized, as recovery payments are contingent on the failure of the debtor to pay their past due obligations, which are preconditions to the guarantee. Accordingly, the CDS has been accounted for as a freestanding credit enhancement and does not offset the Company’s estimate of expected credit losses. Therefore, the ACL-loans will continue to be recorded without considering potential recoveries from freestanding credit enhancement contracts. Upon initial execution, there was no CDS recovery asset established because the loans in the pool were participation certificates that were classified as loans held for sale and carry no ACL-loans. When repurchase agreements are in the pool, they are classified as loans receivable, and a CDS recovery asset would be established in other assets, with an equal benefit to CDS recovery income in other noninterest income for the protected portion of the amounts included in the ACL-loans. The recovery asset and recovery income accounts are adjusted as the ACL-loans is adjusted for changes in loss expectations.
As of June 30, 2025 and December 31, 2024, a CDS recovery asset of $
Note 8: Variable Interest Entities
A VIE is a corporation, partnership, limited liability company, or any other legal structure used to conduct activities or hold assets generally that either:
| ● | Does not have equity investors with voting rights that can directly or indirectly make decisions about the entity’s activities through those voting rights or similar rights; or |
| ● | Has equity investors that do not provide sufficient equity for the entity to finance its activities without additional subordinated financial support. |
The Company has invested in single-family, multi-family, and healthcare debt financing entities, as well as low-income housing syndicated funds that are deemed to be VIEs. The Company also has deemed REMIC trusts as VIEs that were established in conjunction with multi-family and healthcare loan sales and securitization transactions. Accordingly, the entities were assessed for potential consolidation under the VIE model that requires primary beneficiaries to consolidate the entity’s results. A primary beneficiary is defined as the party that has both the power to direct the activities that most significantly impact the entity, and an interest that could be significant to the entity. To determine if an interest could be significant to the entity, both qualitative and quantitative factors regarding the nature, size and form of involvement with the entity are evaluated.
32
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
At June 30, 2025 the Company determined it was not the primary beneficiary for most of its VIEs, primarily because the Company did not have control or the obligation to absorb losses or the rights to receive benefits from the VIE that could potentially be significant to the VIE. Evaluation and reassessment of VIEs for consolidation is performed on an ongoing basis by management. Any changes in facts and circumstances occurring since the previous primary beneficiary determination will be considered as part of this ongoing reassessment.
The table below reflects the assets of the VIEs, as well as the maximum exposure to loss in connection with unconsolidated VIEs and liabilities for binding, unfunded commitments at June 30, 2025 and December 31, 2024. The Company’s maximum exposure to loss associated with its unconsolidated VIEs consists of the capital invested plus any unfunded equity commitments. These investments are recorded in other assets and other liabilities on the unaudited condensed consolidated balance sheets. Also included in the maximum loss exposure are loans to VIEs that are included in loans receivable. Although the REMIC trusts are not recognized on the balance sheet, the maximum exposure to loss is the carrying value of the securities acquired as part of the securitization transactions.
| | | | | | | | | | | | | | | |
| | Investments | | Loans | | Securities | | Maximum | | Liabilities | |||||
Assets |
| in VIEs |
| to VIEs | | for VIEs | | Exposure to Loss | | for VIEs | |||||
| | (In thousands) | |||||||||||||
June 30, 2025 | |
|
| |
| | | | | | | | |
|
|
Low-income housing tax credit investments | | $ | | | $ | | | $ | — | | $ | | | $ | |
Debt funds | | | | | | | | | — | | | | | | — |
Mortgage-backed securitizations (1) | | | — | | | | | | | | | | | | — |
Total Unconsolidated VIEs | | $ | | | $ | | | $ | | | $ | | | $ | |
December 31, 2024 | |
|
| |
| | |
| | |
|
| |
|
|
Low-income housing tax credit investments | | $ | | | $ | | | $ | — | | $ | | | $ | |
Debt funds | | | | | | | | | — | | | | | | |
Mortgage-backed securitizations (1) | | | — | | | | | | | | | | | | — |
Total Unconsolidated VIEs | | $ | | | $ | | | $ | | | $ | | | $ | |
| (1) | Amounts include involvement with securitization SPEs where the Company transferred to and/or service loans for an SPE and hold securities issued by that SPE. Values disclosed in the table above represent the Company’s maximum exposure to loss for those securities’ holdings. |
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Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9: Deposits
Deposits were comprised of the following at June 30, 2025 and December 31, 2024:
| | | | | | |
| | | | | ||
|
| June 30, 2025 |
| December 31, 2024 | ||
| | (In thousands) | ||||
Noninterest-bearing deposits | | | | | | |
Core demand deposits | | $ | | | $ | |
| | | | | | |
Interest-bearing deposits | | | | | | |
Demand deposits: | | | | | | |
Core demand deposits | | $ | | | $ | |
Brokered demand deposits | | | | | | — |
Total interest-earning demand deposits | | | | | | |
Savings deposits: | |
| | |
| |
Core savings deposits | | | | | | |
Brokered savings deposits | | | | | | |
Total savings deposits | | | | | | |
Certificates of deposit: | |
| | |
| |
Core certificates of deposits | | | | | | |
Brokered certificates of deposits | | | | | | |
Total certificates of deposits | | | | | | |
Total interest-bearing deposits | | | | | | |
Total deposits | | $ | | | $ | |
| | | | | | |
Total core deposits | | $ | | | $ | |
Total brokered deposits | | $ | | | $ | |
Total deposits | | $ | | | $ | |
Maturities for certificates of deposit are as follows:
| | | |
|
| June 30, 2025 | |
| | (In thousands) | |
Due within one year | | $ | |
Due in one year to two years | |
| |
Due in two years to three years | |
| |
Due in three years to four years | |
| — |
Due in four years to five years | | | — |
Due in five years to six years | |
| — |
| | $ | |
Certificates of deposit of $250,000 or more totaled $
34
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10: Borrowings
Borrowings comprised the following at June 30, 2025 and December 31, 2024:
| | | | | | |
|
| June 30, 2025 |
| December 31, 2024 | ||
| | (In thousands) | ||||
Federal Reserve discount window borrowings | | $ | | | $ | |
Subordinated debt | |
| | |
| |
FHLB advances | | | | | | |
Credit linked notes, net of debt discount | | | | | | |
Other borrowings | |
| | |
| |
Total borrowings | | $ | | | $ | |
On May 27, 2025, the Company entered into an interest free, fixed-rate community development advance debt agreement with the FHLB. The balance of the advance was $
On June 24, 2025, the Company entered into a new variable-rate debt agreement with the FHLB for an advance that has put and call options attached to it. The balance of the advance was $
On June 30, 2025, the Company entered into a new variable-rate debt agreement with the FHLB for an advance that has put and call options attached to it. The balance of the advance was $
Note 11: Derivative Financial Instruments
The Company uses non-hedging designated, derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities.
Internal Interest Rate Risk Management
The Company enters into interest rate lock commitments with potential borrowers to fund specific mortgage loans that will be sold into the secondary market and enters into forward contracts for the future delivery of mortgage loans to third party investors. The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans. Forward contracts and interest rate lock agreements are accounted for as derivatives at fair value with changes in fair value reflected in other income on the unaudited condensed consolidated statements of income.
Interest rate swaps are also used by the Company to reduce the risk that significant increases in interest rates may have on the value of certain fixed-rate loans held for sale and the respective loan payments received from borrowers. All changes in the fair market value of these interest rate swaps and associated loans held for sale have been
35
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
included in gain on sale of loans. Any difference between the fixed and floating interest rate components of these transactions have also been included in gain on sale.
The Company entered into a contract containing put options and interest rate floors on securities it acquired from a warehouse customer. These provide protection and offset losses in value of certain securities accounted for under the fair value option. The gain (loss) on the put options is substantially equal and offsetting to the fair market value adjustment of securities available for sale, resulting in an inconsequential net gain or loss in other noninterest income. This helps mitigate interest rate risk and minimizes impacts of market fluctuations on the securities available for sale that the Company elected to account for under the fair value option with changes in fair value reflected in earnings. The Company also entered into interest rate floor contracts with
Credit Risk Management
In March 2024, the Company entered into a contract as the buyer of credit protection through the credit derivative market. A CDS was purchased to manage credit risk associated with specific multi-family mortgage loans. Under the terms of the contract, the Company will be compensated for certain credit-related losses on a pool of multi-family mortgage loans. The protection seller has posted aggregate collateral of $
The CDS is considered a derivative, but is not designated as an accounting hedge, and is recorded at fair value, with changes in fair value reflected in noninterest expense on the unaudited condensed consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in other assets on the unaudited condensed consolidated balance sheets while derivative instruments with a negative fair value are reported in other liabilities on the unaudited condensed consolidated balance sheets.
The following table presents the notional amount and fair value of interest rate locks, forward contracts, interest rate swaps, put options, interest rate floors, and credit derivatives utilized by the Company at June 30, 2025 and December 31, 2024. These tables exclude the fair market value adjustment on loans commonly hedged with these derivatives.
| | | | | | | | | | | |
| | Notional | | | | | | Fair Value | |||
| | Amount |
| | Balance Sheet Location |
| | Asset |
| | Liability |
| | (In thousands) | |||||||||
June 30, 2025 | | | |||||||||
Interest rate lock commitments | $ | | | | Other assets/liabilities | | $ | | | $ | |
Forward contracts | | | | | Other assets/liabilities | | | — | | | |
Interest rate swaps | | | | | Other assets/liabilities | | | | | | — |
Put options | | | | | Other assets | | | | | | — |
Interest rate floors | | | | | Other assets | |
| | | | — |
Credit derivatives | | | | | Other assets/liabilities | | | — | | | — |
| | | | | | | $ | | | $ | |
36
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | |
| | Notional | | | | | | Fair Value | |||
| | Amount |
| | Balance Sheet Location |
| | Asset |
| | Liability |
| | (In thousands) | |||||||||
December 31, 2024 | | | |||||||||
Interest rate lock commitments | $ | | | | Other assets/liabilities | | $ | | | $ | |
Forward contracts | | | | | Other assets/liabilities | | | | | | |
Interest rate swaps | | | | | Other assets/liabilities | | | | | | — |
Put options | | | | | Other assets | | | | | | — |
Interest rate floors | | | | | Other assets | | | | | | — |
Credit derivatives | | | | | Other assets/liabilities | | | — | | | — |
| | | | | | | $ | | | $ | |
The following table summarizes the periodic changes in the fair value of the above derivative financial instruments on the unaudited condensed consolidated statements of income for the three and six months ended June 30, 2025 and 2024.
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2025 |
| 2024 |
| 2025 |
| 2024 | ||||
| | (In thousands) | | | (In thousands) | |||||||
Derivative (loss) gain included in gain on sale of loans: | | | | | | | | | | | | |
Interest rate lock commitments | | $ | | | $ | ( | | $ | | | $ | ( |
Forward contracts (includes pair-off settlements) | | | ( | | | | | | ( | | | |
Interest rate swaps | | | ( | | | | | | ( | | | |
Net (loss) gain | | $ | ( | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | |
Derivative gain included in other income: | | | | | | | | | | | | |
Put options (1) | | | | | | | | | | | | |
Interest rate floors | | | | | | | |
| | | | |
Net gain | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
___________________________
(1) | The put option gain (loss) reflects an adjustment to the fair value of the derivative that is substantially equal and offset by an adjustment to the fair value of its related securities available for sale for which the Company elected to account for under the fair value option with changes in fair value reflected in earnings. The combination of these adjustments is designed to result in an inconsequential net gain or loss in other noninterest income. |
Derivatives on Behalf of Customers
The Company offers derivative contracts to some customers in connection with their risk management needs. These derivatives include back-to-back interest rate swap, cap, and floor arrangements. The Company manages the risk associated with these contracts by entering into an equal and offsetting derivative with a third-party dealer. These derivatives generally work together as an offsetting, economic interest rate hedge, but the Company does not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred, typically resulting in no net earnings impact.
37
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The fair values of derivative assets and liabilities related to back-to-back derivatives on behalf of customers with back-to-back interest rate swap, cap or floor arrangements were recorded on the unaudited condensed consolidated balance sheets as follows:
| | | | | | | | | | | |
| | Notional | | | | | | Fair Value | |||
| | Amount |
| | Balance Sheet Location |
| | Asset |
| | Liability |
| | (In thousands) | |||||||||
June 30, 2025 | $ | | | | Other assets/liabilities | | $ | | | $ | |
December 31, 2024 | $ | | | | Other assets/liabilities | | $ | | | $ | |
The gross gains and losses on these derivative assets and liabilities were recorded in other noninterest income and other noninterest expense in the unaudited condensed consolidated statements of income as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2025 |
| 2024 |
| 2025 |
| 2024 | ||||
| | (In thousands) | | | (In thousands) | |||||||
Gross swap gains | | $ | | | $ | | | $ | | | $ | |
Gross swap losses | | | | | | | |
| | | | |
Net swap gains (losses) | | $ | — | | $ | — | | $ | — | | $ | — |
| | | | | | | | | | | | |
The Company pledged $
Note 12: Disclosures about Fair Value of Assets and Liabilities
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:
Level 1 Quoted prices in active markets for identical assets or liabilities
Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3 Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities
38
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Recurring Measurements
The following tables present the fair value measurements of assets and liabilities recognized on the accompanying unaudited condensed consolidated balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2025 and December 31, 2024:
| | | | | | | | | | | | |
| | Fair Value Measurements Using | ||||||||||
| | | | | Quoted Prices in | | Significant | |
| | ||
| | | | | Active Markets | | Other | | Significant | |||
| | | | | for Identical | | Observable | | Unobservable | |||
| | Fair | | Assets | | Inputs | | Inputs | ||||
Assets |
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
| | (In thousands) | ||||||||||
June 30, 2025 | | | | | | | | | | | | |
Mortgage loans in process of securitization | | $ | | | $ | — | | $ | | | $ | — |
Securities available for sale: | |
|
| |
|
| |
|
| |
|
|
Treasury notes | |
| | |
| | |
| — | |
| — |
Federal Agencies | |
| | |
| — | |
| | |
| — |
Mortgage-backed - Agency | | | | | | — | |
| | |
| — |
Mortgage-backed - Non-Agency residential - fair value option | | | | | | — | |
| | |
| — |
Mortgage-backed - Agency - fair value option | |
| | |
| — | |
| | |
| — |
Loans held for sale | |
| | |
| — | |
| | |
| — |
Servicing rights | |
| | |
| — | |
| — | |
| |
Derivative assets: | |
| | | | | | | | | | |
Interest rate lock commitments | |
| | |
| — | |
| — | |
| |
Interest rate swaps | | | | | | — | | | | | | — |
Interest rate swaps, caps and floors (back-to-back) | | | | | | — | | | | | | — |
Put options | | | | | | — | | | | | | |
Interest rate floors | | | | | | — | | | — | | | |
Derivative liabilities: | |
| | | | | | | | | | |
Interest rate lock commitments | |
| | | | — | | | — | | | |
Forward contracts | |
| | | | — | | | | | | — |
Interest rate swaps, caps and floors (back-to-back) | |
| | | | — | | | | | | — |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
December 31, 2024 | |
|
| | | | | | | | | |
Mortgage loans in process of securitization | | $ | | | $ | — | | $ | | | $ | — |
Securities available for sale: | |
|
| |
|
| |
|
| |
|
|
Treasury notes | |
| | |
| | |
| — | |
| — |
Federal Agencies | |
| | |
| — | |
| | |
| — |
Mortgage-backed - Agency | | | | | | — | |
| | |
| — |
Mortgage-backed - Non-Agency residential - fair value option | | | | | | — | |
| | |
| — |
Mortgage-backed - Agency - fair value option | |
| | |
| — | |
| | |
| — |
Loans held for sale | |
| | |
| — | |
| | |
| — |
Servicing rights | |
| | |
| — | |
| — | |
| |
Derivative assets: | |
| | | | | | | | | | |
Interest rate lock commitments | |
| | |
| — | |
| — | |
| |
Forward contracts | | | | |
| — | |
| | |
| — |
Interest rate swaps | | | | | | — | | | | | | — |
Interest rate swaps, caps and floors (back-to-back) | | | | | | — | | | | | | — |
Put options | | | | | | — | | | | | | |
Interest rate floors | | | | | | — | | | — | | | |
Derivative liabilities: | | | | | | | | | | | | |
Interest rate lock commitments | | | | | | — | | | — | | | |
Forward contracts | | | | | | — | | | | | | — |
Interest rate swaps, caps and floors (back-to-back) | | | | | | — | | | | | | — |
39
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized on the accompanying unaudited condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the six months ended June 30, 2025 and the year ended December 31, 2024. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
The Company values its assets and liabilities in the principal market where it sells the particular asset or transfers the liability with the greatest volume and level of activity. In the absence of an active market, the value is based on the most advantageous market for the asset or liability.
Mortgage Loans in Process of Securitization, Securities Available for Sale, and Securities with a Fair Value Option Election
Where quoted market prices are available in an active market, securities such as U.S. Treasuries are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market-based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy including Federal Agencies, mortgage-backed securities, municipal securities and Federal Housing Administration participation certificates. In certain cases, if Level 1 or Level 2 inputs are not available, securities would be classified within Level 3 of the hierarchy.
Loans Held for Sale
Certain loans held for sale at fair value are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted prices, or market price equivalents, which would be used by other market participants. These saleable loans are considered Level 2.
Servicing Rights
Servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed, cost of servicing, interest rates, and default rate. Due to the nature of the valuation inputs, servicing rights are classified within Level 3 of the hierarchy.
The Chief Financial Officer’s (CFO) office contracts with an independent pricing specialist to generate fair value estimates on a quarterly basis. The CFO’s office challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with GAAP.
Derivative Financial Instruments
Interest rate lock commitments - The Company estimates the fair value of interest rate lock commitments based on the value of the underlying mortgage loan, quoted mortgage-backed security prices, estimates of the fair value of the servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of expenses. With respect to its interest rate lock commitments, management determined that a Level 3 classification was most appropriate based on the various significant unobservable inputs utilized in estimating the fair value of its interest rate lock commitments.
Forward sales commitments - The Company estimates the fair value of forward sales commitments based on market quotes of mortgage-backed security prices for securities similar to the ones used, which are considered Level 2.
40
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Interest rate swaps, caps, and floors (back-to-back) – The Company estimates the fair value of these derivatives made in relation to specific contracts with customers based on prices that are obtained from a third party that uses observable market inputs, thereby supporting a Level 2 classification.
Interest rate swaps – The Company estimates the fair value of interest rate swaps based on prices that are obtained from a third party that uses observable market inputs, thereby supporting a Level 2 classification.
Put options - The fair value of put options is linked to securities available for sale that are accounted for using the fair value option and are classified as either Level 2 or Level 3 on the hierarchy. The put options are classified as Level 2 or Level 3 in the hierarchy, depending upon the magnitude of observable inputs in the valuation of the securities. These valuations are estimated by a third party.
Interest rate floors - The fair value of certain interest rate floors is linked to securities available for sale that are accounted for using the fair value option. Other interest rate floors are linked to loans with warehouse customers. The value of the interest rate floors is based on estimated discounted cash flows that are based on inputs that are not readily observable and, thus, are classified as Level 3 on the hierarchy. These valuations are estimated by a third party.
Credit Default Swap – The fair value of the CDS is linked to the value of its underlying mortgage loans. The Company estimates the fair value based on estimated discounted cash flows that are derived from inputs, including credit spreads that are not readily observable and, thus, are classified as Level 3 on the hierarchy. These valuations are estimated by a third party.
41
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Level 3 Reconciliation
The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized on the accompanying unaudited condensed consolidated balance sheets using significant unobservable (Level 3) inputs:
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||||||
|
| 2025 |
| 2024 |
| 2025 |
| 2024 | ||||
| | (In thousands) | | (In thousands) | ||||||||
Servicing rights | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | | | $ | | | $ | |
Purchased servicing | | | | | | | | | | | | — |
Originated servicing | |
| | |
| | |
| | |
| |
Paydowns | |
| ( | |
| ( | |
| ( | |
| ( |
Changes in fair value | |
| | |
| | |
| ( | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Securities available for sale - Mortgage-backed - Non-Agency residential - fair value option | | | | | | | | | | | | |
Balance, beginning of period | | $ | — | | $ | | | $ | — | | $ | |
Paydowns | | | — | | | ( | | | — | | | ( |
Changes in fair value | |
| — | |
| ( | |
| — | |
| ( |
Balance, end of period | | $ | — | | $ | | | $ | — | | $ | |
| | | | | | | | | | | | |
Derivative assets - put options | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | | | $ | | | $ | |
Changes in fair value | |
| | |
| | |
| | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Derivative assets - interest rate floors | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | | | $ | | | $ | |
Changes in fair value | |
| | |
| | |
| | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Derivative assets - interest rate lock commitments | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | | | $ | | | $ | |
Gain (loss) recognized | |
| | |
| ( | |
| | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Derivative liabilities - interest rate lock commitments | | | | | | | | | | | | |
Balance, beginning of period | | $ | | | $ | | | $ | | | $ | |
Gain (loss) recognized | |
| ( | |
| | |
| ( | |
| |
Balance, end of period | | $ | | | $ | | | $ | | | $ | |
42
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Nonrecurring Measurements
The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2025 and December 31, 2024.
| | | | | | | | | | | | |
| | Fair Value Measurements Using | ||||||||||
| | | | | Quoted Prices in | | Significant | | Significant | |||
| | | | | Active Markets for | | Other Observable | | Unobservable | |||
| | Fair | | Identical Assets | | Inputs | | Inputs | ||||
Assets | | Value | | (Level 1) | | (Level 2) | | (Level 3) | ||||
| | (In thousands) | ||||||||||
June 30, 2025 | |
|
| |
|
| |
|
| |
|
|
Collateral dependent loans | | $ | | | $ | — | | $ | — | | $ | |
December 31, 2024 | |
|
| |
|
| |
|
| |
|
|
Collateral dependent loans | | $ | | | $ | — | | $ | — | | $ | |
Other real estate owned | | $ | | | $ | — | | $ | — | | $ | |
Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized on the accompanying unaudited condensed consolidated balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.
Collateral Dependent Loans, Net of ACL-Loans
The estimated fair value of collateral dependent loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral dependent loans are classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral-dependent loans are obtained when the loan is determined to be classified as substandard, collateral-dependent and subsequently as deemed necessary by the CCO’s office. Appraisals and evaluations are reviewed for accuracy and consistency by the CCO’s office. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the CCO’s office by comparison to historical results.
Other Real Estate Owned
The estimated fair value of other real estate owned is usually based on the appraised fair value of the collateral or in certain circumstances on sales agreements, and in all cases net of estimated cost to sell. Other real estate owned is classified within Level 3 of the fair value hierarchy.
The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying other real estate owned are obtained when the loan is in the process of foreclosure and subsequently as deemed necessary by the CCO’s office. Appraisals and evaluations are reviewed for accuracy and consistency by the CCO’s office. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated costs to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the CCO’s office by comparison to historical results.
43
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Unobservable (Level 3) Inputs:
The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill.
| | | | | | | | | | | |
| | | | | Valuation | | | | | | Weighted |
|
| Fair Value |
| Technique |
| Unobservable Inputs | | Range |
| Average | |
| | (In thousands) | |||||||||
At June 30, 2025: |
| |
|
|
| | | | |
| |
Collateral dependent loans | | $ | |
| Market comparable properties |
| Marketability discount and costs to sell | |
| ||
Servicing rights - Multi-family | | $ | |
| Discounted cash flow |
| Discount rate | |
| ||
| | | | | | | Constant prepayment rate | |
| ||
| | | | | | | Earnings rate on escrows | | | ||
Servicing rights - Single-family | | $ | |
| Discounted cash flow |
| Discount rate | | | ||
| | | | | | | Constant prepayment rate | | | ||
Servicing rights - Healthcare | | $ | |
| Discounted cash flow |
| Discount rate | |
| ||
| | | | | | | Constant prepayment rate | |
| ||
| | | | | | | Earnings rate on escrows | | | ||
Servicing rights - SBA | | $ | |
| Discounted cash flow |
| Discount rate | |
| ||
| | | | | | | Constant prepayment rate | | | ||
Derivative assets: | | | | | | | | | | | |
Interest rate lock commitments | | $ | |
| Discounted cash flow |
| Loan closing rates | |
| ||
Put options | | $ | | | Intrinsic value | | Market credit spread | | | ||
Interest rate floors | | $ | | | Discounted cash flow | | Discount rate | | | ||
Derivative liabilities - interest rate lock commitments | | $ | |
| Discounted cash flow |
| Loan closing rates | |
| ||
| | | | | | | | | | | |
At December 31, 2024: | |
|
|
|
| | | | |
| |
Collateral dependent loans | | $ | |
| Market comparable properties |
| Marketability discount and costs to sell | |
| ||
Other real estate owned | | $ | | | Market comparable properties | | Marketability discount and costs to sell | | 2% - 8% | | |
Servicing rights - Multi-family | | $ | |
| Discounted cash flow |
| Discount rate | |
| ||
| | | | | | | Constant prepayment rate | |
| ||
| | | | | | | Earnings rate on escrows | | | ||
Servicing rights - Single-family | | $ | |
| Discounted cash flow |
| Discount rate | | | ||
| | | | | | | Constant prepayment rate | | | ||
Servicing rights - Healthcare | | $ | |
| Discounted cash flow |
| Discount rate | |
| ||
| | | | | | | Constant prepayment rate | |
| ||
| | | | | | | Earnings rate on escrows | | | ||
Servicing rights - SBA | | $ | |
| Discounted cash flow |
| Discount rate | | | ||
| | | | | | | Constant prepayment rate | | | ||
Derivative assets: | | | | | | | | | | | |
Interest rate lock commitments | | $ | |
| Discounted cash flow |
| Loan closing rates | |
| ||
Put options | | $ | | | Intrinsic value | | Market credit spread | | | ||
Interest rate floors | | $ | | | Discounted cash flow | | Discount rate | | | ||
Derivative liabilities - interest rate lock commitments | | $ | |
| Discounted cash flow |
| Loan closing rates | |
| ||
Sensitivity of Significant Unobservable Inputs
The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement, and of how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.
44
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Collateral Dependent Loans and Other Real Estate Owned
The significant unobservable inputs used in the fair value measurement of the Company’s collateral dependent loans and other real estate owned is based on liquidation amounts of the underlying collateral using the most recently available appraisals with adjustments made for a marketability discount and costs to sell.
Servicing Rights
The significant unobservable inputs used in the fair value measurement of the Company’s servicing rights are discount rates and constant prepayment rates. These two inputs can drive a significant amount of a market participant’s valuation of servicing rights. Significant increases (decreases) in the discount rate or assumed constant prepayment rates used to value servicing rights would decrease (increase) the value derived.
Derivative Financial Instruments
The significant unobservable input used in the fair value measurement of certain put options include market credit spreads that can be impacted by market conditions and drive a significant amount of a market participant’s valuation of the put option and its related security. The impact of changes to the unobservable inputs for the put option is mitigated by changes to the observable inputs for the related security, which are valued in opposite directions, so as to minimize the financial impact to the Company.
The significant unobservable input used in the fair value measurement of interest rate floor derivatives associated with certain securities available for sale and loans include the discount rate that can have a significant impact on the value of the derivative. Another variable that affects the floor value is the forward interest curve, which is observable, but changes with market conditions as interest rates and future interest rate expectations change.
45
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Fair Value of Financial Instruments
The following table presents the carrying amount and estimated fair values of the Company’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2025 and December 31, 2024.
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements Using | ||||||||||
| | | | | | | | Quoted Prices in | | Significant | |
| | ||
| | | | | | | | Active Markets | | Other | | Significant | |||
| | | | | | | | for Identical | | Observable | | Unobservable | |||
| | Carrying | | Fair | | Assets | | Inputs | | Inputs | |||||
|
| Value |
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
| | (In thousands) | |||||||||||||
June 30, 2025 | | | | | | | | | | | | | | | |
Financial assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | | | $ | | | $ | | | $ | — | | $ | — |
Securities purchased under agreements to resell | |
| | |
| | |
| — | |
| | |
| — |
Securities held to maturity | |
| | |
| | |
| — | |
| | |
| |
FHLB stock and other equity securities | |
| | |
| | |
| — | |
| | |
| |
Loans held for sale | |
| | |
| | |
| — | |
| | |
| — |
Loans receivable, net | |
| | |
| | |
| — | |
| — | |
| |
Interest receivable | |
| | |
| | |
| — | |
| | |
| — |
Financial liabilities: | |
|
| |
| | |
|
| |
|
| |
|
|
Deposits | |
| | |
| | |
| | |
| | |
| — |
Subordinated debt | |
| | |
| | |
| — | |
| | |
| — |
FHLB advances | |
| | |
| | |
| — | |
| | |
| — |
Other borrowing | | | | | | | | | — | | | | | | — |
Credit linked notes | | | | | | | | | — | | | | | | — |
Interest payable | |
| | |
| | |
| — | |
| | |
| — |
| | | | | | | | | | | | | | | |
December 31, 2024 | |
|
| |
|
| |
|
| |
|
| |
|
|
Financial assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | | | $ | | | $ | | | $ | — | | $ | — |
Securities purchased under agreements to resell | |
| | |
| | |
| — | |
| | |
| — |
Securities held to maturity | | | | | | | |
| — | |
| | |
| |
FHLB stock and other equity securities | |
| | |
| | |
| — | |
| | |
| |
Loans held for sale | |
| | |
| | |
| — | |
| | |
| — |
Loans receivable, net | |
| | |
| | |
| — | |
| — | |
| |
Interest receivable | |
| | |
| | |
| — | |
| | |
| — |
Financial liabilities: | |
|
| |
| | |
|
| |
|
| |
|
|
Deposits | |
| | |
| | |
| | |
| | |
| — |
Subordinated debt | |
| | |
| | |
| — | |
| | |
| — |
FHLB advances | |
| | |
| | |
| — | |
| | |
| — |
Other borrowing | | | | | | | | | — | | | | | | — |
Credit linked notes | | | | | | | | | — | | | | | | — |
Interest payable | |
| | |
| | |
| — | |
| | |
| — |
46
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 13: Common Stock
Public Offerings of Common Stock:
On May 13, 2024, the Company issued
Note 14: Preferred Stock
Public Offerings of Preferred Stock:
Series A Preferred Stock – On March 28, 2019, the Company issued
The Company redeemed all outstanding shares of the Series A Preferred Stock on April 1, 2024 at a price equal to the liquidation preference of $
The $
Series B Preferred Stock – On August 19, 2019, the Company issued
The Company redeemed all outstanding shares of the Series B Preferred Stock on January 2, 2025, at a price equal to the liquidation preference of $
The $
Series C Preferred Stock – On March 23, 2021, the Company issued
47
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
depositary share). The aggregate gross offering proceeds for the shares issued by the Company was $
On May 6, 2021 the Company completed a private offering of
The Series C Preferred Stock has no voting rights with respect to matters that generally require the approval of common shareholders. Dividends on the Series C Preferred Stock, to the extent declared by the Company’s board, are payable quarterly. The Company may redeem the Series C Preferred Stock, in whole or in part, at its option, on any dividend payment date on or after April 1, 2026, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption.
Series D Preferred Stock – On September 27, 2022, the Company issued
The Series D Preferred Stock has no voting rights with respect to matters that generally require the approval of common shareholders. Dividends on the Series D Preferred Stock, to the extent declared by the Company’s board, are payable quarterly. The Company may redeem the Series D Preferred Stock, in whole or in part, at its option, on any dividend payment date on or after October 1, 2027, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption.
Series E Preferred Stock – On November 25, 2024, the Company issued
The Series E Preferred Stock has no voting rights with respect to matters that generally require the approval of common shareholders. Dividends on the Series E Preferred Stock, to the extent declared by the Company’s board, are payable quarterly. The Company may redeem the Series E Preferred Stock, in whole or in part, at its option, on any dividend payment date on or after January 1, 2030, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption.
48
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 15: Share-Based Payment Plans
Equity-based incentive awards for Company officers are currently issued pursuant to the 2017 Equity Incentive Plan. The Company did
The Compensation Committee of the Board of Directors also approved a plan for non-executive directors to receive a portion of their annual retainer fees in the form of shares of common stock. As of January 1, 2024, they are to receive a portion of their annual fees, issued quarterly, in the form of restricted common stock equal to $
The Company also established an ESOP to provide shares of stock for all employees who meet certain requirements. There was
Note 16: Earnings Per Share
Earnings per share were computed as follows for the three and six months ended June 30, 2025 and 2024:
| | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | ||||||||||||||
| | 2025 | | 2024 | ||||||||||||
| | | | | Weighted- | | Per | | | | | Weighted- | | Per | ||
| | Net | | Average | | Share | | Net | | Average | | Share | ||||
|
| Income |
| Shares |
| Amount |
| Income |
| Shares |
| Amount | ||||
| | (In thousands, except share data) | ||||||||||||||
Net income | | $ | |
|
|
| |
| | $ | |
|
|
| |
|
Dividends on preferred stock | | | ( | | | | | | | | ( | | | | | |
Impact of preferred stock redemption | |
| — |
|
|
| |
| |
| ( |
|
|
| |
|
Net income allocated to common shareholders | | $ | |
|
|
| |
| | $ | |
|
|
| |
|
Basic earnings per share | |
|
|
| | | $ | | |
|
|
| | | $ | |
Effect of dilutive securities-restricted stock awards | |
|
|
| | |
|
| |
|
|
| | |
|
|
Diluted earnings per share | |
|
|
| | | $ | | |
|
|
| | | $ | |
| | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, | ||||||||||||||
| | 2025 | | 2024 |
| | ||||||||||
| | | | | Weighted- | | Per | | | | | Weighted- | | Per | ||
| | Net | | Average | | Share | | Net | | Average | | Share | ||||
|
| Income |
| Shares |
| Amount |
| Income |
| Shares |
| Amount | ||||
| | (In thousands, except share data) | ||||||||||||||
Net income | | $ | |
|
|
| |
| | $ | |
|
|
| |
|
Dividends on preferred stock | |
| ( |
|
|
| |
| |
| ( |
|
|
| |
|
Impact of preferred stock redemption | | | ( | | | | | | | | ( | | | | | |
Net income allocated to common shareholders | | $ | |
|
|
| |
| | $ | |
|
|
| |
|
Basic earnings per share | |
|
|
| | | $ | | |
|
|
| | | $ | |
Effect of dilutive securities-restricted stock awards | |
|
|
| | |
|
| |
|
|
| | |
|
|
Diluted earnings per share | |
|
|
| | | $ | | |
|
|
| | | $ | |
49
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 17: Segment Information
The Company’s
The Company’s segments diversify the net income of Merchants Bank and provide synergies across the segments. Strategic opportunities come from MCC and MCS, where loans are funded by the Banking segment and the Banking segment provides Ginnie Mae custodial services to MCC and MCS. Low-income tax credit syndication and debt fund offerings complement the lending activities of new and existing multi-family mortgage customers. The securities available for sale and held to maturity funded by MCC custodial deposits or purchases of securitized loans originated by MCC are pledged to the FHLB to provide advance capacity during periods of high residential loan volume for Mortgage Warehousing. Mortgage Warehousing provides leads to Correspondent Lending in the Banking segment. Retail and commercial customers provide cross selling opportunities within the Banking segment. Merchants Mortgage is a risk mitigant to Mortgage Warehousing because it provides us with a ready platform to sell or refinance the underlying collateral to secure repayment. These and other synergies form a part of our strategic plan.
The reportable business segments are strategic business units that offer distinct, but complimentary, products and services. Due to the specialized nature of each segment and different resource requirements, they are managed separately.
The Company’s CODM is the president and chief operating officer. The CODM evaluates performance for all reportable segments based on net interest income, noninterest income, noninterest expense, and net income (loss). The CODM uses the above-mentioned metrics along with total assets in deciding how to allocate capital as well as human and financial resources among the segments. Major decisions are also made with input from segment leadership, the Board of Directors, and various management committees, as appropriate.
50
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The tables below present selected business segment financial information for the three and six months ended June 30, 2025 and 2024.
| | | | | | | | | | | | | | | |
| | Multi-family | | | | | | | | | | |
|
| |
| | Mortgage | | Mortgage | | | | | | | | |
| ||
|
| Banking |
| Warehousing |
| Banking |
| Other |
| Total | |||||
| | (In thousands) | |||||||||||||
Three Months Ended June 30, 2025 | | | |||||||||||||
Interest income | | $ | | | $ | | | $ | | | $ | |
| $ | |
Interest expense | |
| | |
| | |
| | |
| ( |
|
| |
Net interest income | |
| | |
| | |
| | |
| |
|
| |
Provision for credit losses | |
| ( | |
| | |
| | |
| — |
|
| |
Net interest income after provision for credit losses | |
| | |
| | |
| | |
| |
|
| |
Noninterest income | |
| | |
| | |
| | |
| ( |
|
| |
Noninterest expense | |
| | |
| | |
| | |
| |
|
| |
Income (loss) before income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Net income (loss) | | $ | | | $ | | | $ | | | $ | ( |
| $ | |
Total assets | | $ | | | $ | | | $ | | | $ | |
| $ | |
| | | | | | | | | | | | | | | |
Significant non-cash items: | | | | | | | | | | | | | | | |
Included in other noninterest income: | | | | | | | | | | | | | | | |
Servicing rights fair value adjustments | | $ | | | $ | — | | $ | ( | | $ | — |
| $ | |
Derivative fair value adjustments | | | — | | | | | | — | | | — | | | |
| | | | | | | | | | | | | | | |
| | Multi-family | | | | | | | | | | | |
| |
| | Mortgage | | Mortgage | | | | | | | | |
| ||
|
| Banking |
| Warehousing |
| Banking |
| Other |
| Total | |||||
| | (In thousands) | |||||||||||||
Three Months Ended June 30, 2024 | | | |||||||||||||
Interest income | | $ | | | $ | | | $ | | | $ | |
| $ | |
Interest expense | |
| | |
| | |
| | |
| ( |
|
| |
Net interest income | |
| | |
| | |
| | |
| |
|
| |
Provision for credit losses | |
| — | |
| | |
| | |
| — |
|
| |
Net interest income after provision for credit losses | |
| | |
| | |
| | |
| |
|
| |
Noninterest income | |
| | |
| | |
| | |
| ( |
|
| |
Noninterest expense | |
| | |
| | |
| | |
| |
|
| |
Income (loss) before income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Net income (loss) | | $ | | | $ | | | $ | | | $ | ( |
| $ | |
Total assets | | $ | | | $ | | | $ | | | $ | |
| $ | |
| | | | | | | | | | | | | | | |
Significant non-cash items: | | | | | | | | | | | | | | | |
Included in other noninterest income: | | | | | | | | | | | | | | | |
Servicing rights fair value adjustments | | $ | | | $ | — | | $ | | | $ | — |
| $ | |
Derivative fair value adjustments | | | — | | | | | | — | | | — | | | |
51
Table of Contents
Merchants Bancorp
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | |
| | Multi-family | | | | | | | | | | |
|
| |
| | Mortgage | | Mortgage | | | | | | | | |
| ||
|
| Banking |
| Warehousing |
| Banking |
| Other |
| Total | |||||
| | (In thousands) | |||||||||||||
Six Months Ended June 30, 2025 | | | | | | | | | | | | | | | |
Interest income | | $ | | | $ | | | $ | | | $ | |
| $ | |
Interest expense | |
| | |
| | |
| | |
| ( |
|
| |
Net interest income | |
| | |
| | |
| | |
| |
|
| |
Provision for credit losses | |
| ( | |
| | |
| | |
| — |
|
| |
Net interest income after provision for credit losses | |
| | |
| | |
| | |
| |
|
| |
Noninterest income | |
| | |
| | |
| | |
| ( |
|
| |
Noninterest expense | |
| | |
| | |
| | |
| |
|
| |
Income (loss) before income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Net income (loss) | | $ | | | $ | | | $ | | | $ | ( |
| $ | |
Total assets | | $ | | | $ | | | $ | | | $ | |
| $ | |
| | | | | | | | | | | | | | | |
Significant non-cash items: | | | | | | | | | | | | | | | |
Included in other noninterest income: | | | | | | | | | | | | | | | |
Servicing rights fair value adjustments | | $ | | | $ | — | | $ | ( | | $ | — |
| $ | ( |
Derivative fair value adjustments | | | — | | | | | | — | | | — | | | |
| | | | | | | | | | | | | | | |
| | Multi-family | | | | | | | | | | | |
| |
| | Mortgage | | Mortgage | | | | | | | | |
| ||
|
| Banking |
| Warehousing |
| Banking |
| Other |
| | Total | ||||
| | (In thousands) | |||||||||||||
Six Months Ended June 30, 2024 | | | | | | | | | | | | | | | |
Interest income | | $ | | | $ | | | $ | | | $ | |
| $ | |
Interest expense | |
| | |
| | |
| | |
| ( |
|
| |
Net interest income | |
| | |
| | |
| | |
| |
|
| |
Provision for credit losses | |
| — | |
| | |
| | |
| — |
|
| |
Net interest income after provision for credit losses | |
| | |
| | |
| | |
| |
|
| |
Noninterest income | |
| | |
| | |
| | |
| ( |
|
| |
Noninterest expense | |
| | |
| | |
| | |
| |
|
| |
Income (loss) before income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Income taxes | |
| | |
| | |
| | |
| ( |
|
| |
Net income (loss) | | $ | | | $ | | | $ | | | $ | ( |
| $ | |
Total assets | | $ | | | $ | | | $ | | | $ | |
| $ | |
| | | | | | | | | | | | | | | |
Significant non-cash items: | | | | | | | | | | | | | | | |
Included in other noninterest income: | | | | | | | | | | | | | | | |
Servicing rights fair value adjustments | | $ | | | $ | — | | $ | | | $ | — |
| $ | |
Derivative fair value adjustments | | | — | | | | | | — | | | — | | | |
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Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 18: Regulatory Matters
The Company and Merchants Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by federal and state banking regulators that, if undertaken, could have a direct material effect on the Company’s unaudited condensed consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Merchants Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and Merchants Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and Merchants Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, and other factors. Furthermore, the Company’s and Merchants Bank’s regulators could require adjustments to regulatory capital not reflected in these unaudited condensed consolidated financial statements.
Quantitative measures established by regulation to ensure capital adequacy require the Company and Merchants Bank to maintain minimum amounts and ratios (set forth in the table below). Management believes, as of June 30, 2025 and December 31, 2024, that the Company and Merchants Bank met all capital adequacy requirements. For additional information regarding dividend restrictions, see the Company’s 2024 Annual Report on Form 10–K.
As of June 30, 2025 and December 31, 2024, the most recent notifications from the Federal Reserve categorized the Company as well capitalized and most recent notifications from the FDIC categorized Merchants Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s or Merchants Bank’s category.
The Company’s and Merchants Bank’s actual capital amounts and ratios are presented in the following tables.
| | | | | | | | | | | | | | | | |
| | | | | | | Minimum | | | | ||||||
| | | | | | | Amount to be Well | | Minimum Amount | | ||||||
| | | | | | | Capitalized with | | To Be Well | | ||||||
| | Actual | | Basel III Buffer(1) | | Capitalized(1) | | |||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio | | Amount |
| Ratio |
| |||
| | (Dollars in thousands) | | |||||||||||||
June 30, 2025 | | | | | | | | | | | | | | | | |
Total capital(1) (to risk-weighted assets) |
| |
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|
|
| | | | | | |
|
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Company | | $ | |
| | % | $ | |
| | % | $ | — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
Tier I capital(1) (to risk-weighted assets) | |
|
|
|
| |
|
|
|
| |
|
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|
| |
Company | |
| |
| | % |
| |
| | % |
| — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
Common Equity Tier I capital(1) (to risk-weighted assets) | | | | | | | | | | | | | | | | |
Company | |
| |
| | % |
| |
| | % |
| — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
Tier I capital(1) (to average assets) | |
| |
|
| |
|
|
| | |
|
|
|
| |
Company | |
| |
| | % |
| |
| | % |
| — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
| (1) | As defined by regulatory agencies. |
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Notes to Condensed Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | Minimum | | | | ||||||
| | | | | | | Amount to be Well | | Minimum Amount | | ||||||
| | | | | | | Capitalized with | | To Be Well | | ||||||
| | Actual | | Basel III Buffer(1) | | Capitalized(1) | | |||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio | | Amount | | Ratio | | |||
| | (Dollars in thousands) | | |||||||||||||
December 31, 2024 | | | | | | | | | | | | | | | | |
Total capital(1) (to risk-weighted assets) |
| |
|
|
|
| | | | | | |
|
|
|
|
Company | | $ | |
| | % | $ | |
| | % | $ | — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
Tier I capital(1) (to risk-weighted assets) | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Company | |
| |
| | % |
| |
| | % |
| — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
Common Equity Tier I capital(1) (to risk-weighted assets) | | | | | | | | | | | | | | | | |
Company | |
| |
| | % |
| |
| | % |
| — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
Tier I capital(1) (to average assets) | |
| |
|
| |
|
|
| | |
|
|
|
| |
Company | |
| |
| | % |
| |
| | % |
| — |
| N/A | % |
Merchants Bank | | | |
| | % |
| |
| | % |
| |
| | % |
| | | | | | | | | | | | | | | | |
| (1) | As defined by regulatory agencies. |
Memorandum of Understanding
On June 30, 2025, the Bank entered into a confidential MOU with the FDIC and DFI. While the contents of the MOU are confidential under DFI and FDIC regulations, certain provisions, with the authorization of the DFI and FDIC, are summarized below. The MOU is an informal administrative agreement among the Bank, FDIC, and DFI pursuant to which the Bank has agreed to take various actions and enhance specific areas of the Bank’s operations. In particular, the Bank has agreed to maintain certain capital thresholds, manage asset concentrations, and implement certain plans regarding the Bank’s operations and strategy to mitigate risk of certain assets, which it has already implemented. As of the date of this report, and as of each of the periods ending March 31, 2025 and December 31, 2024, the Bank’s capital exceeded the levels agreed to in the MOU and the Bank was within the asset concentration limits agreed to in the MOU. The MOU will remain in effect until modified or terminated by the FDIC and DFI.
The Company’s principal source of funds for dividend payments to shareholders is dividends received from the Bank. Banking statutes and regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under Indiana law, the Bank may not pay a dividend if such dividend would be greater than retained net income (as defined) for the current year plus those for the previous two years. Additionally, under the MOU, if the Bank’s capital ratios fall below the minimums agreed to, the Bank may not pay dividends without the FDIC and DFI’s prior consent.
Management does not expect the actions called for by these regulatory actions to have a material adverse impact on the Company’s financial performance or the Bank’s ongoing day-to-day operations, although they may have the effect of limiting or delaying the Company’s or the Bank’s ability or plans to expand.
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Forward-Looking Statements
Certain statements in this Form 10-Q, including, but not limited to, statements within Management’s Discussion and Analysis of Financial Condition and Results of Operations, are “forward-looking statements” within the meaning of the rules and regulations of the SEC. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized,” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2024 or “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q or the following:
| ● | business and economic conditions, particularly those affecting the financial services industry and our primary market areas; |
| ● | our ability to successfully manage our credit risk and the sufficiency of our allowance for loan loss; |
| ● | factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our commercial borrowers and the success of construction projects that we finance, including any loans acquired in acquisition transactions; |
| ● | liquidity issues, including fluctuations in the fair value and liquidity of the securities we hold for sale and our ability to raise additional capital, if necessary; |
| ● | compliance with governmental and regulatory requirements relating to banking, consumer protection, securities, and tax matters; |
| ● | our ability to maintain licenses required in connection with residential and multi-family mortgage origination, sale, and servicing operations; |
| ● | our ability to identify and address cyber-security risks, fraud, and systems errors; |
| ● | our ability to effectively execute our strategic plan and manage our growth; |
| ● | changes in our senior management team and our ability to attract, motivate, and retain qualified personnel; |
| ● | governmental monetary and fiscal policies, and changes in market interest rates; |
| ● | effects of competition from a wide variety of local, regional, national, and other providers of financial, investment and insurance services; |
| ● | the impact of any claims or legal actions to which we may be subject, including any effect on our reputation; and |
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| ● | changes in federal tax law or policy. |
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Form 10-Q. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of the financial condition at June 30, 2025 and results of operations for the three and six months ended June 30, 2025 and 2024, is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this Form 10-Q.
The words “the Company,” “we,” “our” and “us” refer to Merchants Bancorp and its consolidated subsidiaries, unless we indicate otherwise.
Regulatory Developments Regarding the Bancorp and Bank
Memorandum of Understanding. On June 30, 2025, the Bank entered into a confidential MOU with the FDIC and DFI. While the contents of the MOU are confidential under DFI and FDIC regulations, certain provisions, with the authorization of the DFI and FDIC, are summarized below. The MOU is an informal administrative agreement among the Bank, FDIC, and DFI pursuant to which the Bank has agreed to take various actions and enhance specific areas of the Bank’s operations. In particular, the Bank has agreed to maintain certain capital thresholds, manage asset concentrations, and implement certain plans regarding the Bank’s operations and strategy to mitigate risk of certain assets, which it has already implemented. As of the date of this report, and as of each of the periods ending March 31, 2025 and December 31, 2024, the Bank’s capital exceeded the levels agreed to in the MOU and the Bank was within the asset concentration limits agreed to in the MOU. The MOU will remain in effect until modified or terminated by the FDIC and DFI.
Management does not expect the actions called for by these regulatory actions to have a material adverse impact on the Company’s financial performance or the Bank’s ongoing day-to-day operations, although they may have the effect of limiting or delaying the Company’s or the Bank’s ability or plans to expand.
Financial Highlights for the Three Months Ended June 30, 2025
| ● | Net income of $38.0 million decreased $38.4 million, or 50%, compared to the three months ended June 30, 2024. |
| ● | Diluted earnings per share of $0.60 decreased 60% compared to the three months ended June 30, 2024. |
| ● | The $38.4 million decrease in net income compared to the three months ended June 30, 2024, reflected an increase in provision for credit losses of $43.1 million. The increase in provision for credit losses was primarily associated with estimated declines on multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. |
| ● | Tangible book value per common share of $35.42 increased 13% compared to $31.27 for the three months ended June 30, 2024. See Non-GAAP Financial Measures section at the end of Item 2. |
| ● | As of June 30, 2025, the Company had $5.0 billion in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window based on available collateral, compared to $4.3 billion at December 31, 2024. |
| ● | Total assets of $19.1 billion increased 2% compared to both March 31, 2025 and December 31, 2024. |
| ● | Loans receivable of $10.4 billion, net of allowance for credit losses on loans, increased $88.4 million, or 1%, compared to March 31, 2025, and increased $78.1 million, or 1%, compared to December 31, 2024. |
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| ● | Core deposits of $11.4 billion increased $744.6 million, or 7%, compared to March 31, 2025 and increased $2.0 billion, or 22%, compared to December 31, 2024. Core deposits now represent 90% of total deposits, reaching the highest level the Company has reported since March 2022. |
| ● | Brokered deposits of $1.3 billion decreased $463.9 million, or 27%, compared to March 31, 2025 and decreased $1.3 billion, or 50%, compared to December 31, 2024. |
| ● | As of June 30, 2025, approximately 95% of loans reprice within three months, which reduces the risk of market rate increases. |
| ● | Net interest margin was 2.83% compared to 2.99% for the three months ended June 30, 2024. |
| ● | Efficiency ratio was 43.16% compared to 31.59% for the three months ended June 30, 2024. |
| ● | On June 5, 2025, the Company completed a $373.3 million securitization of 18 multi-family mortgage loans through a Freddie Mac-sponsored Q-Series transaction. |
| ● | The volume of warehouse loans funded during the three months ended June 30, 2025 amounted to $16.3 billion, an increase of $5.4 billion, or 49%, compared to the three months ended June 30, 2024. This compared to the 28% industry increase in single-family residential loan volumes for the three months ended June 30, 2025 compared to the same period in 2024, according to an estimate of industry volume by the Mortgage Bankers Association. |
| ● | The total volume of loans originated and acquired through our multi-family business was $1.4 billion, an increase of $352.8 million, or 33%, compared to $1.1 billion for the three months ended June 30, 2024. It includes construction loans coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment, while borrowers await conversion to permanent financing. It also includes loans originated and acquired for sale in the secondary market. |
Business Overview
We are a diversified bank holding company headquartered in Carmel, Indiana and registered under the Bank Holding Company Act of 1956, as amended. We currently operate in multiple business segments, including Multi-family Mortgage Banking that offers multi-family housing and healthcare facility financing and servicing, as well as syndicated low-income housing tax credit and debt funds; Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services; and Banking that offers portfolio lending for multi-family and healthcare facility loans, retail and correspondent residential mortgage banking, agricultural lending, SBA lending, and traditional community banking.
Our business consists of funding low risk, multi-family, residential, and SBA loans meeting underwriting standards of government programs under an originate to sell model, and retaining adjustable-rate loans as held for investment to reduce interest rate risk. The gain on sale of these loans and servicing fees contribute to noninterest income. The funding source is primarily from mortgage custodial, municipal, retail, commercial, brokered deposits, and short-term borrowing. We believe that the combination of net interest income and noninterest income from the sale of low risk profile assets results in lower than industry charge-offs and a lower expense base, which serves to maximize net income and provide higher than industry shareholder return.
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Critical Accounting Policies and Estimates
The preparation of our unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the current circumstances. These estimates form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The estimates and judgments that management believes have the most effect on its reported financial position and results of operations are set forth within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since those reported for the year ended December 31, 2024.
Financial Condition
As of June 30, 2025, we had approximately $19.1 billion in total assets, $12.7 billion in deposits and $2.2 billion in total shareholders’ equity. Total assets as of June 30, 2025 included $10.4 billion of loans receivable, net of ACL-Loans, and $4.1 billion of loans held for sale. There were also $1.5 billion in securities classified as held to maturity. We had $936.3 million in securities available for sale, the majority of which were acquired from a warehouse customer, and others are match funded with related custodial deposits or required to collateralize our credit-linked notes. There are some restrictions on the types of securities we hold, particularly for those that are funded by certain multi-family custodial deposits where we set the cost of deposits based on the yield of the related security. Additionally, we had $647.2 million of cash and cash equivalents, other assets of $495.3 million, which primarily related to low-income housing tax credits, and $402.4 million of mortgage loans in process of securitization that represent pre-sold multi-family rental real estate loan originations in primarily Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities pending settlements that typically occur within 30 days. Servicing rights at June 30, 2025 were $193.0 million based on the fair value of the loan servicing, which primarily includes Ginnie Mae multi-family servicing rights with 10-year call protection.
Comparison of Financial Condition at June 30, 2025 and December 31, 2024
Total Assets. Total assets of $19.1 billion at June 30, 2025 increased $335.5 million, or 2%, compared to $18.8 billion at December 31, 2024. The increase was due primarily to growth in loans held for sale and in the warehouse and multi-family loan portfolios. Total loan balances grew by 2% even after two loan sales during the three months ended June 30, 2025 totaling over $685.4 million related to securitizations.
Cash and Cash Equivalents. Cash and cash equivalents of $647.2 million at June 30, 2025 increased $170.6 million, or 36%, compared to $476.6 million at December 31, 2024. Included in cash equivalents was $43.8 million in restricted cash associated with senior credit linked notes described in Note 1: Basis of Presentation in this Form 10-Q and Note 1: Basis of Presentation and Note 10: Borrowings and the Company’s 2024 Annual Report on Form 10–K.
Mortgage Loans in Process of Securitization. Mortgage loans in process of securitization of $402.4 million at June 30, 2025 decreased $25.8 million, or 6%, compared to $428.2 million at December 31, 2024. These represent loans that our banking subsidiary, Merchants Bank, has originated or funded and are held in the loan portfolio pending settlement, as primarily Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities with a firm investor commitment to purchase the securities.
Securities Available for Sale. Securities available for sale of $936.3 million at June 30, 2025 decreased $43.7 million, or 4%, compared to December 31, 2024. The decrease in securities available for sale was primarily due to
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$391.8 million in calls, maturities, repayments and other adjustments, partially offset by purchases of $348.1 million during the period.
Included in securities available for sale were $603.0 million and $635.9 million of investments at June 30, 2025 and December 31, 2024, respectively, for which a fair value option was elected. Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on the unaudited condensed consolidated balance sheets with changes in the fair value recognized in earnings as they occur.
As of June 30, 2025, AOCL of $0.2 million, related to securities available for sale, increased $0.1 million, or 86%, compared to accumulated losses of $0.1 million at December 31, 2024. The $0.2 million of AOCL as of June 30, 2025 represented less than 1% of total equity and 1% of total securities available for sale, reflecting our interest rate risk policy of maintaining short duration on assets and liabilities.
Securities Held to Maturity. Securities held to maturity of $1.5 billion at June 30, 2025 decreased $116.5 million, or 7%, compared to $1.7 billion at December 31, 2024. The decrease was due to repayments and amortization during the period.
Loans Held for Sale. Loans held for sale of $4.1 billion at June 30, 2025 increased $334.3 million, or 9%, compared to $3.8 billion at December 31, 2024. The increase in loans held for sale was due primarily to an increase in warehouse participations, as we experienced higher volume. Loans held for sale are comprised primarily of single-family residential real estate loan participations that meet Fannie Mae, Freddie Mac, or Ginnie Mae eligibility. It also includes some multi-family loans that are expected to be sold or securitized in the future.
Loans Receivable, Net. Loans receivable, net of ACL-Loans, of $10.4 billion at June 30, 2025, increased $78.1 million, or 1%, compared to December 31, 2024. The increase in net loans was comprised primarily of:
| ● | an increase of $397.7 million, or 28%, in mortgage warehouse repurchase agreements, which totaled $1.8 billion at June 30, 2025, reflecting higher loan volume from increased sales efforts and market exits or reductions by competitors. |
| ● | an increase of $209.2 million, or 5%, in multi-family financing loans, which totaled $4.8 billion at June 30, 2025, reflecting higher origination volume for construction and other loans generated through multi-family segment that will remain on our balance sheet until they convert to permanent financing or are otherwise paid off over an average of one to three years. |
| ● | a decrease of $334.1 million, or 25%, in residential real estate loans, which totaled $988.8 million at June 30, 2025, primarily due to a loan sale. |
As of June 30, 2025, approximately 95% of total loans reprice within three months, which reduces the risk of market rate increases.
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The Company is a nationwide lender, especially in our largest portfolios of multi-family and healthcare financing. The table below provides loan receivable data for these two portfolios, including the five highest geographic concentrations.
| | | | | | | | | | | | | | |
| | June 30, 2025 | | |||||||||||
|
| Multi-family | | | | Healthcare | | |||||||
State | | Amount | | % of Total | | | State | | Amount | | % of Total | | ||
| | (Dollars in thousands) | | | | | | (Dollars in thousands) | | |||||
Indiana | | $ | 1,244,946 | | 26 | % | | Michigan | | $ | 347,464 | | 24 | % |
New York | |
| 650,800 | | 13 | % | | Ohio | |
| 254,783 | | 18 | % |
Ohio | |
| 251,923 | | 5 | % | | Texas | |
| 124,152 | | 9 | % |
Georgia | | | 233,565 | | 5 | % | | South Carolina | | | 102,500 | | 7 | % |
California | | | 233,409 | | 5 | % | | New Jersey | | | 88,668 | | 6 | % |
Other states (1) | |
| 2,218,905 | | 46 | % | | Other states (1) | |
| 524,528 | | 36 | % |
Total | | $ | 4,833,548 | | 100 | % | | | | $ | 1,442,095 | | 100 | % |
| (1) | No state included in the “Other states” group has an individual percentage more than the next highest concentration percentage for the specific portfolio of loans. |
| | | | | | | | | | | | | | |
| | December 31, 2024 | | |||||||||||
|
| Multi-family | | | | Healthcare | | |||||||
State | | Amount | | % of Total | | | State | | Amount | | % of Total | | ||
| | (Dollars in thousands) | | | | | (Dollars in thousands) | | ||||||
Indiana | | $ | 1,446,658 | | 31 | % | | Michigan | | $ | 395,867 | | 27 | % |
New York | |
| 482,873 | | 10 | % | | Ohio | |
| 314,475 | | 21 | % |
Ohio | |
| 274,738 | | 6 | % | | South Carolina | |
| 102,500 | | 7 | % |
California | | | 215,134 | | 5 | % | | Indiana | | | 102,338 | | 7 | % |
Texas | | | 185,133 | | 4 | % | | New Jersey | | | 89,793 | | 6 | % |
Other states (1) | |
| 2,019,763 | | 44 | % | | Other states (1) | |
| 479,510 | | 32 | % |
Total | | $ | 4,624,299 | | 100 | % | | | | $ | 1,484,483 | | 100 | % |
| (1) | No state included in the “Other states” group has an individual percentage more than the next highest concentration percentage for the specific portfolio of loans. |
ACL-Loans. The ACL-Loans of $91.8 million at June 30, 2025 increased $7.4 million, or 9%, compared to $84.4 million at December 31, 2024. The increase compared to December 31, 2024 was driven by $64.0 million increase in provision expense that was partially offset by $56.6 million in charge-offs, primarily related to the multi-family portfolio. The increases in provision expenses and charge-offs were primarily associated with estimated declines on multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. The increases were also attributable to certain types of subordinated loans that the Company no longer offers to borrowers. These subordinated loans have been largely identified and evaluated for potential losses that have either been included in the provision for credit losses as specific reserves or charged off.
Goodwill. Goodwill of $8.0 million at June 30, 2025 was unchanged compared to December 31, 2024.
Servicing Rights. Servicing rights of $193.0 million at June 30, 2025 increased $3.1 million, or 2%, compared to $189.9 million at December 31, 2024. During the six months ended June 30, 2025, originated and purchased servicing of $8.7 million was partially offset by paydowns of $5.1 million and a negative fair market value adjustment of $0.5 million. The $0.5 million negative fair market value adjustment reflected a positive fair market value adjustment of $1.2 million for multi-family mortgages and a negative fair market value adjustment of $1.7 million for single-family mortgages and SBA loans during the six months ended June 30, 2025.
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Servicing rights are recognized in connection with sales of loans when we retain servicing of the sold loans. The servicing rights are recorded and carried at fair value. The fair value decrease recorded during the six months ended June 30, 2025 was driven by lower interest rates that impacted fair market value adjustments. The value of servicing rights generally increases in rising interest rate environments and declines in falling interest rate environments due to expected prepayments and is also influenced by earnings rates on escrow deposits.
Other Assets and Receivables. Other assets and receivables of $495.3 million at June 30, 2025 decreased $76.0 million, or 13%, compared to $571.3 million at December 31, 2024. The decrease was primarily due to a $125.0 million prepaid asset at December 31, 2024 that was released for the January 2, 2025 redemption of Series B Preferred Stock, partially offset by the increase in low income housing tax credits.
Deposits. Deposits of $12.7 billion at June 30, 2025 increased $766.9 million, or 6%, compared to $11.9 billion at December 31, 2024. The increase was primarily due to an increase of $2.1 billion in demand deposits and $260.7 million in savings deposits, partially offset by a decrease of $1.6 billion in certificates of deposit. As of June 30, 2025, approximately 83% of the total deposits reprice within three months.
Core deposits increased by $2.0 billion, or 22%, to $11.4 billion at June 30, 2025 compared to $9.4 billion at December 31, 2024. Core deposits represented 90% of total deposits at June 30, 2025 compared to 79% of total deposits at December 31, 2024.
We have decreased our use of brokered deposits by 50%, to $1.3 billion at June 30, 2025 compared to $2.5 billion at December 31, 2024. Brokered deposits represented 10% of total deposits at June 30, 2025 compared to 21% of total deposits at December 31, 2024. As of June 30, 2025, brokered certificates of deposit had a weighted average remaining duration of 48 days.
| ● | Brokered certificates of deposit accounts of $1.0 billion at June 30, 2025 decreased by $1.5 billion, or 60%, compared to December 31, 2024. |
| ● | Brokered demand deposit accounts increased by $250.0 million, or 100%, compared to December 31, 2024. |
Compared to December 31, 2024, interest-bearing deposits increased $690.3 million, or 6%, to $12.4 billion at June 30, 2025, and noninterest-bearing deposits increased $76.5 million, or 32%, to $315.5 million at June 30, 2025.
Uninsured deposits totaled approximately $3.1 billion as of June 30, 2025, representing 24% of total Bank deposits. Since 2018, the Company has offered its customers an opportunity to insure balances in excess of $250,000 through our insured cash sweep program that extends FDIC protection up to $100 million. The balance of deposits in this program was $1.4 billion and $1.6 billion as of June 30, 2025 and December 31, 2024, respectively.
Borrowings. Borrowings of $4.0 billion at June 30, 2025 decreased $376.6 million, or 9%, compared to $4.4 billion at December 31, 2024. The decrease was primarily due to a reduction of $491.4 million in FHLB advances, partially offset by an increase of $125.0 million in the usage of the Federal Reserve’s discount window. The Company primarily utilizes borrowing facilities from the FHLB, the Federal Reserve’s discount window, and AFX, using the most cost-effective options available. See Note 10: Borrowings for further information.
The Company continues to have significant borrowing capacity based on available collateral. As of June 30, 2025, unused lines of credit totaled $5.0 billion, compared to $4.3 billion at December 31, 2024. The Company’s ratio of total collateralized borrowing capacity to total assets remained at 46% from December 31, 2024 compared to June 30, 2025.
Other Liabilities. Other Liabilities of $231.0 million at June 30, 2025 were essentially unchanged compared to December 31, 2024.
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Total Shareholders’ Equity. Total shareholders’ equity of $2.2 billion at June 30, 2025, decreased $58.7 million, or 3%, compared to December 31, 2024. The decrease resulted primarily from the redemption of 6% Series B Preferred Stock for $125.0 million and dividends paid on common and preferred shares of $29.7 million during the period, which were partially offset by net income of $96.2 million. See Note 14: Preferred Stock for more details on the Series B redemption.
Asset Quality
Loans are underwritten to strict Freddie Mac, Fannie Mae, HUD, or other Agency guidelines. We continually strive to strengthen our various levels of credit and risk management.
The allowance for credit losses on loans of $91.8 million, as of June 30, 2025, increased by $7.4 million, or 9%, compared to December 31, 2024. The $7.4 million increase compared to December 31, 2024 was driven by $64.0 million increase in provision expense that was partially offset by $56.6 million in loan charge-offs. The increases in provision expenses and charge-offs compared to the period was primarily associated with estimated declines on multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. The increases were also attributable to certain types of subordinated loans that the Company no longer offers to borrowers. These subordinated loans have been largely identified and evaluated for potential losses that have either been included in the provision for credit losses as specific reserves or charged off.
During the three months ended June 30, 2025 there were $46.1 million of charge-offs and no recoveries, compared to $3.5 million of charge-offs and $15,000 recoveries for the three months ended June 30, 2024.
For the six months ended June 30, 2025, there were $56.6 million of charge-offs and $28,000 of recoveries, compared to $4.4 million of charge-offs and $16,000 of recoveries for the six months ended June 30, 2024.
During the three months ended June 30, 2025, after months of seeking legal remedies, the Company obtained additional access and information, such as through court appointed receivers, to assess the collateral supporting its challenged loans. The evaluation of this information contributed to an increase in loans classified as substandard, bringing the total to $417.7 million compared to $317.3 million as of December 31, 2024.
Loans receivable classified as Special Mention totaled $171.5 million at June 30, 2025, compared to $380.0 million at December 31, 2024 and $244.0 million at June 30, 2024. These declines reinforce the view that the frequency of migration to criticized status has subsided.
Total loans receivable greater than 30 days past due were $279.0 million at June 30, 2025, $292.3 million at December 31, 2024, and $234.8 million at June 30, 2024.
As of June 30, 2025, all substandard loans have been evaluated for credit losses and these loans have specific reserves of $30.8 million, of which $9.9 million was added during the three months ended June 30, 2025, net of charge-offs. The Company believes that its loan portfolio remains well collateralized.
Total nonperforming loans (nonaccrual and greater than 90 days past due but still accruing) were $251.5 million, or 2.39%, of total loans receivable at June 30, 2025, compared to $279.7 million, or 2.68%, of total loans at December 31, 2024 and $143.5 million, or 1.30%, at June 30, 2024. After six months of consecutive loan performance, the loans are placed back on accrual status.
As a percentage of nonperforming loans, the ACL-Loans was 37% at June 30, 2025 compared to 30% at December 31, 2024 and 56% at June 30, 2024. The changes compared to both periods were primarily due to a decrease in nonperforming loans and an increase in ACL-Loans.
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The Company has been making additional efforts to reduce its credit risk through loan sale and securitization activities since 2019. In March of 2023, as well as March and December of 2024, the Company strategically executed credit protection arrangements through a credit linked note and credit default swaps. The Company also upsized an existing credit default swap in June 2025 by $800.0 million. These credit protection arrangements totaled $3.7 billion in loans to reduce risk of losses, with incremental coverage ranging from 13-14% of the unpaid principal balances for each arrangement. Despite having credit protection on these loans, the Company also continues to carry an allowance for credit losses on loans held for investment. As of June 30, 2025, the balance of loans subject to credit protection arrangements was $2.8 billion, compared to $2.3 billion as of December 31, 2024. For additional information see Note 11: Derivative Financial Instruments and the Company’s 2024 Annual Report on Form 10–K
The percentage of commercial real estate loans as a percentage of total Tier I risk-based capital, including the ACL-Loans, has declined from 348% to 328% from December 31, 2024 to June 30, 2025, respectively.
Comparison of Operating Results for the Three Months Ended June 30, 2025 and 2024
General. Net income of $38.0 million for the three months ended June 30, 2025 decreased by $38.4 million, or 50%, compared to the three months ended June 30, 2024, reflecting a $43.1 million, or 432%, increase in provision for credit losses. The increase in provision for credit losses was primarily associated with estimated declines on multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. The decrease in net income also reflected a $27.0 million, or 54%, increase in noninterest expense that was partially offset by a $19.1 million, or 61%, increase in noninterest income, and an $11.9 million, or 52%, decrease in provision for income tax. Of the $38.4 million decrease in net income, $691,000, or $0.01 per diluted common share, was attributable to changes in valuation adjustments. Noninterest income included positive fair market value adjustments of $258,000 to servicing rights and $4.3 million to derivatives, which compared to positive fair market value adjustments of $5.1 million to servicing rights and $215,000 to derivatives, in the three months ended June 30, 2024.
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The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis. Nonaccrual loans are included in loans and loans held for sale.
| | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| ||||||||||||||
| | 2025 | | 2024 |
| ||||||||||||
| |
| | | Interest | |
| |
| | | Interest | | |
| ||
| | Average | | Income/ | | Yield/ | | Average | | Income/ | | Yield/ |
| ||||
|
| Balance |
| Expense |
| Rate |
| Balance |
| Expense |
| Rate |
| ||||
| | (Dollars in thousands) | | ||||||||||||||
Assets: | | | | | | | | | | | | | | | | | |
Interest-earning deposits, and other interest or dividends | | $ | 539,357 | | $ | 8,193 |
| 6.09 | % | $ | 438,445 | | $ | 6,225 |
| 5.71 | % |
Securities available for sale | |
| 955,186 | |
| 12,095 |
| 5.08 | % |
| 1,039,388 | |
| 14,784 |
| 5.72 | % |
Securities held to maturity | | | 1,572,186 | | | 23,166 | | 5.91 | % | | 1,160,170 | |
| 19,799 |
| 6.86 | % |
Mortgage loans in process of securitization | |
| 376,904 | |
| 5,304 |
| 5.64 | % |
| 234,706 | |
| 3,044 |
| 5.22 | % |
Loans and loans held for sale | |
| 14,826,151 | |
| 255,641 |
| 6.92 | % |
| 14,347,165 | |
| 284,421 |
| 7.97 | % |
Total interest-earning assets | |
| 18,269,784 | |
| 304,399 |
| 6.68 | % |
| 17,219,874 | |
| 328,273 |
| 7.67 | % |
Allowance for credit losses on loans | |
| (90,860) | |
|
|
|
| |
| (76,456) | |
|
|
|
| |
Noninterest-earning assets | |
| 806,001 | |
|
|
|
| |
| 670,773 | |
|
|
|
| |
Total assets | | $ | 18,984,925 | |
|
|
|
| | $ | 17,814,191 | |
|
|
|
| |
Liabilities/Equity: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
Interest-bearing checking | | $ | 6,161,736 | | $ | 60,845 |
| 3.96 | % | $ | 4,935,123 | | $ | 58,128 |
| 4.74 | % |
Savings deposits | |
| 145,162 | |
| 8 |
| 0.02 | % |
| 145,262 | |
| 19 |
| 0.05 | % |
Money market | |
| 3,354,820 | |
| 35,137 |
| 4.20 | % |
| 2,788,335 | |
| 33,207 |
| 4.79 | % |
Certificates of deposit | |
| 3,090,250 | |
| 35,385 |
| 4.59 | % |
| 6,535,651 | |
| 88,297 |
| 5.43 | % |
Total interest-bearing deposits | |
| 12,751,968 | |
| 131,375 |
| 4.13 | % |
| 14,404,371 | |
| 179,651 |
| 5.02 | % |
Borrowings | |
| 3,453,960 | |
| 44,305 |
| 5.15 | % |
| 1,031,180 | |
| 20,503 |
| 8.00 | % |
Total interest-bearing liabilities | |
| 16,205,928 | |
| 175,680 |
| 4.35 | % |
| 15,435,551 | |
| 200,154 |
| 5.22 | % |
Noninterest-bearing deposits | |
| 376,217 | |
|
|
|
| |
| 331,246 | |
|
|
|
| |
Noninterest-bearing liabilities | |
| 200,944 | |
|
|
|
| |
| 222,664 | |
|
|
|
| |
Total liabilities | |
| 16,783,089 | |
|
|
|
| |
| 15,989,461 | |
|
|
|
| |
Equity | |
| 2,201,836 | |
|
|
|
| |
| 1,824,730 | |
|
|
|
| |
Total liabilities and equity | | $ | 18,984,925 | |
|
|
|
| | $ | 17,814,191 | |
|
|
|
| |
Net interest income | |
|
| | $ | 128,719 |
|
| |
|
| | $ | 128,119 |
|
| |
Interest rate spread | |
|
| |
|
|
| 2.33 | % |
|
| |
|
|
| 2.45 | % |
Net interest-earning assets | | $ | 2,063,856 | |
|
|
|
| | $ | 1,784,323 | |
|
|
| | |
Net interest margin | |
|
| |
|
|
| 2.83 | % |
|
| |
|
|
| 2.99 | % |
Average interest-earning assets to average interest-bearing liabilities | |
|
| |
|
|
| 112.74 | % |
|
| |
|
|
| 111.56 | % |
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Yields have been calculated on a pre-tax basis.
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The following table summarizes the increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates:
| | | | | | | | | |
| | Three Months Ended June 30, 2025 | |||||||
| | compared to June 30, 2024 | |||||||
| | Increase (Decrease) | | | |||||
| | Due to | | | |||||
|
| Volume |
| Rate |
| Total | |||
| | (In thousands) | |||||||
Interest income |
| |
|
| |
|
| |
|
Interest-earning deposits, and other interest or dividends | | $ | 1,433 | | $ | 535 | | $ | 1,968 |
Securities available for sale | |
| (1,198) | |
| (1,491) | |
| (2,689) |
Securities held to maturity | | | 7,031 | | | (3,664) | | | 3,367 |
Mortgage loans in process of securitization | |
| 1,844 | |
| 416 | |
| 2,260 |
Loans and loans held for sale | |
| 9,496 | |
| (38,276) | |
| (28,780) |
Total interest income | |
| 18,606 | |
| (42,480) | |
| (23,874) |
Interest expense | |
|
| |
|
| |
|
|
Deposits | |
|
| |
|
| |
|
|
Interest-bearing checking | |
| 14,448 | |
| (11,731) | |
| 2,717 |
Savings deposits | |
| — | |
| (11) | |
| (11) |
Money market deposits | |
| 6,746 | |
| (4,816) | |
| 1,930 |
Certificates of deposit | |
| (46,548) | |
| (6,364) | |
| (52,912) |
Total Deposits | |
| (25,354) | |
| (22,922) | |
| (48,276) |
Borrowings | |
| 48,172 | |
| (24,370) | |
| 23,802 |
Total interest expense | |
| 22,818 | |
| (47,292) | |
| (24,474) |
Net interest income | | $ | (4,212) | | $ | 4,812 | | $ | 600 |
Net Interest Income. Net interest income of $128.7 million for the three months ended June 30, 2025 increased $0.6 million, compared with $128.1 million for the three months ended June 30, 2024. The increase reflected lower interest expense on deposits that was partially offset by lower interest income and higher interest expense on borrowings.
The interest rate spread of 2.33% for the three months ended June 30, 2025 decreased 12 basis points compared to 2.45% for the three months ended June 30, 2024. Our net interest margin decreased 16 basis points, to 2.83% for the three months ended June 30, 2025 compared to 2.99% for the three months ended June 30, 2024. The margin was negatively impacted by a significant shift in business mix, as highly profitable but lower-margin loans held for sale balances, consisting of primarily warehouse loans, grew by $622.7 million, or 18%, and warehouse repurchase agreements grew by $473.8 million, or 35%, while other higher-margin loans receivable balances contracted by a net of $964.1 million.
Interest Income. Interest income of $304.4 million for the three months ended June 30, 2025 decreased $23.9 million, or 7%, compared with $328.3 million for the three months ended June 30, 2024. This decrease primarily reflected lower average yields on higher average balances on loans and loans held for sale.
Interest income of $255.6 million on loans and loans held for sale for the three months ended June 30, 2025, decreased $28.8 million, or 10%, compared to $284.4 million for the three months ended June 30, 2024. The average loan balance of $14.8 billion for the three months ended June 30, 2025 increased $479.0 million, or 3%, compared to $14.3 billion for the three months ended June 30, 2024. The average yield on loans and loans held for sale decreased 105 basis points, to 6.92% for the three months ended June 30, 2025, compared to 7.97% for the three months ended June 30, 2024.
Interest income of $12.1 million on securities available for sale for the three months ended June 30, 2025, decreased $2.7 million, or 18%, compared to $14.8 million for the three months ended June 30, 2024. The average balance of $955.2 million decreased $84.2 million, or 8%, compared to $1.0 billion for the three months ended
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June 30, 2024. The average yield decreased 64 basis points, to 5.08% for the three months ended June 30, 2025, compared to 5.72% for the three months ended June 30, 2024.
Interest income of $23.2 million on securities held to maturity for the three months ended June 30, 2025, increased $3.4 million, or 17%, compared to $19.8 million for the three months ended June 30, 2024. The average balance of $1.6 billion increased $412.0 million, or 36%, compared to $1.2 billion for the three months ended June 30, 2024. The average yield decreased 95 basis points, to 5.91% for the three months ended June 30, 2025, compared to 6.86% for the three months ended June 30, 2024. The increase in average balances was primarily due to purchases of senior investment securities backed by residential and healthcare loans retained as part of credit risk transfer securitization transactions originated by the Company.
Interest income of $5.3 million on mortgage loans in process of securitization for the three months ended June 30, 2025, increased $2.3 million, or 74%, compared to $3.0 million for the three months ended June 30, 2024. The average balance of $376.9 million increased $142.2 million, or 61%, compared to $234.7 million for the three months ended June 30, 2024. The average yield increased 42 basis points, to 5.64% for the three months ended June 30, 2025, compared to 5.22% for the three months ended June 30, 2024. The increase in average balance was primarily due to a higher origination volume of loans pending settlement for sale on the secondary market.
Interest Expense. Total interest expense of $175.7 million for the three months ended June 30, 2025, decreased $24.5 million, or 12%, compared to $200.2 million for the three months ended June 30, 2024. The decrease reflected lower average balances at lower average rates on certificates of deposit that were partially offset by higher average balances at lower average rates on borrowings.
Interest expense on deposits of $131.4 million decreased $48.3 million, or 27%, for the three months ended June 30, 2025, compared to $179.7 million for the three months ended June 30, 2024. The decrease primarily reflected lower average balances at lower average rates on certificates of deposit.
Interest expense of $35.4 million on certificates of deposit for the three months ended June 30, 2025, decreased $52.9 million, or 60%, compared to $88.3 million for the three months ended June 30, 2024. The decrease reflected lower average balances at lower rates. The average balance of $3.1 billion for the three months ended June 30, 2025, decreased $3.4 billion or 53%, compared to $6.5 billion for the three months ended June 30, 2024. The average interest rate decreased 84 basis points to 4.59% for the three months ended June 30, 2025, compared to 5.43% for three months ended June 30, 2024.
Interest expense of $60.8 million on interest-bearing checking accounts for the three months ended June 30, 2025, increased $2.7 million, or 5%, compared to $58.1 million for the three months ended June 30, 2024. The increase reflected higher average balances at lower rates. The average balance of $6.2 billion for the three months ended June 30, 2025, increased $1.2 billion, or 25%, compared to the three months ended June 30, 2024. The average interest rate decreased 78 basis points to 3.96% for the three months ended June 30, 2025, compared to 4.74% for three months ended June 30, 2024.
Interest expense of $44.3 million on borrowings for the three months ended June 30, 2025, increased $23.8 million, or 116%, compared to $20.5 million for the three months ended June 30, 2024. The increase was primarily due to higher average balances at lower rates of FHLB borrowings. There was a $2.4 billion, or 235%, increase in overall average borrowings to $3.5 billion at June 30, 2025, compared to $1.0 billion for the three months ended June 30, 2024. The average interest rate decreased 285 basis points to 5.15% for the three months ended June 30, 2025, compared to 8.00% for the three months ended June 30, 2024.
Included in interest expense on borrowings, our warehouse structured financing agreements provide for an additional interest payment for a portion of the earnings generated. As a result, the cost of borrowings increased from a base rate of 4.92% and 7.53%, to an effective rate of 5.15% and 8.00% for the three months ended June 30, 2025 and 2024, respectively.
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Provision for Credit Losses. We recorded a provision for credit losses of $53.0 million for the three months ended June 30, 2025, an increase of $43.1 million, or 432%, over the three months ended June 30, 2024.
The $53.0 million provision for credit losses consisted of $54.5 million for the ACL-Loans, net of a release of $1.1 million for the ACL-OBCE’s and $0.3 million for the release of reserves on the ACL-Guarantees, related to a loan securitization.
The ACL-Loans was $91.8 million, or 0.87% of total loans, at June 30, 2025, compared to $84.4 million, or 0.81% of total loans, at December 31, 2024, and $81.0 million, or 0.74%, at June 30, 2024. The increase compared to December 31, 2024 was driven by a $64.0 million increase in provision expense, primarily related to the multi-family portfolio, which was offset by $56.6 million in charge-offs. The increase compared to June 30, 2024 was primarily related an increase in provision expense for loans in the multi-family portfolio, which were partially offset by charge-offs. Additional details are provided in the Asset Quality portion of the Comparison of Financial Condition at June 30, 2025 and December 31, 2024 and in Note 4: Loans and Allowance for Credit Losses on Loans.
Noninterest Income.
| | | | | | | | |
| | Three Months Ended June 30, | ||||||
| | 2025 | | 2024 | | Change Amount | | Change % |
| | (Dollars in thousands) | ||||||
Noninterest income: | | | | | | | | |
Gain on sale of loans | | $ 23,342 | | $ 11,168 | | $ 12,174 | | 109% |
Loan servicing fees, net | | 6,138 | | 10,827 | | (4,689) | | (43)% |
Mortgage warehouse fees | | 2,039 | | 1,524 | | 515 | | 34% |
Syndication and asset management fees | | 9,707 | | 3,233 | | 6,474 | | 200% |
Other income | | 9,254 | | 4,599 | | 4,655 | | 101% |
Total noninterest income | | $ 50,480 | | $ 31,351 | | $ 19,129 | | 61% |
Noninterest income of $50.5 million for the three months ended June 30, 2025 increased $19.1 million, or 61%, compared to $31.4 million for the three months ended June 30, 2024. The increase was primarily due to a $12.2 million, or 109%, increase in gain on sale of loans, a $6.5 million, or 200%, increase in syndication and asset management fees, and a $4.7 million, or 101%, increase in other income, partially offset by a $4.7 million, or 43%, decrease in loan servicing fees.
The $12.2 million, or 109%, increase in gain on sale of loans resulted from higher volume in the multi-family loan portfolio.
A summary of the gain on sale of loans for the three months ended June 30, 2025 and 2024 is below:
| | | | | | | | | | |
| | Gain on Sale of Loans | ||||||||
| | Three Months Ended June 30, | ||||||||
| | 2025 | | | 2024 | | | Change Amount | | Change % |
| | (In thousands) | ||||||||
Loan Type: | | | | | | | | | | |
Multi-family | $ | 19,815 | | $ | 9,083 | | $ | 10,732 | | 118% |
Single-family | | 2,428 | | | 524 | | | 1,904 | | 363% |
SBA | | 1,099 | | | 1,561 | | | (462) | | (30)% |
Total | $ | 23,342 | | $ | 11,168 | | $ | 12,174 | | 109% |
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Syndication and asset management fees of $9.7 million for the three months ended June 30, 2025, increased $6.5 million, or 200%, compared to $3.2 million for the three months ended June 30, 2024. The increase was attributable to an increase in the amount of projects and funds managed in combination with new equity raises by our LIHTC syndication platform during the three months ended June 30, 2025 than the prior year.
Other noninterest income of $9.3 million for the three months ended June 30, 2025 increased $4.7 million, or 101%, compared to $4.6 million for the three months ended June 30, 2024. Other noninterest income included a $4.3 million positive adjustment to the fair value of floor derivatives for the three months ended June 30, 2025 compared to a $0.2 million positive fair value adjustment for the three months ended June 30, 2024. The floor derivatives are associated with arrangements whereby there is a guaranteed minimum interest rate the Company will receive on certain assets bearing variable interest rates. The change in value was driven largely by the change in market interest rates during the period. Also included in other noninterest income were changes in fair value on certain securities available for sale that the Company elected to account for under the fair value option, with changes in fair value reflected in earnings. The Company also has put options associated with these securities that provide protection against any change in value. By design, the fair value adjustments of the securities and the put options should be substantially equal and offsetting. For the three months ended June 30, 2025 there was a $7.5 million negative fair value adjustment on the securities that were offset by a $7.5 million positive fair value adjustment on the put options, hence having no net gain or loss recognized. Also see Note 2: Investment Securities, Note 11: Derivative Financial Instruments, and Note 12: Disclosures about Fair Value of Assets and Liabilities.
Loan servicing fees included a $0.3 million positive fair market value adjustment to servicing rights for the three months ended June 30, 2025, compared to a $5.1 million positive fair market value adjustment to servicing rights for the three months ended June 30, 2024.
Noninterest Expense.
| | | | | | | | |
| | Three Months Ended June 30, | ||||||
| | 2025 | | 2024 | | Change Amount | | Change % |
| | (Dollars in thousands) | ||||||
Noninterest expense: | | | | | | | | |
Salaries and employee benefits | | $ 43,566 | | $ 28,373 | | $ 15,193 | | 54% |
Loan expense | | 1,142 | | 993 | | 149 | | 15% |
Occupancy and equipment | | 2,494 | | 2,239 | | 255 | | 11% |
Professional fees | | 3,159 | | 3,556 | | (397) | | (11)% |
Deposit insurance expense | | 7,152 | | 5,579 | | 1,573 | | 28% |
Technology expense | | 2,446 | | 1,859 | | 587 | | 32% |
Credit risk transfer premium expense | | 4,767 | | 2,294 | | 2,473 | | 108% |
Other expense | | 12,611 | | 5,487 | | 7,124 | | 130% |
Total noninterest expense | | $ 77,337 | | $ 50,380 | | $ 26,957 | | 54% |
Noninterest expense of $77.3 million for the three months ended June 30, 2025 increased $27.0 million, or 54%, compared to the three months ended June 30, 2024. The increase was due primarily to a due to a $15.2 million, or 54%, increase in salaries and employee benefits to support business growth, including $5.8 million for expenses associated with the addition of production staff, which is expected to continue to elevate production, gain on sale, and expenses in future quarters as well. A significant contributor to the increased expenses during the period was a $7.1 million rise in other expenses, primarily related to taxes, insurance, receiver expenses, and legal fees tied to preserving collateral for nonperforming loans. Additionally, noninterest expenses rose due to a $2.5 million increase in credit risk transfer premium expenses, stemming from credit default swaps executed in March and December 2024, and a swap upsize in June 2025. Deposit insurance expenses also grew by $1.6 million, or 28%, driven by a rise in underperforming assets and overall asset growth.
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The efficiency ratio was at 43.16% for the three months ended June 30, 2025, compared with 31.59% for the three months ended June 30, 2024. The $16.9 million in total expenses associated with credit default swap premiums, the collateral preservation of nonperforming loans, and the addition of production staff had a negative 941 basis point impact on the efficiency ratio for the three months ended June 30, 2025.
Income Taxes. Income tax expense of $10.9 million for the three months ended June 30, 2025 decreased $11.9 million, or 52%, compared to the three months ended June 30, 2024, primarily due to a 51% decrease in pretax income period to period. The effective tax rate was 22.2% for the three months ended June 30, 2025 and 22.9% for the three months ended June 30, 2024.
Comparison of Operating Results for the Six Months Ended June 30, 2025 and 2024
General. Net income of $96.2 million for the six months ended June 30, 2025 decreased $67.2 million, or 41%, compared to the six months ended June 30, 2024. The decrease was primarily due to a $46.1 million increase in the provision for credit losses, a $39.7 million increase in noninterest expense, and a $4.3 million decrease in net interest income, partially offset by a $20.9 million decrease in the provision for income taxes and a $1.9 million increase in noninterest income.
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The following table presents, for the periods indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields have been calculated on a pre-tax basis. Nonaccrual loans are included in loans and loans held for sale.
| | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| ||||||||||||||
| | 2025 | | 2024 |
| ||||||||||||
| | | | | Interest | | | | | | | Interest | | |
| ||
| | Average | | Income/ | | Yield/ | | Average | | Income/ | | Yield/ |
| ||||
|
| Balance |
| Expense |
| Rate |
| Balance |
| Expense |
| Rate |
| ||||
| | (Dollars in thousands) | | ||||||||||||||
Assets: | | | | | | | | | | | | | | | | | |
Interest-bearing deposits, and other | | $ | 525,295 | | $ | 15,658 |
| 6.01 | % | $ | 392,297 | | $ | 11,770 |
| 6.03 | % |
Securities available for sale | |
| 958,109 | |
| 24,453 |
| 5.15 | % |
| 1,062,251 | |
| 29,172 |
| 5.52 | % |
Securities held to maturity | | | 1,607,747 | | | 47,524 | | 5.96 | % | | 1,178,401 | |
| 40,321 |
| 6.88 | % |
Mortgage loans in process of securitization | |
| 327,440 | |
| 9,047 |
| 5.57 | % |
| 186,298 | |
| 4,764 |
| 5.14 | % |
Loans and loans held for sale | |
| 14,291,643 | |
| 494,921 |
| 6.98 | % |
| 13,921,063 | |
| 556,419 |
| 8.04 | % |
Total interest-earning assets | |
| 17,710,234 | |
| 591,603 |
| 6.74 | % |
| 16,740,310 | |
| 642,446 |
| 7.72 | % |
Allowance for credit losses on loans | |
| (88,797) | |
|
|
|
| |
| (74,000) | |
|
|
|
| |
Noninterest-earning assets | |
| 790,186 | |
|
|
|
| |
| 637,322 | |
|
|
|
| |
Total assets | | $ | 18,411,623 | |
|
|
|
| | $ | 17,303,632 | |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Liabilities/Equity: | |
|
| |
|
|
|
| |
|
| |
|
|
|
| |
| | | | | | | | | | | | | | | | | |
Interest-bearing checking | | $ | 5,644,414 | | $ | 111,454 |
| 3.98 | % | $ | 5,002,758 | | $ | 118,816 |
| 4.78 | % |
Savings deposits | |
| 145,757 | |
| 23 |
| 0.03 | % |
| 173,561 | |
| 238 |
| 0.28 | % |
Money market | |
| 3,376,524 | |
| 69,643 |
| 4.16 | % |
| 2,802,859 | |
| 66,850 |
| 4.80 | % |
Certificates of deposit | |
| 3,228,989 | |
| 74,196 |
| 4.63 | % |
| 6,115,292 | |
| 164,769 |
| 5.42 | % |
Total interest-bearing deposits | |
| 12,395,684 | |
| 255,316 |
| 4.15 | % |
| 14,094,470 | |
| 350,673 |
| 5.00 | % |
Borrowings | |
| 3,290,854 | |
| 85,372 |
| 5.23 | % |
| 874,017 | |
| 36,598 |
| 8.42 | % |
Total interest-bearing liabilities | |
| 15,686,538 | |
| 340,688 |
| 4.38 | % |
| 14,968,487 | |
| 387,271 |
| 5.20 | % |
Noninterest-bearing deposits | |
| 335,459 | |
|
|
|
| |
| 331,709 | |
|
|
|
| |
Noninterest-bearing liabilities | |
| 208,509 | |
|
|
|
| |
| 217,241 | |
|
|
|
| |
Total liabilities | |
| 16,230,506 | |
|
|
|
| |
| 15,517,437 | |
|
|
|
| |
Equity | |
| 2,181,117 | |
|
|
|
| |
| 1,786,195 | |
|
|
|
| |
Total liabilities and equity | | $ | 18,411,623 | |
|
|
|
| | $ | 17,303,632 | |
|
|
|
| |
Net interest income | |
|
| | $ | 250,915 |
|
| |
|
| | $ | 255,175 |
|
| |
Interest rate spread | |
|
| |
|
|
| 2.36 | % |
|
| |
|
|
| 2.52 | % |
Net interest-earning assets | | $ | 2,023,696 | |
|
|
|
| | $ | 1,771,823 | |
|
|
| | |
Net interest margin | |
|
| |
|
|
| 2.86 | % |
|
| |
|
|
| 3.07 | % |
Average interest-earning assets to average interest-bearing liabilities | |
|
| |
|
|
| 112.90 | % |
|
| |
|
|
| 111.84 | % |
Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Yields have been calculated on a pre-tax basis.
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The following table summarizes the increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates:
| | | | | | | | | |
| | Six Months Ended June 30, 2025 | |||||||
| | compared to June 30, 2024 | |||||||
| | Increase (Decrease) | | | |||||
| | Due to | | | |||||
|
| Volume |
| Rate |
| Total | |||
| | (In thousands) | |||||||
Interest income |
| |
|
| |
|
| |
|
Interest-bearing deposits, and other | | $ | 3,990 | | $ | (102) | | $ | 3,888 |
Securities available for sale | |
| (2,860) | |
| (1,859) | |
| (4,719) |
Securities held to maturity | | | 14,691 | | | (7,488) | |
| 7,203 |
Mortgage loans in process of securitization | |
| 3,609 | |
| 674 | |
| 4,283 |
Loans and loans held for sale | |
| 14,812 | |
| (76,310) | |
| (61,498) |
Total interest income | |
| 34,242 | |
| (85,085) | |
| (50,843) |
Interest expense | |
|
| |
|
| |
|
|
Deposits | |
|
| |
|
| |
|
|
Interest-bearing checking | |
| 15,239 | |
| (22,601) | |
| (7,362) |
Savings deposits | |
| (38) | |
| (177) | |
| (215) |
Money market deposits | |
| 13,682 | |
| (10,889) | |
| 2,793 |
Certificates of deposit | |
| (77,768) | |
| (12,805) | |
| (90,573) |
Total Deposits | |
| (48,885) | |
| (46,472) | |
| (95,357) |
Borrowings | |
| 101,201 | |
| (52,427) | |
| 48,774 |
Total interest expense | |
| 52,316 | |
| (98,899) | |
| (46,583) |
Net interest income | | $ | (18,074) | | $ | 13,814 | | $ | (4,260) |
Net Interest Income. Net interest income of $250.9 million for the six months ended June 30, 2025 decreased $4.3 million, or 2%, compared to $255.2 million for the six months ended June 30, 2024. The decrease reflected lower interest income and higher interest expense on borrowings that was partially offset by lower interest expense on deposits.
The interest rate spread of 2.36% for the six months ended June 30, 2025, decreased 16 basis points compared to 2.52% for the six months ended June 30, 2024. Our net interest margin decreased 21 basis points, to 2.86% for the six months ended June 30, 2025 from 3.07% for the six months ended June 30, 2024. The margin was negatively impacted by a significant shift in business mix, as highly profitable but lower-margin loans held for sale balances, consisting of primarily warehouse loans, grew by $622.7 million, or 18%, and warehouse repurchase agreements grew by $473.8 million, or 35%, while other higher-margin loans receivable balances contracted by a net of $964.1 million.
Interest Income. Interest income of $591.6 million for the six months ended June 30, 2025 decreased $50.8 million, or 8%, compared to $642.4 million for the six months ended June 30, 2024. This decrease was primarily attributable to lower average yields on higher average balances on loans and loans held for sale, partially offset by higher average balances at lower average yields on securities held to maturity.
Interest income of $494.9 million on loans and loans held for sale for the six months ended June 30, 2025, decreased $61.5 million , or 11%, compared to $556.4 million for the six months ended June 30, 2024. The average loan balance during the six months ended June 30, 2025 increased $370.6 million, or 3%, to $14.3 billion compared to $13.9 billion for the six months ended June 30, 2024, and the average yield on loans decreased 106 basis points, to 6.98% for the six months ended June 30, 2025, compared to 8.04% for the six months ended June 30, 2024.
Interest income of $24.5 million on securities available for sale for the six months ended June 30, 2025, decreased $4.7 million, or 16%, compared to $29.2 million for the six months ended June 30, 2024. The average balance of securities available for sale decreased $104.1 million, or 10%, to $1.0 billion compared to $1.1 billion for the six
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months ended June 30, 2025, and the average yield decreased 37 basis points, to 5.15% for the for the six months ended June 30, 2025, compared to 5.52% for the six months ended June 30, 2024.
Interest income of $47.5 million on securities held to maturity for the six months ended June 30, 2025, increased $7.2 million, or 18%, compared to $40.3 million for the six months ended June 30, 2024. The average balance of securities held to maturity for the six months ended June 30, 2025 increased $429.3 million, or 36%, to $1.6 billion compared to $1.2 billion for the six months ended June 30, 2024. The average yield on securities held to maturity decreased 92 basis points, to 5.96%, for the six months ended June 30, 2025, reflecting lower variable rates, compared to 6.88% for the six months ended June 30, 2024.
Interest income of $15.7 million on interest-bearing deposits, and other for the six months ended June 30, 2025, increased $3.9 million, or 33%, compared to $11.8 million for the six months ended June 30, 2024. The average balance of interest-earning deposits and other increased $133.0 million, or 34%, to $525.3 million for the six months ended June 30, 2025, from $392.3 million for the six months ended June 30, 2024, and the average yield decreased 2 basis points, to 6.01%, for the six months ended June 30, 2025, compared to 6.03% for the six months ended June 30, 2024.
Interest Expense. Total interest expense of $340.7 million for the six months ended June 30, 2025 decreased $46.6 million, or 12%, compared to $387.3 million for the six months ended June 30, 2024. The lower interest expense reflects a shift towards borrowings that has become a more cost-effective option than utilizing brokered certificates of deposit, in addition to growth in lower-cost, interest-bearing checking accounts.
Interest expense on deposits of $255.3 million for the six months ended June 30, 2025 decreased $95.4 million, or 27%, compared to $350.7 million for the six months ended June 30, 2024. The decrease was primarily due to lower average balances and lower average rates for certificate of deposit accounts and higher average balances at lower average rates on interest-bearing checking accounts.
Interest expense of $74.2 million on certificates of deposit for the six months ended June 30, 2025, decreased $90.6 million, or 55%, compared to $164.8 million for the six months ended June 30, 2024. The average balance of certificate of deposit accounts was $3.2 billion for the six months ended June 30, 2025, a decrease of $2.9 billion, compared to $6.1 billion for the six months ended June 30, 2024. The average rate on certificate of deposit accounts was 4.63% for the six months ended June 30, 2025, which was a 79 basis point decrease compared to 5.42% for the six months ended June 30, 2024.
Interest expense of $111.5 million on interest-bearing checking accounts for the six months ended June 30, 2025, decreased $7.4 million, or 6%, compared to the six months ended June 30, 2024. The average balance of interest-bearing checking accounts of $5.6 billion for the six months ended June 30, 2025 increased $641.7 million, or 13%, compared to $5.0 billion for the six months ended June 30, 2024. The average rate on interest-bearing checking accounts was 3.98% for the six months ended June 30, 2025, which was an 80 basis point decrease compared to 4.78% for the six months ended June 30, 2024.
Interest expense of $69.6 million on money market accounts for the six months ended June 30, 2025, increased $2.8 million, or 4%, compared to the six months ended June 30, 2024. The average balance of money market accounts of $3.4 billion for the six months ended June 30, 2025 increased $573.7 million compared to $2.8 billion for the six months ended June 30, 2024. The average rate on money market accounts was 4.16% for the six months ended June 30, 2025, which was a 64 basis point decrease compared to 4.80% for the six months ended June 30, 2024.
Interest expense of $85.4 million on borrowings for the six months ended June 30, 2025, increased $48.8 million, or 133%, compared to $36.6 million for the six months ended June 30, 2024. The increase was primarily due to a $2.4 billion, or 277%, increase in average balances, partially offset by a decrease of 319 basis points in the average rate of borrowings, to 5.23% compared to 8.42% for the six months ended June 30, 2024.
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Included in interest expense on borrowings, our warehouse structured financing agreements provide for an additional interest payment for a portion of the earning generated. As a result, the cost of borrowings increased from a base rate of 5.00% and 7.93%, to an effective rate of 5.23% and 8.42% for the six months ended June 30, 2025 and 2024, respectively.
Provision for Credit Losses. We recorded a provision for credit losses of $60.8 million for the six months ended June 30, 2025, an increase of $46.1 million, or 314%, compared to $14.7 million for the six months ended June 30, 2024. The increases in provision expenses and charge-offs compared to both periods were primarily associated with estimated declines on multi-family property values, after receiving new appraisals, and the ongoing investigation of borrowers involved in mortgage fraud or suspected fraud. The increases were also attributable to certain types of subordinated loans that the Company no longer offers to borrowers. The subordinated loans have been largely identified and evaluated for potential losses that have either been included in the provision for credit losses as specific reserves or charged off.
The $60.8 million provision for credit losses consisted of $64.0 million for the ACL-Loans, net of a release of $2.8 million for the ACL-OBCE’s and $0.4 million for the release of reserves on the ACL-Guarantees, related to a loan securitization.
Noninterest Income.
| | | | | | | | |
| | Six Months Ended June 30, | ||||||
| | 2025 | | 2024 | | Change Amount | | Change % |
| | (Dollars in thousands) | ||||||
Noninterest income: | | | | | | | | |
Gain on sale of loans | | $ 34,961 | | $ 20,524 | | $ 14,437 | | 70% |
Loan servicing fees, net | | 10,148 | | 30,229 | | (20,081) | | (66)% |
Mortgage warehouse fees | | 3,552 | | 2,506 | | 1,046 | | 42% |
Loss on sale of investments available for sale | | - | | (108) | | 108 | | (100)% |
Syndication and asset management fees | | 13,096 | | 8,536 | | 4,560 | | 53% |
Other income | | 12,416 | | 10,538 | | 1,878 | | 18% |
Total noninterest income | | $ 74,173 | | $ 72,225 | | $ 1,948 | | 3% |
Noninterest income of $74.2 million for the six months ended June 30, 2025 increased $1.9 million, or 3%, compared to the six months ended June 30, 2024. The increase was primarily due to a $14.4 million, or 70%, increase in gain on sale of loans, a $4.6 million, or 53%, increase in syndication and asset management fees, and a $1.9 million, or 18%, increase in other noninterest income, partially offset by a decrease of $20.1 million, or 66% in loan servicing fees compared to the six months ended June 30, 2024.
The $14.4 million, or 70%, increase in gain on sale of loans resulted from higher volume in the multi-family loan portfolio.
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A summary of the gain on sale of loans for the six months ended June 30, 2025 and 2024 is below:
| | | | | | | | | | |
| | Gain on Sale of Loans | ||||||||
| | Six Months Ended June 30, | ||||||||
| | 2025 | | | 2024 | | | Change Amount | | Change % |
| | (In thousands) | ||||||||
Loan Type: | | | | | | | | | | |
Multi-family | $ | 29,940 | | $ | 17,506 | | $ | 12,434 | | 71% |
Single-family | | 2,634 | | | 804 | | | 1,830 | | 228% |
Small Business Association (SBA) | | 2,387 | | | 2,214 | | | 173 | | 8% |
Total | $ | 34,961 | | $ | 20,524 | | $ | 14,437 | | 70% |
Syndication and asset management fees of $13.1 million for the six months ended June 30, 2025, increased $4.6 million, or 53%, compared to $8.5 million for the six months ended June 30, 2024. The increase was attributable to an increase in the amount of projects and funds managed in combination with new equity raises by our LIHTC syndication platform during the six months ended June 30, 2025 than the prior year.
Other noninterest income of $12.4 million for the six months ended June 30, 2025 increased $1.9 million, or 18%, compared to $10.5 million for the six months ended June 30, 2024. Other noninterest income included a $2.1 million positive fair value adjustment to the floor derivatives for the six months ended June 30, 2025 compared to a $2.5 million positive fair value adjustment for the six months ended June 30, 2024. The floor derivatives are associated with arrangements whereby there is a guaranteed minimum interest rate the Company will receive on certain assets bearing variable interest rates. The change in value was driven largely by the change in market interest rates during the period. Also included in other noninterest income were changes in fair value on certain securities available for sale that the Company elected to account for under the fair value option, with changes in fair value reflected in earnings. The Company also has put options associated with these securities that provide protection against any change in value. By design, the fair value adjustments of the securities and the put options should be substantially equal and offsetting. For the six months ended June 30, 2025 there was a $1.3 million negative fair value adjustment on the securities that were offset by a $1.3 million positive fair value adjustment on the put options, hence having no net gain or loss recognized. Also see Note 2: Investment Securities, Note 11: Derivative Financial Instruments, and Note 12: Disclosures about Fair Value of Assets and Liabilities.
Loan servicing fees included a $0.5 million negative fair market value adjustment to servicing rights for the six months ended June 30, 2025, compared to a $19.0 million positive fair market value adjustment to servicing rights for the six months ended June 30, 2024.
Noninterest Expense.
| | | | | | | | |
| | Six Months Ended June 30, | ||||||
| | 2025 | | 2024 | | Change Amount | | Change % |
| | (Dollars in thousands) | ||||||
Noninterest expense: | | | | | | | | |
Salaries and employee benefits | | $ 79,985 | | $ 57,969 | | $ 22,016 | | 38% |
Loan expense | | 1,940 | | 1,949 | | (9) | | — |
Occupancy and equipment | | 4,845 | | 4,476 | | 369 | | 8% |
Professional fees | | 6,053 | | 7,655 | | (1,602) | | (21)% |
Deposit insurance expense | | 14,380 | | 10,704 | | 3,676 | | 34% |
Technology expense | | 4,820 | | 3,713 | | 1,107 | | 30% |
Credit risk transfer premium expense | | 8,629 | | 2,294 | | 6,335 | | 276% |
Other expense | | 18,349 | | 10,532 | | 7,817 | | 74% |
Total noninterest expense | | $ 139,001 | | $ 99,292 | | $ 39,709 | | 40% |
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Noninterest expense of $139.0 million for the six months ended June 30, 2025 increased $39.7 million, or 40%, compared to $99.3 million for the six months ended June 30, 2024. The increase was due primarily to a due to a $22.0 million, or 38%, increase in salaries and employee benefits to support business growth, including $8.3 million for expenses associated with the addition of production staff, which is expected to continue to elevate production, gain on sale, and expenses in future quarters as well. A significant contributor to the increased expenses during the period was a $7.8 million rise in other expenses, primarily related to taxes, insurance, receiver expenses, and legal fees tied to preserving collateral for nonperforming loans. Additionally, noninterest expenses rose due to a $6.3 million increase in credit risk transfer premium expenses, stemming from credit default swaps executed in March and December 2024, and a swap upsize in June 2025. Deposit insurance expenses also grew by $3.7 million, or 34%, driven by a rise in underperforming assets and overall asset growth.
The efficiency ratio was at 42.76% for the six months ended June 30, 2025, compared with 30.33% for the six months ended June 30, 2024. The $23.2 million in total expenses associated with credit default swap premiums, the collateral preservation of nonperforming loans, and the addition of production staff had a negative 714 basis point impact on the efficiency ratio for the six months ended June 30, 2025.
Income Taxes. Income tax expense of $29.1 million for the six months ended June 30, 2025 decreased $20.9 million, or 42%, compared to $50.0 million for the six months ended June 30, 2024. The decrease reflected a 41% lower pre-tax income during the six months ended June 30, 2025. The effective tax rate was 23.2% for the six months ended June 30, 2025 and 23.4% for the six months ended June 30, 2024.
Our Segments
We operate in three primary segments: Multi-family Mortgage Banking, Mortgage Warehousing, and Banking. The reportable segments are consistent with the internal reporting and evaluation of the principal lines of business of the Company.
The Multi-family Mortgage Banking segment originates and services government sponsored mortgages for multi-family and healthcare facilities through Merchants Capital. Merchants Capital is also a fully integrated syndicator of low-income housing tax credit and debt funds. As one of the top ranked agency affordable lenders in the nation, our licenses with Fannie Mae, Freddie Mac, and FHA, coupled with our bank financing products, provide sponsors with custom beginning-to-end financing solutions that adapt to an ever-changing market. We are also one of the largest Ginnie Mae servicers in the country based on aggregate loan principal value. As of June 30, 2025 the Company’s total servicing portfolio had an unpaid principal balance of $31.0 billion, primarily managed in the Multi-family Mortgage Banking segment. Included in this amount was an unpaid principal balance of loans serviced for others of $18.7 billion, an unpaid principal balance of loans sub-serviced for others of $4.2 billion, and other servicing balances of $0.7 billion at June 30, 2025. These loans are not included in the accompanying balance sheets. The Company also manages $7.4 billion of loans for customers that have loans on the balance sheet at June 30, 2025. The servicing portfolio primarily consists of Ginnie Mae, Fannie Mae, and Freddie Mac loans and is a significant source of our noninterest income and deposits.
Our Mortgage Warehousing segment funds agency eligible loans for non-depository financial institutions from the date of origination or purchase until the date of sale to an investor, which typically takes less than 30 days and is a significant source of our net interest income, loans, and deposits. Mortgage Warehousing has grown to fund over $33.0 billion in 2023, $45.6 billion in 2024, and $28.1 billion for the six months ended June 30, 2025. Mortgage Warehousing also provides commercial loans and collects deposits related to the mortgage escrow accounts of its customers.
The Banking segment includes retail banking, commercial lending, agricultural lending, retail and correspondent residential mortgage banking, and SBA lending. Banking operates primarily in Indiana, except for correspondent mortgage banking which, like Multi-family Mortgage Banking and Mortgage Warehousing, is a national
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business. The Banking segment has a well-diversified customer and borrower base and has experienced significant growth over the past three years.
Our segment financial information was compiled utilizing the policies described in Note 17: Segment Information, included elsewhere in this report. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes, if any, in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. Transactions between segments consist primarily of borrowed funds and overhead expense sharing. Intersegment interest expense is allocated to the Mortgage Warehousing and Banking segments based on Merchants Bank’s cost of funds. The provision for credit losses is allocated based on information included in our ACL-Loans analysis and specific loan data for each segment.
Our segments diversify the net income of Merchants Bank and provide synergies across the segments. Strategic opportunities come from MCC and MCS, where loans are funded by the Banking segment and the Banking segment provides Ginnie Mae custodial services to MCC and MCS. Low-income tax credit syndication and debt fund offerings complement the lending activities of new and existing multi-family mortgage customers. The securities available for sale and held to maturity funded by MCC custodial deposits or purchases of securitized loans originated by MCC are pledged to FHLB to provide advance capacity during periods of high residential loan volume for Mortgage Warehousing. Mortgage Warehousing provides leads to Correspondent Lending in the Banking segment. Retail and commercial customers provide cross selling opportunities within the Banking segment. Merchants Mortgage is a risk mitigant to Mortgage Warehousing because it provides us with a ready platform to sell the underlying collateral to secure repayment. These and other synergies form a part of our strategic plan.
The Other segment presented below, in Note 17: Segment Information, and elsewhere in this report includes general and administrative expenses for provision of services to all segments, internal funds transfer pricing offsets resulting from allocations to or from the other segments, certain elimination entries, and investments in low-income housing tax credit limited partnerships or LLC.
For the three months ended June 30, 2025 and 2024, we had total net income of $38.0 million and $76.4 million, respectively. For the six months ended June 30, 2025 and 2024, we had total net income of $96.2 million and $163.4 million, respectively. Net income for our three segments for the respective periods was as follows:
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | |||||||||
|
| 2025 |
| 2024 |
| 2025 |
| 2024 |
| ||||
| | (In thousands) | |||||||||||
Multi-family Mortgage Banking | | $ | 9,269 | | $ | 9,037 | | $ | 12,682 | | $ | 25,646 | |
Mortgage Warehousing | |
| 22,986 | |
| 22,270 | |
| 38,384 | |
| 42,460 | |
Banking | |
| 14,574 | |
| 52,378 | |
| 61,681 | |
| 108,803 | |
Other | |
| (8,848) | |
| (7,292) | |
| (16,527) | |
| (13,462) | |
| | | | | | | | | | | | | |
Total | | $ | 37,981 | | $ | 76,393 | | $ | 96,220 | | $ | 163,447 | |
Multi-family Mortgage Banking.
Comparison of results for the three months ended June 30, 2025 and 2024:
The Multi-family Mortgage Banking segment reported net income of $9.3 million for the three months ended June 30, 2025, an increase of $0.2 million, or 3%, compared to the three months ended June 30, 2024. The increase in net income was primarily due to a $9.0 million increase in gain on sale of loans, $6.5 million increase in syndication and asset management fees, partially offset by an increase of $12.9 million in noninterest expense that included $5.8 million
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associated with the addition of production staff, who are expected to elevate production, gain on sale, and expenses in future quarters as well.
Loan servicing fees included a $0.7 million positive fair market value adjustment to servicing rights for the three months ended June 30, 2025 compared to a $4.5 million positive fair market value adjustment for the three months ended June 30, 2024.
The total volume of loans originated and acquired through our Multi-family business increased by $352.8 million, or 33%, to $1.4 billion, for the three months ended June 30, 2025, compared to $1.1 billion for the three months ended June 30, 2024. It includes construction loans coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment, while borrowers await conversion to permanent financing. It also includes loans originated and acquired for sale in the secondary market.
Comparison of results for the six months ended June 30, 2025 and 2024:
The Multi-family Mortgage Banking segment reported net income of $12.7 million for the six months ended June 30, 2025, a decrease of $13.0 million or 51%, from the $25.6 million of net income reported for the six months ended June 30, 2024. The decrease in net income was primarily due to a $17.9 million increase in noninterest expense that included $8.3 million associated with the addition of production staff, who are expected to elevate production, gain on sale, and expenses in future quarters as well, as well a $15.3 million decrease in loan servicing fees. These increases were partially offset by increases of $9.6 million in gain on sale of loans and $5.5 million in syndication and asset management fees.
Loan servicing fees for the six months ended June 30, 2025 included a positive fair market value adjustment of $1.2 million on servicing rights, compared to a positive fair market value adjustment of $17.7 million for the six months ended June 30, 2024.
The volume of loans originated and acquired through our Multi-family business increased by $390.5 million, or 20%, to $2.4 billion, for the six months ended June 30, 2025, compared to $2.0 billion for the six months ended June 30, 2024. It includes construction loans coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment, while borrowers await conversion to permanent financing. It also includes loans originated and acquired for sale in the secondary market.
Mortgage Warehousing.
Comparison of results for the three months ended June 30, 2025 and 2024:
The Mortgage Warehousing segment reported net income of $23.0 million for the three months ended June 30, 2025, an increase of $0.7 million, or 3%, compared to $22.3 million for the three months ended June 30, 2024. The increase in net income reflected an increase in other noninterest income partially offset by an increase in noninterest expense related to premiums for credit risk transfers, and an increase in provision for credit losses.
Noninterest income included a $4.3 million positive fair market value adjustment to derivatives for the three months ended June 30, 2025, compared to a $0.2 million positive fair market value adjustment to derivatives for the three months ended June 30, 2024.
The volume of loans funded during the three months ended June 30, 2025 amounted to $16.3 billion, an increase of $5.4 billion, or 49%, compared to the three months ended June 30, 2024. This compared to the 28% industry increase in single-family residential loan volumes for the three months ended June 30, 2025 compared to the same period in 2024, according to an estimate of industry volume by the Mortgage Bankers Association.
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Comparison of results for the six months ended June 30, 2025 and 2024:
The Mortgage Warehousing segment reported net income for the six months ended June 30, 2025 of $38.4 million, a decrease of $4.1 million, or 10%, compared to $42.5 million for the six months ended June 30, 2024. The decrease in net income primarily reflects an increase in noninterest expense reflecting premiums related to credit risk transfers.
Noninterest income included a $2.1 million positive fair market value adjustment to derivatives for the six months ended June 30, 2025, compared to a $2.5 million positive fair market value adjustment to derivatives for the six months ended June 30, 2024.
The volume of loans funded during the six months ended June 30, 2025 amounted to $28.1 billion, an increase of $9.3 billion, or 49%, compared to the six months ended June 30, 2024. This compared to the 16% industry increase in single-family residential loan volumes for the six months ended June 30, 2025 compared to the same period in 2024, according to an estimate of industry volume by the Mortgage Bankers Association.
Banking.
Comparison of results for the three months ended June 30, 2025 and 2024:
The Banking segment reported net income of $14.6 million for the three months ended June 30, 2025, a decrease of $37.8 million, or 72%, compared to $52.4 million for the three months ended June 30, 2024. The decrease in net income was primarily due to the increase in provision for credit losses, partially offset by an increase in gain on sale of loans.
Noninterest income for the three months ended June 30, 2025 included a $0.5 million negative fair market value adjustment on servicing rights, compared to a $0.6 million positive fair market value adjustment for the three months ended June 30, 2024.
Comparison of results for the six months ended June 30, 2025 and 2024:
The Banking segment reported net income of $61.7 million for the six months ended June 30, 2025, a decrease of $47.1 million, or 43%, compared to $108.8 million for the six months ended June 30, 2024. The decrease in net income was primarily due to the increase in provision for credit losses.
Noninterest income for the six months ended June 30, 2025 included a negative fair market value adjustment of $1.7 million on servicing rights, compared to a positive fair market value adjustment of $1.3 million for the six months ended June 30, 2024.
The Bank has established a limit with respect to its commercial real estate loans whereby it will not increase its commercial real estate portfolio at any time during a calendar year by more than 10% from the balance at its prior calendar year-end.
Liquidity and Capital Resources
Liquidity.
Our primary sources of funds are business and consumer deposits, escrow and custodial deposits, borrowings, brokered deposits, principal and interest payments on loans, interest on investment securities, and proceeds from sale of loans. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market interest rates, economic conditions, and competition.
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At June 30, 2025, based on collateral, we had $5.0 billion in available unused borrowing capacity with the FHLB and the Federal Reserve discount window. This compared to $4.3 billion at December 31, 2024. While the amounts available fluctuate daily, we also had available capacity lines through our membership in the AFX. This liquidity enhances the Company’s ability to effectively manage interest expense and asset levels in the future.
The Company’s most liquid assets are in cash, short-term investments, including interest-bearing demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit included in loans receivable. Taken together with its unused borrowing capacity of $5.0 billion described above, these totaled $11.9 billion, or 62%, of its $19.1 billion total assets at June 30, 2025. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our liquid assets and borrowing capacity significantly exceed our uninsured deposits. Uninsured deposits represent 24% of total Bank deposits. Our line of credit with the Federal Reserve Bank of Chicago, alone, could fund 106% of uninsured deposits. Since 2018, the Company has offered its customers an opportunity to insure balances in excess of $250,000 through our insured cash sweep program that extends FDIC protection up to $100 million. The balance of deposits in this program was $1.4 billion and $1.6 billion as of June 30, 2025 and December 31, 2024, respectively.
The Company’s investment portfolio has minimal levels of unrealized losses and management does not anticipate a need to sell securities for liquidity purposes at a loss. As of June 30, 2025, AOCL of $0.2 million, related to securities available for sale increased $0.1 million, or 86%, compared to AOCL of $0.1 million as of December 31, 2024. The $0.2 million of AOCL as of June 30, 2025 represented less than 1% of total equity and 1% of total securities available for sale
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by (used in) operating activities was $26.9 million and $(332.7) million for the six months ended June 30, 2025 and 2024, respectively. Net cash used in investing activities, which consists primarily of net change in loans receivable and purchases, sales and maturities of investment securities and loans, was $ (27.2) million and $(1.0) billion for the six months ended June 30, 2025 and 2024, respectively. Net cash provided by financing activities, which is comprised primarily of net change in borrowings and deposits was $170.9 million and $1.3 billion for the six months ended June 30, 2025 and 2024, respectively. Most variability within our cash flow comes from loan growth and sale activity. As discussed in detail throughout this section and Capital Resources, the Company has numerous funding sources to cover volatility in cash flow for operating and financing needs through our cash, investments, borrowing capacity, deposit base and capital resources.
Certificates of deposit that are scheduled to mature in less than one year from June 30, 2025 totaled $2.3 billion, or 98%, of total certificates of deposit. Of the $2.3 billion in total, there were $1.3 billion classified as core deposits. Management expects that a substantial portion of the maturing core certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may decide to utilize FHLB advances, the Federal Reserve discount window, brokered deposits, or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.
Off-Balance Sheet Arrangements.
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in our unaudited condensed consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit and standby letters of credit.
At June 30, 2025, we had $3.9 billion in outstanding commitments to extend credit that are subject to credit risk and $3.6 billion outstanding commitments subject to certain performance criteria and cancellation by the Company, including loans pending closing, unfunded construction draws, and unfunded lines of warehouse credit. We anticipate
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that we will have sufficient funds available to meet our current loan origination commitments. Additionally, the Company’s business model is designed to continuously sell a significant portion of its loans, which provides flexibility in managing its liquidity.
Capital Resources.
The access to and cost of funding new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance costs and the level and nature of regulatory oversight depend, in part, on our capital position. The Company filed a shelf registration statement on Form S-3 with the SEC on May 23, 2025, which was declared effective on June 4, 2025, under which we can issue up to $500 million aggregate offering amount of registered securities to finance our growth objectives. The Company has demonstrated its ability to raise capital or utilize securitization transactions to free up capital as needed.
The assessment of capital adequacy depends on a number of factors, including asset quality, liquidity, earnings performance, changing competitive conditions and economic forces. We seek to maintain a strong capital base to support our growth and expansion activities, to provide stability to our current operations and to promote public confidence in our Company.
Shareholders’ Equity. Total shareholders’ equity was $2.2 billion as of June 30, 2025. The $58.7 million or 3%, decrease compared to December 31, 2024 resulted primarily from the redemption of 6% Series B Preferred Stock for $125.0 million and dividends paid on common and preferred shares of $29.7 million during the period, which were partially offset by net income of $96.2 million. See Note 14: Preferred Stock for more details on the Series B redemption.
Preferred Stock/Dividends.
7% Series A Preferred Stock. The Company redeemed all outstanding shares of the Series A Preferred Stock on April 1, 2024 for $52 million at a price equal to the liquidation preference of $25.00 per share, using cash on hand.
6% Series B Preferred Stock. The Company redeemed all outstanding shares of the Series B Preferred Stock on January 2, 2025, at a price equal to the liquidation preference of $1,000 per share (equivalent to $25 per depositary share), or $125.0 million. The $4.2 million expenses associated with the original issuance, which were capitalized in 2019, were recognized through retained earnings upon redemption, thus reducing net income available to common shareholders. Similarly, the redemption resulted in an excise tax of $1.2 million that will not be payable until 2025 taxes are due in 2026, and any future issuance of shares until one year after the redemption can offset the amount of excise tax that will be paid.
Cash to redeem the shares was delivered to the Company’s transfer agent on December 31, 2024, resulting in a prepaid asset reported in other assets. As of the redemption date, the Series B Preferred Stock did not have any accrued, but unpaid dividends.
7.625% Series E Preferred Stock. On November 25, 2024, the Company issued 9,200,000 depositary shares, each representing a 1/40th interest in a share of its 7.625% Fixed Rate Reset Series E Non-Cumulative Perpetual Preferred Stock, without par value, and with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). The aggregate gross offering proceeds for the shares issued by the Company was $230.0 million, and after deducting underwriting discounts and commissions and offering expenses of approximately $7.3 million paid to third parties, the Company received total net proceeds of $222.7 million.
The Series E Preferred Stock have no voting rights with respect to matters that generally require the approval of our common shareholders. Dividends on the Series E Preferred Stock, to the extent declared by the Company’s board, are payable quarterly. The Company may redeem the Series E Preferred Stock, in whole or in part, at its option, on any dividend payment date on or after January 1, 2030, subject to the approval of the appropriate federal banking agency, at
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the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption.
Dividends declared to preferred shareholders for the six months ended June 30, 2025, totaled $10.3 million. For more information, see Note 14: Preferred Stock.
Common Shares/Dividends. As of June 30, 2025, the Company had 45,885,458 common shares issued and outstanding. The Board declared a quarterly dividend of $0.10 per share for the first two quarters of 2025.
Capital Adequacy.
The following tables present the Company’s capital ratios at June 30, 2025 and December 31, 2024:
| | | | | | | | | | | | | | | | | ||||||||||||||
| | | | | | | Minimum | | | | ||||||||||||||||||||
| | | | | | | Amount to be Well | | Minimum Amount | | ||||||||||||||||||||
| | | | | | | Capitalized with | | To Be Well | | ||||||||||||||||||||
| | Actual | | Basel III Buffer(1) | | Capitalized(1) | | |||||||||||||||||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio | | Amount |
| Ratio |
| |||||||||||||||||
| | (Dollars in thousands) | | |||||||||||||||||||||||||||
June 30, 2025 | | | | | | | | | | | | | | | | | ||||||||||||||
Total capital(1) (to risk-weighted assets) |
| |
|
|
|
| | | | | | |
|
|
|
| ||||||||||||||
Company | | $ | 2,280,183 |
| 13.4 | % | $ | 1,788,568 |
| 10.5 | % | $ | — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,233,591 |
| 13.1 | % |
| 1,787,326 |
| 10.5 | % |
| 1,702,216 |
| 10.0 | % | ||||||||||||||
Tier I capital(1) (to risk-weighted assets) | |
|
|
|
| |
|
|
|
| |
|
|
|
| | ||||||||||||||
Company | |
| 2,176,150 |
| 12.8 | % |
| 1,447,889 |
| 8.5 | % |
| — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,129,558 |
| 12.5 | % |
| 1,446,883 |
| 8.5 | % |
| 1,361,772 |
| 8.0 | % | ||||||||||||||
Common Equity Tier I capital(1) (to risk-weighted assets) | | | | | | | | | | | | | | | | | ||||||||||||||
Company | |
| 1,624,860 |
| 9.5 | % |
| 1,192,379 |
| 7.0 | % |
| — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,129,558 |
| 12.5 | % |
| 1,191,551 |
| 7.0 | % |
| 1,106,440 |
| 6.5 | % | ||||||||||||||
Tier I capital(1) (to average assets) | |
| |
|
| |
|
|
| | |
|
|
|
| | ||||||||||||||
Company | |
| 2,176,150 |
| 11.5 | % |
| 948,810 |
| 5.0 | % |
| — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,129,558 |
| 11.3 | % |
| 945,850 |
| 5.0 | % |
| 945,850 |
| 5.0 | % | ||||||||||||||
| (1) | As defined by regulatory agencies. |
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| | | | | | | | | | | | | | | | | ||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||
| | | | | | | Minimum | | | | ||||||||||||||||||||
| | | | | | | Amount to be Well | | Minimum Amount | | ||||||||||||||||||||
| | | | | | | Capitalized with | | To Be Well | | ||||||||||||||||||||
| | Actual | | Basel III Buffer(1) | | Capitalized(1) | | |||||||||||||||||||||||
|
| Amount |
| Ratio |
| Amount |
| Ratio | | Amount | | Ratio | | |||||||||||||||||
| | (Dollars in thousands) | | |||||||||||||||||||||||||||
December 31, 2024 | | | | | | | | | | | | | | | | | ||||||||||||||
Total capital(1) (to risk-weighted assets) |
| |
|
|
|
| | | | | | |
|
|
|
| ||||||||||||||
Company | | $ | 2,334,479 |
| 13.9 | % | $ | 1,767,835 |
| 10.5 | % | $ | — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,165,193 |
| 12.9 | % |
| 1,763,982 |
| 10.5 | % |
| 1,679,983 |
| 10.0 | % | ||||||||||||||
Tier I capital(1) (to risk-weighted assets) | |
|
|
|
| |
|
|
|
| |
|
|
|
| | ||||||||||||||
Company | |
| 2,234,658 |
| 13.3 | % |
| 1,431,105 |
| 8.5 | % |
| — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,065,372 |
| 12.3 | % |
| 1,427,985 |
| 8.5 | % |
| 1,343,986 |
| 8.0 | % | ||||||||||||||
Common Equity Tier I capital(1) (to risk-weighted assets) | | | | | | | | | | | | | | | | | ||||||||||||||
Company | |
| 1,562,524 |
| 9.3 | % |
| 1,178,557 |
| 7.0 | % |
| — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,065,372 |
| 12.3 | % |
| 1,175,988 |
| 7.0 | % |
| 1,091,989 |
| 6.5 | % | ||||||||||||||
Tier I capital(1) (to average assets) | |
| |
|
| |
|
|
| | |
|
|
|
| | ||||||||||||||
Company | |
| 2,234,658 |
| 12.1 | % |
| 925,180 |
| 5.0 | % |
| — |
| N/A | % | ||||||||||||||
Merchants Bank | | | 2,065,372 |
| 11.2 | % |
| 922,006 |
| 5.0 | % |
| 922,006 |
| 5.0 | % | ||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||
| (1) | As defined by regulatory agencies. |
Quantitative measures established by regulation to ensure capital adequacy require the Company and Merchants Bank to maintain minimum amounts and ratios (set forth in the table above). Management believes, as of June 30, 2025 and December 31, 2024, that the Company and Merchants Bank met all capital adequacy requirements to which they were subject. For additional information regarding dividend restrictions, see the Company’s 2024 Annual Report on Form 10–K.
As of June 30, 2025 and December 31, 2024, the most recent notifications from the Federal Reserve categorized the Company as well capitalized and most recent notifications from the FDIC categorized Merchants Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s or Merchants Bank’s category and as of June 30, 2025, the Bank’s capital exceeded the levels agreed to in the MOU.
Additionally, the Bank has established a minimum leverage ratio of 9.0% and a minimum total capital ratio of 12.5%.
The Company’s principal source of funds for dividend payments to shareholders is dividends received from the Bank. Banking statutes and regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under Indiana law, the Bank may not pay a dividend if such dividend would be greater than retained net income (as defined) for the current year plus those for the previous two years. Additionally,
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under the MOU, if the Bank’s capital ratios fall below the minimums described above, the Bank may not pay dividends without the FDIC and DFI’s prior consent.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified two primary sources of market risk: interest rate risk and price risk related to market demand.
Interest Rate Risk
Overview. Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries or SOFR.
Our business consists of funding low risk, multi-family, residential, SBA loans, and warehouse repurchase agreements, meeting underwriting standards of government programs under an originate to sell model, and retaining adjustable-rate loans as held for investment to reduce interest rate risk.
Our Asset-Liability Committee, or ALCO, is a management committee that manages our interest rate risk within policy limits established by our board of directors. In general, we seek to minimize the impact of changing interest rates on net interest income and the economic values of assets and liabilities. Our ALCO meets quarterly, at a minimum, to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits. Additionally, the Risk Committee of our Board meets quarterly, in conjunction with Board meetings, to assess risks associated with interest rate sensitivity.
Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.
Income Simulation and Economic Value Analysis. Interest rate risk measurement is calculated and reported to the ALCO at least quarterly. The information reported includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.
We use two approaches to model interest rate risk: Net Interest Income at Risk (NII at Risk) and Economic Value of Equity (“EVE”). Under NII at Risk, net interest income is modeled utilizing various assumptions for assets,
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liabilities, and derivatives and excludes non-interest income. EVE measures the period end market value of assets minus the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.
We report NII at Risk to isolate the change in income related solely to interest-earning assets and interest-bearing liabilities. The NII at Risk results reflect the analysis used quarterly by management. It models gradual -200, -100, +100 and +200 basis point parallel shifts in market interest rates, implied by the forward yield curve over the next one-year period.
The following table presents NII at Risk for Merchants Bank as of June 30, 2025 and December 31, 2024.
| | | | | | | | | | | | |
| Net Interest Income Sensitivity |
| ||||||||||
| Twelve Months Forward |
| ||||||||||
| - 200 |
| - 100 |
| + 100 |
| + 200 |
| ||||
| (Dollars in thousands) |
| ||||||||||
June 30, 2025: | |
|
| |
|
| |
|
| |
| |
Dollar change | $ | (84,289) | | $ | (44,357) | | $ | 42,895 | | $ | 85,982 | |
Percent change |
| (15.9) | % |
| (8.3) | % |
| 8.1 | % |
| 16.2 | % |
| | | | | | | | | | | | |
December 31, 2024: |
|
| |
|
| |
|
| |
|
| |
Dollar change | $ | (63,859) | | $ | (34,202) | | $ | 34,088 | | $ | 68,263 | |
Percent change |
| (12.2) | % |
| (6.5) | % |
| 6.5 | % |
| 13.1 | % |
Our interest rate risk management policy objective is to limit the change in our net interest income to 20% for a +/- 100 basis point move in interest rates, and 30% for a +/- 200 basis point move in rates. At June 30, 2025 we estimated that we were within policy limits set by our board of directors for the -200, -100, +100, and +200 basis point scenarios.
The EVE results for Merchants Bank included in the following table reflect the analysis used quarterly by management. It models immediate -200, -100, +100 and +200 basis point parallel shifts in market interest rates.
| | | | | | | | | | | | |
| Economic Value of Equity |
| ||||||||||
| Sensitivity (Shock) |
| ||||||||||
| Immediate Change in Rates |
| ||||||||||
| - 200 |
| - 100 |
| + 100 |
| + 200 |
| ||||
| (Dollars in thousands) |
| ||||||||||
June 30, 2025: | |
|
| |
|
| |
|
| |
| |
Dollar change | $ | 54,849 | | $ | 36,112 | | $ | 2,604 | | $ | 4,897 | |
Percent change |
| 2.6 | % |
| 1.7 | % |
| 0.1 | % |
| 0.2 | % |
| | | | | | | | | | | | |
December 31, 2024: |
|
| |
|
| |
|
| |
|
| |
Dollar change | $ | 12,188 | | $ | 14,762 | | $ | (1,118) | | $ | (2,990) | |
Percent change |
| 0.6 | % |
| 0.7 | % |
| (0.1) | % |
| (0.1) | % |
Our interest rate risk management policy objective is to limit the change in our EVE to 15% for a +/- 100 basis point move in interest rates, and 20% for a +/- 200 basis point move in rates. We are within policy limits set by our board of directors for the -200, -100, +100 and +200 basis point scenarios. The EVE reported at June 30, 2025 projects that as interest rates increase (decrease) immediately, the economic value of equity position will be expected to decrease (increase). When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the greater the value lost. The opposite is true when interest rates fall.
Non-GAAP Financial Measures
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Merchants Bancorp
The Company’s accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist users of the financial information in assessing the Company’s operating performance. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the following table.
Although intended to enhance understanding of the Company’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance.
| | | | |
| | June 30, | ||
| | 2025 | | 2024 |
| | (Dollars in thousands) | ||
Total equity | | $ 2,184,632 | | $ 1,888,147 |
Less: goodwill and intangibles | | (8,062) | | (8,108) |
Less: preferred stock | | (551,291) | | (449,387) |
Tangible common shareholders' equity | | $ 1,625,279 | | $ 1,430,652 |
| | | | |
Assets | | $ 19,141,204 | | $ 18,212,422 |
Less: goodwill and intangibles | | (8,062) | | (8,108) |
Tangible assets | | $ 19,133,142 | | $ 18,204,314 |
| | | | |
Ending common shares | | 45,885,458 | | 45,757,567 |
| | | | |
Tangible book value per common share | | $ 35.42 | | $ 31.27 |
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
The information required under this item is included as part of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q under the headings “Liquidity and Capital Resources” and “Interest Rate Risk.”
ITEM 4 Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2025, the Company’s disclosure controls and procedures were effective.
(b) Changes in internal control.
There have been no changes in the Company's internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Merchants Bancorp
Part II
Other Information
ITEM 1. Legal Proceedings
None.
ITEM 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
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ITEM 6. Exhibits
Exhibit |
| |
Number | Description | |
| ||
3.1 | | Second Amended and Restated Articles of Incorporation of Merchants Bancorp. (incorporated by reference to Exhibit 3.1 of Form 8-K, filed on May 24, 2022). |
| | |
3.2 | | Articles of Amendment to the Second Amended and Restated Articles of Incorporation dated September 27, 2022 designating the 8.25% Fixed Rate Reset Series D Non-Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 3.2 of Form 8-A filed on September 27, 2022). |
| | |
3.3 | | Articles of Amendment to the Second Amended and Restated Articles of Incorporation dated November 25, 2024 designating the 7.625% Fixed Rate Series E Non-Cumulative Perpetual Preferred Stock (incorporated by reference to Exhibit 3.2 of Form 8-A filed on November 25, 2024). |
| | |
3.4 | | Second Amended and Restated By-Laws of Merchants Bancorp (incorporated by reference to Exhibit 3.1 of Form 8-K, filed on November 20, 2017). |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| | |
32 | Written Statement of Chief Executive Officer and Chief Financial Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
| | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| | |
104 | | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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Merchants Bancorp
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | ||
| |
| | Merchants Bancorp |
| | | | |
Date: | August 11, 2025 | | By: | /s/ Michael F. Petrie |
Michael F. Petrie | ||||
Chairman & Chief Executive Officer | ||||
Date: | August 11, 2025 | By: | /s/ Sean A. Sievers | |
Sean A. Sievers Chief Financial Officer | ||||
(Principal Financial Officer) |
89
FAQ
What was Merchants Bancorp (MBINO) net income and EPS for Q2 2025?
How large was the provision for credit losses in Merchants Bancorp's Q2 2025 filing?
How big is Merchants Bancorp's loan portfolio and allowance at June 30, 2025?
What liquidity and funding highlights appear in the 10-Q?
Did Merchants report any material changes in investment securities or classifications?
