10-K: Merchants Bancorp Reports Strong 2024 Results, Driven by Net Interest and Noninterest Income Growth

Sentiment:

Annual Results 28 February 2025 4:06 PM

Merchants Bancorp's 2024 annual report reveals a 15% increase in net income, fueled by growth in both net interest and noninterest income, alongside a decrease in the provision for credit losses.

Summary

Merchants Bancorp's 2024 net income reached $320.4 million, a 15% increase compared to 2023.
Diluted earnings per share rose by 12% to $6.30.
Net interest income increased by 17% to $522.6 million, driven by higher average balances and yields on loans and securities.
Noninterest income grew by 29% to $148.1 million, primarily due to gains on loan sales, increased loan servicing fees, and higher syndication and asset management fees.
The provision for credit losses decreased by 40% to $24.3 million.
Total assets increased by 11% to $18.8 billion.
Loans receivable, net of allowance for credit losses, increased by 2% to $10.4 billion.
Tangible book value per common share increased by 25% to $34.15.
The efficiency ratio increased to 33.37% from 31.03% in the previous year.
The company sold its Illinois branches and merged FMBI into Merchants Bank in January 2024.
The company executed credit default swaps on multi-family and warehouse loans to reduce risk-based capital requirements.
The company completed a common stock offering in May 2024, raising $97.7 million.
The company completed a 7.625% Series E Preferred Stock offering in November 2024, raising $222.7 million.
The company's LIHTC syndications business raised $1.1 billion in equity during 2024.
Warehouse loans funded during 2024 increased by 38% to $45.6 billion.
The total volume of loans originated and acquired through the multi-family business was $6.2 billion, unchanged from 2023.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and strategic initiatives. While there are some challenges and risks, the overall tone is optimistic and indicates a well-managed company with growth potential.

Positives

Strong growth in net income, driven by both net interest and noninterest income.
Significant increase in tangible book value per common share.
Successful capital raising through common and preferred stock offerings.
Strategic actions to manage risk-based capital requirements, including credit default swaps and loan securitizations.
Growth in the LIHTC syndications business and warehouse lending volume.

Negatives

Increase in nonperforming loans, driven by multi-family and healthcare customers with delinquent payments.
Increase in the efficiency ratio, indicating higher operating expenses relative to revenue.
Decrease in deposits, primarily due to a decline in brokered deposits.
Decrease in cash and cash equivalents.

Risks

Sensitivity to economic conditions and interest rate fluctuations.
Credit risk associated with lending activities, particularly in the multi-family and healthcare sectors.
Operational risks, including cybersecurity threats and reliance on third-party service providers.
Regulatory compliance risks and potential for increased regulatory scrutiny.
Liquidity risks and dependence on various funding sources.

Future Outlook

The company expects the loan portfolio to continue to grow in 2025, which could lead to an increase in the provision for credit losses. The company also anticipates that model-derived testing may become more extensively implemented by regulators in the future.

Industry Context

The report notes increased competition from various financial institutions, including online businesses, and highlights the importance of maintaining a strong reputation and diversified business model to compete effectively. The company's growth in warehouse lending volume outpaced the industry average, indicating a strong market position in that segment.

Comparison to Industry Standards

The volume of warehouse loans funded during the year ended December 31, 2024, amounted to $45.6 billion, an increase of $12.6 billion, or 38%, compared to the same period in 2023.
This compared to the 9% industry increase in single-family residential loan volumes from the year ended December 31, 2024 to the same period in 2023, according to an estimate of industry volume by the Mortgage Bankers Association.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Code of Conduct	The company has adopted a Code of Conduct that applies to directors, officers, and all other employees including our principal executive officer, principal financial officer and principal accounting officer.	N/A	The text of the Code of Conduct is available on our website at www.merchantsbancorp.com, under the Corporate Profile section, or in print to any shareholder who requests it. We intend to post information regarding any amendments to, or waivers from, our Code of Conduct on our website.
Insider Trading Policy	We have adopted an Insider Trading Policy applicable to us and our directors, officers, and employees governing the purchase, sale, and other dispositions of our securities. We believe that the Insider Trading Policy is reasonably designed to promote compliance with the insider trading laws, rules and regulations, and listing standards applicable to us.	N/A	The Insider Trading Policy is filed as Exhibit 19 to this Annual Report on Form 10-K.

Legal Proceedings

There are no material pending legal proceedings other than ordinary routine litigation incidental to the business which we operate.

Related Party Transactions

The Company has entered into transactions with certain directors, executive officers, and their affiliates or associates (related parties).
Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.
The aggregate amount of loans to directors, executive officers and their affiliates was not greater than 5% of the Companys shareholders equity at December 31, 2024 and 2023.
The Company retained a law firm of which a Board member of Merchants Bank is a partner. Services rendered are primarily related to documentation of current loan originations, and loan collections from Merchants Banks borrowers.
The Company made payments to a Board member of Merchants Bank during 2023 for speaking engagements at corporate events.
The Company made payments to a company that is owned by a Board member and executive of Merchants Bank. Payments were made for charter flights taken during 2024 and 2023 as part of corporate travel expenses.
The Company holds a 30% ownership in an LLC that provides funding to the senior housing and healthcare sectors that is accounted for using the equity method of accounting.

Stakeholder Impact

Shareholders: Positive impact due to increased profitability, earnings per share, and tangible book value.
Employees: Positive impact due to employee benefits and potential for career advancement.
Customers: Positive impact due to a wide range of financial products and services.
Suppliers: No significant impact identified.
Creditors: No significant impact identified.

Next Steps

Continue to monitor and manage credit risk, particularly in the multi-family and healthcare sectors.
Focus on maintaining a strong capital base and liquidity.
Adapt to changes in the regulatory environment and implement necessary compliance measures.
Continue to execute strategic initiatives and explore acquisition opportunities.

Key Dates

Date	Description
1990	Merchants Bancorp was founded as a mortgage banking company.
2006	Merchants Bancorp was formed as an Indiana corporation.
October 27, 2017	Merchants Bancorp's common stock began trading on the NASDAQ under the symbol MBIN.
January 2018	Merchants Bank was awarded Preferred Lender Program status by the SBA.
December 2019	The Company added a new team of SBA originators, located in Illinois and Indiana, which later expanded into Ohio and Texas.
July 21, 2010	The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.
July 21, 2011	The CFPB commenced operations to oversee and enforce consumer protection laws.
January 1, 2022	The Company adopted FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
September 27, 2022	The Company issued 5,200,000 depositary shares of Series D Preferred Stock.
September 30, 2022	The Company issued an additional 500,000 depositary shares of Series D Preferred Stock.
January 1, 2023	The Company adopted FASB Accounting Standards Update (ASU) No. 2022-02, Financial Instruments Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures.
March 30, 2023	The Company issued and sold $158.1 million senior credit linked notes.
August 31, 2023	The Company completed a $303.6 million securitization of 11 multi-family mortgage loans through a Freddie Mac-sponsored Q-Series transaction.
January 26, 2024	The Company sold its Illinois branches and merged the remaining charter of FMBI into Merchants Bank.
April 1, 2024	The Company redeemed all outstanding shares of the Series A Preferred Stock.
April 30, 2024	The Company completed a $324.6 million securitization of 13 multi-family mortgage loans through a Freddie Mac-sponsored Q-Series transaction.
May 16, 2024	The Company completed a common stock offering of 2.4 million shares.
September 26, 2024	The Company completed a private securitization by which a $628.9 million portfolio of healthcare bridge loans were sold into a real estate mortgage investment conduit (REMIC).
October 1, 2024	The dividends on the Series B Preferred Stock started to accrue at a floating rate of 3-month SOFR plus 4.831%.
November 25, 2024	The Company issued 9,200,000 depositary shares of Series E Preferred Stock.
January 2, 2025	The Company redeemed all outstanding shares of the Series B Preferred Stock.
February 24, 2025	The Registrant had 45,850,904 shares of Common Stock outstanding.
May 15, 2025	Date of the 2025 annual meeting of shareholders.

Keywords

Merchants Bancorp, financial results, net income, mortgage banking, warehouse lending, capital ratios, credit quality, preferred stock, common stock, LIHTC, securitization, deposits, loans

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