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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2022

OR

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. 001-38258

MERCHANTS BANCORP

(Exact name of registrant as specified in its charter)

Indiana

    

20-5747400

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

410 Monon Blvd. Carmel, Indiana

46032

(Address of principal

(Zip Code)

executive office)

(317) 569-7420

(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. Yes    No 

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).  Yes   No

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.

Large accelerated filer

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     No 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, without par value

MBIN

NASDAQ

Series A Preferred Stock, without par value

Depositary Shares, each representing a 1/40th interest in a share of Series B Preferred Stock, without par value

MBINP

MBINO

NASDAQ

NASDAQ

Depositary Shares, each representing a 1/40th interest in a share of Series C Preferred Stock, without par value

MBINN

NASDAQ

As of August 1, 2022, the latest practicable date, 43,106,505 shares of the registrant’s common stock, without par value, were issued and outstanding.

Table of Contents

Merchants Bancorp

Index to Quarterly Report on Form 10-Q

PART I – FINANCIAL INFORMATION

Item 1 Interim Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

3

Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021

4

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021

5

Condensed Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021

6

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021

7

Notes to Condensed Consolidated Financial Statements

8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

45

Item 3 Quantitative and Qualitative Disclosures About Market Risk

67

Item 4 Controls and Procedures

67

PART II – OTHER INFORMATION

68

Item 1 Legal Proceedings

68

Item 1A Risk Factors

68

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

68

Item 3 Defaults Upon Senior Securities

68

Item 4 Mine Safety Disclosures

68

Item 5 Other Information

68

Item 6 Exhibits

69

SIGNATURES

70

2

Table of Contents

Part I – Financial Information

Item 1. Financial Statements

Merchants Bancorp

Condensed Consolidated Balance Sheets

June 30, 2022 (Unaudited) and December 31, 2021

(In thousands, except share data)

June 30, 

December 31, 

    

2022

    

2021

Assets

 

  

 

  

Cash and due from banks

$

10,714

$

14,030

Interest-earning demand accounts

 

247,432

 

1,018,584

Cash and cash equivalents

 

258,146

 

1,032,614

Securities purchased under agreements to resell

 

3,520

 

5,888

Mortgage loans in process of securitization

 

323,046

 

569,239

Available for sale securities

 

336,814

 

310,629

Federal Home Loan Bank (FHLB) stock

 

39,130

 

29,588

Loans held for sale (includes $41,991 and $48,583, respectively at fair value)

 

2,759,116

 

3,303,199

Loans receivable, net of allowance for credit losses on loans of $37,474 and $31,344, respectively

 

7,033,203

 

5,751,319

Premises and equipment, net

 

35,085

 

31,212

Servicing rights

 

130,710

 

110,348

Interest receivable

 

26,184

 

24,103

Goodwill

 

15,845

 

15,845

Intangible assets, net

 

1,441

 

1,707

Other assets and receivables

 

123,815

 

92,947

Total assets

$

11,086,055

$

11,278,638

Liabilities and Shareholders' Equity

 

 

Liabilities

 

  

 

  

Deposits

 

  

 

  

Noninterest-bearing

$

444,461

$

641,442

Interest-bearing

 

7,855,277

 

8,341,171

Total deposits

 

8,299,738

 

8,982,613

Borrowings

 

1,440,904

 

1,033,954

Deferred and current tax liabilities, net

 

19,414

 

19,170

Other liabilities

 

97,460

 

87,492

Total liabilities

 

9,857,516

 

10,123,229

Commitments and Contingencies

 

  

 

  

Shareholders' Equity

 

  

 

  

Common stock, without par value(1)

 

  

 

  

Authorized - 75,000,000 shares at June 30, 2022 and 50,000,000 shares at December 31, 2021

 

  

 

  

Issued and outstanding - 43,106,505 shares at June 30, 2022 and 43,180,079 shares at December 31, 2021

 

136,671

 

137,565

Preferred stock, without par value - 5,000,000 total shares authorized

7% Series A Preferred stock - $25 per share liquidation preference

 

 

Authorized - 3,500,000 shares

 

 

Issued and outstanding - 2,081,800 shares

 

50,221

 

50,221

6% Series B Preferred stock - $1,000 per share liquidation preference

 

 

Authorized - 125,000 shares

 

 

Issued and outstanding - 125,000 shares (equivalent to 5,000,000 depositary shares)

 

120,844

 

120,844

6% Series C Preferred stock - $1,000 per share liquidation preference

Authorized - 250,000 shares

Issued and outstanding - 196,181 shares (equivalent to 7,847,233 depositary shares)

191,084

191,084

Retained earnings

 

737,789

 

657,149

Accumulated other comprehensive loss

 

(8,070)

 

(1,454)

Total shareholders' equity

 

1,228,539

 

1,155,409

Total liabilities and shareholders' equity

$

11,086,055

$

11,278,638

(1)The number of shares have been restated to reflect the 3-for-2 common stock split, effective on January 17, 2022.

See notes to condensed consolidated financial statements.

3

Table of Contents

Merchants Bancorp

Condensed Consolidated Statements of Income (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021

(In thousands, except share data)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Interest Income

 

  

 

  

 

  

Loans

$

85,994

$

68,276

$

158,190

$

143,793

Mortgage loans in process of securitization

 

1,449

 

2,724

 

3,694

 

5,860

Investment securities:

 

 

 

  

 

  

Available for sale - taxable

 

917

 

833

 

1,618

 

1,187

Available for sale - tax exempt

9

20

Federal Home Loan Bank stock

 

284

 

392

 

553

 

776

Other

 

626

 

204

 

1,227

 

351

Total interest income

 

89,270

 

72,438

 

165,282

 

151,987

Interest Expense

 

  

 

  

 

  

 

  

Deposits

 

14,768

 

6,683

 

23,581

 

12,783

Borrowed funds

 

2,471

 

1,348

 

3,945

 

2,834

Total interest expense

 

17,239

 

8,031

 

27,526

 

15,617

Net Interest Income

 

72,031

 

64,407

 

137,756

 

136,370

Provision (credit) for credit losses

 

6,212

 

(315)

 

8,663

 

1,348

Net Interest Income After Provision for Credit Losses

 

65,819

 

64,722

 

129,093

 

135,022

Noninterest Income

 

  

 

  

 

  

 

  

Gain on sale of loans

 

21,564

 

25,122

 

39,529

 

53,742

Loan servicing fees, net

 

9,607

 

1,727

 

19,338

 

9,678

Mortgage warehouse fees

 

1,350

 

3,079

 

3,208

 

7,195

Syndication and asset management fees

1,599

480

2,213

535

Other income

 

5,051

 

2,447

 

9,480

 

5,641

Total noninterest income

 

39,171

 

32,855

 

73,768

 

76,791

Noninterest Expense

 

  

 

  

 

  

 

  

Salaries and employee benefits

 

22,475

 

18,869

 

43,768

 

40,143

Loan expenses

 

1,184

 

1,921

 

2,395

 

4,444

Occupancy and equipment

 

2,011

 

1,808

 

3,825

 

3,435

Professional fees

 

1,594

 

779

 

2,897

 

1,201

Deposit insurance expense

 

670

 

651

 

1,429

 

1,322

Technology expense

 

1,304

 

971

 

2,540

 

1,908

Other expense

 

3,719

 

3,184

 

7,136

 

5,814

Total noninterest expense

 

32,957

 

28,183

 

63,990

 

58,267

Income Before Income Taxes

 

72,033

 

69,394

 

138,871

 

153,546

Provision for income taxes

 

18,098

 

17,977

 

34,794

 

40,146

Net Income

$

53,935

$

51,417

$

104,077

$

113,400

Dividends on preferred stock

(5,729)

(5,659)

(11,457)

(9,416)

Net Income Allocated to Common Shareholders

48,206

45,758

92,620

103,984

Basic Earnings Per Share(1)

$

1.12

$

1.06

$

2.14

$

2.41

Diluted Earnings Per Share(1)

$

1.11

$

1.06

$

2.14

$

2.40

Weighted-Average Shares Outstanding(1)

 

  

 

  

 

  

 

  

Basic

 

43,209,824

 

43,174,220

 

43,220,198

 

43,166,223

Diluted

 

43,335,211

 

43,311,488

 

43,367,875

 

43,293,599

(1)The number of shares and per share amounts have been restated to reflect the 3-for-2 common stock split, effective on January 17, 2022.

See notes to condensed consolidated financial statements.

4

Table of Contents

Merchants Bancorp

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021

(In thousands)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Net Income

$

53,935

$

51,417

$

104,077

$

113,400

Other Comprehensive Loss:

 

  

 

 

  

 

  

Net change in unrealized losses on investment securities available for sale, net of tax benefits of $553, $87, $2,203 and $130, respectively

 

(1,766)

 

(253)

 

(6,616)

 

(378)

Other comprehensive loss for the period

 

(1,766)

 

(253)

 

(6,616)

 

(378)

Comprehensive Income

$

52,169

$

51,164

$

97,461

$

113,022

See notes to condensed consolidated financial statements.

5

Table of Contents

Merchants Bancorp

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021

(In thousands, except share data)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2022

    

2021

    

2022

    

2021

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Common Stock

 

  

 

  

 

  

Balance beginning of period(1)

43,267,776

$

137,882

43,173,209

$

136,474

43,180,079

$

137,565

43,120,625

$

135,857

Repurchase of common stock

(165,037)

(1,761)

(165,037)

(1,761)

Cash paid in lieu of fractional shares for stock split

-

-

(29)

(1)

Distribution to employee stock ownership plan

-

-

-

-

20,709

653

29,149

537

Shares issued for stock compensation plans, net of taxes withheld to satisfy tax obligations

3,766

550

2,190

362

70,783

215

25,625

442

Balance end of period

43,106,505

136,671

43,175,399

136,836

43,106,505

136,671

43,175,399

136,836

8% Preferred Stock

Balance beginning of period

-

-

41,625

41,581

-

-

41,625

41,581

Redemption of 8% preferred stock

-

-

(41,625)

(41,581)

-

-

(41,625)

(41,581)

Balance end of period

-

-

-

-

-

-

-

-

7% Series A Preferred Stock

Balance at beginning and end of period

2,081,800

50,221

2,081,800

50,221

2,081,800

50,221

2,081,800

50,221

6% Series B Preferred Stock

Balance at beginning and end of period

125,000

120,844

125,000

120,844

125,000

120,844

125,000

120,844

6% Series C Preferred Stock

Balance beginning of period

196,181

191,084

150,000

144,925

196,181

191,084

-

-

Issuance of 6% Series C preferred stock, net of $5.1 million in offering expenses

-

-

-

1

-

-

150,000

144,926

Private issuance of 6% Series C preferred stock, net of $23 in offering expenses

-

-

46,181

46,158

-

-

46,181

46,158

Balance end of period

196,181

191,084

196,181

191,084

196,181

191,084