MBIN Merchants Bancorp

• Full year 2022 net income of $219.7 million decreased 3% compared to 2021
• Full year 2022 diluted earnings per common share of $4.47 decreased 6% compared to 2021
• Fourth quarter 2022 net income of $57.2 million increased 4% compared to fourth quarter of 2021 and decreased 2% compared to the third quarter 2022
• Fourth quarter 2022 diluted earnings per common share of $1.12 decreased 2% compared to the fourth quarter of 2021 and decreased 8% compared to the third quarter of 2022
• Total assets of $12.6 billion increased 5% compared to September 30, 2022, and increased 12% compared to December 31, 2021
• Loans receivable of $7.4 billion, net of allowance for credit losses on loans, increased $0.5 billion, or 7%, compared to September 30, 2022, and increased $1.7 billion, or 29% compared to December 31, 2021
• Net interest margin was 3.13% in the fourth quarter of 2022 compared to 2.70% in the fourth quarter of 2021 and 3.05% in the third quarter of 2022
• Efficiency ratio was 31.3% in the fourth quarter of 2022 compared to 33.3% in the fourth quarter of 2021 and 30.5% in the third quarter of 2022
• Tangible book value per common share of $21.88 increased 22% compared to $17.96 in the fourth quarter of 2021 and increased 5% compared to $20.78 in the third quarter of 2022
• On November 3, 2022, the Company completed a $284 million securitization of 16 multi-family mortgage loans through a Freddie Mac-sponsored Q-Series transaction

CARMEL, Ind., Jan. 30, 2023 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported fourth quarter 2022 net income of $57.2 million, or diluted earnings per common share of $1.12.  This compared to $55.2 million, or diluted earnings per common share of $1.14 in the fourth quarter of 2021, and compared to $58.5 million, or diluted earnings per common share of $1.22 in the third quarter of 2022.

"We had a strong finish to 2022, on the heels of a $1.2 billion multi-family loan securitization and a $142.5 million preferred capital raise in the last quarter to support the loan growth in our pipeline.  We continued our momentum of loan growth and executed our strategy to add shareholder value in any economic or interest rate environment.  Tangible book value grew by 22%, to $21.88 per share during 2022 and our efficiency ratio remained at an industry-leading 31.3% for the year.  The Company continues to enhance its product offerings and is well positioned to continue delivering superior results for the foreseeable future," said Michael F. Petrie, Chairman and CEO of Merchants. 

Michael J. Dunlap, President and Chief Operating Officer of Merchants, added, "Our team has surpassed all expectations in 2022 by providing strong results and new opportunities to add value to our customers.  Their focus and dedication to executing well in a dynamic interest rate environment has led to our continued success and excitement about what is on the horizon in 2023."  

Net income for the fourth quarter 2022 increased by $2.0 million, or 4% compared to the fourth quarter of 2021, primarily driven by a $22.7 million, or 31% increase in net interest income that was partially offset by a $17.2 million, or 60%, decrease in gain on sale of loans and a $3.8 million, or 148%, increase in provision for credit losses.

Net income for the fourth quarter 2022 decreased by $1.3 million, or 2%, compared to the third quarter of 2022, primarily driven by a $6.2 million, or 21%, decrease in noninterest income, a $4.2 million increase in provision for credit losses, and a $2.2 million, or 6%, increase in noninterest expense that was partially offset by a $10.0 million, or 12% increase in net interest income.  

Total Assets
Total assets of $12.6 billion at December 31, 2022 increased 5%, compared to September 30, 2022, and increased 12%, compared to December 31, 2021.  Increases compared to both periods were primarily due to significant growth in the multi-family and healthcare loan portfolios, as well as an increase in held to maturity securities that were acquired in connection with the Company's loan sales and securitizations.

Return on average assets was 1.84% for the fourth quarter of 2022 compared to 2.02% for the fourth quarter of 2021 and 2.05% for the third quarter of 2022.

Asset Quality
The allowance for credit losses on loans of $44.0 million at December 31, 2022 increased $5.0 million compared to September 30, 2022 and increased $12.7 million compared to December 31, 2021.  The increases were primarily due to growth in the multi-family, commercial, residential, and healthcare loan portfolios, as well as revisions to market forecasts for unemployment and home price indices. 

Non-performing loans were $26.7 million, or 0.38%, of loans receivable at December 31, 2022, compared to 0.38% at September 30, 2022 and 0.01% at December 31, 2021.  The increase compared to both periods was primarily due to the delinquency of one healthcare customer that is fully collateralized and full payment is expected.

Total Deposits
Total deposits of $10.1 billion at December 31, 2022 decreased $248.1 million, or 2%, compared to September 30, 2022, and increased $1.1 billion, or 12%, compared to December 31, 2021. The decrease compared September 30, 2022, was primarily due to a decrease in demand deposit accounts that was partially offset by an increase in certificates of deposits.  The increase compared to December 31, 2021, was primarily due to an increase in brokered certificates of deposit that was partially offset by a decrease in demand accounts.

Total brokered deposits of $2.8 billion at December 31, 2022 increased $544.1 million, or 25%, from September 30, 2022 and increased $603.0 million, or 28%, from December 31, 2021. Brokered deposits represented 27% of total deposits at December 31, 2022 compared to 22% of total deposits at September 30, 2022 and 24% of total deposits at December 31, 2021.  As of December 31, 2022, brokered certificates of deposit had a weighted average remaining duration of 73 days, with none exceeding 180 days.

The Company continues to offer new products, such as adjustable-rate certificates of deposits, to minimize interest rate risks by aligning the rate and duration characteristics of its deposit and loan portfolios.

Liquidity
Cash balances of $226.2 million at December 31, 2022 decreased by $97.8 million compared to September 30, 2022 and decreased by $806.5 million compared to December 31, 2021.  The Company continues to have significant borrowing capacity, with unused lines of credit totaling $3.1 billion at December 31, 2022 compared to $2.8 billion at September 30, 2022 and $2.4 billion at December 31, 2021.  This liquidity enhances the ability to effectively manage interest expense and asset levels in the future. Additionally, the Company's business model is designed to continuously sell a significant portion of its loans, which provides flexibility in managing its liquidity.

Comparison of Operating Results for the Three Months Ended
December 31, 2022 and 2021

Net Interest Income of $95.4 million increased $22.7 million, or 31% compared to $72.7 million, reflecting higher yields and average balances on loans and loans held for sale, as well as securities held to maturity, which were partially offset by higher interest rates on deposits and borrowings. 

• Interest rate spread of 2.69% increased 7 basis points compared to 2.62%.
• Net interest margin of 3.13% increased 43 basis points compared to 2.70%.

Interest Income of $181.4 million increased 120% compared to $82.6 million, reflecting an increase in both yields and average balances of loans and loans held for sale, as well as new balances in securities held to maturity. 

• Average balances of $10.3 billion for loans and loans held for sale increased 14% compared to $9.1 billion.
• Average yield on loans and loans held for sale of 6.34% increased 297 basis points compared to 3.37%.

Interest Expense of $86.0 million increased $76.2 million, or 774%, compared to $9.8 million.  Interest expense on deposits of $81.1 million increased $72.6 million, or 855%, compared $8.5 million, primarily reflecting higher rates on interest bearing checking, money market, and certificates of deposit accounts.

• Average balances of $10.0 billion for interest-bearing deposits increased 20% compared to $8.3 billion.
• Average interest rates of 3.22% for interest-bearing deposits increased 281 basis points compared to 0.41%.

Noninterest Income of $23.0 million decreased $17.3 million, or 43%, compared to $40.3 million, primarily due to a $17.2 million decrease in gain on sale of loans, partially offset by a $1.3 million increase in loan servicing fees.

• The decrease in gain on sale of loans was associated with a business mix shift in multi-family lending, from volumes sold in the secondary market towards those maintained on the balance sheet.
• Loan servicing fees included a $0.2 million negative fair market value adjustment to mortgage servicing rights, with a $0.6 million negative adjustment in the Banking segment and a $0.4 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $1.9 million positive fair market value adjustment to mortgage servicing rights, of which $0.9 million was in the Banking segment and $1.0 million was in the Multi-family Mortgage Banking segment.

Noninterest Expense of $37.1 million decreased $0.5 million, or 1%, compared to $37.6 million, primarily due to decreases in salaries and employee benefits from lower commissions on gain on sale of loans. 

• The efficiency ratio of 31.3% decreased 197 basis points compared to 33.3%.

Comparison of Operating Results for the Three Months Ended
December 31, 2022 and September 30, 2022

Net Interest Income of $95.4 million increased $10.0 million, or 12% compared to $85.4 million, reflecting higher yields and average balances on loans and loans held for sale that were partially offset by higher interest rates and average balances on deposits and borrowings.

• Interest rate spread of 2.69% decreased 8 basis points compared to 2.77%.
• Net interest margin of 3.13% increased 8 basis points compared to 3.05%.

Interest Income of $181.4 million increased $47.3 million, or 35%, compared to $134.1 million, reflecting an increase in yields and average balances of loans and loans held for sale, as well as an increase in balances of securities held to maturity.

• Average balances of $10.3 billion for loans and loans held for sale increased $54.5 million, or 1%, compared to $10.2 billion.
• Average yield on loans and loans held for sale of 6.34% increased 134 basis points compared to 5.00%.

Interest Expense of $86.0 million increased $37.3 million, or 77%, compared to $48.7 million.  Interest expense on deposits of $81.1 million increased $36.1 million, or 80%, compared to $45.0 million, reflecting higher interest rates on interest bearing checking, money market, and certificates of deposit accounts.

• Average balances of $10.0 billion for interest-bearing deposits increased $1.0 billion, or 11%, compared to $9.0 billion.
• Average interest rates of 3.22% for interest-bearing deposits increased 124 basis points compared to 1.98%.

Noninterest Income of $23.0 million decreased $6.2 million, or 21%, compared $29.2 million, primarily due to a $5.5 million, or 67% decrease in loan servicing fees related to lower fair market value adjustments to mortgage servicing rights, and a $2.1 million, or 16%, decrease in gain on sale of loans.

• The decrease in gain on sale of loans was associated with lower volume in the secondary market for multi-family loans.
• Loan servicing fees included a $0.2 million negative fair market value adjustment to mortgage servicing rights, with a $0.6 million negative adjustment in the Banking segment and a $0.4 million positive adjustment in the Multi-family Mortgage Banking segment. This compared to a $4.6 million positive fair market value adjustment to servicing rights, of which $0.9 million was in the Banking segment and $3.7 million was in the Multi-family Mortgage Banking segment.

Noninterest Expense of $37.1 million increased $2.2 million, or 6%, compared to $35.0 million, primarily due to increases in professional fees related to growth in the low-income housing tax credit syndication business.

• The efficiency ratio of 31.3% increased 80 basis points compared to 30.5%.

About Merchants Bancorp

Ranked as a top performing U.S. public bank by S&P Global Market Intelligence, Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple segments, including Multi-family Mortgage Banking that offers multi-family housing and healthcare facility financing and servicing; Mortgage Warehousing that offers mortgage warehouse financing; and Banking that offers retail and correspondent residential mortgage banking, agricultural lending, and traditional community banking.  Merchants Bancorp, with $12.6 billion in assets and $10.1 billion in deposits as of December 31, 2022, conducts its business primarily through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp., Merchants Capital Investments, LLC, Merchants Capital Servicing, LLC, Merchants Asset Management, LLC, Farmers-Merchants Bank of Illinois, and Merchants Mortgage, a division of Merchants Bank of Indiana. For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbancorp.com.

Forward-Looking Statements
This press release contains forward-looking statements which reflect management's current views with respect to, among other things, future events and 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 the industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control, such as the potential impacts of the COVID-19 pandemic. Accordingly, management cautions 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 the Company believes 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 actual results to differ materially from those indicated in these forward-looking statements, including the impacts of the COVID-19 pandemic, such as the severity, magnitude, duration and businesses' and governments' responses thereto, on the Company's operations and personnel, and on activity and demand across its businesses, and other factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K and other periodic filings with the Securities and Exchange Commission.  Any forward-looking statements presented herein are made only as of the date of this press release, and the Company does not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.