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What changed in Merchants Bancorp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Merchants Bancorp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+419 added−424 removedSource: 10-K (2025-02-28) vs 10-K (2024-03-12)

Top changes in Merchants Bancorp's 2024 10-K

419 paragraphs added · 424 removed · 343 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

80 edited+1 added−12 removed94 unchanged
Biggest changeMerchants Mortgage also originates loans held for investment and earns interest income over the life of the loan. 5 Table of Contents SBA Lending Merchants Bank participates in the SBA’s 7(a), 504 and Express programs to meet the needs of our small business communities and help diversify our retail revenue stream.
Biggest changeSBA Lending Merchants Bank participates in the SBA’s 7(a), 504 and Express programs to meet the needs of our small business communities and help diversify our retail revenue stream. In January 2018, Merchants Bank was awarded Preferred Lender Program status, the SBA’s highest level of approval that a lender can hold.
A variety of loan products are available to accommodate acquisition, rehabilitation, and refinancing of healthcare properties throughout the country. These loans are underwritten with the intent to convert FHA permanent loans within three years.
A variety of loan products are available to accommodate acquisition, rehabilitation, and refinancing of healthcare properties throughout the country. These loans are underwritten with the intent to convert to FHA permanent loans within three years.
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 Residential Lending in the Banking segment.
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.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including the following: • business and economic conditions, particularly those affecting the financial services industry and our primary market areas; 16 Table of Contents • our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses on loans; • 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 cybersecurity 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 • changes in federal tax law or policy.
A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including 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 credit losses on loans; • 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 cybersecurity risks, fraud and systems errors; • our ability to effectively execute our strategic plan and manage our growth; 19 Table of Contents • 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 • changes in federal tax law or policy.
Consumer Laws Merchants Bank must comply with a number of federal consumer protection laws, including, among others: • the Gramm-Leach-Bliley Act, which requires a bank to maintain privacy with respect to certain consumer data in its possession and to periodically communicate with consumers on privacy matters; • the Right to Financial Privacy Act, which imposed a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • the Fair Debt Collection Practices Act, which regulates the timing and content of debt collection communications; • the Truth in Lending Act and Regulation Z thereunder, which requires certain disclosures to consumer borrowers regarding the terms of their loans; 15 Table of Contents • the Fair Credit Reporting Act, which regulates the use and reporting of information related to the credit history of consumers; • the Equal Credit Opportunity Act and Regulation B thereunder, which prohibits discrimination on the basis of age, race and certain other characteristics, in the extension of credit; • the Homeowners Equity Protection Act, which requires, among other things, the cancellation of mortgage insurance once certain equity levels are reached; • the Home Mortgage Disclosure Act and Regulation C thereunder, which require mortgage lenders to report certain public loan data; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Real Estate Settlement Procedures Act and Regulation X thereunder, which imposes conditions on the consummation and servicing of mortgage loans; • the Truth in Savings Act and Regulation DD thereunder, which requires certain disclosures to depositors concerning the terms of their deposit accounts; and • the Electronic Funds Transfer Act and Regulation E thereunder, which governs various forms of electronic banking.
Consumer Laws Merchants Bank must comply with a number of federal consumer protection laws, including, among others: • the Gramm-Leach-Bliley Act, which requires a bank to maintain privacy with respect to certain consumer data in its possession and to periodically communicate with consumers on privacy matters; • the Right to Financial Privacy Act, which imposed a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • the Fair Debt Collection Practices Act, which regulates the timing and content of debt collection communications; • the Truth in Lending Act and Regulation Z thereunder, which requires certain disclosures to consumer borrowers regarding the terms of their loans; • the Fair Credit Reporting Act, which regulates the use and reporting of information related to the credit history of consumers; • the Equal Credit Opportunity Act and Regulation B thereunder, which prohibits discrimination on the basis of age, race and certain other characteristics, in the extension of credit; • the Homeowners Equity Protection Act, which requires, among other things, the cancellation of mortgage insurance once certain equity levels are reached; • the Home Mortgage Disclosure Act and Regulation C thereunder, which require mortgage lenders to report certain public loan data; • the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; • the Real Estate Settlement Procedures Act and Regulation X thereunder, which imposes conditions on the consummation and servicing of mortgage loans; • the Truth in Savings Act and Regulation DD thereunder, which requires certain disclosures to depositors concerning the terms of their deposit accounts; and 18 Table of Contents • the Electronic Funds Transfer Act and Regulation E thereunder, which governs various forms of electronic banking.
In particular, and among other things, the Dodd-Frank Act: (i) created a Financial Stability Oversight Council as part of a regulatory structure for identifying emerging systemic risks and improving interagency cooperation; (ii) created the CFPB, which is authorized to regulate providers of consumer credit, savings, payment and other consumer financial products and services; (iii) narrowed the scope of federal preemption of state consumer laws enjoyed by national banks and federal savings associations and expanded the authority of state attorneys general to bring actions to enforce federal consumer protection legislation; (iv) imposed more stringent capital requirements on bank holding companies and subjected certain activities, including interstate mergers and acquisitions, to heightened capital conditions; (v) with respect to mortgage lending, (a) significantly expanded requirements applicable to loans secured by 1-4 family residential real property, (b) imposed strict rules on mortgage servicing, and (c) required the originator of a securitized loan, or the sponsor of a securitization, to retain at least 5% of the credit risk of securitized exposures unless the underlying exposures are qualified residential mortgages or meet certain underwriting standards; (vi) repealed the prohibition on the payment of interest on business checking accounts; (vii) restricted the interchange fees payable on debit card transactions for issuers with $10 billion in assets or greater; (viii) in the so-called “Volcker Rule,” subject to numerous exceptions, prohibited depository institutions and affiliates from certain investments in, and sponsorship of, hedge funds and private equity funds and from engaging in proprietary trading; (ix) provided for enhanced regulation of advisers to private funds and of the derivatives 13 Table of Contents markets; (x) enhanced oversight of credit rating agencies; and (xi) prohibited banking agency requirements tied to credit ratings.
In particular, and among other things, the Dodd-Frank Act: (i) created a Financial Stability Oversight Council as part of a regulatory structure for identifying emerging systemic risks and improving interagency cooperation; (ii) created the CFPB, which is authorized to regulate providers of consumer credit, savings, payment and other consumer financial products and services; (iii) narrowed the scope of federal preemption of state consumer laws enjoyed by national banks and federal savings associations and expanded the authority of state attorneys general to bring actions to enforce federal consumer protection legislation; (iv) imposed more stringent capital requirements on bank holding companies and subjected certain activities, including interstate mergers and acquisitions, to heightened capital conditions; (v) with respect to mortgage lending, (a) significantly expanded requirements applicable to loans secured by 1-4 family residential real property, (b) imposed strict rules on mortgage servicing, and (c) required the originator of a securitized loan, or the sponsor of a securitization, to retain at least 5% of the credit risk of securitized exposures unless the underlying exposures are qualified residential mortgages or meet certain underwriting standards; (vi) repealed the prohibition on the payment of interest on business checking accounts; (vii) restricted the interchange fees payable on debit card transactions for issuers with $10 billion in assets or greater; (viii) in the so-called “Volcker Rule,” subject to numerous exceptions, prohibited depository institutions and affiliates from certain investments in, and sponsorship of, hedge funds and private equity funds and from engaging in proprietary trading; (ix) provided for enhanced regulation of advisers to private funds and of the derivatives markets; (x) enhanced oversight of credit rating agencies; and (xi) prohibited banking agency requirements tied to credit ratings.
Merchants Bank also maintains records of cash purchases of 10 Table of Contents negotiable instruments, file reports of certain cash transactions exceeding $10,000 (daily aggregate amount), and report suspicious activity that might signify money laundering, tax evasion, or other criminal activities pursuant to the BSA. Merchants Bank otherwise has implemented policies and procedures to comply with the foregoing requirements.
Merchants Bank also maintains records of cash purchases of negotiable instruments, file reports of certain cash transactions exceeding $10,000 (daily aggregate amount), and report suspicious activity that might signify money laundering, tax evasion, or other criminal activities pursuant to the BSA. Merchants Bank otherwise has implemented policies and procedures to comply with the foregoing requirements.
Through our website at www.merchantsbancorp.com under “Investors,” we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the U.S.
Through our website at www.merchantsbancorp.com under “Investors,” we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Our commitment to DEI also led to the creation of an employee level committee focused on DEI and our hiring of an individual who leads our DEI efforts, including such committee. Some activities that have been launched include regular educational events for all employees and an open forum for DEI topics of discussion.
Our commitment to IO also led to the creation of an employee level committee focused on IO and our hiring of an individual who leads our IO efforts, including such committee. Some activities that have been launched include regular educational events for all employees and an open forum for IO topics of discussion.
Bank Secrecy Act and USA Patriot Act The Bank Secrecy Act (“BSA”), enacted as the Currency and Foreign Transactions Reporting Act, requires financial institutions to maintain records of certain customers and currency transactions and to report certain domestic and foreign currency transactions, which may have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.
Bank Secrecy Act and USA Patriot Act The BSA, enacted as the Currency and Foreign Transactions Reporting Act, requires financial institutions to maintain records of certain customers and currency transactions and to report certain domestic and foreign currency transactions, which may have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings.
Merchants Bank of Indiana (“Merchants Bank”), one of our wholly owned banking subsidiaries, operates under an Indiana charter and provides traditional community banking services, as well as portfolio lending for multi-family and healthcare facility loans, retail and correspondent residential mortgage banking, SBA lending, and agricultural lending.
Merchants Bank of Indiana (“Merchants Bank”), one of our wholly owned banking subsidiaries, operates under an Indiana charter and provides national and traditional community banking services, as well as portfolio lending for multi-family and healthcare facility loans, retail and correspondent residential mortgage banking, warehouse lending, SBA lending, and agricultural lending.
Commercial Lending and Retail Banking Merchants Bank holds loans in its portfolio comprised of multi-family and healthcare bridge loans and multi-family construction loans referred by MCC, owner occupied commercial real estate loans, commercial and industrial loans, agricultural loans, residential mortgage loans and consumer loans.
Commercial Lending and Retail Banking Merchants Bank holds loans in its portfolio comprised of multi-family and healthcare bridge loans and multi-family construction loans referred to it by MCC, owner occupied commercial real estate loans, commercial and industrial loans, agricultural loans, residential mortgage loans and consumer loans.
Standards over information security are Board-approved and various types of control testing is conducted throughout the year, by internal and external parties. Recommendations are implemented and reported to various committees. These security and privacy policies and procedures, for the protection of personal and confidential information, are in effect across all businesses and geographic locations.
Standards over information security are Board-approved and various types of control testing is conducted throughout the year, by internal and external parties. Recommendations are implemented and reported to various committees. These security and privacy policies and 16 Table of Contents procedures, for the protection of personal and confidential information, are in effect across all businesses and geographic locations.
Act requires residential mortgage loan originators who are employees of regulated financial institutions to register with the Nationwide Mortgage Licensing System and Registry, a database created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators 14 Table of Contents by the states. The S.A.F.E.
Act requires residential mortgage loan originators who are employees of regulated financial institutions to register with the Nationwide Mortgage Licensing System and Registry, a database created by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators to support the licensing of mortgage loan originators by the states. The S.A.F.E.
We currently operate in multiple business segments, including Multi-family Mortgage Banking that offers multi-family housing and healthcare facility financing and servicing (through this segment we also serve as a syndicator of 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, Small Business Administration (“SBA”) lending, and traditional community banking.
We currently operate in multiple business segments, including Multi-family Mortgage Banking that offers multi-family housing and healthcare facility financing and servicing (through this segment we also serve as a syndicator of 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.
We have not elected, and presently do not intend to elect, to be treated as a financial holding company. 9 Table of Contents Support of Subsidiary Institutions The Federal Reserve has issued regulations under the BHC Act requiring a BHC to serve as a source of financial and managerial strength to its subsidiary banks.
We have not elected, and presently do not intend to elect, to be treated as a financial holding company. Support of Subsidiary Institutions The Federal Reserve has issued regulations under the BHC Act requiring a BHC to serve as a source of financial and managerial strength to its subsidiary banks.
At December 31, 2023, Merchants Bank was well capitalized, and also well capitalized with the Basel III capital conservation buffer, as defined by applicable regulations.
At December 31, 2024, Merchants Bank was well capitalized, and also well capitalized with the Basel III capital conservation buffer, as defined by applicable regulations.
In December 2019, the Company added a new team of SBA originators, located in Illinois and Indiana, and expanding into Ohio and Texas, to help broaden our reach to small business owners in and around these states. Strategy for Complementary Segments Our segments diversify the net income of Merchants Bank and provide synergies across the segments.
In December 2019, the Company added a new team of SBA originators, located in Illinois and Indiana, which later expanded into Ohio and Texas, to help broaden our reach to small business owners in and around these states. Strategy for Complementary Segments Our segments diversify the net income of Merchants Bank and provide synergies across the segments.
Environment, Social, and Governance (“ESG”) Activities As a mission-driven company committed to incorporating ESG into its business framework, we manage with a strong focus on sustainable, long-term growth and value creation. We believe our ESG approach underscores this commitment and provides tangible benefits for our customers, employees, and shareholders.
ESG Activities As a mission-driven company committed to incorporating ESG into its business framework, we manage with a strong focus on sustainable, long-term growth and value creation. We believe our ESG approach underscores this commitment and provides tangible benefits for our customers, employees, and shareholders.
Our syndication platform, paired with our comprehensive suite of debt offerings, allows us to deliver financing on all aspects of affordable housing transactions. The tax credit equity team specializes in tax-advantaged affordable housing projects with Section 42 Low-Income Housing Tax Credits (“LIHTC”), Historic Rehabilitation Tax Credits, and State tax credits.
Our syndication platform, paired with our comprehensive suite of debt offerings, allows us to deliver financing on all aspects of affordable housing transactions. The tax credit equity team specializes in tax-advantaged affordable housing projects with Section 42 LIHTC, Historic Rehabilitation Tax Credits, and State tax credits.
We make a discretionary contribution equal to 3% of an employee’s eligible compensation under our 401(k) plan each pay period regardless of whether such employee also contributed.
We make a discretionary contribution equal to 3% of an employee’s eligible compensation under our 401(k) plan each 9 Table of Contents pay period regardless of whether such employee also contributed.
For example, we were named to the list of “Best Places to Work in Indiana” by the Indiana Chamber of Commerce every year from 2016 to 2022 and were named as a “Top Workplace” by The Indianapolis Star in 2023 and in 2023 our turnover rate was only 10%.
For example, we were named to the list of “Best Places to Work in Indiana” by the Indiana Chamber of Commerce every year from 2016 to 2023 and were named as a “Top Workplace” by The Indianapolis Star in 2023 and 2024 and in 2024 our turnover rate was only 9%.
The CFPB has examination and enforcement authority over insured depository institutions and their holding companies that have more than $10 billion in assets for at least four consecutive quarters. Merchants Bank had four consecutive quarters during 2023.
The CFPB has examination and enforcement authority over insured depository institutions and their holding companies that have more than $10 billion in assets for at least four consecutive quarters. Merchants Bank had four consecutive quarters with assets of more than $10 billion during each of 2023 and 2024.
The gain on sale of loans and servicing fees generated from the multi-family rental real estate, residential, and SBA loans, as well as fees and fair market value adjustments to servicing related assets, contribute to noninterest income. The funding source is primarily from mortgage custodial, municipal, retail, commercial, and brokered deposits, as well as short-term borrowings.
The gain on sale of loans and servicing fees generated from the multi-family rental real estate, residential, and SBA loans, as well as fees and fair market value adjustments to servicing related assets, contribute to noninterest income. Loans are funded primarily from mortgage custodial, municipal, retail, commercial, short-term borrowings, as well as brokered deposits.
The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. Merchants Bancorp Bank Holding Company Act of 1956, as amended We, as the sole shareholder of Merchants Bank are a bank holding company (“BHC”) within the meaning of the Bank Holding Company Act of 1956, as amended (“BHC Act”).
The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision. Merchants Bancorp Bank Holding Company Act of 1956, as amended We, as the sole shareholder of Merchants Bank, are a BHC within the meaning of the BHC Act, as amended.
Because the Company is classified as a large bank under the new assessment structure, deposit insurance premiums are expected to be higher than in previous years. 12 Table of Contents In December 2023, the FDIC also imposed a special assessment on banks with assets over $5 billion to replenish its deposit insurance fund, which was depleted with the collapses of several banks in March 2023.
Because the Company is classified as a large bank under the new assessment structure, deposit insurance premiums are expected to be higher than in previous years. ​ In December 2023, the FDIC also imposed a special assessment on banks with assets over $5 billion to replenish the DIF, which was depleted with the collapses of several banks in March 2023.
The investors in MCC’s syndicated funds are institutional investors comprised of banks, insurance companies, and large publicly traded corporations. All funds are underwritten and serviced in-house. Additionally, through Merchants Asset Management, LLC (“MAM”), we serve as a registered investment advisor that deploys third party investor capital into high quality assets originated by MCC.
The investors in MCC’s syndicated funds are institutional investors comprised of banks, insurance companies, and large publicly traded corporations. All funds are underwritten and serviced in-house. Additionally, through MAM, we serve as a registered investment advisor that deploys third party investor capital into high quality assets originated by MCC.
We believe that the range and quality of products that we offer, the knowledge of our personnel and our emphasis on building long-lasting relationships, along with our diversified business model, sets us apart from our competitors. Human Capital As of December 31, 2023, we had approximately 618 employees located in multiple states, including 364 employees in Central Indiana.
We believe that the range and quality of products that we offer, the knowledge of our personnel and our emphasis on building long-lasting relationships, along with our diversified business model, sets us apart from our competitors. Human Capital As of December 31, 2024, we had approximately 663 employees located in multiple states, including 388 employees in Central Indiana.
However, on November 21, 2017, the Federal Reserve, Office of the Comptroller of the Currency (“OCC”), and FDIC finalized a joint proposal and adopted a final rule (the “Transitions Rule”) pursuant to which the current regulatory capital treatment then in place for servicing rights, certain temporary difference deferred tax assets, and significant investments in the capital of unconsolidated financial institutions was indefinitely extended in anticipation of a subsequent notice of proposed rulemaking by such regulators to simplify the regulatory capital treatment of such items 11 Table of Contents (the “Simplification Rule”).
However, on November 21, 2017, the Federal Reserve, OCC, and FDIC finalized a joint proposal and adopted a final rule (the “Transitions Rule”) pursuant to which the current regulatory capital treatment then in place for servicing rights, certain temporary difference deferred tax assets, and significant investments in the capital of unconsolidated financial institutions was indefinitely extended in anticipation of a subsequent notice of proposed rulemaking by such regulators to simplify the regulatory capital treatment of such items (the “Simplification Rule”).
In 2022, the FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC also concurrently maintained the Designated Reserve Ratio (“DRR”) for the DIF at 2% for 2023.
In 2022, the FDIC adopted a final rule, applicable to all insured depository institutions, to increase initial base deposit insurance assessment rate schedules uniformly by two basis points, beginning in the first quarterly assessment period of 2023. The FDIC also concurrently maintained the DRR for the DIF at 2% for 2023.
Other originations that are referred to the Banking segment including bridge financing products to refinance, acquire, or reposition multi-family housing projects, construction lending for market rate and affordable housing developments, and financing of need-based healthcare facilities. In some environments, these originations referred to in the Banking segment can represent a significant portion of the Multi-Family Mortgage Banking total origination volume.
Other originations are referred to the Banking segment, including bridge financing products to refinance, acquire, or reposition multi-family housing projects, as well as construction lending for market rate and affordable housing developments, and financing of need-based healthcare facilities. The originations referred to the Banking segment can represent a significant portion of the Multi-family Mortgage Banking total origination volume.
This rule includes within the definition of a “qualified mortgage” a loan with a borrower debt-to-income ratio of less than or equal to 43% or, alternatively, a loan eligible for purchase by Fannie Mae or Freddie Mac while they operate under federal conservatorship or receivership (“GSE Patch”), and loans eligible for insurance or guarantee by the FHA, VA or USDA.
This rule includes within the definition of a “qualified mortgage” a loan with a borrower debt-to-income ratio of less than or equal to 43% or, alternatively, a loan eligible for purchase by Fannie Mae or Freddie Mac while they operate under a GSE Patch, and loans eligible for insurance or guarantee by the FHA, VA or USDA.
These regulations outline how financial institutions can share information concerning suspected terrorist and money laundering activity with other financial institutions under the protection of a statutory safe harbor if each financial institution notifies FinCEN of its intent to share information.
Each financial institution must designate a point of contact to receive information requests. These regulations outline how financial institutions can share information concerning suspected terrorist and money laundering activity with other financial institutions under the protection of a statutory safe harbor if each financial institution notifies FinCEN of its intent to share information.
Other products include construction, bridge and lot financing, and first-lien home equity lines of credit (“HELOC”). Loans held for sale generate revenues from fees charged to borrowers, interest income during the warehouse period, gain on sale of loans to investors, and servicing fee income.
Other products include construction, bridge and lot financing, and first-lien HELOC. Loans held for sale generate revenues from fees charged to borrowers, interest income during the warehouse period, gain on sale of loans to investors, and servicing fee income.
The FDIC’s risk-based assessment system requires insured institutions to pay deposit insurance premiums based on the risk that each institution poses to the DIF. The rate is applied to the institution’s total average consolidated assets during the assessment period less average tangible equity (i.e., Tier 1 capital).
The FDIC maintains the DIF by assessing depository institutions an insurance premium. The FDIC’s risk-based assessment system requires insured institutions to pay deposit insurance premiums based on the risk that each institution poses to the DIF. The rate is applied to the institution’s total average consolidated assets during the assessment period less average tangible equity (i.e., Tier 1 capital).
To combat the ever-present cyber risks, the Company maintains a comprehensive Information Security Program, which includes annual risk assessments, an Incident Response Plan, and a layered control environment meant to protect, detect, respond, and limit unauthorized or harmful actions across our information technology (“IT”) environment.
To combat the ever-present cyber risks, the Company maintains a comprehensive ISP, which includes annual risk assessments, an Incident Response Plan, and a layered control environment meant to protect, detect, respond, and limit unauthorized or harmful actions across our IT environment.
Additionally, under the Federal Reserve’s Regulation Q, a BHC is required to obtain the Federal Reserve’s approval prior to the repurchase or redemption of any shares of our preferred stock.
Additionally, under the Federal Reserve’s Regulation Q, a BHC is required to obtain the Federal Reserve’s approval prior to the repurchase or redemption of any shares of its preferred 12 Table of Contents stock.
Consistently one of the top ranked agency lenders in the nation, our licenses with FHA and affordable Fannie Mae and Freddie Mac, coupled with our bank financing products, provide sponsors custom beginning-to-end financing solutions that adapt to an ever-changing market. We are also an approved United States Department of Agriculture (“USDA”) Rural Housing 538 lender.
Consistently one of the top ranked agency lenders in the nation, our licenses with FHA and affordable Fannie Mae and Freddie Mac, coupled with our bank financing products, and tax credit syndication platform, provide sponsors custom beginning-to-end financing solutions that adapt to an ever-changing market. We are also an approved USDA Rural Housing 538 lender.
See Item 7: “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Operating Segment Analysis for the Years Ended December 31, 2023 and 2022” and Note 26: Segment Information for further information about our segments.
See Item 7: “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Operating Segment Analysis for the years ended December 31, 2024 and 2023” and Note 23: Segment Information for further information about our segments.
A foundation of our culture is our approach to employee engagement, diversity, equity and inclusion (“DEI”). We embrace diversity and inclusion, which we believe fosters creativity, innovation and thought leadership through the infusion of new ideas and perspectives.
A foundation of our culture is our approach to employee engagement. We embrace inclusion and opportunity (“IO”) initiatives, which we believe fosters creativity, innovation and thought leadership through the infusion of new ideas and perspectives.
Our SBA lending is currently a regional business with offices in four states. The Banking segment has a well-diversified customer and borrower base and has experienced significant growth over the past three years.
Our correspondent mortgage banking business, like Multi-family Mortgage Banking and Mortgage Warehousing, is a national business. Our SBA lending is currently a regional business with offices in four states. The Banking segment has a well-diversified customer and borrower base and has experienced significant growth over the past three years.
Privacy and Cybersecurity Merchants Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential information of their customers.
Privacy and Cybersecurity Merchants Bank is subject to numerous U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public confidential customer information.
The warehouse financing facilities are secured by residential and multi-family mortgage loans underwritten to standards approved by Merchants Bank that are generally comparable to those established by Fannie Mae, Freddie Mac, FHA and Veterans Affairs (“VA”). Mortgage Warehousing funded $78.3 billion of loan principal in 2021, $33.2 billion in 2022 and $33.0 billion in 2023.
The warehouse financing facilities are secured by residential and multi-family mortgage loans underwritten to standards approved by Merchants Bank that are generally comparable to those established by Fannie Mae, Freddie Mac, FHA and VA. Mortgage Warehousing funded $33.2 billion of loan principal in 2022, $33.0 billion in 2023 and $45.6 billion in 2024.
Merchants Mortgage is an approved originator of FHA, VA, and USDA loans and approved seller servicer by Government National Mortgage Association (“Ginnie Mae”), Fannie Mae and Freddie Mac. Merchants Mortgage offers agency eligible, jumbo fixed and hybrid adjustable-rate mortgages for purchase or refinancing of single-family residences.
Merchants Mortgage is an approved originator of FHA, VA, and USDA loans and an approved seller servicer by Ginnie Mae, Fannie Mae and Freddie Mac, as well as a Fitch rated servicer. Merchants Mortgage offers agency eligible, jumbo fixed and hybrid adjustable-rate mortgages for purchase or refinancing of single-family residences.
Title III of the Patriot Act requires financial institutions to help prevent and detect international money laundering and the financing of terrorism and prosecute those involved in such activities. The Treasury has adopted additional requirements to further implement Title III.
This law requires financial institutions to develop a BSA compliance program. The Patriot Act is comprehensive anti-terrorism legislation. Title III of the Patriot Act requires financial institutions to help prevent and detect international money laundering and the financing of terrorism and prosecute those involved in such activities. The Treasury has adopted additional requirements to further implement Title III.
Additionally, in order to reward employees for their contributions towards our success and to help ensure that our employees are more aligned with our 6 Table of Contents shareholders, in 2020 we established an Employee Stock Ownership Plan (“ESOP”).
Additionally, in order to reward employees for their contributions towards our success and to help ensure that our employees are more aligned with our shareholders, in 2020 we established an ESOP.
The primary source of liquidity is provided by custodial and corporate deposits of its customers. Banking The Banking segment includes retail banking, commercial lending, agricultural lending, retail and correspondent residential mortgage banking, and SBA lending. Retail banking operates primarily in central Indiana and Richmond. Our correspondent mortgage banking business, like Multi-family Mortgage Banking and Mortgage Warehousing, is a national business.
The primary source of liquidity is provided by custodial and corporate deposits of its customers. Banking The Banking segment includes retail banking, commercial lending, agricultural lending, retail and correspondent residential mortgage banking, and SBA lending. Retail banking operates primarily in central Indiana and Richmond but has grown its national footprint through online banking.
FDIC Improvement Act of 1991 The Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) amended the Federal Deposit Insurance Act to require, among other things, federal bank regulatory authorities to take “prompt corrective action” with respect to banks which do not meet minimum capital requirements.
FDIC Improvement Act of 1991 The FDICIA amended the Federal Deposit Insurance Act to require, among other things, federal bank regulatory authorities to take “prompt corrective action” with respect to banks which do not meet minimum capital requirements. FDICIA established five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
As of December 31, 2023, we had $17.0 billion in assets, $14.1 billion of deposits and $1.7 billion of shareholders’ equity. We were founded in 1990 as a mortgage banking company, providing financing for multi-family housing and senior living properties.
As of December 31, 2024, we had $18.8 billion in assets, $11.9 billion of deposits and $2.2 billion of shareholders’ equity. We were founded in 1990 as a mortgage banking company, providing financing for multi-family housing and senior living properties.
Securities and Exchange Commission (the “SEC”). Those filings can also be obtained on the SEC’s website at www.sec.gov. Additionally, from time to time we may post other press releases, news, investor presentations and stories regarding our business on the News and Presentation sections of our website’s Investor page.
Those filings can also be obtained on the SEC’s website at www.sec.gov. Additionally, from time to time we may post other press releases, news, investor presentations and stories regarding our business on the News and Presentation sections of our website’s Investor page. The information contained on our website is not a part of, or incorporated by reference into, this report.
In addition to dividend limitations, Merchants Bank is subject to certain restrictions on extensions of credit to us, on investments in our shares or other securities and in taking such shares or securities as collateral for loans.
Regulators also review and limit proposed dividend payments as part of the supervisory process and review of an institution’s capital planning. In addition to dividend limitations, Merchants Bank is subject to certain restrictions on extensions of credit to us, on investments in our shares or other securities and in taking such shares or securities as collateral for loans.
The Federal Reserve evaluates acquisition applications based on, among other things, competitive factors, supervisory factors, adequacy of financial and managerial resources, and banking and community needs considerations. 8 Table of Contents The BHC Act also prohibits, with certain exceptions, a BHC from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any “nonbanking” company unless the Federal Reserve finds the nonbanking activities be “so closely related to banking . . . as to be a proper incident thereto” or another exception applies.
The BHC Act also prohibits, with certain exceptions, a BHC from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any “nonbanking” company unless the Federal Reserve finds the nonbanking activities be “so closely related to banking . . . as to be a proper incident thereto” or another exception applies.
These regulations have established a mechanism for law enforcement officials to communicate names of suspected terrorists and money launderers to financial institutions, enabling financial institutions to promptly locate accounts and transactions involving those suspects.
These regulations have established a mechanism for law enforcement officials to communicate names of suspected terrorists and money launderers to financial institutions, enabling financial institutions to promptly locate accounts and transactions involving those suspects. Financial institutions receiving names of suspects must search their account and transaction records for potential matches and report positive results to the Treasury’s FinCEN.
FMBI had four depository branches located in Joy, Paxton, Melvin, and Piper City, Illinois. Our business consists primarily of funding fixed rate, low risk loans meeting underwriting standards of government programs, under an originate to sell model, while retaining adjustable rate loans as held for investment to reduce interest rate risk.
Merchants Bank has seven depository branches located in Carmel, Indianapolis, Lynn, Spartanburg, and Richmond, Indiana. Our business consists primarily of funding fixed rate, low risk loans meeting underwriting standards of government programs, under an originate to sell model, while retaining adjustable-rate loans as held for investment to reduce interest rate risk.
Our Mortgage Warehousing segment provides asset-based financing in the form of warehouse facilities to eligible non-depository financial institutions and mortgage bankers, which enables them to fund and inventory residential and multi-family mortgage loans until they are sold and purchased in the secondary market by an approved investor.
Merchants Bank currently has warehouse repurchase agreements, loan participations, operating lines of credit collateralized by mortgage servicing rights, and custodial deposits with some of the largest non-depository financial institutions and mortgage bankers in the industry. 7 Table of Contents Our Mortgage Warehousing segment provides asset-based financing in the form of warehouse facilities to eligible non-depository financial institutions and mortgage bankers, which enables them to fund and inventory residential and multi-family mortgage loans until they are sold and purchased in the secondary market by an approved investor.
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Indiana Department of Financial Institutions (“IDFI”), Board of Governors of the Federal Reserve System (“Federal Reserve”), Federal Deposit Insurance Corporation (“FDIC”), and Consumer Financial Protection Bureau (“CFPB”).
As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the IDFI, Federal Reserve, FDIC, and CFPB.
By virtue of a provision in The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) known as the Collins Amendment, the requirements must be the same at both the institution level and the holding company level. The minimum capital rules have undergone several revisions over the years.
By virtue of a provision in the Dodd-Frank Act known as the Collins Amendment, the requirements must be the same at both the institution level and the holding company level. The minimum capital rules have undergone several revisions over the years. The current requirements, which began to take effect in 2015, are based on the international Basel III capital framework.
(“MCC”) and Merchants Capital Servicing, LLC (“MCS”), subsidiaries of Merchants Bank, are primarily engaged in mortgage banking, specializing in originating and servicing loans for affordable multi-family rental housing and healthcare facility financing.
Our business segments are defined as Multi-family Mortgage Banking, Mortgage Warehousing, and Banking. ​ ​ ​ 6 Table of Contents Multi-family Mortgage Banking ​ MCC and MCS, subsidiaries of Merchants Bank, are primarily engaged in mortgage banking, specializing in originating and servicing loans for affordable multi-family rental housing and healthcare facility financing.
In addition, under Indiana law, Merchants Bank must obtain the approval of the IDFI prior to the payment of any dividend if the total of all dividends declared by Merchants Bank during the calendar year, including any proposed dividend, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years.
In addition, under Indiana law, Merchants Bank must obtain the approval of the IDFI prior to the payment of any dividend if the total of all dividends declared by Merchants Bank during the calendar year, including any proposed dividend, would exceed the sum of its net income for the year to date combined with its retained net income for the previous two years. 15 Table of Contents Capital regulations also limit a depository institution’s ability to make capital distributions if it does not hold capital conservation buffer of 2.5% above the required minimum risk-based capital ratios.
Furthermore, under certain circumstances, a BHC may not be able to purchase its own shares where the gross consideration will equal 10% or more of the Company’s net worth, without obtaining approval of the Federal Reserve.
Furthermore, under certain circumstances, a BHC may not be able to purchase its own shares where the gross consideration will equal 10% or more of the Company’s net worth, without obtaining approval of the Federal Reserve. 11 Table of Contents The Federal Reserve Act subjects banks and their affiliates to certain requirements and restrictions when dealing with each other (affiliate transactions include transactions between a bank and its BHC).
There are multiple investor outlets, including direct sale capability to Fannie Mae, Freddie Mac, Federal Home Loan Bank (“FHLB”) of Indianapolis, and other third-party investors to allow Merchants Mortgage a best execution at sale.
There are multiple investor outlets, including direct sale capability to Fannie Mae, Freddie Mac, FHLBI, and other third-party investors to allow Merchants Mortgage a best execution at sale. Merchants Mortgage also originates loans held for investment and earns interest income over the life of the loan.
These laws require banks to periodically disclose their privacy policies and practices relating to sharing such information and permitting customers to opt out of their ability to share information with unaffiliated third parties under certain circumstances.
These laws require banks to periodically disclose their privacy policies and practices regarding the sharing of such information and allow customers to opt out of sharing information with unaffiliated third parties under specific circumstances. They also impact a bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers.
The rule has not had a significant impact on our mortgage production operations since most of the loans Merchants Bank currently originates would constitute “qualified mortgages” under the rule, including under the revised definition that became effective on June 30, 2021.
The rule has not had a significant impact on our mortgage production operations since most of the loans Merchants Bank currently originates would constitute “qualified mortgages” under the rule, including under the revised definition that became effective on June 30, 2021. 17 Table of Contents Mortgage Servicing Additionally, the CFPB has issued a series of final rules as part of an ongoing effort to address mortgage servicing reforms and create uniform standards for the mortgage servicing industry.
As of December 31, 2023, 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.
As of 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.
Single-Family Mortgage Lending, Correspondent Lending and Servicing Merchants Mortgage is the branded division of Merchants Bank that is a single-family mortgage origination and servicing platform. Merchants Mortgage is both a retail and correspondent mortgage lender.
Merchants Bank is also a Certified Lender with the Farm Service Agency to offset credit risk inherent in the agriculture loan portfolio. Single-Family Mortgage Lending, Correspondent Lending and Servicing Merchants Mortgage is the branded division of Merchants Bank that is a single-family mortgage origination and servicing platform. Merchants Mortgage is both a retail and correspondent mortgage lender.
Under the Simplification Rule, on January 1, 2020, this threshold was raised to 25% of common equity. However, the non-deducted portion of servicing rights must be risk weighted at 250%. On November 13, 2019, the federal regulators finalized and adopted a regulatory capital rule establishing a new community bank leverage ratio (“CBLR”), which became effective on January 1, 2020.
Under the Simplification Rule, on January 1, 2020, this threshold was raised to 25% of common equity. However, the non-deducted portion of servicing rights must be risk weighted at 250%.
Department of the Treasury (the “Treasury”) and mortgage related rules, including with respect to loan securitization and servicing by HUD and agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac, have an impact on our business.
Furthermore, tax laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, anti-money laundering laws enforced by the Treasury and mortgage related rules, including with respect to loan 10 Table of Contents securitization and servicing by HUD and agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac, have an impact on our business.
Agricultural Lending Merchants Bank’s Lynn and Richmond, Indiana offices primarily offer agricultural loans within its designated Community Reinvestment Act (“CRA”) assessment area of Randolph and Wayne counties in Eastern Indiana and nearby Darke County, Ohio. FMBI primarily provided agricultural loans within its designated CRA assessment area of Mercer County in Western Illinois and Ford County in East Central Illinois.
Agricultural Lending Merchants Bank’s Lynn and Richmond, Indiana offices primarily offer agricultural loans within its designated CRA assessment area of Randolph and Wayne counties in Eastern Indiana and nearby Darke County, Ohio. The Company expanded its agricultural business in 2024 with the addition of an office in Carmel, Indiana.
Our Business Segments We have several lines of business and provide various banking and financial services through our subsidiaries. Our business segments are defined as multi-family mortgage banking, mortgage warehousing, and banking. 3 Table of Contents Multi-Family Mortgage Banking ​ Merchants Capital Corp.
Our Business Segments We have several lines of business and provide various banking and financial services through our subsidiaries.
FDICIA established five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The FDIC has adopted regulations to implement the prompt corrective action provisions of FDICIA. “Undercapitalized” banks are subject to growth limitations and are required to submit a capital restoration plan.
The FDIC has adopted regulations to implement the prompt corrective action provisions of FDICIA. “Undercapitalized” banks are subject to growth limitations and are required to submit a capital restoration plan. The bank’s BHC is required to guarantee that the bank will comply with the plan and provide appropriate assurances of performance.
We also have highly engaged leadership in our Board that is made up of diverse members and demonstrates our dedication to this area of focus in our company. Additionally, our Board meets all Nasdaq diversity requirements.
We are committed to providing opportunities to all of our employees, such as career advancement, and equipping our employees, including through education and training, to seize upon those opportunities. We also have highly engaged leadership in our Board that is made up of diverse members and demonstrates our dedication to this area of focus in our company.
Merchants Bank offers operating lines of credit for crop and livestock production, intermediate term financing to purchase agricultural equipment and breeding livestock and long-term financing to purchase agricultural real estate.
Merchants Bank offers operating lines of credit for crop and livestock production, intermediate term financing to purchase agricultural equipment and breeding livestock and long-term financing to purchase agricultural real estate. Merchants Bank is approved to sell agricultural loans in the secondary market through the Farmer Mac and uses this relationship to manage interest rate risk within the agricultural loan portfolio.
The current requirements, which began to take effect in 2015, are based on the international Basel III capital framework. These requirements apply to all covered banking organizations (including us) with some requirements phasing in over time.
These requirements apply to all covered banking organizations (including us) with some requirements phasing in over time.
Deposit Insurance Fund and Financing Corporation Assessments The Deposit Insurance Fund (“DIF”) of the FDIC insures the deposits of Merchants Bank up to $250,000 per depositor, qualifying joint accounts, and certain other accounts. The FDIC maintains the DIF by assessing depository institutions an insurance premium.
There are no conditions or events since that notification that management believes have changed the Company’s or Merchants Bank’s category. 14 Table of Contents Deposit Insurance Fund and Financing Corporation Assessments The DIF of the FDIC insures the deposits of Merchants Bank up to $250,000 per depositor, qualifying joint accounts, and certain other accounts.
Our mortgage servicing portfolio consists primarily of Merchants Bank balance sheet loans, Federal Housing Authority (“FHA”) loans, and affordable Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) loans. Our origination platform and servicing portfolio are significant sources of our noninterest income and deposits.
Our mortgage servicing portfolio consists primarily of Merchants Bank balance sheet loans, referred to as bridge financing, FHA loans, and affordable Fannie Mae and Freddie Mac loans. Our origination platform and servicing portfolio are significant sources of our noninterest income and deposits.
In January 2018, Merchants Bank was awarded Preferred Lender Program status, the SBA’s highest level of approval that a lender can hold. This designation provides us delegated loan approval, closing and servicing authority that enables loan decisions to be made more rapidly.
This designation provides 8 Table of Contents us delegated loan approval, closing and servicing authority that enables loan decisions to be made more rapidly.
The bank’s BHC is required to guarantee that the bank will comply with the plan and provide appropriate assurances of performance. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.
If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is significantly 13 Table of Contents undercapitalized.
They also impact a bank’s ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition, banks are required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information.
Furthermore, banks are required to implement a comprehensive information security program, encompassing administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information.
The information contained on our website is not a part of, or incorporated by reference into, this report. 7 Table of Contents SUPERVISION AND REGULATION General Insured banks, their holding companies and their affiliates are extensively regulated under federal and state law.
SUPERVISION AND REGULATION General Insured banks, their holding companies and their affiliates are extensively regulated under federal and state law.
Congress is also considering legislation to reform certain government sponsored entities (“GSEs”), including ending the federal government’s conservatorship of Fannie Mae and Freddie Mac.
The current administration is considering reforms to certain GSEs, including ending the federal government’s conservatorship of Fannie Mae and Freddie Mac and is considering significant changes in the size and operation of the federal government, including reductions in certain agencies’ staffing levels and budgets.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWhen we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value, which may result in a loss. These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks.
Biggest changeWhen loans are delinquent more than ninety days, classified as substandard, or when we take collateral in foreclosure and similar proceedings, we order an appraisal and mark the collateral to its then fair market value on an as-is basis, which may result in a loss.
Our future acquisition activities could be material to our business and involve a number of risks, including the following: ● intense competition from other banking organizations and other acquirers for potential merger candidates; ● market pricing for desirable acquisitions resulting in returns that are less attractive than we have traditionally sought to achieve; ● incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; ● using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets; ● potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including consumer compliance issues; 25 Table of Contents ● the time and expense required to integrate the operations and personnel of the combined businesses; ● experiencing higher operating expenses relative to operating income from the new operations; ● losing key employees and customers; ● reputational issues if the target’s management does not align with our culture and values; ● significant problems relating to the conversion of the financial and customer data of the target; ● integration of acquired customers into our financial and customer product systems; or ● regulatory timeframes for review of applications may limit the number and frequency of transactions we may be able to consummate.
Our future acquisition activities could be material to our business and involve a number of risks, including the following: ● intense competition from other banking organizations and other acquirers for potential merger candidates; ● market pricing for desirable acquisitions resulting in returns that are less attractive than we have traditionally sought to achieve; ● incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, resulting in our attention being diverted from the operation of our existing business; ● using inaccurate estimates and judgments to evaluate credit, operations, management and market risks with respect to the target institution or assets; ● potential exposure to unknown or contingent liabilities of banks and businesses we acquire, including consumer compliance issues; ● the time and expense required to integrate the operations and personnel of the combined businesses; ● experiencing higher operating expenses relative to operating income from the new operations; ● losing key employees and customers; ● reputational issues if the target’s management does not align with our culture and values; ● significant problems relating to the conversion of the financial and customer data of the target; ● integration of acquired customers into our financial and customer product systems; or ● regulatory timeframes for review of applications may limit the number and frequency of transactions we may be able to consummate.
If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, investors, counterparties and customers may lose confidence in the accuracy and completeness of our financial statements and reports; our liquidity, access to capital markets and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline.
If we identify any material weaknesses in our internal control over financial reporting or are unable to comply with the requirements of Section 404 in a timely manner or assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness 24 Table of Contents of our internal control over financial reporting, investors, counterparties and customers may lose confidence in the accuracy and completeness of our financial statements and reports; our liquidity, access to capital markets and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline.
Any decline in available funding, including a decrease in brokered deposits, could adversely impact our ability to continue to implement our strategic plan, including our ability to originate loans, fund warehouse financing commitments, meet our expenses, declare and pay dividends to our shareholders or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
Any decline in available funding, including a decrease in brokered deposits, could adversely impact our ability to continue to implement our strategic plan, including our ability to originate loans, fund warehouse financing 30 Table of Contents commitments, meet our expenses, declare and pay dividends to our shareholders or to fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.
These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than their competition, may be more vulnerable to economic downturns, often need substantial additional 23 Table of Contents capital to expand or compete and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.
The Corporation maintains a comprehensive Information Security Program, which includes annual risk assessments, an Incident Response Plan, and a layered control environment meant to detect, prevent, and limit unauthorized or harmful actions across our information technology environment.
The Company maintains a comprehensive Information Security Program, which includes annual risk assessments, an Incident Response Plan, and a layered control environment meant to detect, prevent, and limit unauthorized or harmful actions across our information technology environment.
Weak economic conditions are characterized by, among other indicators, deflation, elevated levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on mortgage, commercial and consumer loans, residential and commercial real estate price declines, increases in nonperforming assets and 19 Table of Contents foreclosures, lower home sales and commercial activity, and fluctuations in the multi-family FHA financing sector.
Weak economic conditions are characterized by, among other indicators, deflation, elevated levels of unemployment, fluctuations in debt and equity capital markets, increased delinquencies on mortgage, commercial and consumer loans, residential and commercial real estate price declines, increases in nonperforming assets and foreclosures, lower home sales and commercial activity, and fluctuations in the multi-family FHA financing sector.
The Dodd-Frank Act established the CFPB as an independent entity within the Federal Reserve, which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards and contains provisions on mortgage-related matters, such as steering incentives, determinations as to a borrower’s ability to repay and prepayment penalties.
The Dodd-Frank Act established the CFPB as an independent entity within the Federal Reserve, which has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and 31 Table of Contents credit cards and contains provisions on mortgage-related matters, such as steering incentives, determinations as to a borrower’s ability to repay and prepayment penalties.
The CFPB may propose new rules on consumer financial products or services, which could have an 30 Table of Contents adverse effect on our business, financial condition and results of operations if any such rules limit our ability to provide such financial products or services. The Company currently has an approved CRA strategic plan.
The CFPB may propose new rules on consumer financial products or services, which could have an adverse effect on our business, financial condition and results of operations if any such rules limit our ability to provide such financial products or services. The Company currently has an approved CRA strategic plan.
Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability, damage our reputation and inhibit the use of our mobile and internet banking services by current and potential customers.
Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through 26 Table of Contents our computer systems and network infrastructure, which may result in significant liability, damage our reputation and inhibit the use of our mobile and internet banking services by current and potential customers.
A downgrade of the credit rating may also adversely affect the market 22 Table of Contents value of such instruments and, further, exacerbate the other risks to which we are subject and any related adverse effects on our business, financial condition, or results of operations.
A downgrade of the credit rating may also adversely affect the market value of such instruments and, further, exacerbate the other risks to which we are subject and any related adverse effects on our business, financial condition, or results of operations.
Adoption of Artificial Intelligence (“AI”) may present significant challenges relating to compliance risk, credit risk, reputation risk, and operational risk. ​ Advances in computing capacity, combined with greater availability of data and improvements in analytical techniques, continue to expand opportunities for banks to leverage AI for various risk management and operational purposes.
Adoption of AI may present significant challenges relating to compliance risk, credit risk, reputation risk, and operational risk. ​ Advances in computing capacity, combined with greater availability of data and improvements in analytical techniques, continue to expand opportunities for banks to leverage AI for various risk management and operational purposes.
Credit and Financial Risks A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects. Our business and operations are sensitive to general business and economic conditions in the United States, generally, and particularly Indiana.
Credit and Financial Risks A decline in general business and economic conditions and any regulatory responses to such conditions could have a material adverse effect on our business, financial position, results of operations and growth prospects. Our business and operations are sensitive to general business and economic conditions in the United States.
Although management believes that the ACL-Loans is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses in the future to further 20 Table of Contents supplement the ACL-Loans, either due to management’s decision to do so or because our banking regulators require us to do so.
Although management believes that the ACL-Loans is adequate to absorb losses on any existing loans that may become uncollectible, we may be required to take additional provisions for credit losses in the future to further supplement the ACL-Loans, either due to management’s decision to do so or because our banking regulators require us to do so.
Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that 27 Table of Contents affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable to us could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets or negative views and expectations about the prospects for the financial services industry.
In order to be a “well-capitalized” depository institution under Basel III, an institution must maintain a common equity Tier 1 capital ratio of 6.5% or more; 29 Table of Contents a Tier 1 capital ratio of 8% or more; a total capital ratio of 10% or more; and a leverage ratio of 5% or more.
In order to be a “well-capitalized” depository institution under Basel III, an institution must maintain a common equity Tier 1 capital ratio of 6.5% or more; a Tier 1 capital ratio of 8% or more; a total capital ratio of 10% or more; and a leverage ratio of 5% or more.
From time to time, FASB or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards.
Changes in accounting standards could materially impact our financial statements. From time to time, FASB or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial statements. Such changes may result in us being subject to new or changing accounting and reporting standards.
Federal governmental entities, such as HUD, that rely on funding from the federal budget, could be adversely affected in the event of a government shut-down, which could have a material adverse effect on our multi-family FHA origination business and our results of operations.
Federal governmental entities, such as HUD, that rely on funding from the federal budget, could be adversely affected in the event of a government shut-down, or a reduction of their staffing or budget, which could have a material adverse effect on our multi-family FHA origination business and our results of operations.
While we believe these quantitative techniques and approaches improve our decision-making, they also 23 Table of Contents create the possibility that faulty data or flawed quantitative approaches could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, adverse regulatory scrutiny.
While we believe these quantitative techniques and approaches improve our decision-making, they also create the possibility that faulty data or flawed quantitative approaches could negatively impact our decision-making ability or, if we become subject to regulatory stress-testing in the future, adverse regulatory scrutiny.
The unrealized losses resulting from holding securities available for sale would be recognized in other comprehensive income (loss) and reduce total shareholders’ equity. Unrealized losses do not negatively impact our 26 Table of Contents regulatory capital ratios; however, tangible common equity and the associated ratios would be reduced.
The unrealized losses resulting from holding securities available for sale would be recognized in other comprehensive income (loss) and reduce total shareholders’ equity. Unrealized losses do not negatively impact our regulatory capital ratios; however, tangible common equity and the associated ratios would be reduced.
The profitability of participating in specific programs may vary depending on a number of factors, including our administrative costs of originating and purchasing qualifying loans and our costs of meeting such criteria.
The profitability of participating in specific programs 20 Table of Contents may vary depending on a number of factors, including our administrative costs of originating and purchasing qualifying loans and our costs of meeting such criteria.
If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be adversely affected, perhaps 24 Table of Contents materially.
If an interruption were to continue for a significant period of time, our business, financial condition and results of operations could be adversely affected, perhaps materially.
We may not be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions, and any acquisition we may consider will be subject to prior regulatory approval.
We may not be successful in overcoming these risks or any other problems encountered in connection with pending or potential acquisitions, and any acquisition we 28 Table of Contents may consider will be subject to prior regulatory approval.
Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk or loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially and adversely affected. We may also be subject to potentially adverse regulatory consequences.
Our risk management framework may not be effective under all circumstances and may not adequately mitigate any risk or loss to us. If our framework is not effective, we could suffer unexpected losses and our business, financial condition, results of operations or growth prospects could be materially and adversely affected.
We are subject to heightened regulatory requirements because we exceed $10 billion in assets . ​ At December 31, 2023 we had total assets of $17.0 billion. We expect to continue to exceed $10 billion in total assets in the future. Upon crossing that threshold, we became subject to increased regulatory scrutiny and expectations imposed by the Dodd-Frank Act.
We are subject to heightened regulatory requirements because we exceed $10 billion in assets . ​ At December 31, 2024 we had total assets of $18.8 billion. We expect to continue to exceed $10 billion in total assets in the future. Upon crossing that threshold, we became subject to increased regulatory scrutiny and expectations imposed by the Dodd-Frank Act.
Any such adjustments are reflected in our results of operations in the periods in which they become known. As of December 31, 2023, our goodwill totaled $15.8 million.
Any such adjustments are reflected in our results of operations in the periods in which they become known. As of December 31, 2024, our goodwill totaled $8.0 million.
In deciding whether to extend credit, we may rely upon our customers’ representations that their financial statements conform to generally accepted accounting principles (“GAAP”) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.
In deciding whether to extend credit, we may rely upon our customers’ representations that their financial statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.
Although we raised significant funds through our October 2017 initial public offering and $362.1 million, net of expenses and repurchases, through several preferred stock offerings between 2019 and 2022, we may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, which could include the possibility of financing acquisitions.
Although we raised significant funds through our October 2017 initial public offering, our secondary offering in May 2024, and through several preferred stock offerings between 2019 and 2024, we may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs, which could include the possibility of financing acquisitions.
The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and our business, results of operations and financial conditions, generally.
The failure to meet applicable regulatory capital requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth initiatives, or restricting the commencement of new activities, and could affect customer and investor confidence, our costs of funds and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and our business, results of operations and financial conditions, generally. 32 Table of Contents Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition, and results of operations.
We are required to comply with these and other anti-money laundering requirements. The federal banking agencies and FinCEN are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service.
We are required to comply with these and other anti-money laundering requirements. 33 Table of Contents The federal banking agencies and FinCEN are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S.
We may experience operational challenges as we implement these new technology enhancements, or seek to implement them across all of our offices and business units, which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner.
We may experience operational challenges as we implement these new technology enhancements, or seek to implement them across all of our offices and business units, which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant costs to remedy any such challenges in a timely manner. 27 Table of Contents Many of our larger competitors have substantially greater resources to invest in technological improvements.
The banking business is highly competitive, and we experience competition in our market from many other financial institutions. Our operations consist of offering banking and residential mortgage services, and we also offer multi-family agency financing to generate noninterest income. Many of our competitors offer the same, or a wider variety of, banking and related financial services within our market areas.
Our operations consist of offering banking and residential mortgage services, and we also offer multi-family agency financing to generate noninterest income. Many of our competitors offer the same, or a wider variety of, banking and related financial services within our market areas.
We are highly dependent on our management team, and the loss of our senior executive officers or other key employees could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects.
We may also be subject to potentially adverse regulatory consequences. 25 Table of Contents We are highly dependent on our management team, and the loss of our senior executive officers or other key employees could harm our ability to implement our strategic plan, impair our relationships with customers and adversely affect our business, results of operations and growth prospects.
Our business is significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities.
All of these factors are generally detrimental to our business. Our business is significantly affected by monetary and other regulatory policies of the U.S. federal government, its agencies and government-sponsored entities.
We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud.
Employee errors could also subject us to financial claims for negligence. We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud.
The slope of the yield curve affects our net interest income and we could experience net interest margin compression if our interest earning assets reprice downward while our interest-bearing liability rates fail to decline in tandem. This would have a material adverse effect on our net interest income and our results of operations.
The slope of the yield curve affects our net interest income and we could experience net interest margin compression if our interest earning assets reprice downward while our interest-bearing liability rates fail to decline in tandem.
Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition, and results of operations. In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions.
Mortgage production, especially refinancing activity, declines in rising interest rate environments. Interest rates had been historically low in recent years, but the market has seen interest rate increases throughout 2023. Moreover, if interest rates increase further, there can be no assurance that our mortgage production will continue at current levels.
Interest rates had been historically low in recent years, but the market has seen interest rate increases throughout 2023 and then a drop in mid-2024 before increasing again at the end of 2024. Moreover, if interest rates increase further, there can be no assurance that our mortgage production will continue at current levels.
In addition, our ability to sell mortgage loans readily is dependent upon our ability to remain eligible for the programs offered by government agencies (“agency”), such as Fannie Mae, Freddie Mac, and Ginnie Mae, and other institutional and non-institutional investors. Any significant impairment of our eligibility with any of the agencies could materially and adversely affect our operations.
In addition, our ability to sell mortgage loans readily is dependent upon our ability to remain eligible for the programs offered by the agency, such as Fannie Mae, Freddie Mac, and Ginnie Mae, and other institutional and non-institutional investors.
CECL replaces the previous “Allowance for Loan and Lease Losses” standard for measuring credit losses. We establish our ACL-Loans and maintain it at a level that management considers adequate to absorb probable loan losses based on an analysis of our portfolio, the underlying health of our borrowers, and general economic conditions.
Our ACL-Loans may prove to be insufficient to absorb potential losses in our loan portfolio. We establish our ACL-Loans and maintain it at a level that management considers adequate to absorb probable loan losses based on an analysis of our portfolio, the underlying health of our borrowers, and general economic conditions.
We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control.
Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control.
Additionally, 2022 and 2023 had elevated levels of inflation and interest rates; if these conditions persist, it could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness. All of these factors are generally detrimental to our business.
Additionally, 2022 through 2024 had elevated levels of inflation and interest rates, with a modest decline in interest rates during mid-2024, before increasing again near the end of 2024. If these conditions persist, it could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients’ ability to repay indebtedness.
Changes in interest rates and pricing decisions by our loan competitors may adversely affect demand for our mortgage loan products, the revenue realized on the sale or portfolio of loans, revenues received from servicing such loans and the valuation of our servicing rights. 17 Table of Contents Our mortgage banking profitability could significantly decline if we are not able to originate and resell a high volume of mortgage loans.
Changes in interest rates and pricing decisions by our loan competitors may adversely affect demand for our mortgage loan products, the revenue realized on the sale or portfolio of loans, revenues received from servicing such loans and the valuation of our servicing rights.
As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the area in which the real estate is located.
The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the area in which the real estate is located.
Negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses. A significant portion of our loan portfolio is comprised of loans with real estate as a primary or secondary component of collateral.
A significant portion of our loan portfolio is comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan portfolio.
If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected. 28 Table of Contents Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
Legislative and regulatory actions taken now or in the future may increase our costs and impact our business, governance structure, financial condition or results of operations.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have a material adverse effect on our business, financial position, results of operations and growth prospects. 22 Table of Contents If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision for credit losses.
In addition, the bodies that interpret the accounting standards (such as banking regulators or 21 Table of Contents outside auditors) may change their interpretations or positions on how these standards should be applied.
In addition, the bodies that interpret the accounting standards (such as banking regulators or outside auditors) may change their interpretations or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations.
Accordingly, we cannot provide assurances that we will be able to raise additional capital if needed or on terms acceptable to us.
Accordingly, we cannot provide assurances that we will be able to raise additional capital if needed or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.
If we are unable to attract and retain banking and mortgage customers, we may be unable to continue to grow our business, and our financial condition and results of operations may be adversely affected. Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business.
If we are unable to attract and retain banking and 21 Table of Contents mortgage customers, we may be unable to continue to grow our business, and our financial condition and results of operations may be adversely affected.
It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.
Misconduct by our employees could include, but is not limited to, hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.
In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. 18 Table of Contents We face strong competition from financial services companies and other companies that offer banking, mortgage, leasing, and providers of multi-family agency financing and servicing, which could harm our business.
In addition, we may be required to fund additional amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.
Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage.
As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. Accordingly, a risk exists that we will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. In addition, some of our current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than we may be able to accommodate.
In addition, some of our current commercial banking customers may seek alternative banking sources as they develop needs for credit facilities larger than we may be able to accommodate. Our inability to compete successfully in the markets in which we operate could have an adverse effect on our business, financial condition or results of operations.
If our level of mortgage production declines, the profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations.
If our level of mortgage production declines, the profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations. The Company also maintains a servicing rights asset for which changes in valuation serve as a natural hedge against the impact that rates have on production volume.
Disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time in recent years.
If the federal government shuts down or otherwise fails to fully fund the federal budget, or makes material changes to the federal government’s budget or staffing, our multi-family FHA origination business could be adversely affected. Disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time in recent years.
The resolution of nonperforming assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities.
These nonperforming loans and other real estate owned also increase our risk profile and the level of capital our regulators believe is appropriate for us to maintain in light of such risks. The resolution of nonperforming assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities.
Employee errors and employee and/or customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation or financial performance. Misconduct by our employees could include, but is not limited to, hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information.
We are subject to certain operational risks, including customer or employee fraud and data processing system failures and errors. Employee errors and employee and/or customer misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation or financial performance.
Removed
Our inability to compete successfully in the markets in which we operate could have an adverse effect on our business, financial condition or results of operations. If the federal government shuts down or otherwise fails to fully fund the federal budget, our multi-family FHA origination business could be adversely affected.
Added
Our mortgage banking profitability could significantly decline if we are not able to originate and resell a high volume of mortgage loans. Mortgage production, especially refinancing activity, declines in rising interest rate environments.
Removed
If we do not effectively manage our credit risk, we may experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision for credit losses.
Added
Any significant impairment of our eligibility with any of the agencies or significant change to the structure of or programs offered by those agencies could materially and adversely affect our operations.
Removed
Our allowance for credit losses on loans (“ACL-Loans”) may prove to be insufficient to absorb potential losses in our loan portfolio. The Company adopted FASB Accounting Standards Update (ASU) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL") on January 1, 2022.
Added
We face strong competition from financial services companies and other companies that offer banking, mortgage, leasing, and providers of multi-family agency financing and servicing, which could harm our business. The banking business is highly competitive, and we experience competition in our market from many other financial institutions.
Removed
On January 26, 2024, the Company sold its Farmers-Merchants Bank of Illinois branches to Bank of Pontiac and CBI Bank &Trust and merged its banking charter into Merchants Bank. The transaction included the extinguishment of $7.8 million in goodwill. Changes in accounting standards could materially impact our financial statements.
Added
Many of our non-bank competitors are not subject to the same extensive regulations that govern our activities and may have greater flexibility in competing for business. The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation.
Removed
These changes may be beyond our control, can be hard to predict and can materially impact how we record and report our financial condition and results of operations.
Added
Additionally, the current administration is considering significant changes in the size and operation of the federal government, including material reductions in certain agencies’ staffing levels and budgets.
Removed
Accordingly, a risk exists that we will not be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers. We are subject to certain operational risks, including customer or employee fraud and data processing system failures and errors.
Added
Certain of our directors and executive officers and their immediate families beneficially own approximately 57% of our outstanding shares of common stock which allows them the ability to substantially influence the outcome of matters requiring shareholder approval. Messrs. Petrie and Rogers and their immediate families, collectively owned approximately 57% of our outstanding common stock as of December 31, 2024.
Added
Therefore Messrs. Petrie and Rogers, together with their immediate families, have the ability to substantially influence the outcome of matters submitted to our shareholders for approval, and this position may conflict with the interests of some or all of our other shareholders.
Added
This would have a material adverse effect on our net interest income and our results of operations. 29 Table of Contents Negative changes in the economy affecting real estate values and liquidity could impair the value of collateral securing our real estate loans and result in loan and other losses.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

6 edited+2 added−0 removed13 unchanged
Biggest changeBoard-approved policies are in place to effectively mitigate risks linked to third-party service providers, encompassing factors such as availability, confidentiality, and governance and compliance. The Company employes a defense and depth posture, designed to safeguard information, prevent unauthorized access, detect, and respond to threats, and maintain the confidentiality, integrity, and availability of data.
Biggest changeThe Company employes a defense in depth posture, designed to safeguard information, prevent unauthorized access, detect, and respond to threats, and maintain the confidentiality, integrity, and availability of data.
The Company has set the conditions to quickly respond to a cyber incident, ensuring a resilient, digital environment. Governance The Board established an IT Committee to assist executive management and the Board of Directors of the Bank in fulfilling their oversight responsibilities related to information security.
The Company has established conditions to quickly respond to a cyber incident, ensuring a resilient, information environment. Governance The Board established an IT Committee to assist executive management and the Board of Directors of the Bank in fulfilling their oversight responsibilities related to information security.
Standards over information security are Board-approved and various types of control testing is conducted throughout the year, by internal and external parties. Recommendations are implemented and reported to various committees. These security and privacy policies and procedures, for the protection of personal and confidential information, are in effect across all businesses and geographic locations.
Standards over information security are Board-approved and various types of control testing is conducted throughout the year, by internal and external parties. Recommendations are implemented and reported to various committees. These security and privacy policies and procedures, aimed at protecting personal and confidential 34 Table of Contents information, are in effect across all businesses and geographic locations.
However, it is difficult or impossible to defend against every risk being posed by changing technologies as well as criminal intent on committing cyber-crime. Increasing sophistication of criminal organizations and advanced persistent threats make keeping up with new threats difficult and could result in a breach. Controls employed by our information technology department and cloud vendors could prove inadequate.
However, it is difficult or impossible to defend against every risk being posed by evolving technologies as well as criminal intent on committing cyber-crime. Increasing sophistication of criminal organizations and advanced persistent threats makes staying ahead of new dangers difficult and could result in a security breach. Controls employed by our information technology department and cloud vendors could prove inadequate.
They have multiple industry leading certifications, including nine Global Information Assurance Certifications (“GIAC”), Certified Information Systems Security Professional (“CISSP”) from the International Information System Security Certification Consortium (“ISC2”) and a Master of Engineering in Cybersecurity Policy and Compliance. ​ The Information Security Officer presents an Annual Information Security Review to the board which summarizes the previous year’s threat landscape, risk assessment, service provider, and audit testing activities, results of security incidents, information security program changes, and future strategies and recommendations. ​ 32 Table of Contents Item 2.
They have multiple industry leading certifications, including nine GIAC and CISSP from the ISC2 and a Master of Engineering in Cybersecurity Policy and Compliance. ​ The Information Security Officer presents an Annual Information Security Review to the board which summarizes the previous year’s threat landscape, risk assessment, service provider, and audit testing activities, results of security incidents, information security program changes, and future strategies and recommendations. ​ 35 Table of Contents Item 2.
Risk Management and Strategy To combat the ever-present cyber risks, the Company maintains a comprehensive Information Security Program (“ISP”), which includes annual risk assessments, an Incident Response Plan, and a layered control environment meant to 31 Table of Contents protect, detect, respond, and limit unauthorized or harmful actions across our information technology environment.
Risk Management and Strategy To combat the ever-present cyber risks, the Company maintains a comprehensive ISP, which includes continuous risk assessments, an Incident Response Plan, and a multilayered control environment meant to protect, detect, respond to, and limit unauthorized or harmful actions across our information environment.
Added
The control environment is based off industry leading recommendations, including the Center for Internet Security (CIS) Critical Security Controls and the National Institute of Standards and Technology (NIST) Cybersecurity Framework (CSF). Our Information Security Officer (ISO) is primarily responsible for coordinating the various aspects of the ISP with cross-functional support teams across various teams within the Company.
Added
Board-approved policies are in place to effectively mitigate risks linked to third-party service providers, encompassing factors such as availability, confidentiality, and governance and compliance. As part of this risk mitigation, the Company actively monitors vendors’ cybersecurity practices through periodic assessments and contractual security requirements. This ensures that vendors adhere to our security standards and promptly address emerging threats or vulnerabilities.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

1 edited+0 added−0 removed0 unchanged
Biggest changeItem 4. ​ Mine Safety Disclosures ​ 33 ​ ​ ​ PART II ​ ​ ​ ​ ​ ​ Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 33 ​ ​ ​ Item 6. ​ Selected Financial Data ​ 35 ​ ​ ​ Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 37 ​ ​ ​ Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 64 ​ ​ ​ Item 8. ​ Financial Statements and Supplementary Data ​ 67 ​ ​ ​
Biggest changeItem 4. ​ Mine Safety Disclosures ​ 36 ​ ​ ​ PART II ​ ​ ​ ​ ​ ​ Item 5. ​ Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ​ 36 ​ ​ ​ Item 6. ​ Selected Financial Data ​ 38 ​ ​ ​ Item 7. ​ Management’s Discussion and Analysis of Financial Condition and Results of Operations ​ 40 ​ ​ ​ Item 7A. ​ Quantitative and Qualitative Disclosures About Market Risk ​ 68 ​ ​ ​ Item 8. ​ Financial Statements and Supplementary Data ​ 71 ​ ​ ​

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+0 added−0 removed7 unchanged
Biggest changeOn March 1, 2024, the closing price of our common stock was $42.57. As of March 1, 2024, there were 43,331,304 shares of our common stock outstanding and 32 shareholders of record. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.
Biggest changeAs of February 24, 2025, there were 45,850,904 shares of our common stock outstanding and 32 shareholders of record. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions.
The graph assumes an investment of $100.00 in our common stock and each index on December 31, 2018 and reinvestment of all quarterly dividends. Measurement points are December 31, 2018 and the last trading day of each subsequent quarter through December 31, 2023.
The graph assumes an investment of $100.00 in our common stock and each index on December 31, 2019 and reinvestment of all quarterly dividends. Measurement points are December 31, 2019 and the last trading day of each subsequent quarter through December 31, 2024.
See Part I, Item 1 - “Supervision and Regulation—Merchants Bank – Dividends.” ​ ​ ​ ​ 33 Table of Contents Stock Performance Graph The following graph compares the cumulative total shareholder return on our common stock from December 31, 2018 through December 31, 2023. The graph compares our common stock with the Nasdaq Composite Index and the Nasdaq Bank Index.
See Part I, Item 1 - “Supervision and Regulation—Merchants Bank – Dividends.” ​ 36 Table of Contents Stock Performance Graph The following graph compares the cumulative total shareholder return on our common stock from December 31, 2019 through December 31, 2024. The graph compares our common stock with the Nasdaq Composite Index and the Nasdaq Bank Index.
Unregistered Sales and Repurchases of Equity Securities None. ​ ​ 34 Table of Contents
Unregistered Sales and Repurchases of Equity Securities None. ​ 37 Table of Contents
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock began trading on the Nasdaq Capital Market (“Nasdaq”) under the symbol “MBIN” on October 27, 2017. Prior to that date, there was no public market for our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock began trading on the Nasdaq under the symbol “MBIN” on October 27, 2017. Prior to that date, there was no public market for our common stock. On February 24, 2025, the closing price of our common stock was $41.21.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

5 edited+1 added−1 removed2 unchanged
Biggest changeSelected Financial Data. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the Year Ended December 31, (Dollars in thousands, except per share data) 2023 2022 2021 2020 2019 Balance Sheet Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Assets ​ $ 16,952,516 ​ $ 12,615,227 ​ $ 11,278,638 ​ $ 9,645,375 ​ $ 6,371,928 ​ Loans held for investment ​ 10,199,553 ​ 7,470,872 ​ 5,782,663 ​ 5,535,426 ​ 3,028,310 ​ Allowance for credit losses (1) ​ (71,752) ​ (44,014) ​ (31,344) ​ (27,500) ​ (15,842) ​ Loans held for sale ​ 3,144,756 ​ 2,910,576 ​ 3,303,199 ​ 3,070,154 ​ 2,093,789 ​ Deposits ​ 14,061,460 ​ 10,071,345 ​ 8,982,613 ​ 7,408,066 ​ 5,478,075 ​ Total liabilities ​ 15,251,432 ​ 11,155,488 ​ 10,123,229 ​ 8,834,754 ​ 5,718,200 ​ Total shareholders' equity ​ 1,701,084 ​ 1,459,739 ​ 1,155,409 ​ 810,621 ​ 653,728 ​ Tangible common shareholders' equity (non-GAAP) ​ 1,184,889 ​ 943,100 ​ 775,708 ​ 579,847 ​ 421,438 ​ Income Statement Data: ​ ​ ​ ​ ​ ​ Interest Income ​ $ 1,077,798 ​ $ 480,833 ​ $ 311,886 ​ $ 282,790 ​ $ 211,995 ​ Interest Expense ​ 629,727 ​ 162,282 ​ 33,892 ​ 58,644 ​ 89,697 ​ Net interest income ​ 448,071 ​ 318,551 ​ 277,994 ​ 224,146 ​ 122,298 ​ Provision for credit losses ​ 40,231 ​ 17,295 ​ 5,012 ​ 11,838 ​ 3,940 ​ Noninterest income ​ 114,668 ​ 125,936 ​ 157,333 ​ 127,473 ​ 47,089 ​ Noninterest expense ​ 174,601 ​ 136,050 ​ 125,385 ​ 96,424 ​ 63,313 ​ Income before taxes ​ 347,907 ​ 291,142 ​ 304,930 ​ 243,357 ​ 102,134 ​ Provision for income taxes ​ 68,673 ​ 71,421 ​ 77,826 ​ 62,824 ​ 24,805 ​ Net income ​ 279,234 ​ 219,721 ​ 227,104 ​ 180,533 ​ 77,329 ​ Preferred stock dividends ​ 34,670 ​ 25,983 ​ 20,873 ​ 14,473 ​ 9,216 ​ Net income available to common shareholders ​ $ 244,564 ​ $ 193,738 ​ $ 206,231 ​ $ 166,060 ​ $ 68,113 ​ Credit Quality Data: ​ ​ ​ ​ ​ ​ Nonperforming loans ​ $ 82,015 ​ $ 26,683 ​ $ 761 ​ $ 6,321 ​ $ 4,678 ​ Nonperforming loans to total loans ​ 0.80 % 0.36 % 0.01 % 0.11 % 0.15 % Nonperforming assets ​ $ 82,015 ​ $ 26,683 ​ $ 761 ​ $ 6,321 ​ $ 4,822 ​ Nonperforming assets to total assets ​ 0.48 % 0.21 % 0.01 % 0.07 % 0.08 % Allowance for credit losses to total loans ​ 0.70 % 0.59 % 0.54 % 0.50 % 0.52 % Allowance for credit losses to nonperforming loans ​ 87.49 % 164.95 % 4,118.79 % 435.06 % 338.65 % Net charge-offs/(recoveries) to average loans and loans held for sale ​ 0.08 % 0.01 % 0.01 % 0.00 % 0.02 % Per Share Data (Common Stock): ​ ​ ​ ​ ​ ​ Diluted earnings per share ​ $ 5.64 ​ $ 4.47 ​ $ 4.76 ​ $ 3.85 ​ $ 1.58 ​ Dividends declared ​ $ 0.32 ​ $ 0.28 ​ $ 0.24 ​ $ 0.21 ​ $ 0.19 ​ Tangible book value (non-GAAP) ​ $ 27.40 ​ $ 21.88 ​ $ 17.96 ​ $ 13.45 ​ $ 9.79 ​ Weighted average shares outstanding ​ ​ ​ ​ ​ ​ Basic ​ 43,224,042 ​ 43,164,477 ​ 43,172,078 ​ 43,113,741 ​ 43,057,688 ​ Diluted ​ 43,345,799 ​ 43,316,904 ​ 43,325,303 ​ 43,167,113 ​ 43,118,561 ​ Shares outstanding at period end ​ 43,242,928 ​ 43,113,127 ​ 43,180,079 ​ 43,120,625 ​ 43,059,657 ​ Performance Metrics: ​ ​ ​ ​ ​ ​ Return on average assets ​ 1.85 % 1.99 % 2.23 % 2.12 % 1.47 % Return on average equity ​ 17.63 % 17.21 % 22.07 % 25.09 % 14.37 % Return on average tangible common equity (non-GAAP) ​ 22.92 % 22.50 % 30.10 % 34.02 % 17.56 % Net interest margin ​ 3.06 % 2.97 % 2.79 % 2.69 % 2.40 % Efficiency ratio (non-GAAP) ​ 31.03 % 30.61 % 28.80 % 27.42 % 37.38 % Loans and loans held for sale to deposits ​ 94.90 % 103.08 % 101.15 % 116.17 % 93.50 % Capital Ratios—Merchants Bancorp: ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets (non-GAAP) ​ 7.0 % 7.5 % 6.9 % 6.0 % 6.6 % Tier 1 common equity to risk-weighted assets ​ 7.8 % 7.7 % n/a % n/a % 7.4 % Tier 1 leverage ratio/CBLR ​ 10.1 % 11.7 % 10.4 % 8.6 % 9.4 % Tier 1 capital to risk-weighted assets ​ 11.1 % 11.7 % n/a % n/a % 11.3 % Total capital to risk-weighted assets ​ 11.6 % 12.2 % n/a % n/a % 11.6 % Capital Ratios—Merchants Bank Only: ​ ​ ​ ​ ​ ​ Tier 1 common equity to risk-weighted assets ​ 10.9 % 11.3 % n/a % n/a % 11.7 % Tier 1 capital to average assets ​ 10.1 % 11.3 % 10.3 % 8.7 % 9.7 % Tier 1 capital to risk-weighted assets ​ 10.9 % 11.3 % n/a % n/a % 11.7 % Total capital to risk-weighted assets ​ 11.5 % 11.7 % n/a % n/a % 12.0 % ​ ​ (1) The Company adopted FASB Accounting Standards Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) on January 1, 2022.
Biggest changeSelected Financial Data. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or for the Year Ended December 31, ​ 2024 2023 2022 2021 2020 ​ ​ (Dollars in thousands, except per share data) ​ Balance Sheet Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Assets ​ $ 18,805,732 ​ $ 16,952,516 ​ $ 12,615,227 ​ $ 11,278,638 ​ $ 9,645,375 ​ Loans held for investment ​ 10,438,388 ​ 10,199,553 ​ 7,470,872 ​ 5,782,663 ​ 5,535,426 ​ Allowance for credit losses (1) ​ (84,386) ​ (71,752) ​ (44,014) ​ (31,344) ​ (27,500) ​ Loans held for sale ​ 3,771,510 ​ 3,144,756 ​ 2,910,576 ​ 3,303,199 ​ 3,070,154 ​ Deposits ​ 11,919,976 ​ 14,061,460 ​ 10,071,345 ​ 8,982,613 ​ 7,408,066 ​ Total liabilities ​ 16,562,422 ​ 15,251,432 ​ 11,155,488 ​ 10,123,229 ​ 8,834,754 ​ Total shareholders' equity ​ 2,243,310 ​ 1,701,084 ​ 1,459,739 ​ 1,155,409 ​ 810,621 ​ Tangible common shareholders' equity (non-GAAP) ​ 1,563,102 ​ 1,184,889 ​ 943,100 ​ 775,708 ​ 579,847 ​ Statement of Income Data: ​ ​ ​ ​ ​ ​ Interest Income ​ $ 1,302,720 ​ $ 1,077,798 ​ $ 480,833 ​ $ 311,886 ​ $ 282,790 ​ Interest Expense ​ 780,100 ​ 629,727 ​ 162,282 ​ 33,892 ​ 58,644 ​ Net interest income ​ 522,620 ​ 448,071 ​ 318,551 ​ 277,994 ​ 224,146 ​ Provision for credit losses ​ 24,278 ​ 40,231 ​ 17,295 ​ 5,012 ​ 11,838 ​ Noninterest income ​ 148,112 ​ 114,668 ​ 125,936 ​ 157,333 ​ 127,473 ​ Noninterest expense ​ 223,812 ​ 174,601 ​ 136,050 ​ 125,385 ​ 96,424 ​ Income before taxes ​ 422,642 ​ 347,907 ​ 291,142 ​ 304,930 ​ 243,357 ​ Provision for income taxes ​ 102,256 ​ 68,673 ​ 71,421 ​ 77,826 ​ 62,824 ​ Net income ​ 320,386 ​ 279,234 ​ 219,721 ​ 227,104 ​ 180,533 ​ Preferred stock dividends ​ 34,909 ​ 34,670 ​ 25,983 ​ 20,873 ​ 14,473 ​ Impact of preferred stock redemption ​ ​ 1,823 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Net income available to common shareholders ​ $ 283,654 ​ $ 244,564 ​ $ 193,738 ​ $ 206,231 ​ $ 166,060 ​ Credit Quality Data: ​ ​ ​ ​ ​ ​ Nonperforming loans ​ $ 279,722 ​ $ 82,015 ​ $ 26,683 ​ $ 761 ​ $ 6,321 ​ Nonperforming loans to total loans receivable ​ 2.68 % 0.80 % 0.36 % 0.01 % 0.11 % Nonperforming assets ​ $ 287,931 ​ $ 82,015 ​ $ 26,683 ​ $ 761 ​ $ 6,321 ​ Nonperforming assets to total assets ​ 1.53 % 0.48 % 0.21 % 0.01 % 0.07 % Allowance for credit losses to total loans ​ 0.81 % 0.70 % 0.59 % 0.54 % 0.50 % Allowance for credit losses to nonperforming loans ​ 30.17 % 87.49 % 164.95 % 4,118.79 % 435.06 % Net charge-offs to average loans and loans held for sale ​ 0.07 % 0.08 % 0.01 % 0.01 % 0.00 % Per Share Data (Common Stock): ​ ​ ​ ​ ​ ​ Diluted earnings per share ​ $ 6.30 ​ $ 5.64 ​ $ 4.47 ​ $ 4.76 ​ $ 3.85 ​ Dividends declared ​ $ 0.36 ​ $ 0.32 ​ $ 0.28 ​ $ 0.24 ​ $ 0.21 ​ Tangible book value (non-GAAP) ​ $ 34.15 ​ $ 27.40 ​ $ 21.88 ​ $ 17.96 ​ $ 13.45 ​ Weighted average shares outstanding ​ ​ ​ ​ ​ ​ Basic ​ 44,855,100 ​ 43,224,042 ​ 43,164,477 ​ 43,172,078 ​ 43,113,741 ​ Diluted ​ 45,004,786 ​ 43,345,799 ​ 43,316,904 ​ 43,325,303 ​ 43,167,113 ​ Shares outstanding at period end ​ 45,767,166 ​ 43,242,928 ​ 43,113,127 ​ 43,180,079 ​ 43,120,625 ​ Performance Metrics: ​ ​ ​ ​ ​ ​ Return on average assets ​ 1.79 % 1.85 % 1.99 % 2.23 % 2.12 % Return on average equity ​ 16.86 % 17.63 % 17.21 % 22.07 % 25.09 % Return on average tangible common equity (non-GAAP) ​ 20.16 % 22.92 % 22.50 % 30.10 % 34.02 % Net interest margin ​ 3.03 % 3.06 % 2.97 % 2.79 % 2.69 % Efficiency ratio (non-GAAP) ​ 33.37 % 31.03 % 30.61 % 28.80 % 27.42 % Loans and loans held for sale to deposits ​ 119.21 % 94.90 % 103.08 % 101.15 % 116.17 % Capital Ratios—Merchants Bancorp: ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets (non-GAAP) ​ 8.3 % 7.0 % 7.5 % 6.9 % 6.0 % Tier 1 common equity to risk-weighted assets ​ 9.3 % 7.8 % 7.7 % n/a % n/a % Tier 1 leverage ratio/CBLR ​ 12.1 % 10.1 % 11.7 % 10.4 % 8.6 % Tier 1 capital to risk-weighted assets ​ 13.3 % 11.1 % 11.7 % n/a % n/a % Total capital to risk-weighted assets ​ 13.9 % 11.6 % 12.2 % n/a % n/a % Capital Ratios—Merchants Bank Only: ​ ​ ​ ​ ​ ​ Tier 1 common equity to risk-weighted assets ​ 12.3 % 10.9 % 11.3 % n/a % n/a % Tier 1 capital to average assets ​ 11.2 % 10.1 % 11.3 % 10.3 % 8.7 % Tier 1 capital to risk-weighted assets ​ 12.3 % 10.9 % 11.3 % n/a % n/a % Total capital to risk-weighted assets ​ 12.9 % 11.5 % 11.7 % n/a % n/a % ​ (1) The Company adopted FASB ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“CECL”) on January 1, 2022.
The efficiency ratio represents noninterest expense divided by the sum of net interest income and noninterest income. Tangible book value per common share represents tangible common shareholders’ equity divided by ending common shares. Return on average tangible common equity represents net income available to common shareholders divided by average shareholders’ equity, less average goodwill, average intangibles, and average preferred stock.
Tangible book value per common share represents tangible common shareholders’ equity divided by ending common shares. Return on average tangible common equity represents net income available to common shareholders divided by average shareholders’ equity, less average goodwill, average intangibles, and average preferred stock.
A reconciliation of GAAP to non-GAAP financial measures is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (Dollars in thousands) 2023 2022 2021 2020 2019 Tangible common shareholders’ equity: ​ ​ ​ ​ ​ ​ Shareholders’ equity per GAAP ​ $ 1,701,084 ​ $ 1,459,739 ​ $ 1,155,409 ​ $ 810,621 ​ $ 653,728 ​ Less: goodwill & intangibles ​ (16,587) ​ (17,031) ​ (17,552) ​ (18,128) ​ (19,644) ​ Tangible shareholders’ equity ​ 1,684,497 ​ 1,442,708 ​ 1,137,857 ​ 792,493 ​ 634,084 ​ Less: preferred stock ​ (499,608) ​ (499,608) ​ (362,149) ​ (212,646) ​ (212,646) ​ Tangible common shareholders’ equity ​ $ 1,184,889 ​ $ 943,100 ​ $ 775,708 ​ $ 579,847 ​ $ 421,438 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average tangible common shareholders’ equity: ​ ​ ​ ​ ​ ​ Average shareholders’ equity per GAAP ​ $ 1,583,485 ​ $ 1,276,443 ​ $ 1,028,834 ​ $ 719,630 ​ $ 537,946 ​ Less: average goodwill & intangibles ​ (16,801) ​ (17,293) ​ (17,841) ​ (18,899) ​ (20,243) ​ Less: average preferred stock ​ (499,608) ​ (398,182) ​ (325,904) ​ (212,646) ​ (129,881) ​ Average tangible common shareholders’ equity ​ $ 1,067,076 ​ $ 860,968 ​ $ 685,089 ​ $ 488,085 ​ $ 387,822 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible assets: ​ ​ ​ ​ ​ ​ Assets per GAAP ​ $ 16,952,516 ​ $ 12,615,227 ​ $ 11,278,638 ​ $ 9,645,375 ​ $ 6,371,928 ​ Less: goodwill & intangibles ​ (16,587) ​ (17,031) ​ ​ (17,552) ​ (18,128) ​ (19,644) ​ Tangible assets ​ $ 16,935,929 ​ $ 12,598,196 ​ $ 11,261,086 ​ $ 9,627,247 ​ $ 6,352,284 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ending Common Shares ​ ​ 43,242,928 ​ ​ 43,113,127 ​ ​ 43,180,079 ​ ​ 43,120,625 ​ ​ 43,059,657 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible book value per common share ​ $ 27.40 ​ $ 21.88 ​ $ 17.96 ​ $ 13.45 ​ $ 9.79 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average tangible common equity ​ ​ 22.92 % ​ 22.50 % ​ 30.10 % ​ 34.02 % ​ 17.56 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets ​ 7.0 % 7.5 % 6.9 % 6.0 % 6.6 % ​ 36 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ ​ December 31, ​ ​ 2023 2022 2021 2020 2019 ​ Net income as reported per GAAP ​ $ 279,234 ​ $ 219,721 ​ $ 227,104 ​ $ 180,533 ​ $ 77,329 ​ Less: preferred stock dividends ​ ​ (34,670) ​ ​ (25,983) ​ ​ (20,873) ​ ​ (14,473) ​ ​ (9,216) ​ Net income available to common shareholders ​ $ 244,564 ​ $ 193,738 ​ $ 206,231 ​ $ 166,060 ​ $ 68,113 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Efficiency ratio (based on all GAAP metrics): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ $ 174,601 ​ $ 136,050 ​ $ 125,385 ​ $ 96,424 ​ $ 63,313 ​ Net interest income (before provision for credit losses) ​ ​ 448,071 ​ ​ 318,551 ​ ​ 277,994 ​ ​ 224,146 ​ ​ 122,298 ​ Noninterest income ​ ​ 114,668 ​ ​ 125,936 ​ ​ 157,333 ​ ​ 127,473 ​ ​ 47,089 ​ Total revenues for efficiency ratio ​ $ 562,739 ​ $ 444,487 ​ $ 435,327 ​ $ 351,619 ​ $ 169,387 ​ Efficiency ratio ​ 31.03 % 30.61 % 28.80 % 27.42 % 37.38 % ​ ​ ​
A reconciliation of GAAP to non-GAAP financial measures is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, ​ 2024 2023 2022 2021 2020 ​ ​ (Dollars in thousands) Tangible common shareholders’ equity: ​ ​ ​ ​ ​ ​ Shareholders’ equity per GAAP ​ $ 2,243,310 ​ $ 1,701,084 ​ $ 1,459,739 ​ $ 1,155,409 ​ $ 810,621 ​ Less: goodwill & intangibles ​ (8,073) ​ (16,587) ​ (17,031) ​ (17,552) ​ (18,128) ​ Tangible shareholders’ equity ​ 2,235,237 ​ 1,684,497 ​ 1,442,708 ​ 1,137,857 ​ 792,493 ​ Less: preferred stock ​ (672,135) ​ (499,608) ​ (499,608) ​ (362,149) ​ (212,646) ​ Tangible common shareholders’ equity ​ $ 1,563,102 ​ $ 1,184,889 ​ $ 943,100 ​ $ 775,708 ​ $ 579,847 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average tangible common shareholders’ equity: ​ ​ ​ ​ ​ ​ Average shareholders’ equity per GAAP ​ $ 1,900,130 ​ $ 1,583,485 ​ $ 1,276,443 ​ $ 1,028,834 ​ $ 719,630 ​ Less: average goodwill & intangibles ​ (8,697) ​ (16,801) ​ (17,293) ​ (17,841) ​ (18,899) ​ Less: average preferred stock ​ (484,391) ​ (499,608) ​ (398,182) ​ (325,904) ​ (212,646) ​ Average tangible common shareholders’ equity ​ $ 1,407,042 ​ $ 1,067,076 ​ $ 860,968 ​ $ 685,089 ​ $ 488,085 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible assets: ​ ​ ​ ​ ​ ​ Assets per GAAP ​ $ 18,805,732 ​ $ 16,952,516 ​ $ 12,615,227 ​ $ 11,278,638 ​ $ 9,645,375 ​ Less: goodwill & intangibles ​ (8,073) ​ (16,587) ​ ​ (17,031) ​ ​ (17,552) ​ (18,128) ​ Tangible assets ​ $ 18,797,659 ​ $ 16,935,929 ​ $ 12,598,196 ​ $ 11,261,086 ​ $ 9,627,247 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ending Common Shares ​ ​ 45,767,166 ​ ​ 43,242,928 ​ ​ 43,113,127 ​ ​ 43,180,079 ​ ​ 43,120,625 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible book value per common share ​ $ 34.15 ​ $ 27.40 ​ $ 21.88 ​ $ 17.96 ​ $ 13.45 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average tangible common equity ​ ​ 20.16 % ​ 22.92 % ​ 22.50 % ​ 30.10 % ​ 34.02 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Tangible common equity to tangible assets ​ 8.3 % 7.0 % 7.5 % 6.9 % 6.0 % ​ 39 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Year Ended ​ ​ ​ December 31, ​ ​ 2024 2023 2022 2021 2020 ​ Net income as reported per GAAP ​ $ 320,386 ​ $ 279,234 ​ $ 219,721 ​ $ 227,104 ​ $ 180,533 ​ Less: preferred stock dividends ​ ​ (34,909) ​ ​ (34,670) ​ ​ (25,983) ​ ​ (20,873) ​ ​ (14,473) ​ Less: impact of preferred stock redemption ​ ​ (1,823) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ Net income available to common shareholders ​ $ 283,654 ​ $ 244,564 ​ $ 193,738 ​ $ 206,231 ​ $ 166,060 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Efficiency ratio (based on all GAAP metrics): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expense ​ $ 223,812 ​ $ 174,601 ​ $ 136,050 ​ $ 125,385 ​ $ 96,424 ​ Net interest income (before provision for credit losses) ​ ​ 522,620 ​ ​ 448,071 ​ ​ 318,551 ​ ​ 277,994 ​ ​ 224,146 ​ Noninterest income ​ ​ 148,112 ​ ​ 114,668 ​ ​ 125,936 ​ ​ 157,333 ​ ​ 127,473 ​ Total revenues for efficiency ratio ​ $ 670,732 ​ $ 562,739 ​ $ 444,487 ​ $ 435,327 ​ $ 351,619 ​ Efficiency ratio ​ 33.37 % 31.03 % 30.61 % 28.80 % 27.42 % ​ ​ ​
ASU 2016-13 replaces the allowance for loan losses that used incurred loss impairment methodology in 2021-2019. ​ NON-GAAP FINANCIAL MEASURES Some of the financial measures included in this report are not measures of financial performance recognized by GAAP. Our management uses these non-GAAP financial measures in its analysis of our performance.
ASU 2016-13 replaces the allowance for loan losses that used incurred loss impairment methodology in 2021-2020 with an allowance based on expected losses. ​ ​ 38 Table of Contents NON-GAAP FINANCIAL MEASURES Some of the financial measures included in this report are not measures of financial performance recognized by GAAP.
These non-GAAP financial measures include presentation of tangible common shareholders’ equity, tangible book value per share, tangible common shareholders’ equity to tangible assets, return on average tangible common equity, and efficiency ratio. 35 Table of Contents The reconciliation from shareholders’ equity per GAAP to tangible common shareholders’ equity is comprised of goodwill and intangibles totaling $16.6 million at December 31, 2023, $17.0 million at December 31, 2022, $17.6 million at December 31, 2021, $18.1 million at December 31, 2020 and $19.6 million for the year ended December 31, 2019, as well as preferred stock totaling $499.6 million at December 31, 2023, $499.6 million at December 31, 2022, $362.1 million at December 31, 2021, $212.6 million at December 31, 2020 and $212.6 million at December 31, 2019.
Our management uses these non-GAAP financial measures in its analysis of our performance. These non-GAAP financial measures include presentation of tangible common shareholders’ equity, tangible book value per share, tangible common shareholders’ equity to tangible assets, return on average tangible common equity, and efficiency ratio.
Removed
The reconciliation from consolidated assets per GAAP to tangible assets is comprised solely of consolidated assets less goodwill and intangibles totaling $16.6 million at December 31, 2023, $17.0 million at December 31, 2022, $17.6 million at December 31, 2021, $18.1 million at December 31, 2020 and $19.6 million for the year ended December 31, 2019.
Added
The reconciliation from shareholders’ equity per GAAP to tangible common shareholders’ equity is comprised of goodwill and intangibles. The reconciliation from consolidated assets per GAAP to tangible assets is comprised solely of consolidated assets less goodwill and intangibles. The efficiency ratio represents noninterest expense divided by the sum of interest income, less provision for credit losses, and noninterest income.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

176 edited+62 added−61 removed41 unchanged
Biggest changeThe following table presents an analysis of the ACL-Loans for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or For the Year ​ ​ Ended December 31, (Dollars in thousands) 2023 2022 2021 ​ ​ ​ Balance at beginning of period ​ $ 44,014 ​ $ 31,344 ​ $ 27,500 ​ Less charge-offs: ​ ​ ​ ​ Residential real estate ​ (34) ​ (4) ​ (2) ​ Multi-family financing ​ (8,400) ​ — ​ — ​ Commercial and commercial real estate ​ (1,356) ​ (1,238) ​ (1,184) ​ Consumer and margin ​ (1) ​ (15) ​ (6) ​ Total charge-offs ​ (9,791) ​ (1,257) ​ (1,192) ​ Plus recoveries: ​ ​ ​ ​ Commercial and commercial real estate ​ 41 ​ 746 ​ — ​ Consumer and margin ​ — ​ 7 ​ 24 ​ Total recoveries ​ 41 ​ 753 ​ 24 ​ Net (charge-offs) recoveries ​ (9,750) ​ (504) ​ (1,168) ​ Transfers out: ​ ​ ​ ​ Impact of adopting CECL ​ ​ — ​ ​ (299) ​ ​ — ​ Provision for credit losses ​ 37,488 ​ 13,473 ​ 5,012 ​ Balance at end of period ​ $ 71,752 ​ $ 44,014 ​ $ 31,344 ​ Ratios: ​ ​ ​ ​ Total net charge-offs to average loans outstanding ​ (0.08) % (0.01) % (0.01) % Net charge-offs to average loans outstanding: Multi-family financing ​ ​ (0.24) % ​ — % ​ — % Net (charge-offs) recoveries to average loans outstanding: Commercial and commercial real estate ​ ​ (0.10) % ​ (0.07) % ​ (0.26) % Net (charge-offs) recoveries to average loans outstanding: Consumer and margin ​ ​ (0.01) % ​ (0.06) % ​ 0.14 % Allowance for credit losses to nonperforming loans at end of period ​ 87.49 % 164.95 % 4,118.79 % Allowance for credit losses to total loans at end of period ​ 0.70 % 0.59 % 0.54 % 53 Table of Contents The following table presents an analysis of the ACL-Loans for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, ​ ​ 2023 ​ 2022 ​ 2021 ​ ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ Loans in ​ ​ ​ Percent of ​ Loans in ​ ​ ​ Percent of ​ Loans in ​ ​ ​ ​ Allowance ​ Category ​ ​ ​ Allowance ​ Category ​ ​ ​ Allowance ​ Category ​ ​ ​ ​ to Total ​ to Total ​ ​ ​ to Total ​ to Total ​ ​ ​ to Total ​ to Total (Dollars in thousands) Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage warehouse repurchase agreements ​ $ 2,070 3 % 7 % $ 1,249 3 % 6 % $ 1,955 6 % 14 % Residential real estate ​ 7,323 10 % 13 % 7,029 16 % 16 % 4,170 13 % 15 % Multi-family financing ​ 26,874 38 % 40 % 16,781 39 % 43 % 14,084 46 % 46 % Healthcare financing ​ ​ 22,454 ​ 31 % 23 % ​ 9,882 ​ 22 % 21 % ​ 4,461 ​ 14 % 14 % Commercial and commercial real estate ​ 12,243 17 % 16 % 8,326 19 % 13 % 5,879 19 % 9 % Agricultural production and real estate ​ 619 1 % 1 % 565 1 % 1 % 657 2 % 2 % Consumer and margin ​ 169 - % - % 182 - % - % 138 - % - % Total allowance for credit losses ​ $ 71,752 100 % 100 % $ 44,014 100 % 100 % $ 31,344 100 % 100 % 54 Table of Contents The following table sets forth the amounts of nonperforming loans and nonperforming assets at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At ​ ​ December 31, (Dollars in thousands) 2023 2022 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual loans: ​ ​ ​ ​ Residential real estate ​ $ 1,486 ​ $ 245 ​ $ 362 ​ Multi-family financing ​ 39,608 ​ — ​ — ​ Healthcare financing ​ ​ 28,783 ​ ​ 21,783 ​ ​ — ​ Commercial and commercial real estate ​ 3,820 ​ 4,390 ​ — ​ Agricultural production and real estate ​ 147 ​ 147 ​ 158 ​ Consumer and margin ​ 3 ​ 6 ​ 4 ​ Total ​ 73,847 ​ 26,571 ​ 524 ​ Accruing loans 90 days or more past due: ​ ​ ​ ​ Residential real estate ​ 894 ​ 96 ​ 22 ​ Healthcare financing ​ ​ 7,216 ​ ​ — ​ ​ — ​ Commercial and commercial real estate ​ 43 ​ — ​ 149 ​ Agricultural production and real estate ​ — ​ — ​ 30 ​ Consumer and margin ​ 15 ​ 16 ​ 36 ​ Total ​ 8,168 ​ 112 ​ 237 ​ Total nonperforming loans ​ $ 82,015 ​ $ 26,683 ​ $ 761 ​ Real estate owned ​ — ​ — ​ — ​ Total nonperforming assets ​ $ 82,015 ​ $ 26,683 ​ $ 761 ​ Modifications/TDR 1 : ​ ​ ​ ​ Commercial and commercial real estate ​ $ 3,778 ​ $ 3,778 ​ $ 4,961 ​ Agricultural production and real estate ​ — ​ — ​ — ​ Total ​ $ 3,778 ​ $ 3,778 ​ $ 4,961 ​ Ratios: ​ ​ ​ ​ Total nonperforming loans to total loans ​ 0.80 % 0.36 % 0.01 % Total nonperforming loans to total assets ​ 0.48 % 0.21 % 0.01 % Total nonperforming assets to total assets ​ 0.48 % 0.21 % 0.01 % Total nonperforming loans and modifications/TDRs to total loans ​ 0.84 % 0.41 % 0.10 % Total nonperforming loans and modifications/TDRs to total assets ​ 0.51 % 0.24 % 0.05 % Total nonperforming assets and modifications/TDRs to total assets ​ 0.51 % 0.24 % 0.05 % ​ (1) On 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, which eliminates the recognition and measurement of a troubled debt restructuring (“TDR”).
Biggest changeThe following table presents an analysis of the ACL-Loans for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or For the Year ​ ​ Ended December 31, (Dollars in thousands) 2024 2023 2022 ​ ​ ​ Balance at beginning of period ​ $ 71,752 ​ $ 44,014 ​ $ 31,344 ​ Less charge-offs: ​ ​ ​ ​ Residential real estate ​ — ​ (34) ​ (4) ​ Multi-family financing ​ (5,282) ​ (8,400) ​ — ​ Healthcare financing ​ ​ (3,095) ​ ​ — ​ ​ — ​ Commercial and commercial real estate ​ (2,210) ​ (1,356) ​ (1,238) ​ Consumer and margin ​ — ​ (1) ​ (15) ​ Total charge-offs ​ (10,587) ​ (9,791) ​ (1,257) ​ Plus recoveries: ​ ​ ​ ​ Residential real estate ​ 14 ​ — ​ — ​ Multi-family financing ​ 46 ​ — ​ — ​ Commercial and commercial real estate ​ 76 ​ 41 ​ 746 ​ Consumer and margin ​ — ​ — ​ 7 ​ Total recoveries ​ 136 ​ 41 ​ 753 ​ Net (charge-offs) recoveries ​ (10,451) ​ (9,750) ​ (504) ​ Transfers out: ​ ​ ​ ​ ​ FMBI's ACL for loans sold ​ (593) ​ — ​ — ​ Impact of adopting CECL ​ ​ — ​ ​ — ​ ​ (299) ​ Provision for credit losses ​ 23,678 ​ 37,488 ​ 13,473 ​ Balance at end of period ​ $ 84,386 ​ $ 71,752 ​ $ 44,014 ​ Ratios: ​ ​ ​ ​ Total net charge-offs to total average loans and loans held for sale ​ (0.07) % (0.08) % (0.01) % Net charge-offs to average loans outstanding: Multi-family financing ​ ​ (0.12) % ​ (0.24) % ​ — % Net charge-offs to average loans outstanding: Healthcare financing ​ ​ (0.16) % ​ — % ​ — % Net charge-offs to average loans outstanding: Commercial and commercial real estate ​ ​ (0.14) % ​ (0.10) % ​ (0.07) % Net charge-offs to average loans outstanding: Consumer and margin ​ ​ — % ​ (0.01) % ​ (0.06) % Allowance for credit losses to nonperforming loans at end of period ​ 30.17 % 87.49 % 164.95 % Allowance for credit losses to total loans receivable at end of period ​ 0.81 % 0.70 % 0.59 % ​ The following table presents an analysis of the ACL-Loans for the periods presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, ​ ​ 2024 ​ 2023 ​ 2022 ​ ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ ​ Percent of ​ ​ ​ ​ Percent of ​ Loans in ​ ​ ​ Percent of ​ Loans in ​ ​ ​ Percent of ​ Loans in ​ ​ ​ ​ Allowance ​ Category ​ ​ ​ Allowance ​ Category ​ ​ ​ Allowance ​ Category ​ ​ ​ ​ to Loans ​ to Loans ​ ​ ​ to Loans ​ to Loans ​ ​ ​ to Loans ​ to Loans (Dollars in thousands) Amount Receivable Receivable Amount Receivable Receivable Amount Receivable Receivable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage warehouse repurchase agreements ​ $ 3,816 5 % 14 % $ 2,070 3 % 7 % $ 1,249 3 % 6 % Residential real estate ​ 5,942 7 % 13 % 7,323 10 % 13 % 7,029 16 % 16 % Multi-family financing ​ 55,126 65 % 44 % 26,874 38 % 40 % 16,781 39 % 43 % Healthcare financing ​ ​ 8,562 ​ 10 % 14 % ​ 22,454 ​ 31 % 23 % ​ 9,882 ​ 22 % 21 % Commercial and commercial real estate ​ 10,293 12 % 14 % 12,243 17 % 16 % 8,326 19 % 13 % Agricultural production and real estate ​ 539 1 % 1 % 619 1 % 1 % 565 1 % 1 % Consumer and margin ​ 108 - % - % 169 - % - % 182 - % - % Total allowance for credit losses ​ $ 84,386 100 % 100 % $ 71,752 100 % 100 % $ 44,014 100 % 100 % 59 Table of Contents The following table sets forth the amounts of nonperforming loans and nonperforming assets at the dates indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At ​ ​ December 31, (Dollars in thousands) 2024 2023 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual loans: ​ ​ ​ ​ Mortgage warehouse repurchase agreements ​ $ — ​ $ — ​ $ — ​ Residential real estate ​ ​ 6,154 ​ ​ 1,486 ​ ​ 245 ​ Multi-family financing ​ 201,508 ​ 39,608 ​ — ​ Healthcare financing ​ ​ 69,001 ​ ​ 28,783 ​ ​ 21,783 ​ Commercial and commercial real estate ​ 3,047 ​ 3,820 ​ 4,390 ​ Agricultural production and real estate ​ 6 ​ 147 ​ 147 ​ Consumer and margin ​ — ​ 3 ​ 6 ​ Total ​ 279,716 ​ 73,847 ​ 26,571 ​ Accruing loans 90 days or more past due: ​ ​ ​ ​ Residential real estate ​ — ​ 894 ​ 96 ​ Healthcare financing ​ ​ — ​ ​ 7,216 ​ ​ — ​ Commercial and commercial real estate ​ — ​ 43 ​ — ​ Agricultural production and real estate ​ 6 ​ — ​ — ​ Consumer and margin ​ — ​ 15 ​ 16 ​ Total ​ 6 ​ 8,168 ​ 112 ​ Total nonperforming loans ​ $ 279,722 ​ $ 82,015 ​ $ 26,683 ​ Real estate owned ​ 8,209 ​ — ​ — ​ Total nonperforming assets ​ $ 287,931 ​ $ 82,015 ​ $ 26,683 ​ Modifications/TDR 1 : ​ ​ ​ ​ Multi-family financing ​ $ 92,184 ​ $ — ​ $ — ​ Healthcare financing ​ ​ 13,961 ​ ​ — ​ — ​ Commercial and commercial real estate ​ ​ — ​ ​ 3,533 ​ ​ 3,533 ​ Total ​ $ 106,145 ​ $ 3,533 ​ $ 3,778 ​ Ratios: ​ ​ ​ ​ Total nonperforming loans to total loans ​ 2.68 % 0.80 % 0.36 % Total nonperforming loans to total assets ​ 1.49 % 0.48 % 0.21 % Total nonperforming assets to total assets ​ 1.53 % 0.48 % 0.21 % (1) On January 1, 2023, the Company adopted FASB ASU No. 2022-02, Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures, which eliminates the recognition and measurement of a TDR.
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, and brokered deposits, and short-term borrowing.
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.
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 Residential Lending in the Banking segment.
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.
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 securities.
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.
We expect that troubled community banks will continue to face significant challenges when attempting to raise capital. We also believe that heightened regulatory capital requirements will make it more difficult for even well-capitalized, healthy community banks to grow in their communities by taking advantage of opportunities in their markets that result as the economy improves.
We expect that troubled community banks could face significant challenges when attempting to raise capital. We also believe that heightened regulatory capital requirements will make it more difficult for even well-capitalized, healthy community banks to grow in their communities by taking advantage of opportunities in their markets that result as the economy improves.
The allowance also incorporates reasonable and supportable forecasts. There have been no changes to the credit quality components used to assess risk during the twelve months ended December 31, 2023. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance also incorporates reasonable and supportable forecasts. There have been no changes to the credit quality components used to assess risk during the twelve months ended December 31, 2024. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by us can be found in Note 23: Disclosures About Fair Value of Assets and Liabilities .
These estimates are subjective in nature and imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the fair values measured at each level of the fair value hierarchy and the methodology utilized by us can be found in Note 16: Disclosures About Fair Value of Assets and Liabilities .
Additional details are provided in the ACL-Loans portion of the Comparison of Financial Condition at December 31, 2023 and December 31, 2022. Because there could be unforeseen future losses, the Company continues to monitor the situation and may need to adjust future expectations as developments occur. Issuance and Redemption of Preferred Stock.
Additional details are provided in the ACL-Loans portion of the Comparison of Financial Condition at December 31, 2024 and December 31, 2023. Because there could be unforeseen future losses, the Company continues to monitor the situation and may need to adjust future expectations as developments occur. Issuance and Redemption of Preferred Stock.
On September 27, 2022, the Company issued 5,200,000 depositary shares, each representing a 1/40th interest in a share of its 8.25% Fixed Rate Reset Series D Non-Cumulative Perpetual Preferred Stock, without par value (the “Series D Preferred Stock”), and with a liquidation preference of $1,000.00 per share (equivalent to $25.00 per depositary share).
On September 27, 2022, the Company issued 5,200,000 depositary shares, each representing a 1/40th interest in a share of its 8.25% Fixed Rate Reset Series D Non-Cumulative Perpetual Preferred Stock, without par value, and with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share).
On September 30, 2022, the Company issued an additional 500,000 shares of Series D Preferred Stock to the underwriters 60 Table of Contents related to their exercise of an option to purchase additional shares under the associated underwriting agreement, resulting in an additional $12.1 million in net proceeds, after deducting $0.4 million in underwriting discounts.
On September 30, 2022, the Company issued an additional 500,000 depositary shares of Series D Preferred Stock to the underwriters related to their exercise of an 44 Table of Contents option to purchase additional shares under the associated underwriting agreement, resulting in an additional $12.1 million in net proceeds, after deducting $0.4 million in underwriting discounts.
Management believes, as of December 31, 2023 and December 31, 2022, that the Company, Merchants Bank, and FMBI met all capital adequacy requirements to which they were subject. ​ As of December 31, 2023 and December 31, 2022, the most recent notifications from the Federal Reserve categorized the Company as well capitalized and most recent notifications from the FDIC categorized Merchants Bank and FMBI as well capitalized under the regulatory framework for prompt corrective action.
Management believes, as of December 31, 2024 and December 31, 2023, that the Company and Merchants Bank met all capital adequacy requirements to which they were subject. ​ As of December 31, 2024 and December 31, 2023, 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.
Liquidity and Capital Resources Liquidity Our primary sources of funds are business and consumer deposits, escrow and custodial deposits, brokered deposits, borrowings, principal and interest payments on loans, and proceeds from sale of loans.
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.
At December 31, 2023, we had $4.0 billion in outstanding commitments to extend credit that are subject to credit risk and $3.7 billion in outstanding commitments subject to certain performance criteria and cancellation by the Company, including loans pending closing, unfunded construction draws, and unfunded warehouse repurchase agreements.
At December 31, 2024, we had $4.7 billion in outstanding commitments to extend credit that are subject to credit risk and $3.7 billion in outstanding commitments subject to certain performance criteria and cancellation by the Company, including loans pending closing, unfunded construction draws, and unfunded warehouse repurchase agreements.
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 $1.6 billion and $1.5 billion as of December 31, 2023 and 2022, respectively.
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 $1.6 billion as of December 31, 2024 and 2023.
Operating Segment Analysis for the Years Ended December 31, 2023 and 2022 We operate in three primary segments: Multi-Family Mortgage Banking, Mortgage Warehousing, and Banking, as discussed in “Our Business Segments” of Item 1 and Note 26: Segment Information . The reportable segments are consistent with the internal reporting and evaluation of the principal lines of business of the Company.
Operating Segment Analysis for the Years Ended December 31, 2024 and 2023 We operate in three primary segments: Multi-family Mortgage Banking, Mortgage Warehousing, and Banking, as discussed in “Our Business Segments” of Item 1 and Note 23: Segment Information . The reportable segments are consistent with the internal reporting and evaluation of the principal lines of business of the Company.
CECL replaces the previous “Allowance for Loan and Lease Losses” standard for measuring credit losses. Upon adoption of CECL, the difference in the two measurements was recorded in the ACL-Loans and retained earnings. The ACL-Loans is the Company’s estimate of current expected credit losses.
CECL replaced the previous “Allowance for Loan and Lease Losses” standard for measuring credit losses. Upon adoption of CECL, the difference in the two measurements was recorded in the ACL-Loans and retained earnings. The ACL-Loans is the Company’s estimate of current expected life of loan credit losses.
As we anticipate that our loan portfolio overall will continue to grow in 2024, we could expect the provision to increase, but could also be influenced by any changes to problem loans in our portfolio or the loan type mix within the portfolio. It could also be influenced by external market factors, such as interest rates and economic activity.
As we anticipate that our loan portfolio overall will continue to grow in 2025, we could expect the provision to increase, but could also be influenced by any changes to problem loans in our portfolio or the loan type mix within the portfolio. It could also be influenced by external market factors, such as interest rates and the economic environment.
The higher rate environment has also slowed multi-family permanent, agency-eligible loan originations and sales to the secondary market. Regulatory Environment. We believe an important trend affecting community banks in the United States over the foreseeable future will be related to heightened regulatory capital requirements, regulatory burdens generally, and interest margin compression.
The higher rate environment has also slowed multi-family permanent, agency-eligible loan originations and sales to the secondary market, but improved by late 2024. Regulatory Environment. We believe an important trend affecting community banks in the United States over the foreseeable future will be related to heightened regulatory capital requirements, regulatory burdens generally, and interest margin compression.
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. Shareholders’ equity was $1.7 billion as of December 31, 2023, compared to $1.5 billion as of December 31, 2022.
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. Shareholders’ equity was $2.2 billion as of December 31, 2024, compared to $1.7 billion as of December 31, 2023.
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, Small Business Administration (“SBA”) lending, and traditional community banking. ​ Our business consists primarily of funding fixed rate, 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.
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. ​ 41 Table of Contents 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.
Discussion and Analysis of the Company’s financial condition and the results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 is contained in Item 7 of Form 10-K for the year ended December 31, 2022 filed with the SEC on March 16, 2023.
Discussion and Analysis of the Company’s financial condition and the results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022 is contained in Item 7 of Form 10-K for the year ended December 31, 2023 filed with the SEC on March 12, 2024.
Fair value adjustments to the value of servicing rights are also included in noninterest income. Mortgage warehouse fees are accrued at the time of funding. Syndication fee income is recognized at the point in time when investor equity capital is obtained primarily to acquire qualifying investments in low-income housing tax credit projects for its funds.
Fair value adjustments to the value of servicing rights are also included in noninterest income. Mortgage warehouse fees are accrued at the time of funding. Syndication fee income is recognized at the point in time when investor equity capital is obtained primarily to acquire qualifying investments in LIHTC projects for its funds.
This increase was primarily attributable to an increase in both higher average yields and average balances of loans and loans held for sale, as well as higher average balances in securities held to maturity. The higher yields were in response to higher interest rates set by the Federal Reserve.
This increase was primarily attributable to higher average balances and yields on loans and loans held for sale, and higher average balances of securities held to maturity, as well as higher yields and average balances on securities available for sale. The higher yields were in response to higher interest rates set by the Federal Reserve.
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. At December 31, 2023, based on collateral, we had $6.0 billion in available unused borrowing capacity with the FHLB and the Federal Reserve discount window.
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. At December 31, 2024, based on collateral, we had $4.3 billion in available unused borrowing capacity with the FHLB and the Federal Reserve discount window.
Return on average equity is the measure of annual net income divided by the value of our total shareholders’ equity, expressed as a percentage. It reflects how efficiently equity investments are turned into profits. Changes in profitability and the ability to effectively manage levels of capital can influence this measure.
Return on average equity is the measure of annual net income divided by the value of our total shareholders’ equity, expressed as a percentage. It reflects how efficiently equity investments are turned into profits. Changes in profitability and the ability to effectively manage levels of capital can influence this measure. The higher the ratio, the more profitable our Company becomes.
As previously demonstrated, the Company also has the ability to 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.
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.
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. 58 Table of Contents Off-Balance Sheet Arrangements In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements.
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. 63 Table of Contents 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 financial statements.
The aggregate gross offering proceeds for the shares issued by the Company was $130.0 million, and after deducting underwriting discounts and commissions and offering expenses of approximately $4.7 million paid to third parties, the Company received total net proceeds of $125.3 million.
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 Board declared a quarterly dividend of $0.08 per share in each quarter of 2023 and expects to raise its dividend in 2024. The Board declared a quarterly dividend of $.09 per share for the first quarter of 2024. Capital Adequacy .
The Board declared a quarterly dividend of $0.09 per share in each quarter of 2024 and expects to raise its dividend in 2025. The Board declared a quarterly dividend of $0.10 per share for the first quarter of 2025. Capital Adequacy .
Recent Developments and Material Trends Economic and Interest Rate Environment. The results of our operations are highly dependent on economic conditions, mortgage volumes, and market interest rates. Residential mortgage volumes fluctuate based on market interest rates, economic conditions, and the credit parameters set by government agencies, such as Fannie Mae, Freddie Mac, and Ginnie Mae, and other market participants.
The results of our operations are highly dependent on economic conditions, mortgage volumes, and market interest rates. Residential mortgage volumes fluctuate based on market interest rates, economic conditions, and the credit parameters set by government agencies, such as Fannie Mae, Freddie Mac, and Ginnie Mae, and other market participants.
This compared to $3.1 billion at December 31, 2022. While the amounts available fluctuate daily, we also had available capacity lines through our membership in the AFX. This liquidity enhances the ability to effectively manage interest expense and asset levels in the future.
This compared to $6.0 billion at December 31, 2023. While the amounts available fluctuate daily, we also had available capacity lines through our membership in the AFX. This liquidity enhances the ability to effectively manage interest expense and asset levels in the future.
For more information about our loan commitments, unused lines of credit and standby letters of credit, see Note 25: Commitments and Credit Risk .
For more information about our loan commitments, unused lines of credit and standby letters of credit, see Note 26: Commitments, Credit Risk, and Contingencies .
As a result, the cost of borrowings increased from a base rate of 8.36% and 1.56%, to an effective rate of 8.37% and 2.13% for the year ended December 31, 2023 and 2022, respectively. 43 Table of Contents 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.
As a result, the cost of borrowings increased from a base rate of 6.25% and 8.36%, to an effective rate of 6.53% and 8.37% for the year ended December 31, 2024 and 2023, respectively. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 47 Table of Contents 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.
(2) Includes $1.1 billion, $497.0 million, and $209.8 million of revolving lines of credit collateralized primarily by mortgage servicing rights as of December 31, 2023, 2022, and 2021, respectively. (3) Includes only $8.4 million, $12.8 million, and $13.9 million of non-owner occupied commercial real estate as of December 31, 2023, 2022, and 2021, respectively.
(2) Includes $908.9 million, $1.1 billion, and $497.0 million of revolving lines of credit collateralized primarily by mortgage servicing rights as of December 31, 2024, 2023, and 2022, respectively. (3) Includes only $18.7 million, $8.4 million, and $12.8 million of non-owner occupied commercial real estate as of December 31, 2024, 2023, and 2022, respectively.
The average yield on securities held to maturity increased 192 basis points, to 6.38 % for the year ended December 31, 2023, compared to 4.46% for the year ended December 31, 2022. The increase in average balance of securities held to maturity was primarily related to held to maturity securities acquired as part of loan securitizations that the Company originated.
The average yield on securities held to maturity increased 35 basis points, to 6.73 % for the year ended December 31, 2024, compared to 6.38% for the year ended December 31, 2023. The increase in average balance of securities held to maturity was primarily related to held to maturity securities acquired as part of loan securitizations that the Company originated.
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 $(3.3) billion and $(2.9) billion for the years ended December 31, 2023 and 2022, 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 $(874.3) million and $(3.3) billion for the years ended December 31, 2024 and 2023, respectively.
Many of these loans are bridge loans housed in our banking segment while borrowers await conversion to permanent financing. The volume of bridge loans was $3.0 billion, a decrease of $3.0 billion, or 49%, compared to $6.0 billion for the year ended December 31, 2022.
Many of these loans are bridge loans housed in our Banking segment while borrowers await conversion to permanent financing. The volume of bridge loans was $1.9 billion, a decrease of $1.1 billion, or 36%, compared to $3.0 billion for the year ended December 31, 2023.
Loan servicing fees reflected a positive fair market value adjustment of $3.9 million on servicing rights for the year ended December 31, 2023 compared to a positive fair market value adjustment of $14.0 million for the year ended December 31, 2022.
Loan servicing fees reflected a positive fair market value adjustment of $20.5 million on servicing rights for the year ended December 31, 2024 compared to a positive fair market value adjustment of $3.9 million for the year ended December 31, 2023.
Total assets in the Banking segment increased 23%, to $11.8 billion at December 31, 2023, compared to $9.6 billion at December 31, 2022. See “Our Business Segments,” in Item 1 “Business”, and Note 26: Segment Information, for further information about our segments.
Total assets in the Banking segment remain unchanged at $11.8 billion at December 31, 2024, compared to December 31, 2023. See “Our Business Segments,” in Item 1 “Business”, and Note 23: Segment Information, for further information about our segments.
Loan servicing fees included a $4.6 million positive adjustment to the fair value of servicing rights for the year ended December 31, 2023, compared to a $19.8 million positive adjustment to the fair value of servicing rights for the year ended December 31, 2022.
Loan servicing fees included a $22.7 million positive adjustment to the fair value of servicing rights for the year ended December 31, 2024, compared to a $4.6 million positive adjustment to the fair value of servicing rights for the year ended December 31, 2023.
The average yield on loans increased 288 basis points, to 7.73% for the year ended December 31, 2023, compared to 4.85% for the year ended December 31, 2022.
The average yield on loans increased 12 basis points, to 7.85% for the year ended December 31, 2024, compared to 7.73% for the year ended December 31, 2023.
Accordingly, we have completed several loan sale and securitization transactions. In doing so, the Company has been able to effectively reduce its risk-weighted assets and maintain well-capitalized capital ratios. Also see Note 5: Loans and Allowance for Credit Losses on Loans. ​ General and Administrative Expenses.
In doing so, the Company has been able to effectively reduce its risk-weighted assets and maintain well-capitalized capital ratios. Also see Note 5: Loans and Allowance for Credit Losses on Loans. ​ General and Administrative Expenses.
The Company may redeem the Series D Preferred Stock, in whole or in part, at our 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.
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 64 Table of Contents the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption.
The increase in average balances of securities available for sale was primarily associated with the acquisition of certain securities from a warehouse customer that provide protective put options and interest rate floor derivatives to prevent losses in value. Interest income of $11.6 million on interest-earning deposits and other increased $7.6 million, or 187%, during 2023.
The increase in average balances of securities available for sale was primarily associated with the acquisition of certain securities from a warehouse customer that provide protective put options and interest rate floor derivatives to prevent losses in value. Interest income of $27.3 million on interest-earning deposits and other interest or dividends increased $13.5 million, or 97%, during 2024.
This compared to the 29% industry decrease in single-family residential loan volumes from the year ended December 31, 2023 to the same period in 2022, 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 $6.2 billion, a decrease of $2.7 billion, or 30%, compared to $8.9 billion for the year ended December 31, 2022.
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. ● The total volume of loans originated and acquired through our multi-family business was $6.2 billion and unchanged compared to the year ended December 31, 2023.
These variables change from quarter to quarter as market conditions and projected interest rates change and may have an adverse impact on the value of the mortgage-servicing right and may result in a reduction to noninterest income. Fair Value Measurements.
We review the reasonableness of the assumptions and the methodology to ensure the estimated fair value complies with GAAP. These variables change from quarter to quarter as market conditions and projected interest rates change and may have an adverse impact on the value of the mortgage-servicing right and may result in a reduction to noninterest income. Fair Value Measurements.
The average yield of money market accounts was 4.51% for the year ended December 31, 2023, which was a 267 basis point increase compared to 1.84% for year ended December 31, 2022.
The average yield of money market accounts was 4.71% for the year ended December 31, 2024, which was a 20 basis point increase compared to 4.51% for year ended December 31, 2023.
We manage our asset levels based upon forecasted closings or fundings within our business segments to ensure we have the necessary liquidity and capital to meet the required regulatory capital ratios.
Financial Condition The primary factors we use to evaluate and manage our financial condition are asset levels, liquidity, capital and asset quality. Asset Levels. We manage our asset levels based upon forecasted closings or fundings within our business segments to ensure we have the necessary liquidity and capital to meet the required regulatory capital ratios.
The aggregate gross offering proceeds for the shares issued by the Company was $150.0 million, and after deducting underwriting discounts and commissions and offering expenses of approximately $5.1 million paid to third parties, the Company received total net proceeds of $144.9 million.
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 average yield of interest-bearing checking accounts was 4.59% for the year ended December 31, 2023, which was a 293 basis point increase compared to 1.66% for year ended December 31, 2022. Interest expense of $126.4 million for money market accounts increased $77.6 million during 2023.
The average yield of interest-bearing checking accounts was 4.60% for the year ended December 31, 2024, which was a 1 basis point increase compared to 4.59% for year ended December 31, 2023. Interest expense of $134.0 million for money market accounts increased $7.6 million during 2024.
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.
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.
The volume of loans originated and acquired for sale in the secondary market increased by $162.4 million, or 9%, to $2.0 billion, compared to $1.8 billion for the year ended December 31, 2022. ​ Total assets in the Multi-family segment increased 17%, to $411.1 million at December 31, 2023, compared to $351.3 million at December 31, 2022. Mortgage Warehousing.
The volume of loans originated and acquired for sale in the secondary market increase by $562.8 million, or 29%, to $2.5 billion, compared to $2.0 billion for the year ended December 31, 2023. ​ Total assets in the Multi-family segment increased 17%, to $479.1 million at December 31, 2024, compared to $411.1 million at December 31, 2023. Mortgage Warehousing.
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 higher than industry shareholder return. ​ See “Company Overview and Our Business Segments,” in Item 1 “ Business ”, “Operating Segment Analysis for the Years Ended December 31, 2023 and 2022” in Item 7 “Management’s Discussion and Analysis of Financial Condition and the Results of Operations”, and “Segment Information,” in Note 26: Segment Information for further information about our segments. 38 Table of Contents Primary Factors We Use to Evaluate Our Business As a financial institution, we manage and evaluate various aspects of both our results of operations and our financial condition.
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 higher than industry shareholder return. ​ See “Company Overview and Our Business Segments,” in Item 1 “ Business ”, “Operating Segment Analysis for the Years Ended December 31, 2024 and 2023” in Item 7 “Management’s Discussion and Analysis of Financial Condition and the Results of Operations”, and “Segment Information,” in Note 23: Segment Information for further information about our segments.
Noninterest expense includes, among other things: (a) salaries and employee benefits, including commissions; (b) loan origination and servicing expenses; (c) occupancy and equipment expense; (d) professional fees; (e) FDIC insurance expense; (f) technology expense; and (g) other general and administrative expenses. Salaries and employee benefits includes commissions, other compensation, employee benefits and employer tax expenses for our personnel.
Noninterest expense includes, among other things: (a) salaries and employee benefits, including commissions; (b) loan origination and servicing expenses; (c) occupancy and equipment expense; (d) professional fees; (e) FDIC insurance expense; (f) technology expense; (g) credit risk transfer premium expense; and (h) other general and administrative expenses.
The following table sets forth certain information regarding our borrowings at the dates and for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or For the Years ​ ​ Ended ​ ​ December 31, (Dollars in thousands) 2023 2022 2021 ​ ​ ​ Balance at end of period ​ $ 964,127 ​ $ 930,392 ​ $ 1,033,954 ​ Average balance during period ​ 627,516 ​ 594,423 ​ 657,573 ​ Maximum outstanding at any month end ​ 1,654,075 ​ 1,440,904 ​ 1,103,443 ​ Weighted average interest rate at end of period (1) ​ 7.51 % 4.06 % 0.27 % Average interest rate during period ​ 8.37 % 2.13 % 0.86 % (1) The weighted-average interest rate at the end of the period reflects the stated interest rates on the borrowings.
The following table sets forth certain information regarding our borrowings at the dates and for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ At or For the Years ​ ​ Ended ​ ​ December 31, (Dollars in thousands) 2024 2023 2022 ​ ​ ​ Balance at end of period ​ $ 4,386,122 ​ $ 964,127 ​ $ 930,392 ​ Average balance during period ​ 1,833,722 ​ 627,516 ​ 594,423 ​ Maximum outstanding at any month end ​ 4,386,122 ​ 1,654,075 ​ 1,440,904 ​ Weighted average interest rate at end of period (1) ​ 4.82 % 7.51 % 4.06 % Average interest rate during period ​ 6.53 % 8.37 % 2.13 % (1) The weighted-average interest rate at the end of the period reflects the stated interest rates on the borrowings. ​ 62 Table of Contents Other Liabilities.
The 41% increase reflected a $597.0 million, or 124%, increase in interest income from higher yields and average balances on loans and loans held for sale, as well as higher average balances of securities held to maturity.
The 17% increase reflected a $224.9 million, or 21% increase in interest income from higher average balances and yields on loans and loans held for sale, and higher average balances of securities held to maturity, as well as higher yields and average balances on securities available for sale.
Critical Accounting Policies and Estimates The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America.
Critical Accounting Policies and Estimates The discussion and analysis of the financial condition and results of operations are based on our financial statements, which are prepared in conformity with GAAP.
The average balance of certificates of deposit of $4.6 billion for the year ended December 31, 2023 increased $3.0 billion, or 194%, compared to $1.6 billion for the year ended December 31, 2022.
The average balance of certificates of deposit of $5.3 billion for the year ended December 31, 2024 increased $751.0 million, or 16%, compared to $4.6 billion for the year ended December 31, 2023.
The average balance of money market accounts of $2.8 billion for the year ended December 31, 2023 increased $153.8 million, or 6%, compared to $2.7 billion for the year ended December 31, 2022.
The average balance of money market accounts of $2.8 billion for the year ended December 31, 2024 increased $40.4 million, or 1%, compared to the year ended December 31, 2023.
On September 27, 2022, the Company issued 5,200,000 depositary shares, each representing a 1/40 th interest in a share of its 8.25% Fixed Rate Reset Series D Non-Cumulative Perpetual Preferred Stock, without par value (the “Series D Preferred Stock”), and with a liquidation preference of $1,000.00 per share (equivalent to $25.00 per depositary share).
On November 25, 2024, the Company issued 9,200,000 depositary shares, each representing a 1/40 th 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).
Net interest income of $448.1 million for the year ended December 31, 2023 increased $129.5 million, or 41%, compared to $318.6 million for the year ended December 31, 2022.
Net interest income of $522.6 million for the year ended December 31, 2024 increased $74.5 million, or 17%, compared to $448.1 million for the year ended December 31, 2023.
We manage the diversification and quality of our assets based upon factors that include: (a) the level, distribution, severity and trend of problem, classified, delinquent, nonaccrual, nonperforming and restructured assets; (b) the adequacy of our allowance for credit losses on loans (“ACL-Loans”); (c) the diversification and quality of loan and investment portfolios; (d) the extent of counterparty risks; (e) credit risk concentrations; (f) the liquidity of our assets; and (g) other factors.
We manage the diversification and quality of our assets based upon factors that include: (a) the level, distribution, severity and trend of problem, classified, delinquent, nonaccrual, nonperforming and restructured assets; (b) the adequacy of our ACL-Loans; (c) the diversification and quality of loan and investment portfolios; (d) the extent of counterparty risks; (e) credit risk concentrations; (f) the liquidity of our assets; and (g) other factors. 43 Table of Contents Recent Developments and Material Trends Economic and Interest Rate Environment.
The average balance of interest-bearing checking accounts of $4.7 billion for the year ended December 31, 2023 increased $567.4 million, or 14%, compared to $4.1 billion for the year ended December 31, 2022.
The average balance of interest-bearing checking accounts of $5.2 billion for the year ended December 31, 2024 increased $505.2 million, or 11%, compared to $4.7 billion for the year ended December 31, 2023.
Supporting this expectation are industry forecasts from the Mortgage Bankers Association, which has forecasted a 22% increase in single-family residential mortgage volume, to $2.001 trillion for 2024, from $1.639 trillion in 2023, and an increase of 17%, to $2.339 trillion in 2025, followed by an increase to $2.436 trillion for 2026.
Supporting this expectation are industry forecasts from the Mortgage Bankers Association, which has forecasted a 16% increase in single-family residential mortgage volume, to $2.055 trillion for 2025, from $1.779 trillion in 2024, and an increase of 15%, to $2.369 trillion in 2026, followed by an increase to $2.455 trillion for 2027.
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 44 Table of Contents multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume.
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).
On March 23, 2021, the Company issued 6,000,000 depositary shares, each representing a 1/40 th interest in a share of its 6.00% Fixed Rate Series C Non-Cumulative Perpetual Preferred Stock, without par value (the “Series C Preferred Stock”), and with a liquidation preference of $1,000.00 per share (equivalent to $25.00 per depositary share).
On November 25, 2024, the Company issued 9,200,000 depositary shares, each representing a 1/40 th 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).
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 a growing portfolio of multi-family loans. ​ Loans Receivable, Net.
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 a growing contribution of multi-family loans that are expected to be sold or securitized within the next year. ​ 55 Table of Contents Loans Receivable, Net.
Total assets also included $110.6 million of mortgage loans in process of securitization that represent pre-sold multi-family rental real estate loan originations in primarily Fannie Mae, Freddie Mac, or Ginnie Mae mortgage backed securities pending settlements that typically occur within 30 days.
Additionally, we had $476.6 million of cash and cash equivalents, $428.2 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.
Comparison of Operating Results for the Years Ended December 31, 2023 and 2022 General. Net income of $279.2 million for the year ended December 31, 2023 increased by $59.5 million, or 27%, compared to net income of $219.7 million for the year ended December 31, 2022.
Comparison of Operating Results for the Years Ended December 31, 2024 and 2023 General. Net income of $320.4 million for the year ended December 31, 2024 increased by $41.2 million, or 15%, compared to net income of $279.2 million for the year ended December 31, 2023.
Other liabilities of $205.9 million at December 31, 2023 increased $71.8 million, or 54%, compared to $134.1 million at December 31, 2022. The 54% increase in other liabilities was primarily due to interest payable, unfunded commitments for low-income housing credit investments, and a change in the valuation for back-to-back swap derivatives. ​ Total Shareholders’ Equity.
Other liabilities of $231.0 million at December 31, 2024 increased $25.1 million, or 12%, compared to $205.9 million at December 31, 2023. The 12% increase in other liabilities was primarily unfunded commitments for low-income housing credit investments partially offset by a change in the valuation for back-to-back swap derivatives. ​ Total Shareholders’ Equity.
Servicing rights at December 31, 2023 were $158.5 million based on the fair value of the loan servicing, which includes Ginnie Mae multi-family servicing rights with 10-year call protection.
Servicing rights at December 31, 2024 were $189.9 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 December 31, 2024 and 2023 Total Assets.
Interest income of $959.7 million for loans and loans held for sale increased $507.7 million, or 112%, during 2023. The average balance of loans, including loans held for sale, during the year ended December 31, 2023 increased $3.1 billion, or 33%, to $12.4 billion compared to $9.3 billion for the year ended December 31, 2022.
Interest income of $1.1 billion for loans and loans held for sale increased $153.7 million, or 16%, during 2024. The average balance of loans, including loans held for sale, during the year ended December 31, 2024 increased $1.8 billion, or 14%, to $14.2 billion compared to $12.4 billion for the year ended December 31, 2023.
Related asset management fees for syndicated low-income housing tax credit or debt funds are recognized over time. Other noninterest income includes the recognition and changes in value to protective derivatives associated with certain investment securities. Noninterest expense.
Related asset management fees for syndicated LIHTC or debt funds are recognized over time. Other noninterest income includes the recognition and changes in value to protective derivatives associated with certain investment securities, as well as income earned on joint ventures. 42 Table of Contents Noninterest expense.
The higher ACL-Loans reflected increases associated with loan growth, changes in qualitative loss factors, and specific reserves. Additional details are provided in the ACL-Loans portion of the Comparison of Financial Condition at December 31, 2023 and 2022, and in Note 1: Nature of Operations and Significant Accounting Policies and Note 5: Loans and Allowance for Credit Losses. Noninterest Income.
Additional details are provided in the ACL-Loans portion of the Comparison of Financial Condition at December 31, 2024 and 2023, and in Note 1: Nature of Operations and Significant Accounting Policies and Note 5: Loans and Allowance for Credit Losses. Noninterest Income.
Also influencing the overall level of the ACL-Loans is our differentiated strategy to typically hold loans with shorter durations and to maintain strict underwriting standards that enable us to sell the majority of our loans to government agencies. Premises and Equipment, Net.
Also influencing the overall level of the ACL-Loans is our differentiated strategy to typically hold loans with shorter durations while maintaining agency underwriting standards that enable us to sell or refinance the majority of our loans under agency and government programs.
The following table shows our allocation of loans held for investment as of the dates presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023 ​ December 31, 2022 ​ December 31, 2021 ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ ​ % of (Dollars in thousands) Amount Total Amount Total Amount Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage warehouse repurchase agreements ​ $ 752,468 7 % $ 464,785 6 % $ 781,437 14 % Residential real estate (1) ​ 1,324,305 13 % 1,178,401 16 % 843,101 15 % Multi-family financing ​ 4,006,160 40 % 3,135,535 43 % 2,702,042 46 % Healthcare financing ​ ​ 2,356,689 ​ 23 % ​ 1,604,341 ​ 21 % ​ 826,157 ​ 14 ​ Commercial and commercial real estate (2)(3) ​ 1,643,081 16 % 978,661 13 % 520,199 9 % Agricultural production and real estate ​ 103,150 1 % 95,651 1 % 97,060 2 % Consumer and margin ​ 13,700 — ​ 13,498 — % 12,667 — % Total ​ 10,199,553 ​ 7,470,872 ​ 5,782,663 ​ Allowance for credit losses ​ (71,752) ​ (44,014) ​ (31,344) ​ Total loans held for investment, net ​ $ 10,127,801 100 % $ 7,426,858 100 % $ 5,751,319 100 % (1) Includes $1.2 billion, $1.1 billion, and $749.5 million of All-in-One© first-lien home equity lines of credit at December 31, 2023, 2022, and 2021, respectively.
The following table shows our allocation of loans receivable as of the dates presented: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2024 ​ December 31, 2023 ​ December 31, 2022 ​ ​ ​ ​ % of ​ ​ ​ % of ​ ​ ​ % of (Dollars in thousands) Amount Total Amount Total Amount Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Mortgage warehouse repurchase agreements ​ $ 1,446,068 14 % $ 752,468 7 % $ 464,785 6 % Residential real estate (1) ​ 1,322,853 13 % 1,324,305 13 % 1,178,401 16 % Multi-family financing ​ 4,624,299 44 % 4,006,160 40 % 3,135,535 43 % Healthcare financing ​ ​ 1,484,483 ​ 14 % ​ 2,356,689 ​ 23 % ​ 1,604,341 ​ 21 % Commercial and commercial real estate (2)(3) ​ 1,476,211 14 % 1,643,081 16 % 978,661 13 % Agricultural production and real estate ​ 77,631 1 % 103,150 1 % 95,651 1 % Consumer and margin ​ 6,843 — % 13,700 — % 13,498 — % Loans receivable ​ 10,438,388 ​ 10,199,553 ​ 7,470,872 ​ ACL-Loans ​ (84,386) ​ (71,752) ​ (44,014) ​ Loans receivable, net ​ $ 10,354,002 100 % $ 10,127,801 100 % $ 7,426,858 100 % (1) Includes $1.2 billion, $1.2 billion, and $1.1 billion of All-in-One© first-lien home equity lines of credit at December 31, 2024, 2023, and 2022, respectively.
(2) Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities. (3) Represents net interest income (annualized) divided by total average earning assets.
(2) Represents the average rate earned on interest-earning assets minus the average rate paid on interest-bearing liabilities.
The $2.5 million of AOCL losses as of December 31, 2023 represented less than 1% of total equity and less than 1% of total securities available for sale. Securities Held to Maturity. Held to maturity securities of $1.2 billion at December 31, 2023 increased 8% compared to $1.1 billion at December 31, 2022.
As of December 31, 2024, AOCL of $0.1 million, related to securities available for sale, decreased $2.4 million, or 95%, compared to accumulated losses of $2.5 million at December 31, 2023. The $0.1 million of AOCL as of December 31, 2024 represented less than 1% of total equity or total securities available for sale. Securities Held to Maturity.
Servicing rights of $158.5 million at December 31, 2023 increased $12.2 million, or 8%, compared to December 31, 2022. During the year ended December 31, 2023, originated and purchased servicing of $15.3 million and a positive fair market value adjustment of $4.6 million were partially offset by paydowns of $7.6 million.
Servicing rights of $189.9 million at December 31, 2024 increased $31.5 million, or 20%, compared to December 31, 2023. During the year ended December 31, 2024, originated servicing of $18.7 million and a positive fair market value adjustment of $22.7 million were partially offset by paydowns of $9.9 million.
The interest rate spread of 2.51% for the year ended December 31, 2023, decreased 21 basis points compared to 2.72% for the year ended December 31, 2022. Our net interest margin increased nine basis points, to 3.06%, for the year ended December 31, 2023 from 2.97% for the year ended December 31, 2022. Interest Income.
The interest rate spread of 2.47% for the year ended December 31, 2024, decreased 4 basis points compared to 2.51% for the year ended December 31, 2023. Our net interest margin decreased 3 basis points, to 3.03%, for the year ended December 31, 2024 from 3.06% for the year ended December 31, 2023. 45 Table of Contents Interest Income.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

12 edited+2 added−1 removed4 unchanged
Biggest changeOur Asset-Liability Committee, or ALCO, is a management committee that manages our interest rate risk within broad 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.
Biggest changeIn 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.
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 December 31, 2023 projects that as interest rates increase (decrease) immediately, the economic value of equity position will be expected to decrease (increase).
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 December 31, 2024 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. ​ 66 Table of Contents
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. ​ 70 Table of Contents
At the years ended December 31, 2023, 2022, and 2021 we are within policy limits set by our board of directors for the −200, −100, +100, and +200 basis point scenarios. ​ ​ ​ ​ ​ ​ ​ 65 Table of Contents The EVE results for Merchants Bank included in the following table reflect the analysis used quarterly by management.
At the years ended December 31, 2024, 2023, and 2022 we are within policy limits set by our board of directors for the −200, −100, +100, and +200 basis point scenarios. ​ 69 Table of Contents 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) December 31, 2023: ​ ​ ​ ​ ​ Dollar change $ 180,864 ​ $ 92,793 ​ $ (34,800) ​ $ (79,455) ​ Percent change 10.8 % 5.5 % (2.1) % (4.7) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022: ​ ​ ​ ​ Dollar change $ 22,855 ​ $ 11,640 ​ $ (10,925) ​ $ (26,385) ​ Percent change 1.6 % 0.8 % (0.8) % (1.9) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021: ​ ​ ​ ​ Dollar change $ 3,703 ​ $ 42,983 ​ $ (6,817) ​ $ (6,288) ​ Percent change 0.3 % 4.0 % (0.6) % (0.6) % ​ Our interest rate risk management policy limits 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.
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) December 31, 2024: ​ ​ ​ ​ ​ Dollar change $ 12,188 ​ $ 14,762 ​ $ (1,118) ​ $ (2,990) ​ Percent change 0.6 % 0.7 % (0.1) % (0.1) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023: ​ ​ ​ ​ Dollar change $ 180,864 ​ $ 92,793 ​ $ (34,800) ​ $ (79,455) ​ Percent change 10.8 % 5.5 % (2.1) % (4.7) % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022: ​ ​ ​ ​ Dollar change $ 22,855 ​ $ 11,640 ​ $ (10,925) ​ $ (26,385) ​ Percent change 1.6 % 0.8 % (0.8) % (1.9) % ​ 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.
The following table presents NII at Risk for Merchants Bank as of December 31, 2023, 2022, and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income Sensitivity ​ Twelve Months Forward ​ - 200 - 100 + 100 + 200 ​ (Dollars in thousands) December 31, 2023: ​ ​ ​ ​ ​ Dollar change $ (73,311) ​ $ (36,576) ​ $ 29,601 ​ $ 57,294 ​ Percent change (15.0) % (7.5) % 6.0 % 11.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022: ​ ​ ​ ​ Dollar change $ (96,861) ​ $ (48,581) ​ $ 37,232 ​ $ 74,094 ​ Percent change (23.8) % (11.9) % 9.2 % 18.2 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021: ​ ​ ​ ​ Dollar change $ (13,810) ​ $ (17,991) ​ $ 21,895 ​ $ 65,010 ​ Percent change (4.9) % (6.3) % 7.7 % 22.9 % ​ Our interest rate risk management policy limits 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.
The following table presents NII at Risk for Merchants Bank as of December 31, 2024, 2023, and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Interest Income Sensitivity ​ Twelve Months Forward ​ - 200 - 100 + 100 + 200 ​ (Dollars in thousands) December 31, 2024: ​ ​ ​ ​ ​ Dollar change $ (63,859) ​ $ (34,202) ​ $ 34,088 ​ $ 68,263 ​ Percent change (12.2) % (6.5) % 6.5 % 13.1 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2023: ​ ​ ​ ​ Dollar change $ (73,311) ​ $ (36,576) ​ $ 29,601 ​ $ 57,294 ​ Percent change (15.0) % (7.5) % 6.0 % 11.7 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022: ​ ​ ​ ​ Dollar change $ (96,861) ​ $ (48,581) ​ $ 37,232 ​ $ 74,094 ​ Percent change (23.8) % (11.9) % 9.2 % 18.2 % ​ ​ 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.
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.
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.
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.
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”).
Treasuries or SOFR. Our business consists primarily of funding fixed rate, 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.
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.
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. 64 Table of Contents 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.
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.
Our ALCO meets quarterly to monitor the level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits. Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
Additionally, the Risk Committee of our Board meets quarterly, in conjunction with Board meetings, to assess risks associated with interest rate sensitivity. 68 Table of Contents Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities.
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.
Under NII at Risk, net interest income is modeled utilizing various assumptions for assets, 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.
Removed
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, liabilities, and derivatives and excludes non-interest income.
Added
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.
Added
Interest rate risk measurement is calculated and reported to the ALCO at least quarterly.

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