Merchants Bancorp Profit Doubles as Credit Losses Recede
Merchants Bancorp posted net income of $78.3 million in the second quarter, up 106% from a year earlier as provisions for credit losses fell 83%.
Merchants Bancorp (MBIN) reported second-quarter net income of $78.3 million, more than double the $38.0 million it earned a year earlier and up 16% from the first quarter's $67.7 million. Diluted earnings per share rose to $1.48, up 147% from $0.60 a year ago and 18% from $1.25 in the prior quarter.
The jump traced largely to credit costs. Provision for credit losses fell to $9.2 million from $53.0 million a year earlier, an 83% decline, and dropped 40% from $15.3 million in the first quarter, as asset quality across the loan book improved. Criticized loans fell for a fifth consecutive quarter to $444.7 million, down 12% from both the prior quarter and year-end 2023 and the lowest level since mid-2024, while nonperforming loans dropped 17% quarter over quarter to $205.6 million, or 1.67% of loans receivable. Charge-offs of $16.5 million came in well below the $46.1 million recorded a year earlier, though about 95% of the quarter's charge-offs traced to two multi-family loan relationships.
The Fort Wayne, Indiana-based bank holding company grew total assets to $21.2 billion, a fifth consecutive quarterly record, up 4% from the first quarter and 9% since year-end 2023, driven by expansion in multi-family and warehouse lending and MSR-collateralized revolving lines. Deposits kept pace, rising 10% quarter over quarter to $14.3 billion, with core deposits up 7% to $13.0 billion. Core deposits slipped to 91% of the total from 93% at March 31, even as they climbed from 87% at year-end 2023, as brokered deposits swung 46% higher for the quarter to $1.3 billion.
Net interest margin compressed to 2.81%, down 11 basis points from the first quarter's 2.92% and 2 basis points from a year earlier, due to a mix shift toward lower-yielding loans held for sale and warehouse lending and away from higher-yielding multi-family and healthcare loans. The interest rate spread widened 10 basis points from a year ago to 2.43% but narrowed 7 basis points from the first quarter.
Noninterest income fell 10% from a year earlier to $45.7 million as gain-on-sale of loans dropped 44%, a $10.2 million decline, partly offset by a 95% jump in loan servicing fees. Sequentially, income slipped 2% as loan servicing fees fell 21%, cushioned by a 122% rise in syndication and asset management fees. Noninterest expense fell 5% from a year earlier on lower salaries and bonuses and 3% from the first quarter on reduced deposit insurance costs tied to the improved asset quality, pushing the efficiency ratio to 40.20% from 43.16% in both comparison periods.
Tangible book value per share reached a 30th consecutive quarterly record of $39.93, up 4% from the first quarter and 13% from a year earlier, and return on average tangible common equity climbed to 14.95%, up 194 basis points sequentially and 820 basis points year over year. The company's total capital ratio slipped to 12.5% from 12.8% at March 31 and 13.4% a year ago, as risk-weighted assets grew faster than capital dollars.
Merchants also expanded its credit-risk-transfer program, executing its first credit default swap in June referencing a $169.9 million pool of multi-family mortgage loans. The company's total CDS-protected loan balance reached $2.2 billion, covering 6% of criticized loans and 10% of delinquent loans.