Merchants Bancorp: Form 10-Q for the period ended Jun 30, 2026

Management’s discussion and analysis of the financial condition at June 30, 2026 and results of operations for the three and six months ended June 30, 2026 and 2025, is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto, appearing in Part I, Item 1 of this Form 10-Q.

The words “the Company,” “we,” “our” and “us” refer to Merchants Bancorp and its consolidated subsidiaries, unless we indicate otherwise.

Financial Highlights for the Three Months Ended June 30, 2026

• Net income of $78.3 million increased $40.3 million, or 106%, compared to the three months ended June 30, 2025.
• Diluted earnings per share of $1.48 increased 147% compared to the three months ended June 30, 2025.
• Total assets of $21.2 billion increased 4% compared to March 31, 2026 and $1.8 billion, or 9%, from December 31, 2025.
• Tangible book value per common share of $39.93 increased 13% compared to $35.42 for the three months ended June 30, 2025. See Non-GAAP Financial Measures section at the end of Item 2.
• Asset quality improved meaningfully, as criticized loans receivable of $444.7 million decreased $63.5 million, or 12%, from December 31, 2025.
• The provision for credit losses of $9.2 million decreased 83% compared to the three months ended June 30, 2025 and decreased 40% compared to the three months ended March 31, 2026.
• Capital ratios remained strong, with a total capital ratio of 12.5%, reflecting the Company’s continued emphasis on financial strength and balance sheet resilience.
• Liquidity remained strong at $13.0 billion, or 61% of total assets, supported by $5.5 billion of unused borrowing capacity with the Federal Home Loan Bank and Federal Reserve Discount Window and a diversified mix of highly liquid assets, including cash and cash equivalents, short-term investments, mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit.
• Loans receivable, net of allowance for credit losses, totaled $12.3 billion, increasing $862.9 million, or 8%, from March 31, 2026, and increased $1.3 billion, or 12%, from December 31, 2025.
• Core deposits of $13.0 billion increased $891.3 million, or 7%, from March 31, 2026, and $1.7 billion, or 15%, from December 31, 2025. Core deposits now represent 91% of total deposits.
• Brokered deposits of $1.3 billion increased $411.3 million, or 46%, compared to March 31, 2026, and decreased $459.5 million, or 26%, compared to December 31, 2025.
• As of June 30, 2026, approximately 97% of loans reprice within three months, which reduces the risk of market rate increases.
• Net interest margin was 2.81% compared to 2.83% for the three months ended June 30, 2025.
• Efficiency ratio was 40.20% compared to 43.16% for the three months ended June 30, 2025.
• The Company executed a credit default swap on a $169.9 million pool of multi-family mortgage loans in June 2026, providing credit protection for the loan pool and reducing risk-based capital requirements.
• The volume of warehouse loans funded during the three months ended June 30, 2026 amounted to $22.9 billion, an increase of $6.6 billion, or 41%, compared to the three months ended June 30, 2025. This compared to the 10% industry increase in single-family residential loan volumes for the three months ended June 30, 2026 compared to the same period in 2025, 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 $1.5 billion, an increase of $99.8 million, or 7%, compared to $1.4 billion for the three months ended June 30, 2025. It included construction loans coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment, while borrowers awaited conversion to permanent financing. It also included loans originated and acquired for sale in the secondary market.

Business Overview

We are a diversified bank holding company headquartered in Carmel, Indiana and registered under the Bank Holding Company Act of 1956, as amended. 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, jumbo lending, agricultural lending, SBA lending, and traditional community banking.

Our business consists of funding 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. The gain on sale of these loans and servicing fees contribute to noninterest income. The funding source is primarily from mortgage custodial, retail, commercial, brokered deposits and short-term borrowings. We believe that the combination of net interest income and noninterest income from the sale of low risk profile assets has traditionally resulted in lower than industry charge-offs and a lower expense base, which serves to maximize net income and higher than industry shareholder return.

Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates are based upon historical experience and on various other assumptions that management believes are reasonable under the current circumstances. These estimates and assumptions form the basis for making judgments about the carrying value of certain assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The estimates and judgments that management believes have the most effect on its reported financial position and results of operations are set forth within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. There have been no significant changes in critical accounting policies or the assumptions and judgments utilized in applying these policies since those reported for the year ended December 31, 2025.

Financial Condition

As of June 30, 2026, we had approximately $21.2 billion in total assets, $14.3 billion in deposits, and $2.4 billion in total shareholders’ equity. Total assets as of June 30, 2026 included $12.3 billion of loans receivable, net of ACL-Loans, and $4.6 billion of loans held for sale. Assets also included $1.4 billion in securities held to maturity and $820.1 million in securities available for sale, the majority of which were acquired from a warehouse customer. Additionally, we had $407.4 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, as well as other assets of $751.0 million, which primarily related to low-income housing tax credits, and $314.7 million of cash and cash equivalents. Servicing rights at June 30, 2026 were $236.9 million based on the fair value of the loan servicing, which primarily includes Ginnie Mae multi-family servicing rights with 10-year call protection at origination.

Comparison of Financial Condition at June 30, 2026 and December 31, 2025

Total Assets. Total assets of $21.2 billion at June 30, 2026 increased $1.8 billion, or 9%, compared to $19.4 billion at December 31, 2025. The increase was due primarily to growth in loans and loans held for sale, specifically in the multi-family and warehouse portfolios, as well as revolving lines of credit collateralized by mortgage servicing rights that are included in the commercial and commercial real estate portfolio. Warehouse loans, including loans held for sale and loans receivable, are exclusively made up of loans to residential and multi-family mortgage bankers that are funding agency-eligible mortgages and commercial loans, which represent all of the Company’s loans to non-depository institutions.

Cash and Cash Equivalents. Cash and cash equivalents of $314.7 million at June 30, 2026 increased $102.5 million, or 48%, compared to $212.2 million at December 31, 2025. The increase was primarily to satisfy anticipated loan funding commitments.

Mortgage Loans in Process of Securitization. Mortgage loans in process of securitization of $407.4 million at June 30, 2026 decreased $212.7 million, or 34%, compared to $620.1 million at December 31, 2025. These represent loans that our banking subsidiary, Merchants Bank, has funded and are held in the loan portfolio pending settlement, as primarily Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities with a firm investor commitment to purchase the securities.

Securities Available for Sale. Securities available for sale of $820.1 million at June 30, 2026 decreased $45.0 million, or 5%, compared to $865.1 million at December 31, 2025. The decrease in securities available for sale was primarily due to $305.3 million in calls, maturities, repayments, and other adjustments, partially offset by purchases of $260.4 million during the period.

Included in securities available for sale were $527.7 million and $571.3 million of investments for which a fair value option was elected at June 30, 2026 and December 31, 2025, respectively. Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on the unaudited condensed consolidated balance sheets with changes in the fair value recognized in earnings as they occur.

As of June 30, 2026, AOCL of $1.2 million, related to securities available for sale increased $1.2 million from December 31, 2025. The $1.2 million of AOCL as of June 30, 2026 represented less than 0.15% of total equity and total securities available for sale, reflecting our interest rate risk policy of maintaining short duration on assets and liabilities.

Securities Held to Maturity. Securities held to maturity of $1.4 billion at June 30, 2026 decreased $188.8 million compared to $1.5 billion at December 31, 2025. The decrease was due to repayments, net of accretion.

Loans Held for Sale. Loans held for sale of $4.6 billion at June 30, 2026 increased $742.9 million, or 19%, compared to $3.9 billion at December 31, 2025. The increase in loans held for sale was due primarily to a significant increase in single-family warehouse participations, as we experienced higher volume. 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. Loans held for sale also includes single-family, SBA, and multi-family loans that are expected to be sold or securitized in the future.

Loans Receivable, Net. Loans receivable, net of ACL-Loans, of $12.3 billion at June 30, 2026, increased $1.3 billion, or 12%, compared to $11.0 billion at December 31, 2025. The increase in net loans was comprised primarily of:

• an increase of $567.9 million, or 35%, in mortgage warehouse repurchase agreements, which totaled $2.2 billion at June 30, 2026, reflecting higher loan volume from increased sales efforts.
• an increase of $522.8 million, or 10%, in multi-family financing loans, which totaled $5.9 billion at June 30, 2026, reflecting higher origination volume for construction and other loans generated through multi-family segment that will remain on our balance sheet until they convert to permanent financing or are otherwise paid off over an average of one to three years.
• an increase of $233.9 million, or 15%, in commercial and commercial real estate loans, which totaled $1.8 billion at June 30, 2026, was related to an increase in revolving lines of credit collateralized by mortgage servicing rights.

As of June 30, 2026, approximately 97% of total loans reprice within three months, which reduces the risk of market rate increases.

The Company is a nationwide lender, especially in our multi-family and healthcare financing portfolios.

The tables below provide loans receivable for multi-family and healthcare portfolios, including the five highest geographic concentrations.

(In thousands)

(In thousands)

(1) No state included in the “Other states” group has an individual percentage more than the next highest concentration percentage for the specific portfolio of loans.

Merchants Bancorp

(In thousands)

(In thousands)

(1) No state included in the “Other states” group has an individual percentage more than the next highest concentration percentage for the specific portfolio of loans.

ACL-Loans. The ACL-Loans of $75.8 million at June 30, 2026 decreased $7.5 million, or 9%, compared to $83.3 million at December 31, 2025. The decrease compared to December 31, 2025 was driven by a $12.1 million decrease in specific reserves partially offset by a $4.6 million increase in the pooled loan reserve. For the six months ended June 30, 2026, $34.1 million of net charge-offs were partially offset by a $26.6 million in provision for credit losses on loans. Additional details are provided in the Asset Quality portion of the Comparison of Financial Condition at June 30, 2026 and December 31, 2025 and in Note 4: Loans and Allowance for Credit Losses on Loans.

Goodwill. Goodwill of $8.0 million at June 30, 2026 was unchanged compared to December 31, 2025.

Servicing Rights. Servicing rights of $236.9 million at June 30, 2026 increased $19.7 million, or 9%, compared to December 31, 2025. During the six months ended June 30, 2026, a positive fair market value adjustment of $15.0 million and originated or purchased servicing of $9.9 million were partially offset by paydowns of $5.2 million. The $15.0 million positive fair market value adjustment reflected a positive adjustment of $12.0 million for multi-family and healthcare mortgages and a positive adjustment of $3.0 million for single-family mortgages and SBA loans during the six months ended June 30, 2026.

Servicing rights are recognized in connection with sales of loans when we retain servicing of the sold loans. The servicing rights are recorded and carried at fair value based on the expected future cash flows. The fair value increase recorded during the six months ended June 30, 2026 was driven by higher escrow earnings rates in the multi-family and healthcare servicing portfolios, which increased the expected cash flows from servicing activities. Lower prepayment assumptions in the single-family and healthcare portfolios also contributed to the higher servicing values. The value of servicing rights generally increases in rising 10-year interest rate environments and declines in falling interest rate environments due to expected prepayments and earning rates that are influenced by projected future interest rates on escrow deposits.

Other Real Estate Owned. Other real estate owned of $72.4 million at June 30, 2026 increased $12.2 million, or 20%, compared to December 31, 2025.

Other Assets and Receivables. Other assets and receivables of $751.0 million at June 30, 2026 increased $37.8 million, or 5%, compared to December 31, 2025. The increase was primarily due to an $11.8 million increase in LIHTC assets.

Deposits. Deposits of $14.3 billion at June 30, 2026 increased $1.2 billion, or 9%, compared to December 31, 2025. As of June 30, 2026, approximately 85% of the total deposits reprice within three months.

A summary of deposits as of June 30, 2026 and December 31, 2025 is below.

(In thousands)

Core deposits increased by $1.7 billion, or 15%, to $13.0 billion at June 30, 2026 compared to $11.3 billion at December 31, 2025. Core deposits represented 91% of total deposits at June 30, 2026 compared to 87% of total deposits at December 31, 2025.

We have decreased our use of total brokered deposits by $459.5 million, or 26%, to $1.3 billion at June 30, 2026 compared to $1.8 billion at December 31, 2025. Brokered deposits represented 9% of total deposits at June 30, 2026 compared to 13% of total deposits at December 31, 2025. As of June 30, 2026, brokered certificates of deposit had a weighted average remaining duration of 51 days.

Interest-bearing deposits at June 30, 2026 increased $1.2 billion, or 10%, to $13.6 billion compared to $12.4 billion at December 31, 2025, and noninterest-bearing deposits increased $2.6 million, to $606.7 million at June 30, 2026 compared to $604.1 million at December 31, 2025. The increase in interest-bearing deposits is primarily related to custodial account relationships.

Uninsured deposits totaled approximately $4.2 billion as of June 30, 2026, representing 29% of total deposits. 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 $1.4 billion as of June 30, 2026 and December 31, 2025.

Borrowings. Borrowings of $4.3 billion at June 30, 2026 increased $440.0 million, or 11%, compared to December 31, 2025. The higher level of collateralized borrowing was due to increased borrowings at FHLB. The Company primarily utilizes borrowing facilities from the FHLB, the Federal Reserve’s discount window, AFX, and Federal Funds, using the most cost-effective options available. See Note 10: Borrowings for further information.

The Company continues to have significant borrowing capacity based on available collateral. As of June 30, 2026, unused lines of credit totaled $5.5 billion, an increase of 4%, compared to $5.3 billion at December 31, 2025. The Company’s ratio of total collateralized borrowing capacity to total assets was 46% at June 30, 2026 compared to 47% at December 31, 2025.

Deferred and Current Tax Liabilities. Deferred and current tax liabilities at June 30, 2026 increased $16.2 million, or 48%, compared to $33.9 million at December 31, 2025. The increase is primarily due to growth in servicing assets and other derivative activity.

Other Liabilities. Other Liabilities of $249.1 million at June 30, 2026 decreased $1.4 million, or 1%, compared to $250.5 million at December 31, 2025. The decrease in other liabilities was primarily in accrued expenses.

Total Shareholders’ Equity. Total shareholders’ equity was $2.4 billion at June 30, 2026. The $113.0 million, or 5%, increase compared to December 31, 2025 resulted primarily from net income of $146.0 million for the six months ended June 30, 2026. The increase was partially offset by dividends paid on common and preferred shares of $30.6 million during the period, as well as repurchases of common stock totaling $2.2 million. See Note 13: Common Stock for more details on the common stock repurchases.

Asset Quality

Loans are generally underwritten to strict Freddie Mac, Fannie Mae, HUD, or other agency guidelines. We continually strive to strengthen our various levels of credit and risk management.

The ACL-Loans of $75.8 million, as of June 30, 2026, decreased by $7.5 million, or 9%, compared to $83.3 million as of December 31, 2025. The $7.5 million decrease compared to December 31, 2025 was driven by a $12.1 million decrease in specific reserves partially offset by a $4.6 million increase in the pooled loan reserve.

During the three months ended June 30, 2026, the Company recorded charge-offs across five relationships, primarily in the multi-family loan portfolio totaling $16.5 million and had $4.8 million of recoveries compared to $46.1 million of charge-offs and no recoveries for the three months ended June 30, 2025.

For the six months ended June 30, 2026, the Company recorded charge-offs totaling $39.5 million and had $5.4 million of recoveries compared to $56.6 million of charge-offs and $28,000 of recoveries for the six months ended June 30, 2025.

Overall criticized loans receivable of $444.7 million declined by $63.5 million, or 12%, compared to $508.2 million at December 31, 2025 and decreased $144.4 million, or 25%, compared to June 30, 2025. These declines are consistent with the Company’s expectation that migration to criticized status would stabilize and eventually subside, and workout efforts would yield an increase in resolutions. As of June 30, 2026, 6% of the criticized loans were covered by credit default swaps.

Loans receivable classified as Special Mention totaled $214.8 million at June 30, 2026, increased $9.9 million, or 5%, compared to $204.9 million at December 31, 2025, and increased $43.3 million, or 25%, compared to $171.5 million at June 30, 2025. Loans receivable classified as Substandard totaled $229.9 million at June 30, 2026, declining $73.3 million, or 24%, compared to December 31, 2025, and down $187.7 million, or 45%, from June 30, 2025.

As of June 30, 2026, all Substandard loans have been evaluated for impairment, and these loans have specific reserves of $3.9 million. The Company believes that the remaining loans are well collateralized.

Total nonperforming loans (nonaccrual and greater than 90 days late but still accruing) were $205.6 million, or 1.67%, of total loans receivable, at June 30, 2026, compared to $197.8 million, or 1.79%, at December 31, 2025 and $251.5 million, or 2.39%, at June 30, 2025.

Loans receivable greater than 30 days past due were $207.7 million at June 30, 2026, compared to $206.6 million at December 31, 2025, and $279.0 million at June 30, 2025. As of June 30, 2026, 10% of delinquent loans were covered by credit default swaps.

As a percentage of nonperforming loans, the ACL-Loans was 37% at June 30, 2026 compared to 42% at December 31, 2025 and 37% at June 30, 2025. The changes in percentage was primarily due to fluctuations in nonperforming loans.

The Company continues to reduce its credit risk through loan sales and securitization activities. Since 2024, the Company has strategically executed credit protection arrangements through credit default swaps to reduce potential loss exposure, with coverage ranging from 13-15% of the unpaid principal balances for each arrangement. As of June 30, 2026, the unpaid principal balances of loans protected by credit default swaps was $2.2 billion, compared to $2.8 billion as of December 31, 2025. Despite having credit protection on these loans, the Company is required to carry an allowance for credit losses on loans receivable. For additional information see Note 11: Derivative Financial Instruments and the Company’s 2025 Annual Report on Form 10–K.

The percentage of commercial real estate loans as a percentage of total Tier I risk-based capital, including the ACL-Loans, has declined from 324% to 301% from December 31, 2025 to June 30, 2026, respectively.

Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025

General. Net income of $78.3 million for the three months ended June 30, 2026 increased by $40.3 million, or 106%, compared to $38.0 million for the three months ended June 30, 2025. The increase was primarily driven by a $43.8 million, or 83%, decrease in the provision for credit losses, reflecting improved asset quality. The results were also favorably impacted by a $7.8 million increase in net interest income, and a $4.1 million decrease in noninterest expense, which were offset by a $10.6 million increase in the provision for income taxes, and a decrease of $4.8 million in noninterest income.

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. Yields have been calculated on a pre-tax basis. Nonaccrual loans are included in loans and loans held for sale.

(Dollars in thousands)

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates (rate). The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. 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). Yields have been calculated on a pre-tax basis.

The following table summarizes the increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates:

(In thousands)

Net Interest Income. Net interest income of $136.5 million for the three months ended June 30, 2026 increased $7.8 million, or 6%, compared with $128.7 million for the three months ended June 30, 2025. The increase reflected lower interest expense on certificates of deposit, partially offset by higher interest expense on interest-bearing checking accounts and lower interest income on securities held to maturity.

• The interest rate spread of 2.43% for the three months ended June 30, 2026 increased ten basis points compared to 2.33% for the three months ended June 30, 2025.
• Our net interest margin decreased two basis points, to 2.81% for the three months ended June 30, 2026 compared to 2.83% for the three months ended June 30, 2025.

Interest Income. Interest income of $294.1 million for the three months ended June 30, 2026 decreased $10.3 million, or 3%, compared with $304.4 million for the three months ended June 30, 2025. The decrease was primarily attributable to lower average balances and yields on securities held to maturity, as well as lower average yields on higher average balances on loans and loans held for sale.

Interest income of $18.1 million on securities held to maturity for the three months ended June 30, 2026, decreased $5.1 million, or 22%, compared to $23.2 million for the three months ended June 30, 2025.

• The average yield decreased 72 basis points to 5.19% for the three months ended June 30, 2026, compared to 5.91% for the three months ended June 30, 2025.
• The average balance of securities held to maturity of $1.4 billion for the three months ended June 30, 2026 decreased $174.1 million, or 11%, compared to $1.6 billion for the three months ended June 30, 2025. The decrease in average balance was due to repayments.

Interest income of $252.5 million on loans and loans held for sale for the three months ended June 30, 2026, decreased $3.1 million, or 1%, compared to $255.6 million for the three months ended June 30, 2025.

• The average loan balance of $16.2 billion for the three months ended June 30, 2026 increased $1.4 billion compared to $14.8 billion for the three months ended June 30, 2025.
• The average yield decreased 66 basis points, to 6.26% for the three months ended June 30, 2026, compared to 6.92% for the three months ended June 30, 2025.

Interest income of $9.6 million on securities available for sale for the three months ended June 30, 2026, decreased $2.5 million, or 21%, compared to $12.1 million for the three months ended June 30, 2025.

• The average balance of $832.7 million decreased $122.5 million, or 13%, compared to $955.2 million for the three months ended June 30, 2025.
• The average yield decreased 47 basis points, to 4.61% for the three months ended June 30, 2026, compared to 5.08% for the three months ended June 30, 2025.

Interest income of $4.5 million on mortgage loans in process of securitization for the three months ended June 30, 2026, decreased $0.8 million, or 16%, compared to $5.3 million for the three months ended June 30, 2025.

• The average balance of $353.3 million decreased $23.6 million, or 6%, compared to $376.9 million for the three months ended June 30, 2025.
• The average yield decreased 58 basis points, to 5.06% for the three months ended June 30, 2026, compared to 5.64% for the three months ended June 30, 2025.

Interest income of $9.4 million on interest-earning deposits, and other interest or dividends for the three months ended June 30, 2026, increased $1.2 million, or 15%, compared to $8.2 million for the three months ended June 30, 2025.

• The average balance of $689.5 million increased $150.1 million, or 28%, compared to $539.4 million for the three months ended June 30, 2025.
• The average yield decreased 60 basis points, to 5.49% for the three months ended June 30, 2026, compared to 6.09% for the three months ended June 30, 2025.

Interest Expense. Total interest expense of $157.5 million for the three months ended June 30, 2026, decreased $18.1 million, or 10%, compared to the three months ended June 30, 2025.

Interest expense on deposits of $116.8 million decreased $14.5 million, or 11%, for the three months ended June 30, 2026, compared to the three months ended June 30, 2025.

• The decrease reflected lower average balances at lower average rates on certificates of deposit, which were partially offset by higher average balances at lower average rates on interest-bearing checking accounts.

Interest expense of $13.3 million on certificates of deposit accounts for the three months ended June 30, 2026, decreased $22.1 million, or 62%, compared to $35.4 million for the three months ended June 30, 2025.

• The average balance of $1.4 billion for the three months ended June 30, 2026, decreased $1.7 billion or 55%, compared to $3.1 billion for the three months ended June 30, 2025.
• The average interest rate decreased 74 basis points, to 3.85%, for the three months ended June 30, 2026, compared to 4.59% for three months ended June 30, 2025.

Interest expense of $67.4 million on interest-bearing checking accounts for the three months ended June 30, 2026, increased $6.6 million, or 11%, compared to $60.8 million for the three months ended June 30, 2025.

• The average balance of $7.9 billion for the three months ended June 30, 2026, increased $1.7 billion, or 28%, compared to $6.2 billion for the three months ended June 30, 2025.
• The average interest rate decreased 53 basis points to 3.43% for the three months ended June 30, 2026, compared to 3.96% for three months ended June 30, 2025.

Interest expense of $36.1 million for money market/savings accounts increased $1.0 million, or 3%, for the three months ended June 30, 2026, compared to $35.1 million for the three months ended June 30, 2025.

• The average balance of money market/savings accounts of $4.1 billion for the three months ended June 30, 2026 increased $617.1 million, or 18%, compared to $3.5 billion for the three months ended June 30, 2025.
• The average rate on money market/savings accounts was 3.52% for the three months ended June 30, 2026, which was a 51 basis point decrease compared to 4.03% for the three months ended June 30, 2025.

Interest expense of $40.7 million on borrowings for the three months ended June 30, 2026, decreased $3.6 million, or 8%, compared to $44.3 million for the three months ended June 30, 2025.

• The average interest rate decreased 109 basis points to 4.06% for the three months ended June 30, 2026, compared to 5.15% for the three months ended June 30, 2025.

Included in interest expense on borrowings, our warehouse structured financing agreements provide for an additional interest payment for a portion of the earnings generated. As a result, the cost of borrowings increased from a base rate of 3.88% and 4.92%, to an effective rate of 4.06% and 5.15% for the three months ended June 30, 2026 and 2025, respectively.

Provision for Credit Losses. We recorded a provision for credit losses of $9.2 million for the three months ended June 30, 2026, a decrease of $43.8 million, or 83%, compared to $53.0 million for the three months ended June 30, 2025. The decrease reflected improved asset quality, including lower charge-offs and lower specific reserves, as well as higher recoveries.

The $9.2 million provision for credit losses consisted of $10.7 million for the ACL-Loans, net of a $1.5 million release for the ACL-OBCE’s and net of a $6,000 release for the ACL-Guarantees. Approximately half of the provision was associated with loan growth.

The ACL-Loans was $75.8 million, or 0.61% of total loans, at June 30, 2026, compared to $83.3 million, or 0.75% of total loans, at December 31, 2025, and $91.8 million, or 0.87%, at June 30, 2025. The decrease compared to December 31, 2025 and June 30, 2025 was primarily related to charge-offs on loans with specific reserves. Additional details are provided in the Asset Quality portion of the Comparison of Financial Condition at June 30, 2026 and December 31, 2025 and in Note 4: Loans and Allowance for Credit Losses on Loans.

Noninterest Income.

(In thousands)

Noninterest income of $45.7 million for the three months ended June 30, 2026 decreased $4.8 million, or 10%, compared to $50.5 million for the three months ended June 30, 2025. The decline was primarily due to decreases of $10.2 million, or 44%, in gain on sale of loans, as well as $2.8 million, or 29%, in syndication and asset management fees. These decreases were offset by increases of $5.9 million, or 95%, in loan servicing fees, and $2.5 million in other noninterest income.

Gain on sale of loans of $13.2 million for the three months ended June 30, 2026 decreased $10.2 million, or 44%, compared to the three months ended June 30, 2025. The decrease was primarily due to higher 10-year interest rates, which delayed borrower decisions to transition to permanent fixed-rate loans.

A summary of the gain on sale of loans for the three months ended June 30, 2026 and 2025 is below:

(In thousands)

Syndication and asset management fees of $6.9 million for the three months ended June 30, 2026, decreased $2.8 million, or 29%, compared to $9.7 million for the three months ended June 30, 2025. The decrease was attributable to less equity raised by our LIHTC syndication platform during the three months ended June 30, 2026 than the prior year.

Loan servicing fees of $12.0 million for the three months ended June 30, 2026 increased $5.9 million, or 95%, compared to $6.1 million for the three months ended June 30, 2025. Loan servicing fees included a $6.0 million positive fair market value adjustment to servicing rights for the three months ended June 30, 2026, compared to a $0.3 million positive fair market value adjustment to servicing rights for the three months ended June 30, 2025.

Other noninterest income of $11.7 million for the three months ended June 30, 2026 increased $2.5 million, or 27%, compared to $9.3 million for the three months ended June 30, 2025. Other noninterest income included increased operating income and gain on sale of other real estate owned partially offset by a lower positive fair market value adjustment on the floor derivatives.

• Other noninterest income included a $1.9 million positive adjustment to the fair value of floor derivatives for the three months ended June 30, 2026 compared to a $4.3 million positive fair value adjustment for the three months ended June 30, 2025. The floor derivatives are associated with arrangements whereby there is a guaranteed minimum interest rate the Company will receive on certain assets bearing variable interest rates. The change in value was driven largely by the change in market interest rates during the period.
• Also included in other noninterest income were changes in fair value on certain securities available for sale that the Company elected to account for under the fair value option, with changes in fair value reflected in earnings. The Company also has put options associated with these securities that provide protection against any change in value. By design, the fair value adjustments of the securities and the put options should be substantially equal and offsetting. For the three months ended June 30, 2026 there was a $4.8 million negative fair value adjustment on the securities that were offset by a $4.8 million positive fair value adjustment on the put options, hence having no net gain or loss recognized in noninterest income. Also see Note 2: Investment Securities, Note 11: Derivative Financial Instruments, and Note 12: Disclosures about Fair Value of Assets and Liabilities.

Noninterest Expense.

(In thousands)

Noninterest expense of $73.2 million for the three months ended June 30, 2026 decreased $4.1 million, or 5%, compared to the three months ended June 30, 2025. The lower expenses were primarily due to a $4.2 million decrease in salaries and employee benefits from lower commissions and bonuses.

The efficiency ratio was at 40.20% for the three months ended June 30, 2026, compared with 43.16% for the three months ended June 30, 2025.

Income Taxes. Income tax expense of $21.5 million for the three months ended June 30, 2026 increased $10.6 million, or 98%, compared to $10.9 million for the three months ended June 30, 2025. The effective tax rate was 21.5% for the three months ended June 30, 2026 and 22.2% for the three months ended June 30, 2025.

Comparison of Operating Results for the Six Months Ended June 30, 2026 and 2025

General. Net income of $146.0 million for the six months ended June 30, 2026 increased $49.8 million, or 52%, compared to $96.2 million for the six months ended June 30, 2025. The increase was primarily driven by a $36.3 million, or 60%, decrease in the provision for credit losses, reflecting improved asset quality. Also benefiting income was a $14.3 million, or 6%, increase in net interest income and an $18.1 million, or 24%, increase in noninterest income. These were partially offset by a $9.9 million, or 7%, increase in noninterest expense and an $8.9 million, or 31%, increase in the provision for income taxes.

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. Yields have been calculated on a pre-tax basis. Nonaccrual loans are included in loans and loans held for sale.

(Dollars in thousands)

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in weighted average interest rates (rate). The following table sets forth the effects of changing rates and volumes on our net interest income during the periods shown. 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). Yields have been calculated on a pre-tax basis.

The following table summarizes the increases and decreases in interest income and interest expense resulting from changes in average balances (volume) and changes in average interest rates:

(In thousands)

Net Interest Income. Net interest income of $265.2 million for the six months ended June 30, 2026 increased $14.3 million, or 6%, compared to $250.9 million for the six months ended June 30, 2025. The increase reflected lower interest expense on certificates of deposits and borrowings, partially offset by higher interest expense on interest-bearing checking accounts and lower interest income on loans and loans held for sale and securities, both held to maturity and available for sale.

• The interest rate spread of 2.47% for the six months ended June 30, 2026, increased 11 basis points compared to 2.36% for the six months ended June 30, 2025.
• Our net interest margin increased a basis point, to 2.87% for the six months ended June 30, 2026 compared to 2.86% for the six months ended June 30, 2025.

Interest Income. Interest income of $564.6 million for the six months ended June 30, 2026 decreased $27.0 million, or 5%, compared to $591.6 million for the six months ended June 30, 2025. This decrease was primarily attributable to lower average yields on higher average balances on loans and loans held for sale, and lower average yields on lower average balances on securities, both held to maturity and available for sale.

Interest income of $482.8 million on loans and loans held for sale for the six months ended June 30, 2026, decreased $12.1 million, or 2%, compared to $494.9 million for the six months ended June 30, 2025.

• The average loan balance during the six months ended June 30, 2026 increased $1.2 billion, or 8%, to $15.5 billion compared to $14.3 billion for the six months ended June 30, 2025.
• The average yield on loans decreased 69 basis points, to 6.29% for the six months ended June 30, 2026, compared to 6.98% for the six months ended June 30, 2025.

Interest income of $37.6 million on securities held to maturity for the six months ended June 30, 2026, decreased $10.0 million, or 21%, compared to the six months ended June 30, 2025.

• The average balance of securities held to maturity for the six months ended June 30, 2026 decreased $162.4 million, or 10%, to $1.4 billion compared to $1.6 billion for the six months ended June 30, 2025.
• The average yield on securities held to maturity decreased 72 basis points, to 5.24%, for the six months ended June 30, 2026, compared to 5.96% for the six months ended June 30, 2025.

Interest income of $19.5 million on securities available for sale for the six months ended June 30, 2026, decreased $4.9 million, or 20%, compared to the six months ended June 30, 2025.

• The average balance of securities available for sale decreased $113.4 million, or 12%, to $844.7 million compared to $958.1 million for the six months ended June 30, 2025.
• The average yield decreased 49 basis points, to 4.66% for the six months ended June 30, 2026, compared to 5.15% for the six months ended June 30, 2025.

Interest Expense. Total interest expense of $299.4 million for the six months ended June 30, 2026, decreased $41.3 million, or 12%, compared to $340.7 million for the six months ended June 30, 2025, primarily due to lower average balances on certificates of deposits and lower average rates on deposits and borrowings.

Interest expense on deposits of $226.7 million decreased $28.6 million, or 11%, for the six months ended June 30, 2026, compared to $255.3 million for the six months ended June 30, 2025. The decrease reflected lower average balances at lower average rates on certificates of deposit, which were partially offset by higher average balances at lower average rates on interest-bearing checking accounts.

Interest expense of $28.4 million on certificates of deposit accounts for the six months ended June 30, 2026, decreased $45.8 million, or 62%, compared to $74.2 million for the six months ended June 30, 2025.

• The average balance of $1.5 billion for the six months ended June 30, 2026, decreased $1.8 billion, or 54%, compared to $3.2 billion for the six months ended June 30, 2025.
• The average rate on certificates of deposit accounts was 3.89% for the six months ended June 30, 2026, which was a 74 basis point decrease compared to 4.63% for the six months ended June 30, 2025. The decrease in certificates of deposit is primarily due to the decrease in use of brokered deposits.

Interest expense of $128.2 million on interest-bearing checking accounts for the six months ended June 30, 2026, increased $16.7 million, or 15%, compared to $111.5 million for the six months ended June 30, 2025.

• The average balance of $7.5 billion for the six months ended June 30, 2026, increased $1.9 billion, or 34%, compared to $5.6 billion for the six months ended June 30, 2025.
• The average rate on interest-bearing checking accounts was 3.42% for the six months ended June 30, 2026, which was a 56 basis point decrease compared to 3.98% for the six months ended June 30, 2025.

Interest expense on borrowings of $72.7 million for the six months ended June 30, 2026, decreased $12.7 million, or 15%, compared to $85.4 million for the six months ended June 30, 2025.

• The decrease was due primarily to a 113 basis points reduction in average interest rates to 4.10% for the six months ended June 30, 2026, compared to 5.23% for the six months ended June 30, 2025.
• This was partially offset by a $289.2 million, or 9%, increase in average borrowings, to $3.6 billion, for the six months ended June 30, 2026, compared to $3.3 billion for the six months ended June 30, 2025.

Included in interest expense on borrowings, our warehouse structured financing agreements provide for an additional interest payment for a portion of the earnings generated. As a result, the cost of borrowings increased from a base rate of 3.89% and 5.00%, to an effective rate of 4.10% and 5.23% for the six months ended June 30, 2026 and 2025, respectively.

Provision for Credit Losses. We recorded a provision for credit losses of $24.5 million for the six months ended June 30, 2026, a decrease of $36.3 million, or 60%, compared to $60.8 million for the six months ended June 30, 2025. The decrease reflected improved asset quality, including lower charge-offs and lower specific reserves.

The $24.5 million provision for credit losses consisted of $26.6 million for the ACL-Loans, net of a $2.1 million release for the ACL-OBCE’s and net of a $13,000 release for the ACL-Guarantees, related to a loan securitization.

The ACL-Loans was $75.8 million, or 0.61% of total loans, at June 30, 2026, compared to $83.3 million, or 0.75% of total loans, at December 31, 2025, and $76.8 million, or 0.67%, at March 31, 2026. The decreases compared to both December 31, 2025 and March 31, 2026 was primarily related to charge-offs on loans with specific reserves. Additional details are provided in the Asset Quality portion of the Comparison of Financial Condition at June 30, 2026 and December 31, 2025 and in Note 4: Loans and Allowance for Credit Losses on Loans.

Noninterest Income.

(In thousands)

Noninterest income of $92.3 million for the six months ended June 30, 2026 increased $18.1 million, or 24%, compared to $74.2 million for the six months ended June 30, 2025. The results reflected a $16.9 million, or 167%, increase in loan servicing fees and a $12.6 million, or 101%, increase in other noninterest income. These were partially offset by an $8.3 million, or 24% decrease in gain on sale of loans and a $3.0 million, or 23% decrease in syndication and asset management fees compared to the six months ended June 30, 2025.

Loan servicing fees of $27.1 million for the six months ended June 30, 2026 increased $16.9 million, or 167%, compared to the six months ended June 30, 2025. Loan servicing fees included a $15.0 million positive fair market value adjustment to servicing rights for the six months ended June 30, 2026, compared to a $0.5 million negative fair market value adjustment to servicing rights for the six months ended June 30, 2025.

Other noninterest income of $25.0 million for the six months ended June 30, 2026 increased $12.6 million, or 101%, compared to $12.4 million for the six months ended June 30, 2025. The results reflected higher operating income and gain on sale of other real estate owned, as well as gains on fair market value adjustments of derivatives discussed in more detail below.

• Other noninterest income included a $4.6 million positive fair value adjustment to the floor derivatives for the six months ended June 30, 2026 compared to a $2.1 million positive fair value adjustment for the six

months ended June 30, 2025. The floor derivatives are associated with arrangements whereby there is a guaranteed minimum interest rate the Company will receive on certain assets bearing variable interest rates. The change in value was driven largely by the change in market interest rates during the period.

• Also included in other noninterest income were changes in fair value on certain securities available for sale that the Company elected to account for under the fair value option, with changes in fair value reflected in earnings. The Company also has put options associated with these securities that provide protection against any change in value. By design, the fair value adjustments of the securities and the put options should be substantially equal and offsetting. For the six months ended June 30, 2026 there was a $10.7 million negative fair value adjustment on the securities that were offset by a $10.7 million positive fair value adjustment on the put options, hence having no net gain or loss recognized in other noninterest income. Also see Note 2: Investment Securities, Note 11: Derivative Financial Instruments, and Note 12: Disclosures about Fair Value of Assets and Liabilities.

Gain on sale of loans of $26.7 million for the six months ended June 30, 2026 decreased $8.3 million, or 24%, compared to $35.0 million for the six months ended June 30, 2025. The decrease in gain on sale of loans was primarily due to higher 10-year interest rates, which delayed borrower decisions to transition to permanent fixed-rate loans.

A summary of the gain on sale of loans for the six months ended June 30, 2026 and 2025 is below:

(In thousands)

Syndication and asset management fees of $10.1 million for the six months ended June 30, 2026, decreased $3.0 million, or 23%, compared to $13.1 million for the six months ended June 30, 2025. The decrease was attributable to less equity raised by our LIHTC syndication platform during the six months ended June 30, 2026 than the prior year.

Noninterest Expense.

(In thousands)

Noninterest expense of $148.9 million for the six months ended June 30, 2026 increased $9.9 million, or 7%, compared to $139.0 million for the six months ended June 30, 2025. The increase was due primarily to a $5.9 million increase in other noninterest expense, mainly related to higher other real estate owned expenses, and a $3.2 million increase in credit risk transfer premium expenses. The increase also reflects a rise in occupancy and equipment expenses. These were partially offset by a $2.1 million decrease in salaries and employee benefits from lower commissions and bonuses.

The efficiency ratio was at 41.65% for the six months ended June 30, 2026, compared with 42.76% for the six months ended June 30, 2025.

Income Taxes. Income tax expense of $38.1 million for the six months ended June 30, 2026 increased $8.9 million, or 31%, compared to the six months ended June 30, 2025. The effective tax rate was 20.7% and 23.2% for the six months ended June 30, 2026 and 2025, respectively. The decrease in effective tax rate reflected the utilization of originated and purchased tax credits.

Our Segments

We operate in three primary segments: Multi-family Mortgage Banking, Mortgage Warehousing, and Banking. The reportable segments are consistent with the internal reporting and evaluation of the principal lines of business of the Company.

The Multi-family Mortgage Banking segment originates, and services government sponsored mortgages for multi-family and healthcare facilities. It is also a fully integrated syndicator of low-income housing tax credit and debt funds. Consistently one of the top ranked agency affordable lenders in the nation, our licenses with FHA, Fannie Mae, and Freddie Mac, coupled with our bank financing products, and tax credit syndication platform, provide sponsors with custom beginning-to-end financing solutions that adapt to an ever-changing market. We also offer customized loan products for need-based skilled nursing facilities, including independent living, assisted living, and memory care. 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.

We are also one of the largest Ginnie Mae servicers in the country based on aggregate unpaid principal balance. As of June 30, 2026 the Company’s servicing portfolio included unpaid principal balance of loans serviced for others of $21.5 billion, loans sub-serviced for others of $4.3 billion and other servicing balances of $1.2 billion. The servicing portfolio is primarily Ginnie Mae, Fannie Mae, and Freddie Mac loans and is a significant source of our noninterest income and deposits.

Our Mortgage Warehousing segment funds agency eligible loans for non-depository financial institutions from the date of origination or purchase until the date of sale to an investor, which typically takes less than 30 days and is a significant source of our net interest income, loans, and deposits. Mortgage Warehousing has grown to fund $45.6 billion in 2024, $66.3 billion in 2025, and $42.5 billion for the six months ended June 30, 2026. Mortgage Warehousing also provides commercial loans and collects deposits related to the mortgage escrow accounts of its customers.

The Banking segment includes retail banking, commercial lending, agricultural lending, retail and correspondent residential mortgage banking, and SBA lending. Banking operates primarily in Indiana, except for correspondent mortgage banking which, like Multi-family Mortgage Banking and Mortgage Warehousing, is a national business. The Banking segment has a well-diversified customer and borrower base and has experienced significant growth over the past three years.

Our segment financial information was compiled utilizing the policies described in Note 17: Segment Information, included elsewhere in this report. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes, if any, in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data.

Our segments diversify the net income of Merchants Bank and provide synergies across the segments. Strategic opportunities come from MCC and MCS, where loans are funded by the Banking segment and the Banking segment provides Ginnie Mae custodial services to MCC and MCS. LIHTC syndication and debt fund offerings complement the lending activities of new and existing multi-family mortgage customers. 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. Retail and commercial customers provide cross selling opportunities within the Banking segment. Merchants Mortgage is a risk mitigant to Mortgage Warehousing because it provides us with a ready platform to sell the underlying collateral to secure repayment. These and other synergies form a part of our strategic plan.

The Other segment presented below, in Note 17: Segment Information, and elsewhere in this report includes general and administrative expenses for provision of services to all segments, internal funds transfer pricing offsets resulting from allocations to or from the other segments, certain elimination entries, and investments in low-income housing tax credit limited partnerships or LLC.

For the three months ended June 30, 2026 and 2025, we had total net income of $78.3 million and $38.0 million, respectively. For the six months ended June 30, 2026 and 2025, we had total net income of $146.0 million and $96.2 million, respectively. Net income for our three segments for the respective periods was as follows:

(In thousands)

Multi-family Mortgage Banking.

Comparison of results for the three months ended June 30, 2026 and 2025:

The Multi-family Mortgage Banking segment reported net income of $10.3 million for the three months ended June 30, 2026, an increase of $1.1 million, or 12%, compared to net income for the three months ended June 30, 2025. The results primarily reflect a decrease in noninterest expenses due to lower salaries and benefit expenses for commissions and bonuses.

Loan servicing fees included a $4.6 million positive fair market value adjustment to servicing rights for the three months ended June 30, 2026 compared to a $0.7 million positive fair market value adjustment for the three months ended June 30, 2025.

The total volume of loans originated and acquired through our Multi-family business was $1.5 billion, an increase of $99.8 million, or 7%, compared to $1.4 billion for the three months ended June 30, 2025. It included construction loans, coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment, while borrowers await conversion to permanent financing. It also includes loans originated and acquired for sale in the secondary market.

Comparison of results for the six months ended June 30, 2026 and 2025:

The Multi-family Mortgage Banking segment reported net income of $21.4 million for the six months ended June 30, 2026, an increase of $8.7 million, or 68%, compared to net income of $12.7 million for the six months ended June 30, 2025. The increase in net income was primarily due a $8.3 million increase in noninterest income driven by higher loan servicing fees.

Loan servicing fees included $12.0 million positive fair market value adjustment to servicing rights for the six months ended June 30, 2026, compared to $1.2 million positive fair market value adjustment of for the six months ended June 30, 2025.

The total volume of loans originated and acquired through our Multi-family business was $2.7 billion, an increase of $345.1 million, or 15%, compared to $2.4 billion for the six months ended June 30, 2025. It included construction loans coupled with agreements for future permanent loan refinancing, as well as bridge loans housed in our Banking segment, while borrowers await conversion to permanent financing. It also includes loans originated and acquired for sale in the secondary market.

Mortgage Warehousing.

Comparison of results for the three months ended June 30, 2026 and 2025:

The Mortgage Warehousing segment reported net income of $30.6 million for the three months ended June 30, 2026, an increase of $7.6 million, or 33%, compared to $23.0 million for the three months ended June 30, 2025. The increase in net income reflected higher net interest income reflecting the growth in average balances for warehouse loans in both loans receivable and loans held for sale.

Noninterest income included a $1.9 million positive fair market value adjustment to derivatives for the three months ended June 30, 2026, compared to a $4.3 million positive fair market value adjustment to derivatives for the three months ended June 30, 2025.

The volume of loans funded during the three months ended June 30, 2026 amounted to $22.9 billion, an increase of $6.6 billion, or 41%, compared to $16.3 billion for the three months ended June 30, 2025. This compared to the 10% industry-wide increase in single-family residential loan volumes for the three months ended June 30, 2026 compared to the same period in 2025, according to an estimate of industry volume by the Mortgage Bankers Association.

Comparison of results for the six months ended June 30, 2026 and 2025:

The Mortgage Warehousing segment reported net income of $59.2 million for the six months ended June 30, 2026, an increase of $20.9 million, or 54%, compared to the six months ended June 30, 2025. The increase in net income was primarily driven by an increase in net interest income, reflecting the increase in average balances for warehouse loans in both loans receivable and loans held for sale.

Noninterest income included a $4.6 million positive fair market value adjustment to derivatives for the six months ended June 30, 2026, compared to a $2.1 million positive fair market value adjustment to derivatives for the six months ended June 30, 2025.

The volume of loans funded during the six months ended June 30, 2026 amounted to $42.5 billion, an increase of $14.3 billion, or 51%, compared to the six months ended June 30, 2025. This compared to the 24% industry-wide increase in single-family residential loan volumes for the six months ended June 30, 2026 compared to the same period in 2025, according to an estimate of industry volume by the Mortgage Bankers Association.

Banking.

Comparison of results for the three months ended June 30, 2026 and 2025:

The Banking segment reported net income of $47.3 million for the three months ended June 30, 2026, an increase of $32.8 million, or 225%, compared to the three months ended June 30, 2025. The increase in net income was primarily due to the decrease in provision for credit losses.

Noninterest income included a $1.4 million positive fair market value adjustment to servicing rights for the three months ended June 30, 2026, compared to a $0.5 million negative fair market value adjustment for the three months ended June 30, 2025.

Comparison of results for the six months ended June 30, 2026 and 2025:

The Banking segment reported net income of $85.3 million for the six months ended June 30, 2026, an increase of $23.6 million, or 38%, compared to $61.7 million for the six months ended June 30, 2025. The increase in net income was primarily due to the decrease in provision for credit losses.

Noninterest income included a $3.0 million positive fair market value adjustment to servicing rights for the six months ended June 30, 2026, compared to a $1.7 million negative fair market value adjustment for the six months ended June 30, 2025.

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, principal, and interest on investment securities, and proceeds from sale of loans. 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 June 30, 2026, based on pledged collateral, we had $5.5 billion in available unused borrowing capacity with the FHLB and the Federal Reserve discount window. This compared to $5.3 billion at December 31, 2025. While the amounts available fluctuate daily, we also had available capacity lines of $220.0 million through our membership in the AFX and US Bank Federal Funds as of June 30, 2026. This liquidity enhances the ability to effectively manage interest expense and asset levels in the future.

The Company’s most liquid assets are in cash, short-term investments, including interest-earning demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse lines of credit included in loans receivable. Taken together with its unused borrowing capacity of $5.5 billion described above, these totaled $13.0 billion, or 61%, of its $21.2 billion total assets at June 30, 2026. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

The Company’s investment portfolio has minimal levels of unrealized losses and management does not anticipate a need to sell securities for liquidity purposes at a loss. As of June 30, 2026, AOCL of $1.2 million, related to securities available for sale, increased $1.2 million, compared to AOCL as of December 31, 2025. The $1.2 million of AOCL as of June 30, 2026 represented less than 0.15% of total equity and total securities available for sale, reflecting our interest rate risk policy of maintaining short duration on assets and liabilities.

The most common recurring variability within our cash flows comes from loan growth and sale activity. As discussed in detail throughout this section and Capital Resources, the Company has numerous funding sources to cover volatility in cash flows for operating and financing needs through our cash, investments, borrowing capacity, deposit base, and capital resources. Additionally, while warehouse lines of credit represent a meaningful component of total assets, the underlying loans are generally short-term in nature and support significant funding volumes. During the six months ended June 30, 2026, warehouse funding volumes totaled $22.9 billion, exceeding the Company’s total assets of $21.2 billion. Accordingly, period-end balances represent a snapshot of assets that are continually funded and repaid in the normal course of business.

The following table and summary provide cash flow information for the six months ended June 30, 2026 compared to June 30, 2025.

(In thousands)

• Cash flows from operating activities decreased $410.9 million primarily driven by an increase in cash outflows of $10.5 billion in loans originated and purchased for sale, partially offset by higher cash inflows of $9.9 billion from proceeds from sold loans and principal collected, as we increased production and sales volumes during the six months ended June 30, 2026 compared to the prior year.
• Cash flows from investing activities decreased $1.1 billion primarily driven by a fluctuation in cash outflows of $836.9 million in net change in loans receivable due to increased loan growth.
• Cash flows from financing activities increased $1.4 billion primarily driven by increased cash inflows due to higher FHLB borrowings and increased cash inflows due to deposit growth.

Certificates of deposit that are scheduled to mature in less than one year from June 30, 2026 totaled $1.3 billion, or 97%, of total certificates of deposit. Of the $1.4 billion in total certificates of deposit, including those that will mature in more than one year, there were $585.1 million classified as core deposits. Management expects that a substantial portion of the maturing certificates of deposit will be renewed. 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.

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 unaudited condensed consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, lines of credit, and standby letters of credit.

At June 30, 2026, we had $4.3 billion in outstanding commitments to extend credit that are subject to credit risk and an additional $1.6 billion in outstanding commitments subject to certain performance criteria and cancellation by the Company. These commitments include funding commitments for approved loans, unfunded construction draws, standby letters of credit and certain unfunded warehouse repurchase agreements. The Company does not expect that all such commitments will be funded and believes it has sufficient liquidity to meet current loan origination commitments should funding occur. Additionally, the Company’s business model is designed to continuously sell a significant portion of its loans, which provides flexibility in managing its liquidity.

Capital Resources.

The access to and cost of funding new business initiatives, the ability to engage in expanded business activities, the ability to pay dividends, the level of deposit insurance costs and the level and nature of regulatory oversight depend, in part, on our capital position. The Company filed a shelf registration statement on Form S-3 with the SEC on May 23, 2025, which was declared effective on June 4, 2025, under which we can issue up to $500 million aggregate offering amount of registered securities to finance our growth objectives. 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. 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.

Preferred Stock/Dividends.

6% Series C Preferred Stock. Dividends on the Series C Preferred Stock, to the extent declared by the Board, are payable quarterly. The Company may redeem the Series C Preferred Stock, in whole or in part, at our option, on any dividend payment date on or after April 1, 2026, 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.

8.25% Series D Preferred Stock. Dividends on the Series D Preferred Stock, to the extent declared by the Board are payable quarterly. 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. If the Series D Preferred Stock remains outstanding on October 1, 2027, its dividend rate would reset to the 5-year Treasury rate, plus 4.34% and would remain at that level for an additional 5 years.

7.625% Series E Preferred Stock. Dividends on the Series E Preferred Stock, to the extent declared by the Board, are payable quarterly. 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 the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption.

Dividends declared to preferred shareholders for the six months ended June 30, 2026, totaled $20.5 million. For more information, see Note 14: Preferred Stock.

Common Shares/Dividends. As of June 30, 2026, the Company had 45,938,075 common shares issued and outstanding. The Board declared a quarterly dividend of $0.11 per share for the first two quarters of 2026.

On January 28, 2026, the Company announced a stock repurchase program, up to $100,000,000 of common stock, expiring December 31, 2027. On February 26, 2026, the Company entered into Rule 10b5-1 plan (the “10b5-1 Plan”) with a broker for the repurchase of shares of its common stock commencing on March 3, 2026. The details of this repurchase plan were provided in a press release issued by the Company on January 28, 2026.

The following table summarizes our share repurchase authorization and repurchase activity of our common stock during the six months ended June 30, 2026. There was no share repurchase activity during the three months ended June 30, 2026.

The timing and actual number of additional shares repurchased will depend on a variety of factors, including cash requirements to meet the operating needs of the business, legal requirements, as well as the share price and economic and market conditions.

Capital Adequacy.

The following tables present the Company’s capital ratios at June 30, 2026 and December 31, 2025:

(Dollars in thousands)

(1) As defined by regulatory agencies.

(Dollars in thousands)

(1) As defined by regulatory agencies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Merchants Bank to maintain minimum amounts and ratios (set forth in the table above). Management believes, as of June 30, 2026 and December 31, 2025, that the Company and Merchants Bank met all capital adequacy requirements to which they were subject. For additional information regarding dividend restrictions, see the Company’s 2025 Annual Report on Form 10–K.

As of June 30, 2026 and December 31, 2025, 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.

The Company’s principal source of funds for dividend payments to shareholders is dividends received from Merchants Bank. Banking statutes and regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under Indiana law, Merchants Bank may not pay a dividend if such dividend would be greater than retained net income (as defined) for the current year plus those for the previous two years.

Quantitative and Qualitative Disclosures About Market Risk

Market Risk. Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified two primary sources of market risk: interest rate risk and price risk related to market demand.

Interest Rate Risk

Overview. Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries or SOFR.

Our business consists of funding multi-family, residential, and SBA loans, as well as warehouse repurchase and participation 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. In 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’s approved risk limits. Additionally, the Risk Committee of our Board meets quarterly, in conjunction with Board meetings, to assess risks associated with interest rate sensitivity.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. 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.

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. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.

Income Simulation and Economic Value Analysis. 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.

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 for a twelve-month period 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.

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.

The following table presents NII at Risk for Merchants Bank as of June 30, 2026 and December 31, 2025.

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. At June 30, 2026 we estimated that we were within policy limits set by our Board for the -200, -100, +100, and +200 basis point scenarios.

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.

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. We are within policy limits set by our Board for the -200, -100, +100 and +200 basis point scenarios. The EVE reported at June 30, 2026 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.

Non-GAAP Financial Measures

The Company’s accounting and reporting policies conform to GAAP and general practices within the banking industry. As a supplement to GAAP, the Company provides non-GAAP performance results, which the Company believes are useful because they assist users of the financial information in assessing the Company’s operating performance. Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as the reconciliation to the comparable GAAP financial measure, can be found in the following table.

Although intended to enhance understanding of the Company’s business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. In addition, these non-GAAP financial measures may differ from those used by other financial institutions to assess their business and performance.

(In thousands)

The information required under this item is included as part of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q under the headings “Liquidity and Capital Resources” and “Interest Rate Risk.”

(a) Evaluation of disclosure controls and procedures.

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-Q. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2026, the Company’s disclosure controls and procedures were effective.

(b) Changes in internal control.

There have been no changes in the Company's internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II

Other Information

There have been no material changes from the risk factors previously disclosed in the “Risk Factors” section included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.