Merchants Bancorp: Form 10-Q for the period ended Mar 31, 2024

Management’s discussion and analysis of the financial condition at March 31, 2024 and results of operations for the three months ended March 31, 2024 and 2023, 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 March 31, 2024

• Net income of $87.1 million increased $32.1 million, or 58%, compared to the three months ended March 31, 2023. The increase was primarily driven by a $26.4 million, or 26%, increase in net interest income and a $17.0 million, or 722%, increase in loan servicing fees, that was partially offset by a $14.1 million, or 41%, increase in noninterest expense.
• Diluted earnings per share of $1.80 increased 68% compared to the three months ended March 31, 2023.
• Tangible book value per common share of $29.26 increased 28% compared to $22.88 for the three months ended March 31, 2023.
• Total assets of $17.8 billion increased 25% compared to March 31, 2023, and increased 5% compared to December 31, 2023.
• Loans receivable, net of allowance for credit losses on loans, of $10.7 billion, increased $2.1 billion, or 25%, compared to March 31, 2023, and increased $562.7 million, or 6%, compared to December 31, 2023.
• As of March 31, 2024, approximately 94% of the total net loans at Merchants Bank reprice within three months, which reduces the risk of market rate increases.
• Net interest margin was 3.14% compared to 3.27% for the three months ended March 31, 2023.
• Efficiency ratio was 29.1% compared to 30.3% for the three months ended March 31, 2023.
• As of March 31, 2024, the Company had $5.6 billion in unused borrowing capacity with the Federal Home Loan Bank and the Federal Reserve Discount window based on available collateral.
• The Company’s most liquid assets are in unrestricted cash, short-term investments, including interest-bearing demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse repurchase agreements included in loans receivable. Taken together, with unused borrowing capacity, these totaled $10.9 billion, or 61%, of the $17.8 billion in total assets as of March 31, 2024.
• Uninsured deposits totaled approximately $2.1 billion as of March 31, 2024, representing less than 15% 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 $1.7 billion as of March 31, 2024.
• Results included a $14.0 million positive fair market value adjustment to servicing rights compared to a $2.9 million negative adjustment in the three months ended March 31, 2023.
• Quarterly dividends of $0.09 per common share increased 13% compared to the three months ended March 31, 2023.
• The Company redeemed all outstanding shares of the Series A Preferred Stock on April 1, 2024 at the liquidation preference of $25.00 per share.
• The previously announced agreement to sell several Illinois bank branches was completed on January 26, 2024, resulting in a gain of $715,000.
• On March 27, 2024, the Company executed a credit default swap on a $543.5 million pool of its multi-family mortgage loans, to provide credit protection for the loan pool and reduce risk-based capital requirements.
• The volume of warehouse loans funded during the three months ended March 31, 2024 amounted to $7.9 billion, an increase of $2.5 billion, or 46%, compared to the three months ended March 31, 2023. This compared to the 13% industry increase in single-family residential loan volumes for the three months ended March 31, 2024 to the same period in 2023, according to an estimate of industry volume by the Mortgage Bankers Association.
• The volume of loans originated and acquired for sale in the secondary market through our multi-family business increased by $138.6 million, or 122%, to $252.7 million, compared to $114.1 million for the three months ended March 31, 2023.

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, 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. 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. 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.

Critical Accounting Policies and Estimates

The preparation of our 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 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, 2023. 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, 2023.

Financial Condition

As of March 31, 2024, we had approximately $17.8 billion in total assets, $14.0 billion in deposits, and $1.8 billion in total shareholders’ equity. Total assets as of March 31, 2024 included approximately $508.8 million of cash and cash equivalents, $3.5 billion of loans held for sale and $10.7 billion of loans receivable, net of ACL-Loans. Assets also included $142.6 million of mortgage loans in the process of securitization that represent pre-sold multi-family rental real estate loan originations in primarily Government National Mortgage Association (“Ginnie Mae”), Federal National Mortgage Association (“Fannie Mae”), and Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage-backed securities pending settlements that typically occur within 30 days. There were also $1.2 billion in securities classified as held to maturity. Additionally, we had $1.1 billion in securities available for sale, the majority of which were acquired from a warehouse customer, and others are typically match funded with related custodial deposits or required to collateralize our credit-linked notes. There are restrictions on the types of securities we hold, as these are funded by certain custodial deposits where we set the cost of deposits based on the yield of the related securities. Other assets at March 31, 2024 were $360.4 million which primarily represents low-income housing tax credits and prepaid assets associated with the April 1, 2024 redemption of Series A Preferred Stock. Servicing rights at March 31, 2024 were $172.2 million based on the fair value of the loan servicing, which are primarily Ginnie Mae multi-family servicing rights with 10-year call protection.

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

Total Assets. Total assets of $17.8 billion at March 31, 2024 increased $870.1 million, or 5%, compared to $17.0 billion at December 31, 2023. The increase was due primarily to growth in the warehouse, healthcare, and multi-family loan portfolios as well as loans held for sale.

Cash and Cash Equivalents. Cash and cash equivalents of $508.8 million at March 31, 2024 decreased $75.7 million, or 13%, compared to December 31, 2023. The 13% decrease reflected $52 million in cash delivered to our Transfer Agent for the April 1, 2024 redemption of Series A Preferred Stock described in Note 14: Preferred Stock and Note 17: Subsequent Events. Included in cash equivalents was $39.2 million in restricted cash associated with the March 2023 issuance of senior credit linked notes described in Note 1: Basis of Presentation and Note 11: Borrowings.

Mortgage Loans in Process of Securitization. Mortgage loans in process of securitization of $142.6 million at March 31, 2024 increased $32.0 million, or 29%, compared to $110.6 million at December 31, 2023. These represent loans that our banking subsidiary, Merchants Bank, has funded and are held pending settlement, primarily as Ginnie Mae, Fannie Mae, and Freddie Mac mortgage-backed securities with a firm investor commitment to purchase the securities. The 29% increase was primarily due to a higher origination volume of loans that had not yet settled with government agencies.

Securities Available for Sale. Securities available for sale of $1.1 billion at March 31, 2024 decreased $52.4 million, or 5%, compared to December 31, 2023. The decrease in securities available for sale was primarily due to $246.4 in calls, maturities, repayments, sales and other adjustments, partially offset by purchases of $194.0 million during the period.

Included in securities available for sale were $700.6 million of investments for which a fair value option was elected. 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 March 31, 2024, Accumulated Other Comprehensive Losses (“AOCL”) of $1.2 million, related to securities available for sale, improved $1.3 million, or 53%, compared to losses of $2.5 million at December 31, 2023. The $1.2 million of AOCL as of March 31, 2024 represented less than 1% of total equity and 1% of total securities available for sale.

Securities Held to Maturity. Securities held to maturity of $1.2 billion at March 31, 2024 decreased $29.1 million, or 2%, compared to December 31, 2023. The decrease was due to remittances of loan payments underlying the securities during the period. These securities were acquired in 2022 and 2023 as part of securitization transactions.

Loans Held for Sale. Loans held for sale of $3.5 billion at March 31, 2024 increased $358.4 million, or 11%, compared to $3.1 billion at December 31, 2023. The increase in loans held for sale was due primarily to an increase in 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. It also includes a growing portfolio of multi-family loans.

Loans Receivable, Net. Loans receivable, net, of $10.7 billion at March 31, 2024, which are comprised of loans held for investment, increased $562.7 million, or 6%, compared to $10.1 billion at December 31, 2023. The increase in net loans was comprised primarily of:

• an increase of $390.5 million, or 52%, in mortgage warehouse repurchase agreements, to $1.1 billion at March 31, 2024,
• an increase of $108.0 million, or 5%, in healthcare financing loans, to $2.5 billion at March 31, 2024,
• an increase of $90.4 million, or 2%, in multi-family financing loans, to $4.1 billion at March 31, 2024,

The $390.5 million increase in mortgage warehouse lines of credit was due to higher loan volume from increased sales efforts and market exits of competitors.

The $108.0 million increase in healthcare financing was due to higher loan originations.

The $90.4 million increase in multi-family financing was due to higher origination volume for construction, bridge and other loans generated through our 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.

As of March 31, 2024, approximately 94% of the total net loans at Merchants Bank reprice within three months, which reduces the risk of market rate increases.

Allowance for Credit Losses on Loans (“ACL-Loans”). The ACL-Loans of $75.7 million at March 31, 2024 increased $4.0 million, or 6%, compared to December 31, 2023, primarily reflecting increases associated with growth in the multi-family and healthcare portfolios, as well as changes in specific reserves and loss factors to reflect industry conditions.

Also influencing the overall level of the ACL-Loans is our differentiated strategy to typically hold loans with shorter durations and to maintain agency underwriting standards that enable us to sell the majority of our loans under government programs.

Goodwill. Goodwill of $8.0 million at March 31, 2024 decreased $7.8 million, or 49%, compared to $15.8 million at December 31, 2023. The goodwill associated with FMBI was eliminated upon the sale of their branches to unaffiliated third parties on January 26, 2024.

Servicing Rights. Servicing rights of $172.2 million at March 31, 2024 increased $13.7 million, or 9%, compared to $158.5 million at December 31, 2023. During the three months ended March 31, 2024, a positive fair market value adjustment of $14.0 million and originated or purchased servicing of $2.2 million were partially offset by paydowns of $2.4 million. The $14.0 million positive fair market value adjustment reflected $13.2 million for multi-family mortgages and $0.8 million for single-family and SBA mortgages during the three months ended March 31, 2024.

Servicing rights are recognized in connection with sales of loans when we retain servicing of the sold loans, as well as upon purchases of loan servicing portfolios. The servicing rights are recorded and carried at fair value. The fair value increase recorded during the three months ended March 31, 2024 was driven by higher interest rates that impacted fair market value adjustments. The value of servicing rights generally increases in rising interest rate environments and declines in falling interest rate environments due to expected prepayments and earnings rates on escrow deposits.

Other Assets & Receivables. Other assets and receivables of $360.4 million at March 31, 2024 increased by $54.1 million, or 18%, compared to December 31, 2023. The increase was primarily due to $52.0 million prepaid funding for the April 1, 2024, Series A Preferred Stock redemption.

Deposits. Deposits of $14.0 billion at March 31, 2024 decreased $85.8 million, or 1%, compared to $14.1 billion December 31, 2023. The decrease was primarily due to a $1.1 billion decrease in brokered demand deposit accounts partially offset by an increase of $885.6 million in brokered certificate of deposits. Total demand deposits decreased $900.9 million, partially offset by an increase in total certificates of deposit of $790.1 million and an increase in total savings deposits of $24.9 million. As of March 31, 2024, approximately 88% of the total deposits at Merchants Bank reprice within three months.

Core deposits increased by $132.0 million, or 2%, to $8.2 billion at March 31, 2024 compared to December 31, 2023. Core deposits represented 59% of total deposits at March 31, 2024 compared to 58% of total deposits at December 31, 2023.

We have decreased our use of brokered deposits by $217.8 million, or 4%, to $5.8 billion at March 31, 2024 compared to $6.0 billion at December 31, 2023. Brokered deposits represented 41% of total deposits at March 31, 2024, compared to 42% of total deposits at December 31, 2023. As of March 31, 2024, brokered certificates of deposit had a weighted average remaining duration of 57 days.

• Brokered demand deposit accounts decreased $1.1 billion, or 73%, to $400.2 million at March 31, 2024 compared to December 31, 2023.
• Brokered certificates of deposit accounts increased $885.6 million, or 20%, to $5.4 billion at March 31, 2024 compared to December 31, 2023.

Although our brokered deposits are short-term in nature, they may be more rate sensitive compared to other sources of funding. In the future, those depositors may not replace their brokered deposits with us as they mature, or we may have to pay a higher rate of interest to keep those deposits or to replace them with other deposits or other sources of funds. Not being able to maintain or replace those deposits as they mature would adversely affect our liquidity. Additionally, if Merchants Bank does not maintain its well-capitalized position, it may not accept or renew any brokered deposits without a waiver granted by the Federal Deposit Insurance Corporation (“FDIC”).

Compared to December 31, 2023, interest-bearing deposits increased $114.4 million, or 1%, to $13.7 billion at March 31, 2024, and noninterest-bearing deposits decreased $200.2 million, or 38%, to $319.9 million at March 31, 2024.

Uninsured deposits totaled approximately $2.1 billion as of March 31, 2024, representing less than 15% 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 $1.7 billion as of March 31, 2024.

Borrowings. Borrowings of $1.8 billion at March 31, 2024 increased $871.9 million, or 90%, compared to $964.1 million at December 31, 2023. The increase was primarily due to an increase of $654.9 million in FHLB advances, an increase of $50.0 million in the usage of the Federal Reserve’s discount window and an increase of $175.0 million in American Financial Exchange (“AFX”) borrowings. Depending on rates and timing, borrowing can be a more effective liquidity management alternative than utilizing brokered certificates of deposits. The Company primarily utilizes borrowing facilities from the FHLB, the Federal Reserve’s discount window, and AFX. See Note 11: Borrowings for further information.

The Company continues to have significant borrowing capacity based on available collateral. As of March 31, 2024, unused lines of credit totaled $5.6 billion, compared to $6.0 billion at December 31, 2023.

Total Shareholders’ Equity. Total shareholders’ equity was $1.8 billion as of March 31, 2024. The $75.4 million increase compared to December 31, 2023 resulted primarily from the net income of $87.1 million, which was partially offset by dividends paid on common and preferred shares of $12.6 million during the period.

Asset Quality

Total nonperforming loans (nonaccrual and greater than 90 days past due but still accruing) were $131.8 million, or 1.22% of loans receivable at March 31, 2024, compared to $82.0 million, or 0.80%, of total loans at December 31, 2023 and $65.3 million, or 0.76%, at March 31, 2023. The increase in non-performing loans compared to December 31, 2023 was primarily due to three customers with delinquent payments of 90 days or more. As of March 31, 2024, only 13 customers were classified in nonaccrual status and eight were delinquent by 90 days or more, but still accruing interest, with full payment expected.

As a percentage of nonperforming loans, the ACL-Loans was 57% at March 31, 2024 compared to 87% at December 31, 2023 and 79% at March 31, 2023. The changes compared to both periods were primarily due to an increase in nonperforming loans.

Total loans greater than 30 days past due were $188.7 million at March 31, 2024, $183.5 million at December 31, 2023, and $83.5 million at March 31, 2023. The increase compared to March 31, 2023 was due to the delinquency of six multi-family customers and four healthcare customers.

Special Mention (Watch) loans were $232.1 million at March 31, 2024, compared to $191.3 million at December 31, 2023. The increase was primarily due to higher interest rates that negatively impact our borrowers’ ability to make higher required payments.

During the three months ended March 31, 2024, there was one charge-off of a commercial loan for $925,000 and $1,000 of recoveries, compared to no charge-offs and $7,000 of recoveries for the three months ended March 31, 2023.

Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023

General. Net income of $87.1 million for the three months ended March 31, 2024 increased by $32.1 million, or 58%, compared with $55.0 million for the three months ended March 31, 2023, primarily driven by a $26.4 million, or 26%, increase in net interest income and a $17.0 million, or 722%, increase in loan servicing fees that was partially offset by a $14.1 million, or 41%, increase in noninterest expense. Results for the three months ended March 31, 2024 included a $14.0 million positive fair market value adjustment to servicing rights compared to a $2.9 million negative adjustment for the three months ended March 31, 2023.

Net Interest Income. Net interest income of $127.1 million for the three months ended March 31, 2024 increased $26.4 million, or 26%, compared with $100.7 million for the three months ended March 31, 2023. The increase reflected higher average balances and yields on loans and loans held for sale, as well as higher average yields and average balances of securities available for sale, which were partially offset by higher average balances and interest rates on deposits, as well as higher rates on borrowings. The interest rate spread of 2.58% for the three months ended March 31, 2024 decreased 18 basis points compared to 2.76% for the three months ended March 31, 2023.

Our net interest margin decreased 13 basis points, to 3.14%, for the three months ended March 31, 2024 compared to 3.27% for the three months ended March 31, 2023.

Interest Income. Interest income of $314.2 million for the three months ended March 31, 2024 increased $102.9 million, or 49%, compared with $211.3 million for the three months ended March 31, 2023. This increase reflected an increase in both average balances and yields of loans and loans held for sale, as well as securities available for sale and held to maturity. The higher yields were in response to higher interest rates set by the Federal Reserve.

Interest income of $272.0 million for the three months ended March 31, 2024 for loans and loans held for sale increased $82.5 million, or 44%, compared to the three months ended March 31, 2023. The average balance of loans, including loans held for sale, of $13.5 billion increased $2.9 billion, or 27%, compared $10.6 billion for the three months ended March 31, 2023. The average yield on loans increased 86 basis points to 8.11%, for the three months ended March 31, 2024, compared to 7.25% for the three months ended March 31, 2023. The increase in average balances of loans and loans held for sale was primarily due to increases in warehouse, multi-family, and healthcare loans, as well as loans held for sale, during the period.

Interest income of $14.4 million for the three months ended March 31, 2024 on securities available for sale increased $12.1 million, or 535%, compared to the three months ended March 31, 2023. The average balance of securities available for sale of $1.1 billion increased $639.5 million, or 144%, compared to $445.6 million for the three months ended March 31, 2023. The average yield increased 327 basis points to 5.33%, for the three months ended March 31, 2024 compared to 2.06% for the three months ended March 31, 2023. The increase in average balances of securities available for sale was primarily associated with the acquisition of certain securities in from a warehouse customer in December 2023 that provide protective put options and interest rate floor derivatives to prevent losses in value.

Interest income of $20.5 million for the three months ended March 31, 2024 for securities held to maturity increased $4.8 million, or 30%, compared to the three months ended March 31, 2023. The average balance of securities held for maturity of $1.2 billion increased $81.4 million, or 7%, compared to $1.1 billion for the three months ended March 31, 2023. The average yield increased 117 basis points 6.90% for the three months ended March 31, 2024 compared to 5.73% for the three months ended March 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.

Interest income of $5.5 million for the three months ended March 31, 2024 on interest-bearing deposits and other increased $3.4 million, or 155%, compared to the three months ended March 31, 2023. The average balance of interest-earning deposits and other of $346.2 million increased $161.7 million, or 88%, compared to $184.5 million for the three months ended March 31, 2023. The average yield increased 166 basis points to 6.44%, for the three months ended March 31, 2024 compared to 4.78% for the three months ended March 31, 2023.

Interest Expense. Total interest expense of $187.1 for the three months ended March 31, 2024 increased $76.5 million, or 69%, compared with $110.6 million for the three months ended March 31, 2023.

Interest expense on deposits increased $66.6 million, or 64%, to $171.0 million for the three months ended March 31, 2024, from $104.4 million for the three months ended March 31, 2023. The increase was primarily due to higher rates average balances and rates on certificates of deposit and interest-bearing checking, as well as higher rates on borrowings.

Interest expense of $76.5 million for the three months ended March 31, 2024 for certificate of deposit accounts increased $41.5 million, or 119%, compared to $34.9 million for the three months ended March 31, 2023. The average balance of certificates of deposits was $5.7 billion for the three months ended March 31, 2024, which increased $2.4 billion, or 71%, compared to the three months ended March 31, 2023. The average interest rate on certificates of deposits was 5.40% for the three months ended March 31, 2024, which was a 114 basis point increase compared to 4.26% for the three months ended March 31, 2023.

Interest expense of $60.7 million for the three months ended March 31, 2024 for interest-bearing checking accounts increased $20.0 million, or 49%, compared to the three months ended March 31, 2023. The average balance of interest-bearing checking accounts was $5.1 billion for the three months ended March 31, 2024, which increased $1.0 billion, or 25%, compared to the three months ended March 31, 2023. The average yield of interest-bearing checking was 4.81% for the three months ended March 31, 2024, which was a 74 basis point increase compared to 4.07% for the three months ended March 31, 2023.

Interest expense on borrowings of $16.1 million for the three months ended March 31, 2024 increased $9.9 million, or 161%, compared to $6.2 million the three months ended March 31, 2023. The increase was due primarily to a 386 basis point increase in the average cost of borrowings to 9.03%, compared to 5.17% for the three months ended March 31, 2023. Also included in 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 8.50% and 4.82%, to an effective rate of 9.03% and 5.17% for the three months ended March 31, 2024 and 2023, respectively.

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. 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:

(Dollars in thousands)

Provision for Credit Losses. We recorded a provision for credit losses of $4.7 million for the three months ended March 31, 2024, a decrease of $2.1 million, or 31%, over the three months ended March 31, 2023. The $4.7 million provision for credit losses consisted of $4.9 million for the ACL-Loans and a negative provision of $0.2 million for the ACL-OBCE’s. The ACL-Loans was $75.7 million, or 0.70% of total loans, at March 31, 2024, compared to $71.8 million, or 0.70% of total loans, at December 31, 2023, and $51.8 million, or 0.60%, at March 31, 2023. The increases in the ACL-Loans compared to both prior periods reflected increases associated with loan growth in the multi-family and healthcare portfolios, as well as changes in specific reserves and loss factors to reflect industry conditions. Additional details are provided in the ACL-Loans portion of the Comparison of Financial Condition at March 31, 2024 and December 31, 2023 and in Note 4: Loans and Allowance for Credit Losses on Loans.

Noninterest Income. Noninterest income of $40.9 million for the three months ended March 31, 2024 increased $26.6 million, or 187%, compared to $14.3 million for the three months ended March 31, 2023. The increase was primarily due to a $17.0 million, or 722%, increase in loan servicing fees, a $4.1 million, or 338%, increase in syndication and asset management fees, a $3.0 million, or 103%, increase in other income and a $2.6 million, or 39%, increase in gain on sale of loans.

Loan servicing fees included a $14.0 million positive fair market value adjustment to servicing rights for the three months ended March 31, 2024, compared to a $2.9 million negative adjustment to fair value of servicing rights for the three months ended March 31, 2023. The $2.6 million, or 39%, increase in gain on sale of loans resulted from higher interest rates across the industry that have led lower multi-family volumes sold in the secondary market. The $3.0 million increase in other income included a $2.3 million gain on derivatives for interest rate protection.

A summary of the gain on sale of loans for the three months ended March 31, 2024 and 2023 is below:

(in thousands)

Noninterest Expense. Noninterest expense of $48.9 million for the three months ended March 31, 2024 increased $14.1 million, or 41%, compared to $34.8 million for the three months ended March 31, 2023. The increase was due primarily to a $7.5 million, or 34%, increase in salaries and employee benefits associated with higher commissions on higher production volume. Also contributing to the higher expenses was a $2.9 million, or 135%, increase in FDIC deposit insurance expenses reflecting our growth in assets and the change in fee structure, as we are now classified as a large financial institution over $10 billion. Also, impacting the higher expenses was a $1.8 million, or 81%, increase in professional fees. The efficiency ratio was at 29.1% in the three months ended March 31, 2024, compared with 30.3% in the three months ended March 31, 2023.

Income Taxes. Income tax expense increased $8.9 million, or 48%, to $27.2 million for the three months ended March 31, 2024 from the three months ended March 31, 2023. The increase was due primarily to a 56% increase in pretax income period to period. The effective tax rate was 23.8% and 25.0% for the three months ended March 31, 2024 and March 31, 2023, respectively.

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. As one of the top ranked agency lenders in the nation, our licenses with Fannie Mae, Freddie Mac, and FHA, coupled with our bank financing products, provide sponsors custom beginning-to-end financing solutions that adapt to an ever-changing market. We are also one of the largest Ginnie Mae servicers in the country based on aggregate loan principal value. As of March 31, 2024 the Company’s total servicing portfolio had an unpaid principal balance of $26.4 billion, primarily managed in the Multi-Family Mortgage Banking segment. Included in this amount was an unpaid principal balance of loans serviced for others of $15.4 billion, an unpaid principal balance of loans sub-serviced for others of $2.2 billion, and other servicing balances of $0.7 billion at March 31, 2024. These loans are not included in the accompanying unaudited condensed consolidated balance sheet. The Company also manages $8.1 billion of loans on the balance sheet at March 31, 2024. 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 funded over $33.2 billion in 2022, $33.0 billion in 2023 and $7.9 billion in the three months ended March 31, 2024. 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 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. Low-income tax credit 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 Residential 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 15: 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 Limited Liability Companies (“LLC”).

For the three months ended March 31, 2024 and 2023, we had total net income of $87.1 million and $55.0 million, respectively. Net income for our three segments for the respective periods was as follows:

(In thousands)

Multi-family Mortgage Banking. The Multi-family Mortgage Banking segment reported net income of $16.6 million for the three months ended March 31, 2024, an increase of $14.6 million, or 745%, from net income of $2.0 million reported for the three months ended March 31, 2023. The increase in net income was primarily due to a $16.4 million increase in servicing fees, as well as higher syndication and asset management fees, and higher gain on sale of loans.

Servicing fees included a $13.2 million positive fair market value adjustment to servicing rights for the three months ended March 31, 2024, compared to a $2.2 million negative adjustment to fair value of servicing rights for the three months ended March 31, 2023.

Mortgage Warehousing. The Mortgage Warehousing segment reported net income of $20.2 million for the three months ended March 31, 2024, an increase of $11.5 million, or 134%, compared to $8.6 million for the three months ended March 31, 2023. The increase in net income reflected higher net interest income as volumes increased.

There was a 46% increase in warehouse loan volume of $7.9 billion compared to $5.4 billion for the three months ended March 31, 2023, which significantly exceeded industry volume increases of 13%, according to the Mortgage Bankers Association.

Banking. The Banking segment reported net income of $56.4 million for the three months ended March 31, 2024, an increase of $7.1 million, or 14%, compared to $49.3 million for the three months ended March 31, 2023. The increase in net income was primarily due to higher net interest income from higher yields and average balances on loans.

The results included a $0.8 million positive fair market value adjustment to servicing rights for the three months ended March 31, 2024, compared to a $0.7 million negative adjustment to fair value of servicing rights for the three months ended March 31, 2023.

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, 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 March 31, 2024, based on collateral, we had $5.6 billion in available unused borrowing capacity with the FHLB and the Federal Reserve discount window. 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.

The Company’s most liquid assets are in cash, short-term investments, including interest-bearing demand deposits, mortgage loans in process of securitization, loans held for sale, and warehouse repurchase agreements included in loans receivable. Taken together with its unused borrowing capacity of $5.6 billion described above, these totaled $10.9 billion, or 61%, of its $17.8 billion total assets at March 31, 2024. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our liquid assets and borrowing capacity significantly exceed our uninsured deposits. Uninsured deposits totaled approximately $2.1 billion as of March 31, 2024, representing less than 15% 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 $1.7 billion and $1.6 billion as of March 31, 2024 and December 31, 2023, respectively.

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 March 31, 2024, Accumulated Other Comprehensive Losses (“AOCL”) of $1.2 million, related to securities available for sale, decreased $1.3 million, or 53%, compared to losses of $2.5 million as of December 31, 2023. The $1.2 million of AOCL as of March 31, 2024 represented less than 1% of total equity and 1% of total securities available for sale.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash used in by operating activities was $(383.8) million and $(301.5) million for the three months ended March 31, 2024 and 2023, 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 $(695.0) million and $(1.1) billion for the three months ended March 31, 2024 and 2023, respectively. Net cash provided by financing activities, which is comprised primarily of net change in borrowings and deposits was $1.0 billion and $1.6 billion for the three months ended March 31, 2024 and 2023, respectively.

Certificates of deposit that are scheduled to mature in less than one year from March 31, 2024 totaled $5.9 billion, or 98% of total certificates of deposit. 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 U.S. generally accepted accounting principles, are not recorded in our 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 March 31, 2024, we had $3.8 billion in outstanding commitments to extend credit that are subject to credit risk and $4.1 billion outstanding commitments subject to certain performance criteria and cancellation by the Company, including loans pending closing, unfunded construction draws, and unfunded lines of warehouse credit. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. 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 August 8, 2022, which was declared effective on August 17, 2022, under which we can issue up to $500 million aggregate offering amount of registered securities to finance our growth objectives. 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. 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 $1.8 billion as of March 31, 2024, compared to $1.7 billion as of December 31, 2023. The $75.4 million, or 4%, increase resulted primarily from net income of $87.1 million, which was partially offset by dividends paid on common and preferred shares of $12.6 million during the period.

7% Series A Preferred Stock. In March 2019 the Company issued 2,000,000 shares of 7.00% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock, without par value, and with a liquidation preference of $25.00 per share (“Series A Preferred Stock”). The Company received net proceeds of $48.3 million after underwriting discounts, commissions and direct offering expenses. In April 2019, the Company issued an additional 81,800 shares of Series A Preferred Stock to the underwriters related to their exercise of an option to purchase additional shares under the associated underwriting agreement, resulting in an addition $2.0 million in net proceeds, after underwriting discounts.

The Company redeemed all outstanding shares of the Series A Preferred Stock on April 1, 2024 at a price equal to the liquidation preference of $25.00 per share, using cash on hand. As of the redemption date, the Series A Preferred Stock did not have any accrued but unpaid dividends.

6% Series B Preferred Stock. In August 2019 the Company issued 5,000,000 depositary shares, each representing a 1/40th interest in a share of its 6.00% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock, without par value, and with a liquidation preference of $1,000.00 per share (equivalent to $25.00 per depositary share)(“Series B Preferred Stock”). After deducting underwriting discounts, commissions, and direct offering expenses, the Company received total net proceeds of $120.8 million.

Dividends on the Series B Preferred Stock, to the extent declared by the Company’s board, are payable quarterly at an annual rate of $60.00 per share (equivalent to $1.50 per depositary share) through September 30, 2024. After such date, quarterly dividends were to accrue and be payable at a floating rate equal to three-month LIBOR plus a spread of 456.9 basis points per year. However, the terms of the Series B Preferred Stock permit us to replace three-month LIBOR if we determine that LIBOR has been discontinued or is no longer viewed as an acceptable benchmark for similar securities. With the cessation of published three-month LIBOR rates as of June 30, 2023, the Company has determined that three-month LIBOR has been discontinued and is no longer an acceptable benchmark. The Company has replaced three-month LIBOR with Federal Reserve’s three month Secured Overnight Financing Rate (“SOFR”). The Company believes that three-month SOFR represents the most comparable replacement benchmark, is an industry-accepted substitute, and is consistent with expectations of investors in securities similar to the Series B Preferred Stock. In addition to replacing three-month LIBOR with three-month SOFR, the terms of the Series B Preferred Stock permit us to adjust the spread to ensure that the payable floating rate remains comparable. Therefore, if the Series B Preferred Stock remains outstanding on or after October 1, 2024, in addition to using three-month SOFR as the benchmark, the Company will increase the spread by 26.2 basis points, which is consistent with industry practice and the recommendation of the Federal Reserve’s Alternative Reference Rates Committee, resulting in the Company paying a floating rate of three-month SOFR plus a spread of 483.1 basis points during the floating rate period. The Company may also redeem the Series B Preferred Stock at its option, subject to regulatory approval, on or after October 1, 2024.

6% Series C Preferred Stock. On March 23, 2021, the Company issued 6,000,000 depositary shares, each representing a 1/40th 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). 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.

On May 6, 2021, our 8% preferred shareholders participated in a private offering to replace their redeemed 8% preferred shares with the Company’s 6% Series C preferred stock. Accordingly, 46,181 shares (1,847,233 depositary shares) of the Company’s 6% Series C preferred stock were issued at a price of $25 per depositary share. The total capital raised from the private offering was $46.2 million, net of $23,000 in expenses.

Dividends on the Series C Preferred Stock, to the extent declared by the Company’s 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. 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). 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 $4.6 million paid to third parties, the Company received total net proceeds of $125.4 million. On September 30, 2022, the Company issued an additional 500,000 shares of Series D Preferred Stock to the underwriters 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.

Dividends on the Series D Preferred Stock, to the extent declared by the Company’s 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.

Common Shares/Dividends. As of March 31, 2024, the Company had 43,354,718 common shares issued and outstanding. The Board declared a quarterly dividend of $0.09 per share for the first quarter of 2024.

Capital Adequacy.

The following tables present the Company’s capital ratios at March 31, 2024 and December 31, 2023:

(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 March 31, 2024 and December 31, 2023, that the Company and Merchants Bank met all capital adequacy requirements to which they were subject.

As of March 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. There are no conditions or events since that notification that management believes have changed the Company’s or Merchants Bank’s category.

FMBI was subject to these measures prior to the sale of its branches and the merger of its remaining charter into Merchants Bank in January 2024. As of December 31, 2023, FMBI met all capital adequacy requirements (as set forth in the table above). The FDIC categorized FMBI as well capitalized at that time and there are no conditions or events since that notification that management believes would have changed that category.

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 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.

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. 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 of directors’ approved risk limits. Additionally, the Risk Committee 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 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 March 31, 2024 and December 31, 2023.

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. At March 31, 2024 we estimated that we are within policy limits set by our board of directors 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 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. 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 March 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.

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 March 31, 2024, 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, 2023.