0001104659-26-057107
SEC filingNet income rose 16% to $67.7M and EPS increased 34% to $1.25, driven by higher noninterest income from servicing rights and derivatives, though operating cash flow turned negative due to loan growth.
Net income for the first quarter of 2026 was $67.7 million, a 16.3% increase from $58.2 million in the prior year quarter. Diluted earnings per share rose 34.4% to $1.25 from $0.93, benefiting from both higher net income and a reduction in weighted-average diluted shares. The increase in net income was primarily driven by higher noninterest income, particularly from servicing rights and derivatives, as well as an increase in gain on sale of loans resulting from higher volume in the multi-family loan portfolio.
The decrease in certificates of deposit is primarily due to the decrease in use of brokered deposits, reflecting a strategic shift toward core deposit funding. The Company has numerous funding sources to cover volatility in cash flows for operating and financing needs, including cash, investments, borrowing capacity, deposit base, and capital resources. 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.
Management believes, as of March 31, 2026, that the Company and Merchants Bank met all capital adequacy requirements to which they were subject. 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. 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 the Company's capital position.
The increase in gain on sale of loans resulted primarily from higher volume in the multi-family loan portfolio. The servicing rights are recorded and carried at fair value based on expected future cash flows. The EVE reported at March 31, 2026 projects that as interest rates increase (decrease) immediately, the economic value of equity position will be expected to decrease (increase).