Merchants Bancorp

We compensate our NEOs through a combination of base salary, cash bonus awards, cash incentive awards, equity incentive awards, and other benefits. Our compensation packages for our NEOs focus on rewarding performance as measured against established corporate goals. Additionally, in the case of Messrs. Dury and Schroeter we provide compensation for the performance of the lines of business they manage, Merchants Capital and mortgage warehouse, respectively. Each element of our NEOs’ compensation is designed to achieve a specific purpose and to contribute to a total package that is competitive with similar packages provided by other institutions that compete for the services of individuals like our NEOs. The Compensation Committee also believes that awards (including commissions, in the case of Mr. Dury) that relate to the performance of the Company and/or the NEO’s line of business should be an equal or greater percentage than salary of a NEO’s total compensation to ensure that such NEO has appropriate levels of compensation at risk if results are not achieved and is therefore properly motivated and aligned with shareholders.

For 2023, the Compensation Committee ultimately established, in the case of Mr. Petrie, and recommended to the Board, in the case of our other NEOs, the following salaries and target cash and equity incentives:

The Compensation Committee established total revenue, earnings per common share, and return on average total equity as the performance measures for all cash incentive awards and equity incentive awards for each NEO. The Compensation Committee established a target for each of the performance measures based on a Board approved budget for 2023. Each performance measure was equally weighted, and the incentives had a payout range of 75% to 125% of target. The Compensation Committee believes that these performance measures are meaningful and the targets are challenging without encouraging excessive risk and help ensure that NEOs’ incentives are aligned with the benefits and return received by shareholders.

After reviewing the Compensation Committee’s recommendations, the Board approved of such recommendations. However, after the conclusion of our 2023 fiscal year, the Compensation Committee recommended changes to Mr. Schroeter’s compensation structure, replacing his equity incentive award with a discretionary cash award that more closely aligned his compensation to the success of our mortgage warehouse business. The Compensation Committee believed this was appropriate considering the success of the mortgage warehouse business in 2023 notwithstanding the challenging market conditions for single family mortgages caused by interest rates that continued to rapidly rise in 2023, among other factors. In particular, our mortgage warehouse segment had net income of $73.5 million in 2023 as compared to $48.6 million in 2022, despite a decrease in single family mortgage volume across the industry of approximately 30 percent.