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 2024, 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 believes the performance measures are appropriate metrics by which to compensate our NEOs and that they align the performance of our executives with the interests of our shareholders. Total revenue is a key performance benchmark used by investors and analysts to evaluate a company’s success, and meeting or exceeding revenue targets can enhance both the company’s reputation and stock price. Revenue growth reflects our ability to originate both interest and non-interest income and grow our business, the strong market demand for our products and services, and is a sign of efficient operations and effective management practices. Earnings per common share directly reflects a company’s profitability on a per-share basis, making it a strong indicator of shareholder value creation. Further, earnings per common share is a metric that reflects the quality of our credit because, by properly managing credit risk and asset quality, we ensure that the Company maintains a healthy balance sheet, which supports stable earnings and thus positively influences earnings per common share. Any loan losses directly affect our net income and thus our earnings per common share. Return on average total equity assesses how effectively a company uses its shareholders’ investments to generate profits. It indicates how much profit we generate for each dollar of shareholder equity, and the higher the return on average total equity, the more efficient we are at generating income.

The Compensation Committee established a target for each of the performance measures based on a Board approved budget for 2024. 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.

For 2024, the Compensation Committee recommended changes to Mr. Schroeter’s compensation structure as compared to 2023, replacing both his cash and equity incentive awards with a discretionary cash award that directly aligned his compensation to the success of our mortgage warehouse business. Additionally, shortly after the Board approved the Compensation Committee’s recommendations in January 2024, in March 2024 Mr. Macke announced his intention to retire from the Company. The Compensation Committee determined it was appropriate to modify Mr. Macke’s compensation structure such that instead of being eligible for both a cash and equity incentive award, Mr. Macke would only be eligible for a cash incentive award, with a target established at $420,000 to be pro-rated based on the number of days he was employed in 2024.