Merchants Bancorp Income Taxes Disclosure
Note 21: Income Taxes
For the year ended December 31, 2025, the Company adopted ASU 2023-09 – Improvements to Income Tax Disclosures (Topic 740) that requires public business entities to provide additional disclosures to enhance transparency and increase usefulness of the disclosures. The update requires a tabular tax rate reconciliation, disclosure of income tax expense and taxes paid broken down by federal, state, and foreign with a disaggregation for jurisdictions that exceed 5% of income for taxes, and additional other information. The Company chose to apply the update on a retrospective basis as allowed per the amendment. The update did not have a material impact on the Company’s financial position or results of operations but did require expansion of the income tax disclosures below.
The data presented below is disaggregated as required by GAAP for each table presented. The Company’s income is derived from United States operations only.
The Company’s effective tax rate reconciliation for the years ended December 31, 2025, 2024, and 2023, is shown below:
Year Ended December 31, | ||||||||||||
| 2025 | | 2024 | 2023 | ||||||||
| (In thousands) | |||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | |||||||
US federal statutory income tax rate | $ | 55,398 | 21.0% | $ | 88,755 | 21.0% | $ | 73,061 | 21.0% | |||
| 7,345 | 2.8% |
| 15,960 | 3.8% |
| (2,655) | (0.8)% | ||||
Tax credits | ||||||||||||
Production tax credits | (8,461) | (3.2)% | — | — | — | — | ||||||
Credits and benefits on investments using proportional amortization (2) | (7,317) | (2.8)% | (2,774) | (0.6)% | (2,136) | (0.6)% | ||||||
Other | (550) | (0.2)% | (1,100) | (0.3)% | — | — | ||||||
Nontaxable and nondeductible items | ||||||||||||
Tax-exempt interest income net of disallowed interest expense | (2,819) | (1.1)% | (2,783) | (0.7)% | (1,759) | (0.5)% | ||||||
Other | 4,434 | 1.7% | 4,198 | 1.0% | 2,162 | 0.6% | ||||||
Other adjustments | ||||||||||||
Return-to-provision adjustments (3) |
| (3,000) | (1.1)% |
| — | — |
| — | — | |||
Effective tax rate | $ | 45,030 | 17.1% | $ | 102,256 | 24.2% | $ | 68,673 | 19.7% | |||
| (1) | In 2025, state and local income taxes in New York state, New York City, and California account for the majority of the domestic state and local income taxes, net of federal tax effect category. In 2024, state and local income taxes in New York state, New York City, New Jersey, Florida, California, and Illinois account for the majority of the domestic state and local income taxes, net of federal tax effect category. In 2023, state and local income taxes in New York state, New York City, Illinois, and Florida account for the majority of the domestic state and local income taxes, net of federal tax effect category. |
| (2) | This line item includes the effects of Low-Income Housing Tax Credit (LIHTC) credits, related amortization, and permanent difference adjustments associated with LIHTC investments. These items are aggregated as they are not individually significant. |
| (3) | The return-to-provision adjustment for 2025 is a result of changes in accounting estimates used on the income tax provision compared to actual amounts on the entity's filed income tax return. |
The following table provides the amount of income taxes paid (net of refunds received), disaggregated as appropriate, for the years ended December 31, 2025, 2024, and 2023:
Year Ended December 31, |
| |||||||||
| 2025 | | 2024 | 2023 |
| |||||
| (In thousands) | |||||||||
United States federal | $ | 32,500 | $ | 69,750 | $ | 58,250 | ||||
United States state and local |
| |||||||||
Indiana | — | (5,687) | (2,563) | |||||||
New York state | 2,012 | 5,077 | 2,789 | |||||||
New York City |
| 9,161 |
| — |
| 5 | ||||
Other |
| 3,963 |
| 10,438 |
| 8,907 | ||||
Total United States state and local |
| 15,136 |
| 9,828 |
| 9,138 | ||||
Total income taxes paid, net | $ | 47,636 | $ | 79,578 | $ | 67,388 | ||||
The following table includes the components of pretax income and expense, disaggregated by foreign and state jurisdictions for the years ended December 31, 2025, 2024, and 2023:
Year Ended December 31, | |||||||||
| 2025 | | 2024 | 2023 | |||||
| (In thousands) | ||||||||
Income from continuing operations before income tax expense (benefit) | |||||||||
United States federal | $ | 263,800 | $ | 422,642 | $ | 347,907 | |||
Total | $ | 263,800 | $ | 422,642 | $ | 347,907 | |||
Income tax expense (benefit) from continuing operations | |||||||||
Current tax expense (benefit) | |||||||||
United States federal | $ | 29,060 | $ | 78,386 | $ | 72,537 | |||
United States state and local | 8,192 | 19,240 | (1,422) | ||||||
Total current tax expense (benefit) | 37,252 | 97,626 | 71,115 | ||||||
Deferred tax expense (benefit) | |||||||||
United States federal | 6,672 | 3,666 | (503) | ||||||
United States state and local | 1,106 | 964 | (1,939) | ||||||
Total deferred tax expense (benefit) | 7,778 | 4,630 | (2,442) | ||||||
Total income tax expense (benefit) | |||||||||
United States federal | 35,732 | 82,052 | 72,034 | ||||||
United States state and local | 9,298 | 20,204 | (3,361) | ||||||
Total income tax expense (benefit) | $ | 45,030 | $ | 102,256 | $ | 68,673 | |||
The tax effects of temporary differences related to deferred taxes shown on the balance sheet were:
December 31, | ||||||
| 2025 | | 2024 | |||
(In thousands) | ||||||
Deferred tax assets | ||||||
Allowance for credit losses on loans | $ | 22,389 | $ | 23,880 | ||
Unrealized loss on securities available for sale |
| 10 |
| 42 | ||
Other |
| 6,513 |
| 5,532 | ||
Total assets |
| 28,912 |
| 29,454 | ||
Deferred tax liabilities |
| |
| | ||
Depreciation |
| (2,910) |
| (2,532) | ||
Intangible assets |
| (556) |
| (391) | ||
Servicing rights |
| (49,394) |
| (44,854) | ||
Limited partnership investments |
| (5,177) |
| (4,575) | ||
State tax receivable | (734) | (110) | ||||
Derivative assets | (1,870) | (967) | ||||
Other |
| (1,370) |
| (1,314) | ||
Total liabilities |
| (62,011) |
| (54,743) | ||
Net deferred tax liability | $ | (33,099) | $ | (25,289) | ||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Mar 12, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Mar 4, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Mar 16, 2020 | |
| 2018 | Mar 15, 2019 | |
| 2017 | Mar 28, 2018 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.