Press Release

Merchants Bancorp Reports Second Quarter 2018 Results

- Net income of $15.7 million, or $0.52 per common share, increased by 6% compared with June 30, 2017

- Total assets of $3.8 billion, increased by $393.5 million, or 12% compared to December 31, 2017

- Return on average assets of 1.70% for three months ended June 30, 2018

- Announced on June 13, 2018, its plans to acquire Farmers-Merchants Bank of Paxton, Illinois

Company Release - 7/30/2018 4:05 PM ET

CARMEL, Ind., July 30, 2018 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported second quarter 2018 net income of $15.7 million, or $0.52 per common share, based on 28.7 million shares.  This compared with $14.8 million, or $0.66 per common share, based on 21.1 million shares in the second quarter of 2017.  The decrease in earnings per common share reflected the additional common shares associated with the Company's initial public offering in October of 2017.

(PRNewsfoto/Merchants Bancorp)

The Company also reported net income of $30.7 million for the six months ended June 30, 2018, a $6.8 million, or 29% increase, compared with $23.9 million in the comparable period of 2017.  Earnings per common share of $1.01 for the six months ended June 30, 2018 compared with $1.05 on a lower share count in the comparable period of 2017.

"The second quarter built on our momentum from the first quarter as we continue to record strong returns on our asset base.  We are pleased with our loan and deposit growth through the second quarter, as we build a pipeline for future growth throughout 2018 and beyond.  Our asset quality also remains strong and stable, as we continue to attract new customers by delivering the products and services that are valued in our select markets," said Michael Petrie, Chairman and CEO of Merchants.

Total Assets
Total assets increased $393.5 million, or 12%, to $3.8 billion at June 30, 2018, compared with $3.4 billion at December 31, 2017. The increase was due primarily to increases in loans.  Return on average assets was 1.70% for the three months ended June 30, 2018, compared with 2.06% for the three months ended June 30, 2017.

Total loans receivable before allowance for loan losses increased $459.6 million, or 33%, to $1.8 billion at June 30, 2018, compared with $1.4 billion at December 31, 2017. This increase was primarily due to growth in multi-family and healthcare financing, as well as mortgage warehouse lines of credit.

Asset Quality
The allowance for loan losses increased by $2.3 million, to $10.6 million, at June 30, 2018, compared with $8.3 million at December 31, 2017.  The increase reflected a higher amount of loans held for investment, as non-performing loans increased to $4.3 million, or 0.24% of total loans at June 30, 2018, compared with $3.1 million, or .23% of total loans, at December 31, 2017. 

Total Deposits
Total deposits increased $232.8 million, or 8%, to $3.2 billion at June 30, 2018, compared with $2.9 billion at December 31, 2017. The increase was due primarily to growth in certificates of deposit and demand deposits during the quarter.   Total brokered deposits increased to $1.1 billion, or 33% of total deposits at June 30, 2018, compared with 32% at December 31, 2017.

Interest Income
Interest income increased $11.7 million, or 52%, to $34.1 million for the three months ended June 30, 2018, compared with $22.5 million for the three months ended June 30, 2017. This increase was due to both loan growth and higher loan yields.  The average balance of loans, including loans held for sale, during the three months ended June 30, 2018, increased by $601.0 million, or 33%, to $2.5 billion, compared with $1.9 billion for the three months ended June 30, 2017.  The average yield on loans increased 59 basis points, to 4.71%, for the three months ended June 30, 2018, compared with 4.12% for the three months ended June 30, 2017.

Interest Expense
Total interest expense increased $5.2 million, or 77%, to $11.9 million for the three months ended June 30, 2018, compared with the three months ended June 30, 2017. Interest expense on deposits increased $5.0 million, or 106%, to $9.7 million for the three months ended June 30, 2018, compared with the three months ended June 30, 2017. The increase in the cost of deposits was due primarily to the higher volume of certificates of deposits, but also to the overall increase in interest rates since last year. There was a 47 basis point increase in the average cost of interest-bearing deposits, to 1.53%, for the three months ended June 30, 2018, compared with 1.06% for the same period in 2017, and an increase in the average balance of interest-bearing deposits of $762.7 million, or 43%, to $2.6 billion for the three months ended June 30, 2018.

Net Interest Income
Net interest income increased $6.5 million, or 41%, to $22.2 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017.  The increase was due to the overall growth in interest-earning assets, particularly in loans and loans held for sale, coupled with a 24 basis point increase in our interest rate spread, to 2.03%, for the three months ended June 30, 2018, from 1.79% for the three months ended June 30, 2017.   The net interest margin increased 23 basis points to 2.51% for the three months ended June 30, 2018, from 2.28% for the three months ended June 30, 2017.

Noninterest Income 
Noninterest income decreased by $5.0 million, or 30%, to $11.6 million for the three months ended June 30, 2018, compared with the three months ended June 30, 2017. The decrease was due to a decrease of $7.4 million, or 48%, in the gain on sale of loans, primarily associated with lower volume of multi-family loan sales in the secondary market. These decreases were partially offset by a $2.2 million increase in loan servicing fees that were positively impacted by a $1.8 million fair market value adjustment in mortgage servicing rights.

Noninterest Expense
Noninterest expense increased $3.7 million, or 45%, to $12.0 million for the three months ended June 30, 2018, compared with $8.3 million for the three months ended June 30, 2017.  The increase was due primarily to a $2.1 million, or 40%, increase in salaries and employee benefits.  The increase in salaries and employee benefits was due primarily to an increase in the number of employees resulting from acquisitions, business growth, and additional hiring associated with becoming a publicly traded company.  The higher salary costs, along with lower noninterest income, contributed to an increase in the efficiency ratio, to 35.5% in the second quarter of 2018, compared with 25.5% for the second quarter of 2017.

Income Taxes
Income tax expense decreased $3.9 million, or 43%, to $5.2 million for the three months ended June 30, 2018, compared with the three months ended June 30, 2017.  The decrease was due primarily to the lower tax rates under the recent federal income tax reform legislation, and by a 13% decrease in pre-tax income over the same period.  The effective tax rate was 24.9% for the three months ended June 30, 2018 compared with 38.1% for the three months ended June 30, 2017.

Segments
Banking income increased by 113% in the second quarter, Mortgage Warehousing income increased by 25%, and Multi-family Mortgage Banking income decreased by 39%, compared with the second quarter of 2017, as the Company continues to diversify its business mix.

About Merchants Bancorp
Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple lines of business with a focus on Federal Housing Administration ("FHA") multi-family housing and healthcare facility financing and servicing; mortgage warehouse financing; retail and correspondent residential mortgage banking; agricultural lending; and traditional community banking.  Merchants Bancorp, with $3.8 billion in assets and $3.2 billion in deposits as of June 30, 2018, conducts its business through its direct and indirect subsidiaries, Merchants Bank of Indiana, P/R Mortgage and Investment Corp., Joy State Bank, RICHMAC Funding LLC, and Merchants Mortgage, a division of Merchants Bank of Indiana. For more information and financial data, please visit Merchants' Investor Relations page at investors.merchantsbankofindiana.com.

Forward-Looking Statements 
This press release contains forward-looking statements which reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as "may," "might," "should," "could," "predict," "potential," "believe," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "goal," "target," "outlook," "aim," "would," "annualized" and "outlook," or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.  A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K.  Any forward-looking statements presented herein are made only as of the date of this press release, and we do not undertake any obligation to update or revise any forward-looking statements to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

 

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)








June 30,


December 31,



2018


2017

Assets





Cash and due from banks


$           18,347


$          18,905

Interest-earning demand accounts


334,056


340,614

     Cash and cash equivalents


352,403


359,519

Securities purchased under agreements to resell


6,954


7,043

Trading securities


135,075


140,837

Available for sale securities


385,925


408,371

Federal Home Loan Bank (FHLB) stock


7,723


7,539

Loans held for sale (includes $51,768 at fair value for 2018)


953,150


995,319

Loans receivable, net of allowance for loan losses of $10,588 and $8,311,
respectively


1,823,691


1,366,349

Premises and equipment, net


8,584


5,354

Mortgage servicing rights


70,085


66,079

Interest receivable


10,306


8,326

Goodwill 


5,369


3,902

Intangible assets, net


1,839


1,512

Other assets and receivables


25,578


22,983

Total assets


$      3,786,682


$     3,393,133

Liabilities and Shareholders' Equity





  Liabilities





   Deposits





     Noninterest bearing


$         585,464


$        620,700

     Interest bearing


2,590,886


2,322,861

     Total deposits


3,176,350


2,943,561

Borrowings 


189,515


56,612

Deferred and current tax liabilities, net


12,563


12,422

Other liabilities


15,335


13,064

Total liabilities


3,393,763


3,025,659

Commitments and  Contingencies





Shareholders' Equity





Common stock, without par value





     Authorized - 50,000,000 shares





     Issued and outstanding - 28,694,036 shares at June 30, 2018 and 
     28,685,167 shares at December 31, 2017


134,952


134,891

Preferred stock - $1,000 per share, without par value





   Authorized - 5,000,000 shares





   Issued and outstanding - 41,625 shares 


41,581


41,581

Retained earnings


217,856


192,008

Accumulated other comprehensive loss


(1,470)


(1,006)

Total shareholders' equity


392,919


367,474

Total liabilities and shareholders' equity


$      3,786,682


$     3,393,133

 

 

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)
















Three Months Ended 


Six Months Ended 



June 30, 


June 30, 



2018


2017


2018


2017

Interest Income













Loans


$

28,790


$

19,022


$

53,402


$

34,805

Investment securities:













   Trading



1,489



1,448



2,478



2,824

   Available for sale



1,625



1,022



3,167



1,916

Federal Home Loan Bank stock



81



79



210



160

Other



2,138



893



3,904



1,766

  Total interest income



34,123



22,464



63,161



41,471

Interest Expense













Deposits



9,741



4,740



16,757



8,511

Borrowed funds



2,176



2,000



4,090



3,705

  Total interest expense



11,917



6,740



20,847



12,216

Net interest income



22,206



15,724



42,314



29,255

Provision for loan losses



998



240



2,404



480

Net Interest Income After Provision for Loan Losses



21,208



15,484



39,910



28,775

Noninterest Income













Gain on sale of loans



7,831



15,167



18,723



20,609

Loan servicing fees, net



2,555



395



2,233



2,384

Mortgage warehouse fees



684



662



1,170



1,258

Other income



560



402



817



466

  Total noninterest income



11,630



16,626



22,943



24,717

Noninterest Expense













Salaries and employee benefits



7,268



5,175



13,755



9,067

Loan expenses



1,302



1,069



2,258



1,953

Occupancy and equipment



761



398



1,326



754

Professional fees



677



315



1,165



530

Deposit insurance expense



236



210



482



474

Technology expense



293



261



584



506

Other expense



1,463



833



2,700



1,618

  Total noninterest expense



12,000



8,261



22,270



14,902

Income Before Income Taxes



20,838



23,849



40,583



38,590

Provision for Income Taxes 



5,186



9,091



9,870



14,702

Net Income


$

15,652


$

14,758


$

30,713


$

23,888

   Dividends on Preferred Stock



(832)



(832)



(1,665)



(1,664)

Net Income allocated to Common Shareholders



14,820



13,926



29,048



22,224

Basic earnings per share


$

0.52


$

0.66


$

1.01


$

1.05

Diluted earnings per share


$

0.52


$

0.66


$

1.01


$

1.05

Weighted-average shares outstanding













Basic



28,692,749



21,114,400



28,691,857



21,114,400

Diluted



28,720,805



21,127,923



28,715,687



21,125,590

Dividends per share


$

0.06


$

0.05


$

0.12


$

0.10

 

 

Key Operating Results

(Unaudited)

($ in thousands)
















Three Months Ended


Six Months Ended




June 30,


March 31,


June 30,


June 30,


June 30,




2018


2018


2017


2018


2017













Noninterest Expense



12,000


10,270


8,261


22,270


14,902













Net Interest Income (before provision for losses)



22,206


20,108


15,724


42,314


29,255

Noninterest Income



11,630


11,313


16,626


22,943


24,717

Total Income



33,836


31,421


32,350


65,257


53,972













Efficiency Ratio



35.47%


32.69%


25.54%


34.13%


27.61%

























Average Assets



3,684,225


3,364,165


2,872,200


3,525,080


2,751,823

Net Income



15,652


15,061


14,758


30,713


23,888

Return on Average Assets before annualizing



0.42%


0.45%


0.51%


0.87%


0.87%

Annualization factor



4.00


4.00


4.00


2.00


2.00

Return on Average Assets



1.70%


1.79%


2.06%


1.74%


1.74%













Return  on Average Tangible Common Equity (1)



17.41%


17.38%


31.00%


17.41%


25.40%













Tangible Book Value Per Common Share (1)



$               11.99


$                 11.54


$                8.73


$               11.99


$                 8.73













Tangible Common Equity/Tangible Assets (1)



9.11%


9.02%


5.97%


9.11%


5.97%













(1) Non-GAAP financial measure - see
"Reconciliation of Non-GAAP Measures" 
























(1) Reconciliation of Non-GAAP Financial Measures

Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations.  As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable  to non-GAAP financial measures that other companies use.  A reconciliation of GAAP to non-GAAP financial measures is below.  Net Income Available to Common Shareholders excludes preferred stock.  Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total assets.  Tangible Assets is calculated by excluding the balance of goodwill and intangible assets.  Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding.     
















Three Months Ended


Six Months Ended




June 30,


March 31,


June 30,


June 30,


June 30,




2018


2018


2017


2018


2017













Net Income



15,652


15,061


14,758


30,713


23,888

Less: Preferred Stock Dividends  



(832)


(833)


(832)


(1,665)


(1,664)

Net Income Available to Common Shareholders



14,820


14,228


13,926


29,048


22,224













Average Shareholders Equity



389,069


375,687


221,777


382,415


217,122

Less: Average Goodwill & Intangibles



(7,031)


(6,616)


(523)


(7,128)


(523)

Less: Average Preferred stock



(41,581)


(41,581)


(41,581)


(41,581)


(41,581)

Average Tangible Common Shareholder's Equity



340,457


327,490


179,673


333,706


175,018













Annualization Factor



4.00


4.00


4.00


2.00


2.00

Return on Average Tangible Common Equity



17.41%


17.38%


31.00%


17.41%


25.40%

























Total Equity



392,919


379,713


226,513


392,919


226,513

Less: Goodwill and Intangibles



(7,208)


(7,054)


(523)


(7,208)


(523)

Less: Preferred Stock



(41,581)


(41,581)


(41,581)


(41,581)


(41,581)

Tangible Common Equity



344,130


331,078


184,409


344,130


184,409













Assets



3,786,682


3,675,849


3,091,500


3,786,682


3,091,500

Less: Goodwill and Intangibles



(7,208)


(7,054)


(523)


(7,208)


(523)

Tangible Assets



3,779,474


3,668,795


3,090,977


3,779,474


3,090,977













Ending common shares



28,694,036


28,692,206


21,114,400


28,694,036


21,114,400













Tangible Book Value per Common Share



$               11.99


$                 11.54


$                8.73


$               11.99


$                 8.73

Tangible Common Equity/Tangible Assets



9.11%


9.02%


5.97%


9.11%


5.97%

 

 

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)














Three Months Ended


Three Months Ended


Three Months Ended


June 30, 2018


March 31, 2018


June 30, 2017


Average


Yield/


Average


Yield/


Average


Yield/


Balance

Int.

Rate 


Balance

Int.

Rate 


Balance

Int.

Rate 

Assets:
























Interest bearing deposits

$      517,594

$   2,219

1.72%


$      457,235

$    1,895

1.68%


$        374,780

$       972

1.04%

Securities available for sale

407,896

1,625

1.60%


416,266

1,542

1.50%


356,375

1,022

1.15%

Trading securities

175,876

1,489

3.40%


121,029

989

3.31%


187,978

1,448

3.09%

Loans and loans held for sale

2,451,061

28,790

4.71%


2,247,890

24,612

4.44%


1,850,018

19,022

4.12%

     Total Interest Earning Assets

3,552,427

34,123

3.85%


3,242,420

29,038

3.63%


2,769,151

22,464

3.25%

Allowance for loan losses

(9,986)




(9,071)




(6,759)



Noninterest-earning assets

141,784




130,816




109,808















Total assets

$    3,684,225




$   3,364,165




$     2,872,200



























Liabilities/Equity:
























Interest bearing checking

783,798

3,285

1.68%


645,339

2,425

1.52%


365,133

1,447

1.59%

Savings deposits

264,343

190

0.29%


381,749

215

0.23%


325,436

211

0.26%

Money market 

796,217

3,265

1.64%


816,707

2,887

1.43%


873,581

2,552

1.17%

Certificates of deposit

708,525

3,001

1.70%


398,992

1,489

1.51%


226,030

530

0.94%

    Total interest bearing deposits

2,552,883

9,741

1.53%


2,242,787

7,016

1.27%


1,790,180

4,740

1.06%













Borrowings

69,430

2,176

12.57%


65,635

1,914

11.83%


56,756

2,000

14.13%

    Total Interest Bearing Liabilities

2,622,313

11,917

1.82%


2,308,422

8,930

1.57%


1,846,936

6,740

1.46%













Noninterest bearing deposits

643,334




656,284




771,273



Noninterest-bearing liabilities

29,509




23,772




32,215















    Total liabilities

3,295,156




2,988,478




2,650,424















    Equity

389,069




375,687




221,777















Total liabilities and equity

$    3,684,225




$   3,364,165




$     2,872,201















Net Interest Income


$  22,206




$   20,108




$   15,724














Interest Rate Spread



2.03%




2.06%




1.79%













Net interest-earning assets

$      930,114




$      933,998




$        922,215















Net Interest Margin



2.51%




2.52%




2.28%













Average Interest Earning Assets to
Average Interest Bearing Liabilities



135.47%




140.46%




149.93%

 

 

Segment Results

(Unaudited)

($ in thousands)





































Net Income


Net Income








Three Months Ended


Six Months Ended



Total Assets





June 30,


June 30,



June 30,


December 31,





2018


2017


2018


2017



2018


2017

Segment
















Multi-family Mortgage Banking


$         4,765


7,783


$   10,249


11,300



$       146,262


$     134,390

Mortgage Warehousing


5,774


4,623


10,404


8,418



1,550,255


1,352,748

Banking




6,485


3,041


12,465


5,454



2,071,022


1,889,140

Other




(1,372)


(689)


(2,405)


(1,284)



19,143


16,855

Total




$       15,652


$  14,758


$   30,713


$    23,888



$    3,786,682


$   3,393,133

 

 

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SOURCE Merchants Bancorp

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