Press Release

Merchants Bancorp Reports Third Quarter 2018 Results

- Net income of $16.7 million increased by 60% compared with September 30, 2017

- Earnings of $0.55 per common share increased by 22% compared with September 30, 2017

- Loans Receivable of $1.9 billion increased by 39% compared with December 31, 2017

- Total assets of $3.8 billion, increased by $413.8 million, or 12%, compared with December 31, 2017

- Return on average assets of 1.75% and 1.74% for three and nine months ended September 30, 2018, respectively

- Closed on its acquisition of Farmers-Merchants Bank of Paxton, Illinois on October 1, 2018

Company Release - 10/30/2018 4:05 PM ET

CARMEL, Ind., Oct. 30, 2018 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported third quarter 2018 net income of $16.7 million, or $0.55 per common share, compared with $10.5 million, or $0.45 per common share in the third quarter of 2017.

(PRNewsfoto/Merchants Bancorp)

The Company also reported net income of $47.5 million for the nine months ended September 30, 2018, a 38% increase compared with $34.4 million in the comparable period of 2017.  Earnings per common share of $1.57 for the nine months ended September 30, 2018 compared with $1.50 per common share, on a 7.5 million lower share count, in the comparable period of 2017.

"Our third quarter results continued to demonstrate our commitment to delivering sustainable growth that sets us apart in the marketplace," said Michael Petrie, Chairman and CEO of Merchants. "As we navigate a higher interest rate environment, we also remain confident in our ability to deliver products and services that will reinforce the success of our differentiated business model," added Petrie.

Total Assets
Total assets increased $413.8 million, or 12%, to $3.8 billion at September 30, 2018, compared with $3.4 billion at December 31, 2017. The increase was due primarily to loan growth.  Return on average assets was 1.75% for the three months ended September 30, 2018, compared with 1.32% for the three months ended September 30, 2017.

Total loans receivable before allowance for loan losses increased $542.4 million, or 39%, to $1.9 billion at September 30, 2018, compared with $1.4 billion at December 31, 2017. This increase was primarily a result of growth in multi-family and healthcare financing, as well as mortgage warehouse lines of credit.

Asset Quality
The allowance for loan losses increased by $2.9 million, to $11.2 million, at September 30, 2018, compared with $8.3 million at December 31, 2017, reflecting growth in loans held for investment.  Non-performing loans were just $1.9 million, or 0.10% of total loans at September 30, 2018, compared with $3.1 million, or 0.23% of total loans at December 31, 2017. 

Total Deposits
Total deposits increased $358.8 million, or 12%, to $3.3 billion at September 30, 2018, compared with $2.9 billion at December 31, 2017. The increase was due primarily to growth in demand deposits and certificates of deposit and during the quarter.   Total brokered deposits decreased by 10%, to $843.7 million, or 26% of total deposits at September 30, 2018, compared with 32% at December 31, 2017.

Interest Income
Interest income increased $11.6 million, or 44%, to $37.6 million for the three months ended September 30, 2018, compared with $26.0 million for the three months ended September 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 September 30, 2018, increased by $577.4 million, or 27%, to $2.7 billion, compared with $2.1 billion for the three months ended September 30, 2017.  The average yield on loans increased 59 basis points, to 4.75%, for the three months ended September 30, 2018, compared with 4.16% for the three months ended September 30, 2017.

Interest Expense
Total interest expense increased $6.5 million, or 85%, to $14.1 million for the three months ended September 30, 2018, compared with the three months ended September 30, 2017. Interest expense on deposits increased $6.0 million, or 106%, to $11.7 million for the three months ended September 30, 2018, compared with the three months ended September 30, 2017. The increase in the cost of deposits was due primarily to the overall increase in interest rates since last year, but also the higher volume of certificates of deposits. There was a 75 basis point increase in the average cost of interest-bearing deposits, to 1.80%, for the three months ended September 30, 2018, compared with 1.05% for the same period in 2017, and an increase in the average balance of interest-bearing deposits of $444.6 million, or 21%, to $2.6 billion for the three months ended September 30, 2018.

Net Interest Income
Net interest income increased $5.1 million, or 28%, to $23.5 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017.  The increase was primarily due to the growth in loans and loans held for sale, partially offset by a 4 basis point decrease in our interest rate spread, to 1.94%, for the three months ended September 30, 2018, from 1.98% for the three months ended September 30, 2017.   The net interest margin increased 15 basis points to 2.53% for the three months ended September 30, 2018, from 2.38% for the three months ended September 30, 2017.

Noninterest Income
Noninterest income increased by $3.9 million, or 48%, to $11.9 million for the three months ended September 30, 2018, compared with the three months ended September 30, 2017. The increase was primarily due to a $1.9 million increase in loan servicing fees that was positively impacted by a $500,000 fair market value adjustment in mortgage servicing rights.  Gain on sale of loans increased $1.6 million, primarily associated with multi-family loan sales in the secondary market.

Noninterest Expense
Noninterest expense increased $3.5 million, or 39%, to $12.4 million for the three months ended September 30, 2018, compared with $8.9 million for the three months ended September 30, 2017.  The increase was due primarily to a $2.5 million, or 47%, 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 business growth, higher commissions related to higher multi-family volume, and additional hiring associated with becoming a publicly traded company.  Despite the increase in salaries and benefits, the efficiency ratio remained relatively stable, at 35.2% in the third quarter of 2018, compared with 33.8% for the third quarter of 2017.

Income Taxes
Income tax expense decreased $861,000 million, or 13%, to $5.6 million for the three months ended September 30, 2018, compared with the three months ended September 30, 2017.  The decrease was due primarily to the lower tax rates under the recent federal income tax reform legislation, partially offset by a 32% increase in pre-tax income over the same period.  The effective tax rate was 25.0% for the three months ended September 30, 2018 compared with 38.1% for the three months ended September 30, 2017.

Segments
For the three months ended September 30, 2018, net income increased by 113% for Banking, 95% for Multi-family Mortgage Banking, and 2% for Mortgage Warehousing, compared with the third 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 $3.3 billion in deposits as of September 30, 2018, conducts its business through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp. (formally known as P/R Mortgage and Investment Corp. prior to October 1, 2018), Farmers-Merchants Bank of Illinois (formerly known as Joy State Bank prior to October 22, 2018), 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 and other periodic filings with the Securities and Exchange Commission.  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)








September 30,


December 31,



2018


2017

Assets





Cash and due from banks


$           20,069


$          18,905

Interest-earning demand accounts


390,687


340,614

Cash and cash equivalents


410,756


359,519

Securities purchased under agreements to resell


6,913


7,043

Trading securities


74,116


140,837

Available for sale securities


269,709


408,371

Federal Home Loan Bank (FHLB) stock


7,608


7,539

Loans held for sale (includes $5,888 at fair value for 2018)


1,004,402


995,319

Loans receivable, net of allowance for loan losses of $11,243 and $8,311, respectively


1,905,859


1,366,349

Premises and equipment, net


10,846


5,354

Mortgage servicing rights


71,490


66,079

Interest receivable


12,289


8,326

Goodwill 


5,302


3,902

Intangible assets, net


1,763


1,512

Other assets and receivables


25,896


22,983

   Total assets


$      3,806,949


$     3,393,133

Liabilities and Shareholders' Equity





  Liabilities





Deposits





Noninterest bearing


$         336,940


$        620,700

Interest bearing


2,965,429


2,322,861

Total deposits


3,302,369


2,943,561

Borrowings 


67,279


56,612

Deferred and current tax liabilities, net


12,859


12,422

Other liabilities


17,096


13,064

Total liabilities


3,399,603


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 September 30, 2018 and 28,685,167 shares at December 31, 2017


135,021


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


232,041


192,008

Accumulated other comprehensive loss


(1,297)


(1,006)

Total shareholders' equity


407,346


367,474

Total liabilities and shareholders' equity


$      3,806,949


$     3,393,133

 

 

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)
















Three Months Ended


Nine Months Ended



September 30,


September 30,



2018


2017


2018


2017

Interest Income













Loans


$

32,056


$

22,016


$

85,458


$

56,821

Investment securities:













Trading



1,299



1,300



3,777



4,124

Available for sale



1,541



1,259



4,708



3,175

Federal Home Loan Bank stock



87



80



297



240

Other



2,594



1,351



6,498



3,117

Total interest income



37,577



26,006



100,738



67,477

Interest Expense













Deposits



11,670



5,659



28,427



14,170

Borrowed funds



2,425



1,957



6,515



5,662

Total interest expense



14,095



7,616



34,942



19,832

Net interest income



23,482



18,390



65,796



47,645

Provision for loan losses



617



592



3,021



1,072

Net Interest Income After Provision for Loan Losses



22,865



17,798



62,775



46,573

Noninterest Income













Gain on sale of loans



8,825



7,204



27,548



27,813

Loan servicing fees, net



1,851



(83)



4,084



2,301

Mortgage warehouse fees



778



749



1,948



2,007

Other income



453



186



1,270



652

Total noninterest income



11,907



8,056



34,850



32,773

Noninterest Expense













Salaries and employee benefits



7,842



5,350



21,597



14,417

Loan expenses



1,254



1,119



3,512



3,072

Occupancy and equipment



736



326



2,062



1,080

Professional fees



590



561



1,755



1,091

Deposit insurance expense



269



230



751



704

Technology expense



412



325



996



831

Other expense



1,346



1,031



4,046



2,649

Total noninterest expense



12,449



8,942



34,719



23,844

Income Before Income Taxes



22,323



16,912



62,906



55,502

Provision for income taxes 



5,584



6,445



15,454



21,147

Net Income


$

16,739


$

10,467


$

47,452


$

34,355

   Dividends on preferred stock



(833)



(833)



(2,498)



(2,497)

Net Income Allocated to Common Shareholders



15,906



9,634



44,954



31,858

Basic Earnings Per Share


$

0.55


$

0.45


$

1.57


$

1.50

Diluted Earnings Per Share


$

0.55


$

0.45


$

1.57


$

1.50

Weighted-Average Shares Outstanding













Basic



28,694,036



21,310,199



28,692,591



21,180,384

Diluted



28,727,822



21,328,237



28,719,740



21,193,857

Dividends Per Share


$

0.06


$

0.05


$

0.18


$

0.15

 

 

Key Operating Results

(Unaudited)

($ in thousands)
















Three Months Ended


Nine Months Ended




September 30,


June 30,


September 30,


September 30,


September 30,




2018


2018


2017


2018


2017













Noninterest Expense



12,449


12,000


8,942


34,719


23,844













Net Interest Income (before provision for losses)



23,482


22,206


18,390


65,796


47,645

Noninterest Income



11,907


11,630


8,056


34,850


32,773

Total Income



35,389


33,836


26,446


100,646


80,418













Efficiency Ratio



35.18%


35.47%


33.81%


34.50%


29.65%

























Average Assets



3,829,172


3,684,225


3,178,887


3,627,861


2,895,743

Net Income



16,739


15,652


10,467


47,452


34,355

Return on Average Assets before annualizing



0.44%


0.42%


0.33%


1.31%


1.19%

Annualization factor



4.00


4.00


4.00


1.33


1.33

Return on Average Assets



1.75%


1.70%


1.32%


1.74%


1.58%













Return  on Average Tangible Common Equity (1)



17.92%


17.41%


19.92%


17.52%


23.38%













Tangible Book Value Per Common Share (1)



$               12.50


$                 11.99


$                9.03


$               12.50


$                 9.03













Tangible Common Equity/Tangible Assets (1)



9.44%


9.11%


6.01%


9.44%


6.01%













(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


Nine Months Ended




September 30,


June 30,


September 30,


September 30,


September 30,




2018


2018


2017


2018


2017













Net Income



16,739


15,652


10,467


47,452


34,355

Less: Preferred Stock Dividends  



(833)


(832)


(833)


(2,498)


(2,497)

Net Income Available to Common Shareholders



15,906


14,820


9,634


44,954


31,858













Average Shareholders Equity



403,757


389,069


237,009


389,760


223,824

Less: Average Goodwill & Intangibles



(7,120)


(7,031)


(1,981)


(6,961)


(1,015)

Less: Average Preferred stock



(41,581)


(41,581)


(41,581)


(41,581)


(41,581)

Average Tangible Common Shareholder's Equity



355,056


340,457


193,447


341,218


181,228













Annualization Factor



4.00


4.00


4.00


1.33


1.33

Return on Average Tangible Common Equity



17.92%


17.41%


19.92%


17.52%


23.38%

























Total Equity



407,346


392,919


243,285


407,346


243,285

Less: Goodwill and Intangibles



(7,065)


(7,208)


(7,604)


(7,065)


(7,604)

Less: Preferred Stock



(41,581)


(41,581)


(41,581)


(41,581)


(41,581)

Tangible Common Equity



358,700


344,130


194,100


358,700


194,100













Assets



3,806,949


3,786,682


3,237,485


3,806,949


3,237,485

Less: Goodwill and Intangibles



(7,065)


(7,208)


(7,604)


(7,065)


(7,604)

Tangible Assets



3,799,884


3,779,474


3,229,881


3,799,884


3,229,881













Ending common shares



28,694,036


28,694,036


21,497,667


28,694,036


21,497,667













Tangible Book Value per Common Share



$               12.50


$                 11.99


$                9.03


$               12.50


$                 9.03

Tangible Common Equity/Tangible Assets



9.44%


9.11%


6.01%


9.44%


6.01%

 

 

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)














Three Months Ended


Three Months Ended


Three Months Ended


September 30, 2018


June 30, 2018


September 30, 2017


Average


Yield/


Average


Yield/


Average


Yield/


Balance

Int.

Rate 


Balance

Int.

Rate 


Balance

Int.

Rate 

Assets:
























Interest bearing deposits

$      510,115

$   2,681

2.09%


$      517,594

$    2,219

1.72%


$        412,663

$    1,431

1.38%

Securities available for sale

355,564

1,541

1.72%


407,896

1,625

1.60%


406,517

1,259

1.23%

Trading securities

137,351

1,299

3.75%


175,876

1,489

3.40%


152,799

1,300

3.38%

Loans and loans held for sale

2,677,449

32,056

4.75%


2,451,061

28,790

4.71%


2,100,028

22,016

4.16%

     Total Interest Earning Assets

3,680,479

37,577

4.05%


3,552,427

34,123

3.85%


3,072,007

26,006

3.36%

Allowance for loan losses

(10,695)




(9,986)




(7,073)



Noninterest earning assets

159,388




141,784




113,953















Total assets

$    3,829,172




$   3,684,225




$     3,178,887



























Liabilities/Equity:
























Interest bearing checking

838,530

4,428

2.10%


783,798

3,285

1.68%


623,893

1,757

1.12%

Savings deposits

148,348

109

0.29%


264,343

190

0.29%


344,922

223

0.26%

Money market 

856,811

4,294

1.99%


796,217

3,265

1.64%


866,010

2,787

1.28%

Certificates of deposit

732,004

2,839

1.54%


708,525

3,001

1.70%


296,288

892

1.19%

    Total interest bearing deposits

2,575,693

11,670

1.80%


2,552,883

9,741

1.53%


2,131,113

5,659

1.05%













Borrowings

74,227

2,425

12.96%


69,430

2,176

12.57%


64,509

1,957

12.04%

    Total Interest Bearing Liabilities

2,649,920

14,095

2.11%


2,622,313

11,917

1.82%


2,195,622

7,616

1.38%













Noninterest bearing deposits

748,312




643,334




715,346



Noninterest bearing liabilities

27,183




29,509




30,910















    Total liabilities

3,425,415




3,295,156




2,941,878















    Equity

403,757




389,069




237,009















Total liabilities and equity

$    3,829,172




$   3,684,225




$     3,178,887















Net Interest Income


$  23,482




$   22,206




$   18,390














Interest Rate Spread



1.94%




2.03%




1.98%













Net Interest Earning Assets

$    1,030,559




$      930,114




$        876,385















Net Interest Margin



2.53%




2.51%




2.38%













Average Interest Earning Assets to Average Interest Bearing Liabilities



138.89%




135.47%




139.92%

 

 

Segment Results

(Unaudited)

($ in thousands)





































Net Income


Net Income








Three Months Ended


Nine Months Ended



Total Assets





September 30,


September 30,



September 30,


December 31,





2018


2017


2018


2017



2018


2017

Segment
















Multi-family Mortgage Banking


$         4,863


$    2,490


$   15,112


$    13,790



$       152,035


$     134,390

Mortgage Warehousing


5,654


5,546


16,058


13,964



1,624,375


1,352,748

Banking




7,101


3,339


19,566


8,793



2,010,485


1,889,140

Other




(879)


(908)


(3,284)


(2,192)



20,054


16,855

Total




$       16,739


$  10,467


$   47,452


$    34,355



$    3,806,949


$   3,393,133

 

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SOURCE Merchants Bancorp

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