Press Release

Merchants Bancorp Reports Full Year and Fourth Quarter 2018 Results

- Return on average assets of 1.71% and 1.61% for twelve and three months ended December 31, 2018, respectively

- Total assets of $3.9 billion increased $491.0 million, or 14%, compared with December 31, 2017

- Gross loans receivable of $2.1 billion increased 50% compared with December 31, 2017

- Pre-tax net income of $84.0 million increased 9% during the twelve months ended December 2018 and decreased 2%, to $21.1 million, in the fourth quarter of 2018 compared with the fourth quarter of 2017

- Closed on the acquisitions of Farmers-Merchants Bank of Paxton on October 1, 2018 and the assets of NattyMac, LLC on December 31, 2018.

Company Release - 1/30/2019 4:05 PM ET

CARMEL, Ind., Jan. 30, 2019 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported fourth quarter 2018 net income of $15.4 million, or $0.51 per common share, compared with $20.3 million, or $0.73 per common share in the fourth quarter of 2017. The decrease in earnings per common share was primarily due to the additional common shares associated with the Company's initial public offering in October of 2017, as well as the $6.9 million one-time benefit in the fourth quarter of 2017 associated with lower tax rates under federal income tax reform legislation.

(PRNewsfoto/Merchants Bancorp)

The Company also reported net income of $62.9 million for the twelve months ended December 31, 2018, a 15% increase compared with $54.7 million in the comparable period of 2017.  Earnings per common share of $2.07 for the twelve months ended December 31, 2018 compared with $2.28 per common share in the comparable period of 2017.  The results for 2017 included a 6.2 million lower share count, and a $6.9 million one-time benefit associated with lower tax rates under federal income tax reform legislation.

"Our underlying results during the fourth quarter reflected strength in all business segments, with strong loan growth, high asset quality metrics across the board, and a demonstrated ability to effectively manage a rising interest rate environment. We delivered on our commitment to effectively utilize the capital raised from our IPO, by growing our loan portfolio by 50% over the last year.  We have also positioned ourselves to continue the trajectory of profitable growth into 2019," said Michael Petrie, Chairman and CEO of Merchants. "I could not be prouder of all that our team accomplished during 2018 and in our first full year as a public company," added Petrie.

Total Assets
Total assets increased $491.0 million, or 14%, to $3.9 billion at December 31, 2018, compared with $3.4 billion at December 31, 2017. The increase was due primarily to loan growth.  Return on average assets was 1.61% for the three months ended December 31, 2018, compared with 2.54% for the three months ended December 31, 2017.

Total loans receivable before allowance for loan losses increased $683.5 million, or 50%, to $2.1 billion at December 31, 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 $4.4 million, to $12.7 million, at December 31, 2018, compared with $8.3 million at December 31, 2017, reflecting growth in loans held for investment.  Non-performing loans were $3.6 million, or 0.18% of total loans at December 31, 2018, compared with $3.1 million, or 0.23% of total loans at December 31, 2017. 

Total Deposits
Total deposits increased $287.5 million, or 10%, to $3.2 billion at December 31, 2018, compared with $2.9 billion at December 31, 2017. The increase was due primarily to growth in demand deposits and certificates of deposit during 2018.   Total short-term brokered deposits increased by 5%, to $988.2 million, or 31% of total deposits at December 31, 2018, compared with 32% at December 31, 2017.

Interest Income
Interest income increased $12.9 million, or 48%, to $39.8 million for the three months ended December 31, 2018, compared with $26.9 million for the three months ended December 31, 2017. This increase was due to both higher loan yields and loan growth.  The average yield on loans increased 59 basis points, to 4.93%, for the three months ended December 31, 2018, compared with 4.34% for the three months ended December 31, 2017.  The average balance of loans, including loans held for sale, during the three months ended December 31, 2018, increased by $622.2 million, or 29%, to $2.7 billion, compared with $2.1 billion for the three months ended December 31, 2017. 

Interest Expense
Total interest expense increased $7.7 million, or 97%, to $15.7 million for the three months ended December 31, 2018, compared with the three months ended December 31, 2017. Interest expense on deposits increased $8.0 million, or 136%, to $13.8 million for the three months ended December 31, 2018, compared with the three months ended December 31, 2017. The increase in the cost of deposits was due primarily to the higher volume of interest-bearing checking and certificates of deposits, but also the overall increase in interest rates since last year. There was a 68 basis point increase in the average cost of interest-bearing deposits, to 1.81%, for the three months ended December 31, 2018, compared with 1.13% for the same period in 2017, and an increase in the average balance of interest-bearing deposits of $976.3 million, or 48%, to $3.0 billion for the three months ended December 31, 2018.

Net Interest Income
Net interest income increased $5.2 million, or 28%, to $24.2 million for the three months ended December 31, 2018 compared to the three months ended December 31, 2017.  The increase was primarily due to the growth in loans and loans held for sale and a 32 basis point increase in the interest rate spread, to 2.28%, for the three months ended December 31, 2018, from 1.96% for the three months ended December 31, 2017.   The net interest margin increased 17 basis points to 2.60% for the three months ended December 31, 2018, from 2.43% for the three months ended December 31, 2017.

Noninterest Income
Noninterest income decreased by $172,000, or 1%, to $14.7 million for the three months ended December 31, 2018, compared with the three months ended December 31, 2017. The decrease was primarily due to a $2.3 million decrease in loan servicing fees that reflected a positive fair market value adjustment in mortgage servicing rights of $436,000 in the fourth quarter of 2018 and $3.7 million in the fourth quarter of 2017. Gain on sale of loans increased $1.7 million, or 17%, primarily associated with higher multi-family loan sales in the secondary market.

Noninterest Expense
Noninterest expense increased $5.4 million, or 50%, to $16.2 million for the three months ended December 31, 2018, compared with $10.8 million for the three months ended December 31, 2017.  The increase was due primarily to a $3.6 million, or 51%, 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 and higher commissions related to higher multi-family volume.  The efficiency ratio grew to 41.6% in the fourth quarter of 2018, compared with 31.9% for the fourth quarter of 2017.

Income Taxes
Income tax expense increased $4.4 million, or 328%, to $5.7 million for the three months ended December 31, 2018, compared with the three months ended December 31, 2017.  The increase was due primarily to the one-time benefit of $6.9 million in the fourth quarter of 2017 from federal income tax reform legislation.  The effective tax rate was 27.0% for the three months ended December 31, 2018 compared with 6.1% for the three months ended December 31, 2017.

Segments
For the three months ended December 31, 2018, net income increased 16% for Mortgage Warehousing and 156% for Banking, compared with the fourth quarter of 2017. The increase in Banking reflected an increase in net interest income and a $1.0 million one-time expense associated with federal income tax reform legislation in the fourth quarter of 2017.   During the same period, Multi-family Mortgage Banking decreased 68%, primarily due to a $7.9 million one-time benefit associated with federal income tax reform legislation in the fourth quarter of 2017 and higher commissions on loan growth in the fourth quarter of 2018.

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 $3.9 billion in assets and $3.2 billion in deposits as of December 31, 2018, conducts its business through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp. (formerly 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 and includes the October 1, 2018 acquisition of Farmers-Merchants National Bank of Paxton, Illinois), Merchants Capital Servicing, LLC (formerly known as RICHMAC Funding LLC prior to November 1, 2018), 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)








December 31,


December 31,



2018


2017

Assets





Cash and due from banks


$           25,855


$          18,905

Interest-earning demand accounts


310,669


340,614

Cash and cash equivalents


336,524


359,519

Securities purchased under agreements to resell


6,875


7,043

Trading securities


163,419


140,837

Available for sale securities


331,071


408,371

Federal Home Loan Bank (FHLB) stock


7,974


7,539

Loans held for sale (includes $11,886, at fair value for 2018)


832,455


995,319






Loans receivable, net of allowance for loan losses of $12,704 and $8,311,
respectively


2,045,423


1,366,349

Premises and equipment, net


15,136


5,354

Mortgage servicing rights


77,844


66,079

Interest receivable


13,827


8,326

Goodwill 


17,477


3,902

Intangible assets, net


3,542


1,512

Other assets and receivables


32,596


22,983

   Total assets


$      3,884,163


$     3,393,133

Liabilities and Shareholders' Equity





  Liabilities





   Deposits





    Noninterest bearing


$         182,879


$        620,700

    Interest bearing


3,048,207


2,322,861

   Total deposits


3,231,086


2,943,561

   Borrowings 


195,453


56,612






   Deferred and current tax liabilities, net


15,444


12,422

   Other liabilities


20,943


13,064

   Total liabilities


3,462,926


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


135,057


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


244,909


192,008

Accumulated other comprehensive loss


(310)


(1,006)

  Total shareholders' equity


421,237


367,474

  Total liabilities and shareholders' equity


$      3,884,163


$     3,393,133

 

 

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)
















Three Months Ended


Twelve Months Ended



December 31,


December 31,



2018


2017


2018


2017

Interest Income













Loans


$

33,999


$

23,101


$

119,457


$

79,922

Investment securities:













Trading



1,235



1,063



5,012



5,187

Available for sale



1,740



1,356



6,448



4,531

Federal Home Loan Bank stock



88



81



385



321

Other



2,763



1,309



9,261



4,426

Total interest income



39,825



26,910



140,563



94,387

Interest Expense













Deposits



13,789



5,833



42,216



20,003

Borrowed funds



1,861



2,125



8,376



7,787

Total interest expense



15,650



7,958



50,592



27,790

Net Interest Income



24,175



18,952



89,971



66,597

Provision for loan losses



1,608



1,400



4,629



2,472

Net Interest Income After Provision for Loan Losses



22,567



17,552



85,342



64,125

Noninterest Income













Gain on sale of loans



11,718



9,977



39,266



37,790

Loan servicing fees, net



1,657



3,972



5,741



6,273

Mortgage warehouse fees



602



601



2,550



2,608

Other income



758



357



2,028



1,009

Total noninterest income



14,735



14,907



49,585



47,680

Noninterest Expense













Salaries and employee benefits



10,643



7,055



32,240



21,472

Loan expenses



1,109



1,025



4,621



4,097

Occupancy and equipment



726



522



2,788



1,602

Professional fees



830



425



2,585



1,516

Deposit insurance expense



273



226



1,024



930

Technology expense



548



340



1,544



1,171

Other expense



2,052



1,207



6,098



3,856

Total noninterest expense



16,181



10,800



50,900



34,644

Income Before Income Taxes



21,121



21,659



84,027



77,161

Provision for Income Taxes 



5,699



1,330



21,153



22,477

Net Income


$

15,422


$

20,329


$

62,874


$

54,684

   Dividends on preferred stock



(832)



(833)



(3,330)



(3,330)

Net Income Allocated to Common Shareholders



14,590



19,496



59,544



51,354

Basic Earnings Per Share


$

0.51


$

0.73


$

2.08


$

2.28

Diluted Earnings Per Share


$

0.51


$

0.73


$

2.07


$

2.28

Weighted-Average Shares Outstanding













Basic



28,694,036



26,619,950



28,692,955



22,551,452

Diluted



28,738,444



26,646,338



28,724,419



22,568,154

Dividends Per Share


$

0.06


$

0.05


$

0.24


$

0.20

 

 

Key Operating Results

(Unaudited)

($ in thousands)
















Three Months Ended


Twelve Months Ended




December 31,


September 30,


December 31,


December 31,


December 31,




2018


2018


2017


2018


2017













Noninterest Expense



16,181


12,449


10,800


50,900


34,644













Net Interest Income (before provision for losses)



24,175


23,482


18,952


89,971


66,597

Noninterest Income



14,735


11,907


14,907


49,585


47,680

Total Income



38,910


35,389


33,859


139,556


114,277













Efficiency Ratio



41.59%


35.18%


31.90%


36.47%


30.32%

























Average Assets



3,839,594


3,829,172


3,204,591


3,680,934


2,973,589

Net Income



15,422


16,739


20,329


62,874


54,684

Return on Average Assets before annualizing



0.40%


0.44%


0.63%


1.71%


1.84%

Annualization Factor



4.00


4.00


4.00


1.00


1.00

Return on Average Assets



1.61%


1.75%


2.54%


1.71%


1.84%













Return  on Average Tangible Common Equity (1)



16.24%


17.92%


28.60%


17.23%


25.14%













Tangible Book Value Per Common Share (1)



$               12.50


$                 12.50


$              11.17


$               12.50


$               11.17













Tangible Common Equity/Tangible Assets (1)



9.28%


9.44%


9.46%


9.28%


9.46%













(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


Twelve Months Ended




December 31,


September 30,


December 31,


December 31,


December 31,




2018


2018


2017


2018


2017













Net Income



15,422


16,739


20,329


62,874


54,684

Less: Preferred Stock Dividends  



(832)


(833)


(833)


(3,330)


(3,330)

Net Income Available to Common Shareholders



14,590


15,906


19,496


59,544


51,354













Average Shareholders Equity



417,072


403,757


321,785


396,350


248,515

Less: Average Goodwill & Intangibles



(16,127)


(7,120)


(7,552)


(9,265)


(2,662)

Less: Average Preferred Stock



(41,581)


(41,581)


(41,581)


(41,581)


(41,581)

Average Tangible Common Shareholder's Equity



359,364


355,056


272,652


345,504


204,272













Annualization Factor



4.00


4.00


4.00


1.00


1.00

Return on Average Tangible Common Equity



16.24%


17.92%


28.60%


17.23%


25.14%

























Total Equity



421,237


407,346


367,474


421,237


367,474

Less: Goodwill and Intangibles



(21,019)


(7,065)


(5,414)


(21,019)


(5,414)

Less: Preferrd Stock



(41,581)


(41,581)


(41,581)


(41,581)


(41,581)

Tangible Common Equity



358,637


358,700


320,479


358,637


320,479













Assets



3,884,163


3,806,949


3,393,133


3,884,163


3,393,133

Less: Goodwill and Intangibles



(21,019)


(7,065)


(5,414)


(21,019)


(5,414)

Tangible Assets



3,863,144


3,799,884


3,387,719


3,863,144


3,387,719













Ending Common Shares



28,694,036


28,694,036


28,685,167


28,694,036


28,685,167













Tangible Book Value per Common Share



$               12.50


$                 12.50


$              11.17


$               12.50


$               11.17

Tangible Common Equity/Tangible Assets



9.28%


9.44%


9.46%


9.28%


9.46%

 

 

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)














Three Months Ended


Three Months Ended


Three Months Ended


December 31, 2018


September 30, 2018


December 31, 2017


Average


Yield/


Average


Yield/


Average


Yield/


Balance

Int.

Rate 


Balance

Int.

Rate 


Balance

Int.

Rate 

Assets:
























Interest bearing deposits, and other

$      490,189

$   2,851

2.31%


$      510,115

$    2,681

2.09%


$        442,789

$    1,390

1.25%

Securities available for sale

331,613

1,740

2.08%


355,564

1,541

1.72%


414,895

1,356

1.30%

Trading securities

125,582

1,235

3.90%


137,351

1,299

3.75%


119,220

1,063

3.54%

Loans and loans held for sale

2,736,228

33,999

4.93%


2,677,449

32,056

4.75%


2,114,048

23,101

4.34%

     Total Interest Earning Assets

3,683,612

39,825

4.29%


3,680,479

37,577

4.05%


3,090,952

26,910

3.45%

Allowance for loan losses

(11,495)




(10,695)




(7,551)



Noninterest earning assets

167,477




159,388




121,190















Total assets

$    3,839,594




$   3,829,172




$     3,204,591



























Liabilities/Equity:
























Interest bearing checking

1,335,051

6,122

1.82%


853,066

4,471

2.08%


612,674

2,153

1.39%

Savings deposits

159,724

100

0.25%


148,348

109

0.29%


357,363

143

0.16%

Money market 

904,838

4,234

1.86%


997,046

4,294

1.71%


778,837

2,582

1.32%

Certificates of deposit

617,659

3,333

2.14%


577,233

2,796

1.92%


292,142

955

1.30%

    Total interest bearing deposits

3,017,272

13,789

1.81%


2,575,693

11,670

1.80%


2,041,016

5,833

1.13%













Borrowings

74,072

1,861

9.97%


74,227

2,425

12.96%


76,505

2,125

11.02%

    Total Interest Bearing Liabilities

3,091,344

15,650

2.01%


2,649,920

14,095

2.11%


2,117,521

7,958

1.49%













Noninterest bearing deposits

293,197




748,312




730,936



Noninterest bearing liabilities

37,981




27,183




34,349















    Total liabilities

3,422,522




3,425,415




2,882,806















    Equity

417,072




403,757




321,785















Total liabilities and equity

$    3,839,594




$   3,829,172




$     3,204,591















Net Interest Income


$  24,175




$   23,482




$   18,952














Interest Rate Spread



2.28%




1.94%




1.96%













Net Interest Earning Assets

$      592,268




$   1,030,559




$        973,431















Net Interest Margin



2.60%




2.53%




2.43%













Average Interest Earning Assets to
Average Interest Bearing Liabilities



119.16%




138.89%




145.97%

 

 

Segment Results

(Unaudited)

($ in thousands)





































Net Income


Net Income








Three Months Ended


Twelve Months Ended



Total Assets





December 31,


December 31,



December 31,


December 31,





2018


2017


2018


2017



2018


2017

Segment
















Multi-family Mortgage Banking


$         4,698


$  14,871


$   19,810


$    28,661



$       166,102


$       134,390

Mortgage Warehousing


4,942


4,277


21,000


18,241



1,430,776


1,352,748

Banking




6,703


2,617


26,269


11,410



2,237,588


1,889,140

Other




(921)


(1,436)


(4,205)


(3,628)



49,697


16,855

Total




$       15,422


$  20,329


$   62,874


$    54,684



$    3,884,163


$     3,393,133

 

 

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SOURCE Merchants Bancorp

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