Press Release

Merchants Bancorp Reports Second Quarter 2019 Results

-- Total assets of $5.3 billion increased $1.4 billion, or 36% compared with December 31, 2018

-- Gross loans receivable of $2.4 billion increased 15% compared with December 31, 2018

-- Loans held for sale of $1.9 billion increased 130% compared with December 31, 2018

-- Return on average assets was 1.41% for three months ended June 30, 2019

-- Net interest income after provision for loan losses increased $6.6 million, or 31%, to $27.8 million compared to the three months ended June 30, 2018

-- Net income of $16.4 million increased 5% compared to the three months ended June 30, 2018

-- Completed private preferred stock offering on June 27, 2019, raising $21.9 million of capital to support the 33% growth in assets since March 31, 2019

Company Release - 7/30/2019 4:05 PM ET

CARMEL, Ind., July 30, 2019 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported second quarter 2019 net income of $16.4 million, or $0.51 per common share compared with $15.7 million, or $0.52 per common share in the second quarter of 2018.

(PRNewsfoto/Merchants Bancorp)

"We have continued to deliver on our strategy to effectively deploy capital, which resulted in 36% asset growth since the beginning of the year and a 1.41% return on average assets during the second quarter," said Michael Petrie, Chairman and CEO of Merchants.  "These results demonstrate the success of our unique business model across various interest rate environments, and our team remains focused on providing customers with the innovative products and services that position us well for continued success in the marketplace," added Petrie.

Total Assets

Total assets increased $1.4 billion, or 36%, to $5.3 billion at June 30, 2019 compared with $3.9 billion at December 31, 2018. The increase was due to an increase of $1.4 billion in total net loans receivable and loans held for sale.  Return on average assets was 1.41% for the three months ended June 30, 2019 compared with 1.70% for the three months ended June 30, 2018.

Loans receivable before allowance for loan losses increased $302.4 million, or 15%, to $2.4 billion at June 30, 2019 compared with $2.1 billion at December 31, 2018. This increase was primarily a result of growth in mortgage warehouse lines of credit, as well as multi-family and healthcare financing. Loans held for sale increased $1.1 billion, or 130%, to $1.9 billion at June 30, 2019 compared to $832.5 million at December 31, 2018.  This increase was due to the significant loan growth generated from the mortgage warehouse business, resulting from lower interest rates that increased the origination volume in the single-family mortgage market.

Asset Quality

The allowance for loan losses of $12.6 million remained relatively unchanged at June 30, 2019 compared with $12.7 million at December 31, 2018, reflecting increases for loan growth that were offset by improvement in loss expectations for the multi-family loan portfolio based on historical loss experience.  Non-performing loans were $3.8 million, or 0.16% of total loans at June 30, 2019 compared with $2.4 million, or 0.12% of total loans at December 31, 2018. 

Total Deposits

Total deposits increased 44%, to $4.7 billion at June 30, 2019 compared with $3.2 billion at December 31, 2018. The increase was primarily due to higher brokered certificates of deposits to support the significant growth in loans and to match their expected duration.   Total brokered deposits increased $1.0 billion, to $2.0 billion at June 30, 2019 from $988.2 million at December 31, 2018, representing 43% of total deposits at June 30, 2019 compared with 31% at December 31, 2018.

Net Interest Income

Net interest income increased $5.7 million, or 26%, to $27.9 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.  The increase was primarily due to the growth in loans and loans held for sale and a 19 basis point increase in the interest rate spread, to 2.22%, for the three months ended June 30, 2019, from 2.03% for the three months ended June 30, 2018.   The net interest margin decreased 2 basis points to 2.49% for the three months ended June 30, 2019, from 2.51% for the three months ended June 30, 2018.

Interest Income

Interest income increased $14.6 million, or 43%, to $48.8 million for the three months ended June 30, 2019 compared with $34.1 million for the three months ended June 30, 2018. This increase was primarily due to loan growth.  The average balance of loans, including loans held for sale, during the three months ended June 30, 2019, increased by $1.1 billion, or 46%, to $3.6 billion compared with $2.5 billion for the three months ended June 30, 2018.  The average yield on loans increased 4 basis points, to 4.75%, for the three months ended June 30, 2019 compared with 4.71% for the three months ended June 30, 2018.

Interest Expense

Total interest expense increased $8.9 million, or 75%, to $20.8 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018. Interest expense on deposits increased $9.6 million, or 99%, to $19.3 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018. The increase in the cost of deposits was primarily due to the higher volume of interest-bearing checking and certificates of deposits, as well as the overall increase in interest rates since last year. There was a 51 basis point increase in the average cost of interest-bearing deposits, to 2.04%, for the three months ended June 30, 2019 compared with 1.53% for the same period in 2018, and an increase in the average balance of interest-bearing deposits of $1.3 billion, or 49%, to $3.8 billion for the three months ended June 30, 2019.

Noninterest Income

Noninterest income decreased $1.8 million, or 15%, to $9.9 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018. The decrease was due to a $4.1 million decrease in loan servicing fees, which reflected a $2.9 million negative fair market value adjustment in mortgage servicing rights during the three months ended June 30, 2019 compared with a $1.8 million positive fair market adjustment in mortgage servicing rights for the same period in 2018.  At June 30, 2019, the mortgage servicing rights asset was valued at $74.6 million, a decrease of 4% compared to December 31, 2018 and a decrease of 2% compared to March 31, 2019.

Noninterest Expense

Noninterest expense increased $3.9 million, or 33%, to $15.9 million for the three months ended June 30, 2019 compared with $12.0 million for the three months ended June 30, 2018.  The increase was due primarily to a $2.7 million, or 37%, 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 acquisitions during the fourth quarter of 2018.  The efficiency ratio was 42.1% in the second quarter of 2019 compared with 35.5% for the second quarter of 2018.

Income Taxes

Income tax expense increased $142,000, or 3%, to $5.3 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018.  The increase was due primarily to a 4% increase in pre-tax income over the same period.  The effective tax rate was 24.5% for the three months ended June 30, 2019 compared with 24.9% for the three months ended June 30, 2018.

Segments

For the three months ended June 30, 2019, net income increased 30% for Banking, increased 9% for Mortgage Warehousing, and decreased 47% for Multi-family Mortgage Banking compared with the three months ended June 30, 2018.

About Merchants Bancorp

Merchants Bancorp is a diversified bank holding company headquartered in Carmel, Indiana operating multiple lines of business, including 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 $5.3 billion in assets and $4.7 billion in deposits as of June 30, 2019, conducts its business through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp., Farmers-Merchants Bank of Illinois, Merchants Capital Servicing, 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 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)








June 30,


December 31,



2019


2018

Assets





Cash and due from banks


$        15,176


$       25,855

Interest-earning demand accounts


445,713


310,669

Cash and cash equivalents


460,889


336,524

Securities purchased under agreements to resell


6,798


6,875

Trading securities


101,514


163,419

Available for sale securities


261,485


331,071

Federal Home Loan Bank (FHLB) stock


18,820


7,974

Loans held for sale (includes $9,592 and $11,886, respectively at fair value)

1,918,118


832,455

Loans receivable, net of allowance for loan losses of $12,604 and $12,704,

respectively

2,347,906


2,045,423

Premises and equipment, net


26,580


15,136

Mortgage servicing rights


74,550


77,844

Interest receivable


17,415


13,827

Goodwill 


15,574


17,477

Intangible assets, net


4,567


3,542

Other assets and receivables


33,174


32,596

Total assets


$   5,287,390


$  3,884,163

Liabilities and Shareholders' Equity





  Liabilities





Deposits





Noninterest-bearing


$      192,521


$     182,879

Interest-bearing


4,463,469


3,048,207

Total deposits


4,655,990


3,231,086

Borrowings 


62,225


195,453

Other liabilities


54,162


36,387

Total liabilities


4,772,377


3,462,926

Commitments and  Contingencies





Shareholders' Equity





Common stock, without par value





Authorized - 50,000,000 shares





Issued and outstanding - 28,706,438 shares at June 30, 2018 and 28,694,036

shares at December 31, 2018

135,374


135,057

Preferred stock, without par value - 5,000,000 total shares authorized





8% Preferred stock - $1,000 per share liquidation preference





Authorized - 50,000 shares





Issued and outstanding - 41,625 shares


41,581


41,581

7% Series A Preferred stock - $25 per share liquidation preference





Authorized - 3,500,000 shares





Issued and outstanding - 2,955,800 shares


72,095


Retained earnings


265,323


244,909

Accumulated other comprehensive income (loss)


640


(310)

Total shareholders' equity


515,013


421,237

Total liabilities and shareholders' equity


$   5,287,390


$  3,884,163






 

 

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)
















Three Months Ended


Six Months Ended



June 30,


June 30,



2019


2018


2019


2018

Interest Income













Loans


$

42,365


$

28,790


$

76,820


$

53,402

Investment securities:













Trading



1,967



1,489



3,012



2,478

Available for sale - taxable



1,477



1,625



3,028



3,167

Available for sale - tax exempt



53





149



Federal Home Loan Bank stock



257



81



480



210

Other



2,642



2,138



4,946



3,904

Total interest income



48,761



34,123



88,435



63,161

Interest Expense













Deposits



19,344



9,741



33,571



16,757

Borrowed funds



1,495



2,176



2,811



4,090

Total interest expense



20,839



11,917



36,382



20,847

Net Interest Income



27,922



22,206



52,053



42,314

Provision for loan losses



105



998



754



2,404

Net Interest Income After Provision for Loan Losses



27,817



21,208



51,299



39,910

Noninterest Income













Gain on sale of loans



9,104



7,831



11,747



18,723

Loan servicing fees, net



(1,561)



2,555



(1,908)



2,233

Mortgage warehouse fees



1,138



684



1,891



1,170

Gains/(losses) on sale of investments available for sale (includes $(3),

$0, $124, and $0, respectively, related to accumulated other

comprehensive earnings reclassifications)


(3)





124



Other income



1,192



560



1,680



817

Total noninterest income



9,870



11,630



13,534



22,943

Noninterest Expense













Salaries and employee benefits



9,965



7,268



18,532



13,755

Loan expenses



1,345



1,302



2,279



2,258

Occupancy and equipment



946



761



1,822



1,326

Professional fees



453



677



992



1,165

Deposit insurance expense



218



236



495



482

Technology expense



629



293



1,101



584

Other expense



2,364



1,463



3,734



2,700

Total noninterest expense



15,920



12,000



28,955



22,270

Income Before Income Taxes



21,767



20,838



35,878



40,583

Provision for income taxes (includes $1, $0, $(31) and $0,

respectively, related to income tax (expense)/benefit for reclassification

items)


5,328



5,186



8,869



9,870

Net Income


$

16,439


$

15,652


$

27,009


$

30,713

   Dividends on preferred stock



(1,743)



(832)



(2,576)



(1,665)

Net Income Allocated to Common Shareholders



14,696



14,820



24,433



29,048

Basic Earnings Per Share


$

0.51


$

0.52


$

0.85


$

1.01

Diluted Earnings Per Share


$

0.51


$

0.52


$

0.85


$

1.01

Weighted-Average Shares Outstanding













Basic



28,705,313



28,692,749



28,703,790



28,691,857

Diluted



28,746,297



28,720,805



28,741,877



28,715,687














 

 

Key Operating Results

(Unaudited)

($ in thousands)
















Three Months Ended


Six Months Ended




June 30,


March 31,


June 30,


June 30,


June 30,




2019


2019


2018


2019


2018













Noninterest expense

15,920


13,035


12,000


28,955


22,270













Net interest income (before provision for losses)

27,922


24,131


22,206


52,053


42,314

Noninterest income

9,870


3,664


11,630


13,534


22,943

Total income



37,792


27,795


33,836


65,587


65,257













Efficiency ratio

42.13%


46.90%


35.47%


44.15%


34.13%

























Average assets

4,661,138


3,697,945


3,684,225


4,182,203


3,525,080

Net income



16,439


10,570


15,652


27,009


30,713

Return on average assets before annualizing

0.35%


0.29%


0.42%


0.65%


0.87%

Annualization factor

4.00


4.00


4.00


2.00


2.00

Return on average assets

1.41%


1.14%


1.70%


1.29%


1.74%













Return on average tangible common shareholders' equity (1)

15.38%


10.67%


17.41%


13.08%


17.41%













Tangible book value per common share (1)

$      13.28


$        12.80


$     11.99


$      13.28


$      11.99













Tangible common shareholders' equity/tangible assets (1)

7.24%


9.29%


9.11%


7.24%


9.11%













(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,




2019


2019


2018


2019


2018













Net income



16,439


10,570


15,652


27,009


30,713

Less: preferred stock dividends  

(1,743)


(833)


(832)


(2,576)


(1,665)

Net income available to common shareholders

14,696


9,737


14,820


24,433


29,048













Average shareholders' equity

495,789


429,230


389,069


462,694


382,415

Less: average goodwill & intangibles

(20,396)


(20,982)


(7,031)


(20,688)


(7,128)

Less: average preferred stock

(93,108)


(43,190)


(41,581)


(68,287)


(41,581)

Average tangible common shareholders' equity

382,285


365,058


340,457


373,719


333,706













Annualization factor

4.00


4.00


4.00


2.00


2.00

Return on average tangible common shareholders' equity

15.38%


10.67%


17.41%


13.08%


17.41%

























Total equity

515,013


477,831


392,919


515,013


392,919

Less: goodwill and intangibles

(20,141)


(20,525)


(7,208)


(20,141)


(7,208)

Less: preferred stock

(113,676)


(89,850)


(41,581)


(113,676)


(41,581)

Tangible common shareholders' equity

381,196


367,456


344,130


381,196


344,130













Assets



5,287,390


3,976,725


3,786,682


5,287,390


3,786,682

Less: goodwill and intangibles

(20,141)


(20,525)


(7,208)


(20,141)


(7,208)

Tangible assets

5,267,249


3,956,200


3,779,474


5,267,249


3,779,474













Ending common shares

28,706,438


28,704,163


28,694,036


28,706,438


28,694,036













Tangible book value per common share

$       13.28


$         12.80


$      11.99


$       13.28


$       11.99

Tangible common shareholders' equity/tangible assets

7.24%


9.29%


9.11%


7.24%


9.11%













 

 

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)














Three Months Ended


Three Months Ended


Three Months Ended


June 30, 2019


March 31, 2019


June 30, 2018


Average


Yield/


Average


Yield/


Average


Yield/


Balance

Int.

Rate 


Balance

Int.

Rate 


Balance

Int.

Rate 

Assets:
























Interest-bearing deposits, and other

$   440,502

$ 2,899

2.64%


$    369,736

$  2,527

2.77%


$    517,594

$  2,219

1.72%

Securities available for sale - taxable

266,950

1,477

2.22%


292,500

1,551

2.15%


407,896

1,625

1.60%

Securities available for sale - tax exempt

9,052

53

2.35%


12,460

96

3.12%


-

-

-

Trading securities

194,411

1,967

4.06%


109,423

1,045

3.87%


175,876

1,489

3.40%

Loans and loans held for sale

3,580,620

42,365

4.75%


2,746,562

34,455

5.09%


2,451,061

28,790

4.71%

     Total interest-earning assets

4,491,535

48,761

4.35%


3,530,681

39,674

4.56%


3,552,427

34,123

3.85%

Allowance for loan losses

(13,466)




(12,704)




(9,986)



Noninterest-earning assets

183,069




179,968




141,784















Total assets

$ 4,661,138




$ 3,697,945




$ 3,684,225



























Liabilities & Shareholders' Equity:
























Interest-bearing checking

1,527,971

7,567

1.99%


1,314,733

6,434

1.98%


783,798

3,285

1.68%

Savings deposits

144,315

81

0.23%


147,534

80

0.22%


264,343

190

0.29%

Money market 

959,296

4,725

1.98%


892,806

4,208

1.91%


796,217

3,265

1.64%

Certificates of deposit

1,174,106

6,971

2.38%


618,646

3,505

2.30%


708,525

3,001

1.70%

    Total interest-bearing deposits

3,805,688

19,344

2.04%


2,973,719

14,227

1.94%


2,552,883

9,741

1.53%













Borrowings

117,647

1,495

5.10%


88,353

1,316

6.04%


69,430

2,176

12.57%

    Total interest-bearing liabilities

3,923,335

20,839

2.13%


3,062,072

15,543

2.06%


2,622,313

11,917

1.82%













Noninterest-bearing deposits

194,530




155,218




643,334



Noninterest-bearing liabilities

47,484




51,425




29,509















    Total liabilities

4,165,349




3,268,715




3,295,156















    Shareholders' equity

495,789




429,230




389,069















Total liabilities and shareholders' equity

$ 4,661,138




$ 3,697,945




$ 3,684,225















Net interest income


$ 27,922




$ 24,131




$ 22,206














Net interest spread



2.22%




2.50%




2.03%













Net interest-earning assets

$   568,200




$    468,609




$    930,114















Net interest margin



2.49%




2.77%




2.51%













Average interest-earning assets to average interest-bearing liabilities



114.48%




115.30%




135.47%













 

 

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,





2019


2018


2019


2018



2019


2018

Segment
















Multi-family Mortgage Banking

$ 2,517


$   4,765


$   1,805


$ 10,249



$    164,990


$    166,102

Mortgage Warehousing

6,320


5,774


10,152


10,404



2,661,836


1,430,776

Banking




8,408


6,485


17,177


12,465



2,412,026


2,256,687

Other




(806)


(1,372)


(2,125)


(2,405)



48,538


30,598

Total




$ 16,439


$ 15,652


$ 27,009


$ 30,713



$ 5,287,390


$ 3,884,163

















 

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SOURCE Merchants Bancorp

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