Merchants Bancorp Reports Full Year and Fourth Quarter 2018 Results

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.

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.

SOURCE Merchants Bancorp