Merchants Bancorp Reports Second Quarter 2018 Results

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.

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.

SOURCE Merchants Bancorp