Merchants Bancorp Reports Second Quarter 2019 Results

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.

"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.

SOURCE Merchants Bancorp