Merchants Bancorp Reports Third Quarter 2017 Results

- Income of $10.5 million for quarter, and $34.4 million for nine months ended September 30, 2017

- Earnings per share of $0.45 for quarter, and $1.50 for nine months ended September 30, 2017

- Return on Average Assets of 1.58% for nine months ended September 30, 2017

- Record multi-family mortgage closings of $1.2 billion for nine months ended September 30, 2017

- Closed the purchase of RICHMAC Funding, providing access to new products and markets

PR Newswire 7-Dec-2017 4:05 PM

CARMEL, Ind., Dec. 7, 2017 /PRNewswire/ --Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported third quarter 2017 net income of $10.5 million, or $0.45 per share. This compared with $11.6 million, or $0.51 per share, in the third quarter of 2016.

The Company also reported net income of $34.4 million for the nine months ended September 30, 2017. This represented a $10.0 million, or 41% increase, compared with $24.4 million in the comparable period of 2016. Earnings per share of $1.50 for the nine months ended September 30, 2017 increased by 36%, compared with $1.10 in the comparable period of 2016.

Each of the Company's business segments has grown net income in the first nine months of 2017, compared with the same period of 2016. Multi-family Mortgage Banking income increased by 83%, Mortgage Warehousing increased by 18%, and Banking increased by 25%.

"Our results through the third quarter of 2017 reflected continued momentum in providing our customers with the banking services they value. We are pleased with the growth we've seen this year in all of our segments. Clearly, our multi-family business is having a strong year and mortgage warehousing net income is up 18% when mortgage originations are down nationally," said Michael Petrie, Chairman and CEO of Merchants. "We're also excited to add the RICHMAC team because it gives us new affordable multi-family housing products and an experienced presence in attractive new markets through offices in New York City and Minneapolis-Saint Paul."

Total AssetsTotal assets increased $519.0 million, or 19%, to $3.2 billion at September 30, 2017, compared with $2.7 billion at December 31, 2016. The increase was due primarily to increases in loans, including loans held for sale, of $299.7 million, cash and cash equivalents of $121.1 million, and available for sale securities of $104.7 million.

Interest IncomeInterest income increased $6.2 million, or 31%, to $26.0 million for the three months ended September 30, 2017, compared with $19.8 million for the three months ended September 30, 2016. This increase was due to both growth in loans and an increase in the yield on those loans. The average balance of loans, including loans held for sale, during the three months ended September 30, 2017, increased by $268.9 million, or 15%, to $2.1 billion, compared with $1.8 billion for the three months ended September 30, 2016. The average yield on loans also increased 51 basis points, to 4.16%, for the three months ended September 30, 2017, compared with 3.65% for the three months ended September 30, 2016.

Interest income increased by 29%, to $67.5 million, for the nine months ended September 30, 2017, again primarily due to growth in average loans outstanding and an increase in yields. The average balance of loans, including loans held for sale, for the nine months ended September 30, 2017, increased by $217.4 million, or 13%, to $1.8 billion, compared with the comparable period in 2016. The average yield on loans also increased 44 basis points, to 4.11%, for the nine months ended September 30, 2017, compared with 3.67% for the nine months ended September 30, 2016.

Interest ExpenseTotal interest expense increased $2.8 million, or 57%, to $7.6 million for the three months ended September 30, 2017, compared with the three months ended September 30, 2016. Interest expense on deposits increased $2.6 million, or 88%, to $5.7 million for the three months ended September 30, 2017, compared with the three months ended September 30, 2016. The increase was primarily due to a 38 basis point increase in the average cost of interest-bearing deposits, to 1.05%, for the three months ended September 30, 2017, compared with 0.67% for the same period in 2016, and an increase in the average balance of interest-bearing deposits of $353.5 million, or 20%, to $2.1 billion for the three months ended September 30, 2017. The increase was primarily due to the addition of custodial and corporate deposits from existing Mortgage Warehousing segment customers. The increase in the cost of deposits was due to the overall increase in interest rates since last year.

The same factors drove total interest expense to increase $6.4 million, or 47%, to $19.8 million for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. Interest expense on deposits increased $6.2 million, or 78%, to $14.2 million, for the nine months ended September 30, 2017, compared with the same period in 2016. The average cost of interest-bearing deposits was 0.97%, up from 0.66% for the same period in 2016, and the average balance of interest-bearing deposits increased $333.9 million, or 21%, to $2.0 billion for the nine months ended September 30, 2017, compared with the same period in 2016.

Net Interest IncomeNet interest income increased $3.4 million, or 23%, to $18.4 million for the three months ended September 30, 2017, compared with the three months ended September 30, 2016. The increase was primarily due to a 22 basis point increase in the interest rate spread on the Company's growing interest-earning asset base, to 1.98%, for the three months ended September 30, 2017, compared with 1.76% for the three months ended September 30, 2016. Net interest margin increased to 2.38% for the three months ended September 30, 2017, compared with 2.12% for the three months ended September 30, 2016.

For the nine months ended September 30, 2017, compared with the same period prior year, net interest income increased $8.9 million, or 23%, to $47.6 million. The interest rate spread increased 21 basis points to 1.92%, and net interest margin increased 22 basis points to 2.28%.

Noninterest Income Noninterest income decreased by $3.6 million, or 31%, to $8.1 million for the three months ended September 30, 2017, compared with the three months ended September 30, 2016. The decrease was primarily due to a decrease of $3.3 million in gain on sale of loans, and a $199 thousand decrease in net loan servicing fees. The gain on sale of loans was $7.2 million during the three months ended September 30, 2017, compared with $10.5 million in the comparable period of 2016, a decrease of 31.4%. This was due primarily to a decrease in the volume of loan sales in the secondary market. The decrease in loan servicing fees was due primarily to a $1.4 million reduction in the fair value of mortgage servicing rights, partially offset by an increase in servicing fee income.

Noninterest income increased $11.2 million, or 51.9%, to $32.8 million for the nine months ended September 30, 2017, compared with $21.6 million for the nine months ended September 30, 2016. The increase was primarily due to an increase of $10.7 million in gain on sale of loans. The gain on sale of loans was $27.8 million during the nine months ended September 30, 2017, compared with $17.1 million in the comparable period of 2016, an increase of 62.6%. This increase was due primarily to an increase in the volume of loan sales in the secondary market. The volume of loan originations increased to $1.2 billion for the nine months ended September 30, 2017, compared with $803.0 million for the nine months ended September 30, 2016. The increase is due to growth within the existing customer base and the addition of new relationships.

Noninterest Expense Noninterest expense increased $1.8 million, or 25%, to $8.9 million for the three months ended September 30, 2017, compared with $7.2 million for the three months ended September 30, 2016. The increase was due primarily to a $1.6 million, or 41%, increase in salaries and employee benefits. The increase in salaries and employee benefits was due primarily to an increase in the number of employees that reflects organic growth, the RICHMAC acquisition, and preparing for the initial public offering.

Noninterest expense increased $4.5 million, or 23%, to $23.8 million for the nine months ended September 30, 2017, compared with $19.3 million for the nine months ended September 30, 2016. The increase was primarily due to a $4.3 million, or 43%, increase in salaries and employee benefits. The increase in salaries and employee benefits was primarily due to the aforementioned increase in staffing levels and a $1.6 million increase in loan commission expense, resulting from increased multi-family loan origination and sales volume.

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 $3.2 billion in assets and $2.9 billion in deposits as of September 30, 2017, conducts its business through its direct and indirect subsidiaries, Merchants Bank of Indiana, P/R Mortgage and Investment Corp., 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 prospectus dated October 26, 2017 that was filed with the Securities and Exchange Commissions (the "SEC") on October 30, 2017 in connection with our initial public offering and in our subsequent filings with the SEC. 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.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

September 30,

December 31,

2017

2016

Assets

Cash and due from banks

$ 14,934

$ 10,036

Interest-earning demand accounts

551,876

435,665

Cash and cash equivalents

566,810

445,701

Securities purchased under agreements to resell

7,080

5,392

Trading securities

121,360

137,675

Available for sale securities

430,581

325,874

Federal Home Loan Bank (FHLB) stock

7,539

7,539

Loans held for sale

798,058

764,503

Loans receivable, net of allowance for loan losses

of $7,457 and $6,250, respectively

1,201,695

935,546

Premises and equipment, net

5,138

4,851

Mortgage servicing rights

62,022

53,670

Interest receivable

7,196

5,368

Goodwill

6,037

523

Other assets and receivables

23,969

31,870

Total assets

$ 3,237,485

$ 2,718,512

Liabilities and Shareholders' Equity

Liabilities

Deposits

Noninterest bearing

$ 721,208

$ 566,631

Interest bearing

2,180,256

1,861,990

Total deposits

2,901,464

2,428,621

Borrowings

56,624

57,006

Interest payable

2,364

1,791

Deferred and current tax liabilities, net

21,022

17,363

Other liabilities

12,726

7,443

Total liabilities

2,994,200

2,512,224

Commitments and Contingencies

Shareholders' Equity

Common stock, without par value

Authorized - 50,000,000 shares

Issued and outstanding - 21,497,667 shares at September 30, 2017

and 21,111,200 shares at December 31, 2016

28,230

20,061

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

173,945

145,274

Accumulated other comprehensive loss

(471)

(628)

Total shareholders' equity

243,285

206,288

Total liabilities and shareholders' equity

$ 3,237,485

$ 2,718,512

Condensed Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Interest Income

Loans

$ 22,016

$ 16,804

$ 56,821

$ 44,870

Investment securities:

Trading

1,300

1,516

4,124

3,015

Available for sale

1,259

825

3,175

2,393

Federal Home Loan Bank stock

80

80

240

240

Other

1,351

602

3,117

1,730

Total interest income

26,006

19,827

67,477

52,248

Interest Expense

Deposits

5,659

3,016

14,170

7,976

Borrowed funds

1,957

1,841

5,662

5,483

Total interest expense

7,616

4,857

19,832

13,459

Net interest income

18,390

14,970

47,645

38,789

Provision for loan losses

592

240

1,072

720

Net Interest Income After Provision for Loan Losses

17,798

14,730

46,573

38,069

Noninterest Income

Gain on sale of loans

7,204

10,499

27,813

17,109

Loan servicing fees (costs), net

(83)

116

2,301

2,207

Mortgage warehouse fees

749

890

2,007

2,068

Gains on sale of investments available for sale (includes $0, $24, $0 and $24,

respectively, related to accumulated other comprehensive earnings

reclassifications)

-

24

-

24

Other income

186

100

652

172

Total noninterest income

8,056

11,629

32,773

21,580

Noninterest Expense

Salaries and employee benefits

5,350

3,798

14,417

10,069

Loan expenses

1,119

1,171

3,072

3,077

Occupancy and equipment

326

331

1,080

1,003

Professional fees

561

204

1,091

943

Deposit insurance expense

230

324

704

914

Technology expense

325

276

831

697

Other expense

1,031

1,069

2,649

2,633

Total noninterest expense

8,942

7,173

23,844

19,336

Income Before Income Taxes

16,912

19,186

55,502

40,313

Provision for Income Taxes (includes $0, $10, $0 and $10, respectively,

related to income tax expense for reclassification items)

6,445

7,587

21,147

15,940

Net Income

$ 10,467

$ 11,599

$ 34,355

$ 24,373

Basic earnings per share

$ 0.45

$ 0.51

$ 1.50

$ 1.10

Diluted earnings per share

$ 0.45

$ 0.51

$ 1.50

$ 1.10

Weighted-average shares outstanding

Basic

21,310,199

21,111,200

21,180,384

21,111,200

-

Diluted

21,318,359

21,113,961

21,186,444

21,112,842

Dividends per share

$ 0.05

$ 0.05

$ 0.15

$ 0.15

Key Operating Results

(Unaudited)

($ in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Noninterest Expense

8,942

7,173

23,844

19,336

Net Interest Income (before provision for losses)

18,390

14,970

47,645

38,789

Noninterest Income

8,056

11,629

32,773

21,580

Total Interest Income

26,446

26,599

80,418

60,369

Efficiency Ratio

33.81%

26.97%

29.65%

32.03%

Average Assets

3,178,887

2,882,892

2,895,743

2,583,852

Net Income

10,467

11,559

34,355

24,373

Return on Average Assets before annualizing

0.33%

0.40%

1.19%

0.94%

Annualization factor

4.00

4.00

1.33

1.33

Return on Average Assets

1.32%

1.60%

1.58%

1.26%

Segment Results

(Unaudited)

($ in thousands)

Net Income

Total Assets

Three Months Ended September 30,

Nine Months Ended September 30,

September 30,

December 31,

2017

2016

2017

2016

2017

2016

Segment

Multi-family Mortgage Banking

2,490

4,610

13,790

7,523

135,530

98,553

Mortgage Warehousing

5,546

4,849

13,964

11,854

1,192,377

1,060,723

Banking

3,339

2,731

8,793

7,034

1,964,083

1,545,783

Other

(908)

(591)

(2,192)

(2,038)

(54,505)

13,453

Total

10,467

11,599

34,355

24,373

3,237,485

2,718,512

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SOURCE Merchants Bancorp

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