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


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PR Newswire 7-Dec-2017 4:05 PM
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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.
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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
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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
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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%
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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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