Merchants Bancorp Reports Fourth Quarter and Full Year 2017 Results

|PR Newswire|About: MBIN

CARMEL, Ind., Feb. 8, 2018 /PRNewswire/ --

  • Full year 2017 record net income of $54.7 million, and $20.3 million for the fourth quarter
  • Full year 2017 earnings per common share reached $2.28, and $0.73 for the fourth quarter
  • Total assets at December 31, 2017 grew by $676.7 million, or 25% compared to 2016
  • Return on average assets of 1.84% for twelve months ended December 31, 2017
  • Record multi-family mortgage closings of $1.7 billion for full year 2017
  • Successfully completed initial public offering, raising $115 million in new capital

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Merchants Bancorp (MBIN) (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported fourth quarter 2017 net income of $20.3 million, or $0.73 per common share.  This compared with $8.8 million, or $0.38 per common share, in the fourth quarter of 2016.  Fourth quarter 2017 results included a one-time $6.9 million tax benefit associated with changes to the Company's deferred tax liability, under the recent federal income tax reform legislation. 

The Company also reported net income of $54.7 million for the twelve months ended December 31, 2017.  This represented a $21.6 million, or 65% increase, compared with $33.1 million in the comparable period of 2016.  Earnings per common share of $2.28 for the twelve months ended December 31, 2017 increased by 55%, compared with $1.47 in the comparable period of 2016.

Each of the Company's business segments' net income increased in 2017, compared with 2016.  Multi-family Mortgage Banking income increased by 205%, Mortgage Warehousing increased by 8%, and Banking increased by 20%.

"2017 was another record year for Merchants Bancorp.  We achieved record assets, loans, deposits, and net income, while maintaining well capitalized capital ratios that were increased by the proceeds of our initial public offering," said Michael Petrie, Chairman and CEO of Merchants.  "We look forward to building on our success during 2018, which will be enhanced with the continued integration of RICHMAC Funding, and a more favorable tax environment. The additional equity from the IPO and the benefit of a lower tax rate will provide us with the capital needed to support additional growth in all of our segments."

Total Assets
Total assets increased $676.7 million, or 25%, to $3.4 billion at December 31, 2017, compared with $2.7 billion at December 31, 2016. The increase was due primarily to increases in loans, loans held for sale, and available for sale securities.  Return on average assets was 1.84% for the full year 2017, compared with 1.24% in 2016.

Total loans receivable before allowance for loan losses increased $432.9 million, or 46%, to $1.4 billion at December 31, 2017, compared with $941.8 million at December 31, 2016. This increase was primarily due to growth in multi-family and healthcare financing, as well as commercial and commercial real estate loans.

Asset Quality
The allowance for loan losses increased by $2.1 million, to $8.3 million, reflecting higher loans for investment, compared with December 31, 2016, while non-performing loans 90 days or more past due were $3.1 million, or 0.23% of total loans. 

Total Deposits
Total deposits increased $514.9 million, or 21%, to $2.9 billion at December 31, 2017, compared with $2.4 billion at December 31, 2016. The increase was due primarily to growth in certificates of deposit and demand deposits during the year.

Interest Income
Interest income increased $6.2 million, or 30%, to $26.9 million for the three months ended December 31, 2017, compared with $20.7 million for the three months ended December 31, 2016. This increase was due to both growth in loans and an increase in loan yields.  The average balance of loans, including loans held for sale, during the three months ended December 31, 2017, increased by $217.3 million, or 11%, to $2.1 billion, compared with $1.9 billion for the three months ended December 31, 2016.  The average yield on loans also increased 63 basis points, to 4.34%, for the three months ended December 31, 2017, compared with 3.71% for the three months ended December 31, 2016.  Net interest margin increased to 2.43% for the three months ended December 31, 2017, compared with 2.11% for the three months ended December 31, 2016.

Interest Expense
Total interest expense increased $2.4 million, or 44%, to $8.0 million for the three months ended December 31, 2017, compared with the three months ended December 31, 2016. Interest expense on deposits increased $2.1 million, or 58%, to $5.8 million for the three months ended December 31, 2017, compared with the three months ended December 31, 2016. The increase was primarily due to a 30 basis point increase in the average cost of interest-bearing deposits, to 1.13%, for the three months ended December 31, 2017, compared with 0.83% for the same period in 2016, and an increase in the average balance of interest-bearing deposits of $276.9 million, or 16%, to $2.0 billion for the three months ended December 31, 2017. The increase in deposits was primarily due to growth in savings account deposits, as well as custodial accounts of existing warehouse customers. The increase in the cost of deposits was due to the overall increase in interest rates since last year.

Noninterest Income
Noninterest income increased by $8.0 million, or 115%, to $14.9 million for the three months ended December 31, 2017, compared with the three months ended December 31, 2016. The increase was primarily due to an increase of $5.9 million in loan servicing fees and an increase of $2.3 million in gain on sale of loans. The increase in loan servicing fees was positively impacted by a $3.7 million fair market value adjustment in mortgage servicing rights. The 30% increase in gain on sale of loans was due primarily to an increase in the volume of multi-family loan sales in the secondary market.

Noninterest Expense
Noninterest expense increased $3.4 million, or 46%, to $10.8 million for the three months ended December 31, 2017, compared with $7.4 million for the three months ended December 31, 2016.  The increase was due primarily to a $2.8 million, or 66%, 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 reflected organic growth, the RICHMAC acquisition, and additional hiring associated with becoming a publicly traded company.  Despite the increase in salaries and benefits, the efficiency ratio declined by 150 basis points, to 31.9% in the fourth quarter of 2017, compared with the fourth quarter of 2016.

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 $3.4 billion in assets and $2.9 billion in deposits as of December 31, 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.

 

Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)








December 31,


December 31,



2017


2016

Assets





Cash and due from banks


$           18,905


$          10,036

Interest-earning demand accounts


340,614


435,665

  Cash and cash equivalents


359,519


445,701






Securities purchased under agreements to resell


7,043


5,392

Trading securities


140,837


137,675

Available for sale securities


408,371


325,874

Federal Home Loan Bank (FHLB) stock


7,539


7,539

Loans held for sale


995,319


764,503

Loans receivable, net of allowance for loan losses 





   of $8,311 and $6,250, respectively


1,366,349


935,546

Premises and equipment, net


5,354


4,851

Mortgage servicing rights


66,079


53,670

Interest receivable


8,326


5,368

Goodwill 


6,030


523

Intangible Assets 


1,512


-

Other assets and receivables


22,983


31,870






Total assets


$      3,395,261


$     2,718,512






Liabilities and Shareholders' Equity










  Liabilities





   Deposits





     Noninterest bearing


$         620,700


$        566,631

     Interest bearing


2,322,861


1,861,990

     Total deposits


2,943,561


2,428,621

     Borrowings 


56,612


57,006

     Interest payable


2,153


1,791

     Deferred and current tax liabilities, net


14,550


17,363

     Other liabilities


10,911


7,443

    Total liabilities


3,027,787


2,512,224






Commitments and  Contingencies










Shareholders' Equity





Common stock, without par value





  Authorized - 50,000,000 shares





  Issued and outstanding - 28,685,167 shares at December 31, 2017  





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


134,891


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


192,008


145,274

Accumulated other comprehensive loss


(1,006)


(628)

Total shareholders' equity


367,474


206,288






Total liabilities and shareholders' equity


$      3,395,261


$     2,718,512

 

 

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)





















Three Months Ended December 31,


Twelve Months Ended December 31, 



2017


2016


2017


2016

Interest Income









Loans


$              23,101


$           17,693


$                79,922


$          62,563

Investment securities:









  Trading


1,063


1,501


5,187


4,516

  Available for sale


1,356


856


4,531


3,249

Federal Home Loan Bank stock


81


80


321


320

Other


1,309


561


4,426


2,291

Total interest income


26,910


20,691


94,387


72,939










Interest Expense









Deposits


5,833


3,687


20,003


11,663

Borrowed funds


2,125


1,822


7,787


7,305

Total interest expense


7,958


5,509


27,790


18,968










Net interest income


18,952


15,182


66,597


53,971

Provision for loan losses


1,400


240


2,472


960










Net Interest Income After Provision for Loan Losses


17,552


14,942


64,125


53,011










Noninterest Income









Gain on sale of loans


9,977


7,646


37,790


24,755

Loan servicing fees (costs), net


3,972


(1,927)


6,273


280

Mortgage warehouse fees


601


947


2,608


3,015

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









      respectively, related to accumulated other comprehensive earnings 









   reclassifications)


-


-


-


24

Other income


357


258


1,009


430

Total noninterest income


14,907


6,924


47,680


28,504










Noninterest Expense









Salaries and employee benefits


7,055


4,244


21,472


14,313

Loan expenses


1,025


1,174


4,097


4,251

Occupancy and equipment


522


341


1,602


1,344

Professional fees


425


355


1,516


1,298

Deposit insurance expense


226


235


930


1,149

Technology expense


340


288


1,171


985

Other expense


1,207


747


3,856


3,380

Total noninterest expense


10,800


7,384


34,644


26,720










Income Before Income Taxes


21,659


14,482


77,161


54,795










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









           related to income tax expense for reclassification items)


1,330


5,728


22,477


21,668










Net Income


$              20,329


$             8,754


$                54,684


$          33,127










Dividends on preferred stock


$                 (833)


$              (833)


$                 (3,330)


$           (2,002)










Net income allocated to common shareholders


$              19,496


$             7,921


$                51,354


$          31,125










Basic earnings per common share


$                  0.73


$               0.38


$                    2.28


$              1.47










Diluted earnings per common share


$                  0.73


$               0.38


$                    2.28


$              1.47










Weighted-average common shares outstanding









Basic


26,619,950


21,111,235


22,551,452


21,111,208










Diluted


26,637,452


21,111,818


22,569,472


21,113,435










Dividends per common share


$                  0.05


$               0.05


$                    0.20


$              0.20

 

 

Key Operating Results

(Unaudited)

($ in thousands)












Three Months Ended


Twelve Months Ended


Dec. 31,


Sept, 30


Dec. 31,


Dec. 31,


Dec. 31,


2017


2017


2016


2017


2016











Noninterest Expense

10,800


8,942


7,384


34,644


26,720











Net Interest Income (before provision for losses)

18,952


18,390


15,182


66,597


53,971

Noninterest Income

14,907


8,056


6,924


47,680


28,504

Total Interest Income

33,859


26,446


22,106


114,277


82,475











Efficiency Ratio

31.90%


33.81%


33.40%


30.32%


32.40%





















Average Assets

3,204,660


3,178,887


2,965,044


2,973,607


2,679,671

Net Income

20,329


10,467


8,754


54,684


33,127

Return on Average Assets before annualizing

0.63%


0.33%


0.30%


1.84%


1.24%

Annualization factor

4.00


4.00


4.00


1.00


1.00

Return on Average Assets

2.54%


1.32%


1.18%


1.84%


1.24%











Return  on Average Tangible Common Equity (1)

28.60%


19.92%


19.29%


25.14%


20.50%











Tangible Book Value Per Common Share (1)

$        11.10


$           9.03


$         7.78















Tangible Common Equity/Tangible Assets (1)

9.40%


6.01%


6.04%















(1) Non-GAAP financial measure - see "Reconciliation of Non-GAAP Measures" 

















(1) Reconciliation of Non-GAAP Financial Measures

Certain non-GAAP financial measures provide useful information to management and investors that is supplementary to the company's financial condition, results of operations and cash flows computed in accordance with GAAP; however, they do have a number of limitations.  As such, the reader should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable  to non-GAAP financial measures that other companies use.  A reconciliation of GAAP to non-GAAP financial measures is below.  Net Income Available to Common Shareholders excludes preferred stock.  Tangible common equity is calculated by excluding the balance of goodwill and other intangible assets and preferred stock from the calculation of total assets.  Tangible Assets is calculated by excluding the balance of goodwill and intangible assets.  Tangible book value per share is calculated by dividing tangible common equity by the number of shares outstanding.     












Three Months Ended


Twelve Months Ended


Dec. 31,


Sept, 30


Dec. 31,


Dec. 31,


Dec. 31,


2017


2017


2016


2017


2016











Net Income

20,329


10,467


8,754


54,684


33,127

Less: Preferred Stock Dividends  

(833)


(833)


(833)


(3,330)


(2,002)

Net Income Available to Common Shareholders

19,496


9,634


7,921


51,354


31,125











Average Shareholders Equity

321,785


237,009


206,339


248,515


177,370

Less: Average Goodwill & Intangibles

(7,552)


(1,981)


(523)


(2,662)


(523)

Less: Average Preferred stock

(41,581)


(41,581)


(41,581)


(41,581)


(25,038)

Average Tangible Common Shareholder's Equity

272,652


193,447


164,235


204,272


151,809











Annualization Factor

4.00


4.00


4.00


1.00


1.00

Return on Average Tangible Common Equity

28.60%


19.92%


19.29%


25.14%


20.50%





















Total Equity

367,474


243,285


206,288





Less: Goodwill and Intangibles

(7,542)


(7,604)


(523)





Less: Preferred Stock

(41,581)


(41,581)


(41,581)





Tangible Common Equity

318,351


194,100


164,184















Assets

3,395,261


3,237,485


2,718,512





Less: Goodwill and Intangibles

(7,542)


(7,604)


(523)





Tangible Assets

3,387,719


3,229,881


2,717,989















Ending common shares

28,685,167


21,497,667


21,111,200















Tangible Book Value per Common Share

$        11.10


$           9.03


$         7.78





Tangible Common Equity/Tangible Assets

9.40%


6.01%


6.04%





 

 

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)














Three Months Ended


Three Months Ended


Three Months Ended


December 31, 2017


September 30, 2017


December 31, 2016


Average


Yield/


Average


Yield/


Average


Yield/


Balance

Int.

Rate 


Balance

Int.

Rate 


Balance

Int.

Rate 

Assets:
























Interest bearing deposits

$        442,789

$       1,390

1.25%


$        412,663

$        1,431

1.38%


$        457,985

$           641

0.56%

Securities available for sale

414,895

1,356

1.30%


406,517

1,259

1.23%


322,968

856

1.05%

Trading securities

119,429

1,063

3.53%


152,799

1,300

3.38%


191,491

1,501

3.12%

Loans and loans held for sale

2,114,048

23,101

4.34%


2,100,028

22,016

4.16%


1,896,729

17,693

3.71%

     Total Interest Earning Assets

3,091,161

26,910

3.45%


3,072,007

26,006

3.36%


2,869,173

20,691

2.87%

Allowance for loan losses

(7,551)




(7,073)




(6,152)



Noninterest-earning assets

121,050




113,953




102,023















Total assets

$      3,204,660




$     3,178,887




$     2,965,044



























Liabilities/Equity:
























Interest bearing checking

612,674

2,153

1.39%


623,893

1,757

1.12%


407,466

1,284

1.25%

Savings deposits

357,363

143

0.16%


344,922

223

0.26%


290,813

104

0.14%

Money market 

778,837

2,582

1.32%


866,010

2,787

1.28%


767,333

1,840

0.95%

Certificates of deposit

292,142

955

1.30%


296,288

892

1.19%


298,514

459

0.61%

    Total interest bearing deposits

2,041,016

5,833

1.13%


2,131,113

5,659

1.05%


1,764,126

3,687

0.83%













Borrowings

76,505

2,125

11.02%


64,509

1,957

12.04%


59,188

1,822

12.25%

    Total Interest Bearing Liabilities

2,117,521

7,958

1.49%


2,195,622

7,616

1.38%


1,823,314

5,509

1.20%













Noninterest bearing deposits

730,936




715,346




903,425



Noninterest-bearing liabilities

34,418




30,910




31,966















    Total liabilities

2,882,875




2,941,878




2,758,705















    Equity

321,785




237,009




206,339















Total liabilities and equity

$      3,204,660




$     3,178,887




$     2,965,044















Net Interest Income


$     18,952




$       18,390




$       15,182














Interest Rate Spread



1.96%




1.98%




1.67%













Net interest-earning assets

$        973,640




$        876,385




$     1,045,859















Net Interest Margin



2.43%




2.38%




2.11%













Average Interest Earning Assets to
Average Interest Bearing Liabilities



145.98%




139.92%




157.36%

 

 

Segment Results

(Unaudited)

($ in thousands)



































Net Income


Total Assets





Three Months Ended December 31,


Twelve Months Ended December 31,


December 31,


December 31,





2017


2016


2017


2016


2017


2016

Segment















Multi-family Mortgage Banking


14,871


1,885


28,661


9,408


136,518


98,553

Mortgage Warehousing


4,277


4,985


18,241


16,839


1,352,748


1,060,723

Banking




2,617


2,458


11,410


9,492


1,889,140


1,545,783

 Other 




(1,436)


(574)


(3,628)


(2,612)


16,855


13,453

Total




20,329


8,754


54,684


33,127


3,395,261


2,718,512

 

 

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SOURCE Merchants Bancorp