Merchants Bancorp Reports First Quarter 2018 Results

CARMEL, Ind., April 30, 2018 /PRNewswire/ --

• Net income of $15.1 million increased by 65% compared with March 31, 2017
• Earnings of $0.50 per common share increased by 28% compared with March 31, 2017
• Total assets of $3.7 billion increased by $282.7 million, or 8% compared to December 31, 2017
• Return on average assets of 1.79% for three months ended March 31, 2018
• Multi-family mortgage closings of $453.1 million for three months ended March 31, 2018
• Closed its acquisition of Joy State Bank on January 2, 2018
• Previously announced a 20% increase in dividends, to $.06 per common share

Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported first quarter 2018 net income of $15.1 million, or $0.50 per common share.  This compared with $9.1 million, or $0.39 per common share, in the first quarter of 2017. 

Each of the Company's business segments' net income increased in the first quarter, compared with the first quarter of 2017.  Multi-family Mortgage Banking income increased by 56%, Mortgage Warehousing increased by 22%, and Banking increased by 148%.

"Our businesses once again delivered strong results in the first quarter of 2018 with solid loan and deposit growth, while maintaining an industry-leading efficiency ratio and an innovative, consistent approach to loan origination that has built deep, long-term customer relationships.   We have also continued to implement our strategic plans to make Merchants even more successful into the future," said Michael Petrie, Chairman and CEO of Merchants. 

Total Assets
Total assets increased $282.7 million, or 8%, to $3.7 billion at March 31, 2018, compared with $3.4 billion at December 31, 2017. The increase was due primarily to increases in loans, loans held for sale, and trading securities.  Return on average assets was 1.79% for the three months ended March 31, 2018, compared with 1.39% at March 31, 2017.

Total loans receivable before allowance for loan losses increased $198.5 million, or 14%, to $1.6 billion at March 31, 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 residential real estate loans.

Asset Quality
The allowance for loan losses increased by $1.4 million, to $9.7 million, at March 31, 2018, compared with $8.3 million at December 31, 2017.  The increase reflected higher loans held for investment, while non-performing loans increased to $4.9 million, or 0.31% of total loans at March 31, 2018, compared with $3.1 million, or .23% of total loans, at December 31, 2017. 

Total Deposits
Total deposits increased $119.0 million, or 4%, to $3.1 billion at March 31, 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, while total brokered deposits declined by 5% to $897.4 million, or 29% of total deposits.

Interest Income
Interest income increased $10.0 million, or 53%, to $29.0 million for the three months ended March 31, 2018, compared with $19.0 million for the three months ended March 31, 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 March 31, 2018, increased by $658.0 million, or 41%, to $2.2 billion, compared with $1.6 billion for the three months ended March 31, 2017.  The average yield on loans increased 41 basis points, to 4.44%, for the three months ended March 31, 2018, compared with 4.03% for the three months ended March 31, 2017.  Net interest margin increased to 2.52% for the three months ended March 31, 2018, compared with 2.17% for the three months ended March 31, 2017.

Interest Expense
Total interest expense increased $3.5 million, or 63%, to $8.9 million for the three months ended March 31, 2018, compared with the three months ended March 31, 2017. Interest expense on deposits increased $3.2 million, or 86%, to $7.0 million for the three months ended March 31, 2018, compared with the three months ended March 31, 2017. The increase was primarily due to a 41 basis point increase in the average cost of interest-bearing deposits, to 1.27%, for the three months ended March 31, 2018, compared with 0.86% for the same period in 2017, and an increase in the average balance of interest-bearing deposits of $467.8 million, or 26%, to $2.2 billion for the three months ended March 31, 2018. The increase in deposits was primarily due to growth in certificate of deposits and demand 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.

Net Interest Income
Net interest income increased $6.6 million, or 49%, to $20.1 million for the three months ended March 31, 2018 compared to the three months ended March 31, 2017. The increase was due to a 23 basis point increase in our interest rate spread, to 2.06%, for the three months ended March 31, 2018 from 1.83% for the three months ended March 31, 2017, coupled with the overall growth in our interest-earning assets, particularly in loans and loans held for sale, period to period. Our net interest margin increased 35 basis points to 2.52% for the three months ended March 31, 2018 from 2.17% for the three months ended March 31, 2017.

Noninterest Income
Noninterest income increased by $3.2 million, or 40%, to $11.3 million for the three months ended March 31, 2018, compared with the three months ended March 31, 2017. The increase was due to an increase of $5.5 million, or 100%, in the gain on sale of loans, primarily associated with an increase in the volume of multi-family loan sales in the secondary market. These increases were partially offset by a $2.3 million decrease in loan servicing fees that were negatively impacted by a $893,000 fair market value adjustment in mortgage servicing rights.

Noninterest Expense
Noninterest expense increased $3.6 million, or 55%, to $10.3 million for the three months ended March 31, 2018, compared with $6.6 million for the three months ended March 31, 2017.  The increase was due primarily to a $2.6 million, or 67%, 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, higher commissions related to higher multi-family volume, and additional hiring associated with becoming a publicly traded company.  Despite the increase in salaries and benefits, the efficiency ratio remained relatively stable at 32.7% in the first quarter of 2018, compared with 30.7% the first quarter of 2017.

Income Taxes
Income tax expense decreased $927,000, or 17%, to $4.7 million for the three months ended March 31, 2018, compared with the three months ended March 31, 2017.  The decrease was due primarily to the lower tax rates under the recent federal income tax reform legislation, partially offset by a 34% increase in pre-tax income over the same period.  The effective tax rate was 23.7% for the three months ended March 31, 2018 compared with 38.1% for the three months ended March 31, 2017.

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 $3.7 billion in assets and $3.1 billion in deposits as of March 31, 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.

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SOURCE Merchants Bancorp