Merchants Bancorp Reports First Quarter 2019 Results

CARMEL, Ind., April 30, 2019 /PRNewswire/ -- Merchants Bancorp (the "Company" or "Merchants") (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported first quarter 2019 net income of $10.6 million, or $0.34 per common share, compared with $15.1 million, or $0.50 per common share in the first quarter of 2018.

"During the first quarter of 2019, our loan growth and net interest income growth remained strong, with a 1.14% return on average assets, despite the lower gain on sale of loans that resulted in lower net income," said Michael Petrie, Chairman and CEO of Merchants.  "We have also continued to make significant investments across all our businesses to ensure we are uniquely positioned to capitalize on future growth opportunities. While part of our business continues to be subject to some volatility on a quarterly basis, we continue to view our annual outlook positively and expect to effectively utilize the additional $50 million of capital raised from our preferred offering in a way that will add value to our investors, customers, and employees," added Petrie.

Total Assets

Total assets increased $92.6 million, or 2%, to $4.0 billion at March 31, 2019, compared with $3.9 billion at December 31, 2018. The increase was due primarily to loan growth, partially offset by sales of available for sale securities and a decrease in trading securities.  Return on average assets was 1.14% for the three months ended March 31, 2019, compared with 1.79% for the three months ended March 31, 2018.

Total loans receivable before allowance for loan losses increased $123.5 million, or 6%, to $2.2 billion at March 31, 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.

Asset Quality

The allowance for loan losses increased $652,000, to $13.4 million, at March 31, 2019, compared with $12.7 million at December 31, 2018, reflecting growth in loans held for investment.  Non-performing loans were $2.6 million, or 0.12% of total loans at March 31, 2019, compared with $2.4 million, or 0.12% of total loans at December 31, 2018. 

Total Deposits

Total deposits decreased $110.1 million, or 3%, to $3.1 billion at March 31, 2019, compared with $3.2 billion at December 31, 2018. The decrease was due primarily to fewer brokered demand deposits, partially offset by growth in savings accounts during the quarter.  The reduction in demand accounts reflected a strategy to reduce reliance on brokered deposits, in favor of additional borrowing for more effective liquidity management.  Total brokered deposits decreased by 23%, to $757.1 million, or 24% of total deposits at March 31, 2019, compared with 31% at December 31, 2018.

Interest Income

Interest income increased $10.6 million, or 37%, to $39.7 million for the three months ended March 31, 2019, compared with $29.0 million for the three months ended March 31, 2018. This increase was due to both higher loan yields and loan growth.  The average balance of loans, including loans held for sale, during the three months ended March 31, 2019, increased by $498.7 million, or 22%, to $2.7 billion, compared with $2.2 billion for the three months ended March 31, 2018.  The average yield on loans increased 65 basis points, to 5.09%, for the three months ended March 31, 2019, compared with 4.44% for the three months ended March 31, 2018.

Interest Expense

Total interest expense increased $6.6 million, or 74%, to $15.5 million for the three months ended March 31, 2019, compared with the three months ended March 31, 2018. Interest expense on deposits increased $7.2 million, or 103%, to $14.2 million for the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The increase in the cost of deposits was due primarily to the overall increase in interest rates since last year, but also the higher volume of interest-bearing checking deposits. There was a 67 basis point increase in the average cost of interest-bearing deposits, to 1.94%, for the three months ended March 31, 2019, compared with 1.27% for the same period in 2018, and an increase in the average balance of interest-bearing deposits of $730.9 million, or 33%, to $3.0 billion for the three months ended March 31, 2019.

Net Interest Income

Net interest income increased $4.0 million, or 20%, to $24.1 million for the three months ended March 31, 2019 compared to the three months ended March 31, 2018.  The increase was primarily due to the growth in loans and loans held for sale and a 44 basis point increase in our interest rate spread, to 2.50%, for the three months ended March 31, 2019, from 2.06% for the three months ended March 31, 2018.   The net interest margin increased 25 basis points to 2.77% for the three months ended March 31, 2019, from 2.52% for the three months ended March 31, 2018.

Noninterest Income

Noninterest income decreased $7.6 million, or 68%, to $3.7 million for the three months ended March 31, 2019, compared with the three months ended March 31, 2018. The decrease was due to a $8.2 million decrease in gain on sale of loans.  The lower gain on sale of loans reflects the volatility reported from quarter to quarter based on loan closing volumes, which were also negatively impacted by loan processing delays caused by the federal government shutdown during January 2019.  Loan servicing fees were also reduced by a $1.5 million fair market value adjustment in mortgage servicing rights. 

Noninterest Expense

Noninterest expense increased $2.8 million, or 27%, to $13.0 million for the three months ended March 31, 2019, compared with $10.3 million for the three months ended March 31, 2018.  The increase was due primarily to a $2.1 million, or 32%, 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 46.9% in the first quarter of 2019, compared with 32.7% for the first quarter of 2018.

Income Taxes

Income tax expense decreased $1.1 million, or 24%, to $3.5 million for the three months ended March 31, 2019, compared with the three months ended March 31, 2018.  The decrease was due primarily to a 29% decrease in pre-tax income over the same period.  The effective tax rate was 25.1% for the three months ended March 31, 2019 compared with 23.7% for the three months ended March 31, 2018.

Segments

For the three months ended March 31, 2019, net income increased 47% for Banking, decreased 113% for Multi-family Mortgage Banking, and decreased 17% for Mortgage Warehousing, compared with the first quarter of 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 $4.0 billion in assets and $3.1 billion in deposits as of March 31, 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.

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SOURCE Merchants Bancorp