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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

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 Assets
Total 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 Income
Interest 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 Expense
Total 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 Income
Net 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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