8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): April 30, 2019

Merchants Bancorp

(Exact Name of Registrant as Specified in its Charter)

Indiana	001-38258	20-5747400
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

11555 North Meridian Street, Suite 400

Carmel, Indiana 46032

(Address of Principal Executive Offices) (Zip Code)

(317) 569-7420

(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company   x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

Item 2.02. Results of Operations and Financial Condition.

On April 30, 2019, Merchants Bancorp issued a press release reporting its financial results for the first quarter of 2019. The press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
99.1	Press Release dated April 30, 2019 issued by Merchants Bancorp

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	MERCHANTS BANCORP
Date: April 30, 2019	By:	/s/ John F. Macke
		Name: John F. Macke
		Title: Chief Financial Officer

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EX-99.1

Exhibit 99.1

PRESS RELEASE

Merchants Bancorp Reports First Quarter 2019 Results

For Release April 30, 2019

·Gross loans receivable of $2.2 billion increased 6%, compared with December 31, 2018

·Total assets of $4.0 billion increased $92.6 million, or 2%, compared with December 31, 2018

·Return on average assets was 1.14% for three months ended March 31, 2019

·Net interest income increased $4.0 million, or 20%, to $24.1 million, compared to the three months ended March 31, 2018.

·Net interest margin increased 25 basis points to 2.77%, compared to the three months ended March 31, 2018.

·Successfully raised $50 million in capital from preferred stock offering

CARMEL, Indiana — (PR Newswire) - 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

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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

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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,

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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.

MEDIA CONTACT: REBECCA MARSH

Merchants Bancorp

Phone: (317) 805-4356

Email: rmarsh@merchantsbankofindiana.com

INVESTOR CONTACT: JOHN MACKE

Merchants Bancorp

Phone: (317) 536-7421

Email: jmacke@merchantsbankofindiana.com

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Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)

	March 31,		December 31,
	2019		2018
Assets
Cash and due from banks	$	19,554	$	25,855
Interest-earning demand accounts	293,897		310,669
Cash and cash equivalents	313,451		336,524
Securities purchased under agreements to resell	6,838		6,875
Trading securities	129,914		163,419
Available for sale securities	296,669		331,071
Federal Home Loan Bank (FHLB) stock	18,880		7,974
Loans held for sale (includes $6,307 and $11,886, respectively at fair value)	882,071		832,455
Loans receivable, net of allowance for loan losses of $13,356 and $12,704, respectively	2,168,256		2,045,423
Premises and equipment, net	21,078		15,136
Mortgage servicing rights	76,249		77,844
Interest receivable	14,365		13,827
Goodwill	17,144		17,477
Intangible assets, net	3,381		3,542
Other assets and receivables	28,429		32,596
Total assets	$	3,976,725	$	3,884,163
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	128,029	$	182,879
Interest-bearing	2,992,998		3,048,207
Total deposits	3,121,027		3,231,086
Borrowings	338,031		195,453
Deferred and current tax liabilities, net	18,274		15,444
Other liabilities	21,562		20,943
Total liabilities	3,498,894		3,462,926
Commitments and Contingencies
Shareholders’ Equity
Common stock, without par value
Authorized - 50,000,000 shares
Issued and outstanding - 28,704,163 shares at March 31, 2018 and 28,694,036 shares at December 31, 2018	135,190		135,057
Preferred stock, without par value - 5,000,000 total shares authorized
8% Preferred stock - $1,000 per share liquidation preference
Authorized - 50,000 shares
Issued and outstanding - 41,625 shares	41,581		41,581
7% Series A Preferred stock - $25 per share liquidation preference
Authorized - 3,500,000 shares
Issued and outstanding - 2,000,000 shares	48,269		—
Retained earnings	252,637		244,909
Accumulated other comprehensive income (loss)	154		(310		)
Total shareholders’ equity	477,831		421,237
Total liabilities and shareholders’ equity	$	3,976,725	$	3,884,163

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)

	Three Months Ended March 31,
	2019			2018
Interest Income
Loans	$	34,455		$	24,612
Investment securities:
Trading	1,045			989
Available for sale - taxable	1,551			1,542
Available for sale - tax exempt	96			—
Federal Home Loan Bank stock	223			129
Other	2,304			1,766
Total interest income	39,674			29,038
Interest Expense
Deposits	14,227			7,016
Borrowed funds	1,316			1,914
Total interest expense	15,543			8,930
Net Interest Income	24,131			20,108
Provision for loan losses	649			1,406
Net Interest Income After Provision for Loan Losses	23,482			18,702
Noninterest Income
Gain on sale of loans	2,643			10,892
Loan servicing fees, net	(347		)	(322		)
Mortgage warehouse fees	753			486
Gains on sale of investments available for sale	127			—
Other income	488			257
Total noninterest income	3,664			11,313
Noninterest Expense
Salaries and employee benefits	8,567			6,487
Loan expenses	934			956
Occupancy and equipment	876			565
Professional fees	539			488
Deposit insurance expense	277			246
Technology expense	472			291
Other expense	1,370			1,237
Total noninterest expense	13,035			10,270
Income Before Income Taxes	14,111			19,745
Provision for Income Taxes	3,541			4,684
Net Income	$	10,570		$	15,061
Dividends on preferred stock	(833		)	(833		)
Net Income Allocated to Common Shareholders	9,737			14,228
Basic Earnings Per Share	$	0.34		$	0.50
Diluted Earnings Per Share	$	0.34		$	0.50
Weighted-Average Shares Outstanding
Basic	28,702,250			28,690,876
Diluted	28,737,439			28,710,480
Dividends Per Share	$	0.07		$	0.06

Key Operating Results

(Unaudited)

($ in thousands)

	Three Months Ended
	March 31,			December 31,			March 31,
	2019			2018			2018
Noninterest expense	13,035			16,181			10,270
Net interest income (before provision for losses)	24,131			24,175			20,108
Noninterest income	3,664			14,735			11,313
Total income	27,795			38,910			31,421
Efficiency ratio	46.90		%	41.59		%	32.69		%
Average assets	3,697,945			3,839,594			3,364,165
Net income	10,570			15,422			15,061
Return on average assets before annualizing	0.29		%	0.40		%	0.45		%
Annualization factor	4.00			4.00			4.00
Return on average assets	1.14		%	1.61		%	1.79		%
Return on average tangible common equity (1)	10.67		%	16.24		%	17.38		%
Tangible book value per common share (1)	$	12.80		$	12.50		$	11.54
Tangible common equity/tangible assets (1)	9.29		%	9.28		%	9.02		%

(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
	March 31,			December 31,			March 31,
	2019			2018			2018
Net income	10,570			15,422			15,061
Less: preferred stock dividends	(833		)	(832		)	(833		)
Net income available to common shareholders	9,737			14,590			14,228
Average shareholders equity	429,230			417,072			375,687
Less: average goodwill & intangibles	(20,982		)	(16,127		)	(6,616		)
Less: average preferred stock	(43,190		)	(41,581		)	(41,581		)
Average tangible common shareholder’s equity	365,058			359,364			327,490
Annualization factor	4.00			4.00			4.00
Return on average tangible common equity	10.67		%	16.24		%	17.38		%
Total equity	477,831			421,237			379,713
Less: goodwill and intangibles	(20,525		)	(21,019		)	(7,054		)
Less: preferred stock	(89,850		)	(41,581		)	(41,581		)
Tangible common equity	367,456			358,637			331,078
Assets	3,976,725			3,884,163			3,675,849
Less: goodwill and intangibles	(20,525		)	(21,019		)	(7,054		)
Tangible assets	3,956,200			3,863,144			3,668,795
Ending common shares	28,704,163			28,694,036			28,692,206
Tangible book balue per common share	$	12.80		$	12.50		$	11.54
Tangible common equity/tangible assets	9.29		%	9.28		%	9.02		%

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)

	Three Months Ended							Three Months Ended							Three Months Ended
	March 31, 2019							December 31, 2018							March 31, 2018
	Average					Yield/		Average					Yield/		Average					Yield/
	Balance			Int.		Rate		Balance			Int.		Rate		Balance			Int.		Rate
Assets:
Interest-bearing deposits, and other	$	369,736		$	2,527	2.77	%	$	490,189		$	2,851	2.31	%	$	457,235		$	1,895	1.68	%
Securities available for sale - taxable	292,500			1,551		2.15	%	331,613			1,740		2.08	%	416,266			1,542		1.50	%
Securities available for sale - tax exempt	12,460			96		3.12	%	—			—		—		—			—		—
Trading securities	109,423			1,045		3.87	%	125,582			1,235		3.90	%	121,029			989		3.31	%
Loans and loans held for sale	2,746,562			34,455		5.09	%	2,736,228			33,999		4.93	%	2,247,890			24,612		4.44	%
Total interest-earning assets	3,530,681			39,674		4.56	%	3,683,612			39,825		4.29	%	3,242,420			29,038		3.63	%
Allowance for loan losses	(12,704		)					(11,495		)					(9,071		)
Noninterest-earning assets	179,968							167,477							130,816
Total assets	$	3,697,945						$	3,839,594						$	3,364,165
Liabilities & Shareholders’ Equity:
Interest-bearing checking	1,314,733			6,434		1.98	%	1,335,051			6,122		1.82	%	645,339			2,425		1.52	%
Savings deposits	147,534			80		0.22	%	149,454			78		0.21	%	381,749			215		0.23	%
Money market	892,806			4,208		1.91	%	904,838			4,234		1.86	%	816,707			2,887		1.43	%
Certificates of deposit	618,646			3,505		2.30	%	627,929			3,355		2.12	%	398,992			1,489		1.51	%
Total interest-bearing deposits	2,973,719			14,227		1.94	%	3,017,272			13,789		1.81	%	2,242,787			7,016		1.27	%
Borrowings	88,353			1,316		6.04	%	74,072			1,861		9.97	%	65,635			1,914		11.83	%
Total interest-bearing liabilities	3,062,072			15,543		2.06	%	3,091,344			15,650		2.01	%	2,308,422			8,930		1.57	%
Noninterest-bearing deposits	155,218							293,197							656,284
Noninterest-bearing liabilities	51,425							37,981							23,772
Total liabilities	3,268,715							3,422,522							2,988,478
Shareholders’ equity	429,230							417,072							375,687
Total liabilities and shareholders’ equity	$	3,697,945						$	3,839,594						$	3,364,165
Net interest income				$	24,131						$	24,175						$	20,108
Net interest spread						2.50	%						2.28	%						2.06	%
Net interest-earning assets	$	468,609						$	592,268						$	933,998
Net interest margin						2.77	%						2.60	%						2.52	%
Average interest-earning assets to average interest-bearing liabilities						115.30	%						119.16	%						140.46	%

Segment Results

(Unaudited)

($ in thousands)

	Net Income
	Three Months Ended						Total Assets
	March 31,						March 31,		December 31,
Segment	2019			2018			2019		2018
Multi-family Mortgage Banking	$	(712	)	$	5,484		$	160,609	$	166,102
Mortgage Warehousing	3,832			4,630			1,554,233		1,430,776
Banking	8,769			5,980			2,223,890		2,256,687
Other	(1,319		)	(1,033		)	37,993		30,598
Total	$	10,570		$	15,061		$	3,976,725	$	3,884,163