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): July 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))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, without par value	MBIN	NASDAQ
Series A Preferred Stock, without par value	MBINP	NASDAQ

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 companyx

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 July 30, 2019, Merchants Bancorp issued a press release reporting its financial results for the second 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 July 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: July 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 Second Quarter 2019 Results

For Release July 30, 2019

·Total assets of $5.3 billion increased $1.4 billion, or 36% compared with December 31, 2018

·Gross loans receivable of $2.4 billion increased 15% compared with December 31, 2018

·Loans held for sale of $1.9 billion increased 130% compared with December 31, 2018

·Return on average assets was 1.41% for three months ended June 30, 2019

·Net interest income after provision for loan losses increased $6.6 million, or 31%, to $27.8 million compared to the three months ended June 30, 2018

·Net income of $16.4 million increased 5% compared to the three months ended June 30, 2018

·Completed private preferred stock offering on June 27, 2019, raising $21.9 million of capital to support the 33% growth in assets since March 31, 2019

CARMEL, Indiana — (PR Newswire) - Merchants Bancorp (the “Company” or “Merchants”) (Nasdaq: MBIN), parent company of Merchants Bank of Indiana, today reported second quarter 2019 net income of $16.4 million, or $0.51 per common share compared with $15.7 million, or $0.52 per common share in the second quarter of 2018.

“We have continued to deliver on our strategy to effectively deploy capital, which resulted in 36% asset growth since the beginning of the year and a 1.41% return on average assets during the second quarter,” said Michael Petrie, Chairman and CEO of Merchants.  “These results demonstrate the success of our unique business model across various interest rate environments, and our team remains focused on providing customers with the innovative products and services that position us well for continued success in the marketplace,” added Petrie.

Total Assets

Total assets increased $1.4 billion, or 36%, to $5.3 billion at June 30, 2019 compared with $3.9 billion at December 31, 2018. The increase was due to an increase of $1.4 billion in total net loans receivable and loans held for sale.  Return on average assets was 1.41% for the three months ended June 30, 2019 compared with 1.70% for the three months ended June 30, 2018.

Loans receivable before allowance for loan losses increased $302.4 million, or 15%, to $2.4 billion at June 30, 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. Loans held for sale increased $1.1 billion, or 130%, to $1.9 billion at June 30, 2019 compared to $832.5 million at December 31, 2018.  This increase was due to the significant loan growth generated from the mortgage warehouse business, resulting from lower interest rates that increased the origination volume in the single-family mortgage market.

Asset Quality

The allowance for loan losses of $12.6 million remained relatively unchanged at June 30, 2019 compared with $12.7 million at December 31, 2018, reflecting increases for loan growth that were offset by improvement in loss expectations for the multi-family loan portfolio based on historical loss experience.  Non-performing loans were $3.8 million, or 0.16% of total loans at June 30, 2019 compared with $2.4 million, or 0.12% of total loans at December 31, 2018.

Total Deposits

Total deposits increased 44%, to $4.7 billion at June 30, 2019 compared with $3.2 billion at December 31, 2018. The increase was primarily due to higher brokered certificates of deposits to support the significant growth in loans and to match their expected duration.   Total brokered deposits increased $1.0 billion, to $2.0 billion at June 30, 2019 from $988.2 million at December 31, 2018, representing 43% of total deposits at June 30, 2019 compared with 31% at December 31, 2018.

Net Interest Income

Net interest income increased $5.7 million, or 26%, to $27.9 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018.  The increase was primarily due to the growth in loans and loans held for sale and a 19 basis point increase in the interest rate spread, to 2.22%, for the three months ended June 30, 2019, from 2.03% for the three months ended June 30, 2018.   The net interest margin decreased 2 basis points to 2.49% for the three months ended June 30, 2019, from 2.51% for the three months ended June 30, 2018.

Interest Income

Interest income increased $14.6 million, or 43%, to $48.8 million for the three months ended June 30, 2019 compared with $34.1 million for the three months ended June 30, 2018. This increase was primarily due to loan growth.  The average balance of loans, including loans held for sale, during the three months ended June 30, 2019, increased by $1.1 billion, or 46%, to $3.6 billion compared with $2.5

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billion for the three months ended June 30, 2018.  The average yield on loans increased 4 basis points, to 4.75%, for the three months ended June 30, 2019 compared with 4.71% for the three months ended June 30, 2018.

Interest Expense

Total interest expense increased $8.9 million, or 75%, to $20.8 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018. Interest expense on deposits increased $9.6 million, or 99%, to $19.3 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018. The increase in the cost of deposits was primarily due to the higher volume of interest-bearing checking and certificates of deposits, as well as the overall increase in interest rates since last year. There was a 51 basis point increase in the average cost of interest-bearing deposits, to 2.04%, for the three months ended June 30, 2019 compared with 1.53% for the same period in 2018, and an increase in the average balance of interest-bearing deposits of $1.3 billion, or 49%, to $3.8 billion for the three months ended June 30, 2019.

Noninterest Income

Noninterest income decreased $1.8 million, or 15%, to $9.9 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018. The decrease was due to a $4.1 million decrease in loan servicing fees, which reflected a $2.9 million negative fair market value adjustment in mortgage servicing rights during the three months ended June 30, 2019 compared with a $1.8 million positive fair market adjustment in mortgage servicing rights for the same period in 2018.  At June 30, 2019, the mortgage servicing rights asset was valued at $74.6 million, a decrease of 4% compared to December 31, 2018 and a decrease of 2% compared to March 31, 2019.

Noninterest Expense

Noninterest expense increased $3.9 million, or 33%, to $15.9 million for the three months ended June 30, 2019 compared with $12.0 million for the three months ended June 30, 2018.  The increase was due primarily to a $2.7 million, or 37%, 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 42.1% in the second quarter of 2019 compared with 35.5% for the second quarter of 2018.

Income Taxes

Income tax expense increased $142,000, or 3%, to $5.3 million for the three months ended June 30, 2019 compared with the three months ended June 30, 2018.  The increase was due primarily to a 4%

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increase in pre-tax income over the same period.  The effective tax rate was 24.5% for the three months ended June 30, 2019 compared with 24.9% for the three months ended June 30, 2018.

Segments

For the three months ended June 30, 2019, net income increased 30% for Banking, increased 9% for Mortgage Warehousing, and decreased 47% for Multi-family Mortgage Banking compared with the three months ended June 30, 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 $5.3 billion in assets and $4.7 billion in deposits as of June 30, 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)

	June 30,		December 31,
	2019		2018
Assets
Cash and due from banks	$	15,176	$	25,855
Interest-earning demand accounts	445,713		310,669
Cash and cash equivalents	460,889		336,524
Securities purchased under agreements to resell	6,798		6,875
Trading securities	101,514		163,419
Available for sale securities	261,485		331,071
Federal Home Loan Bank (FHLB) stock	18,820		7,974
Loans held for sale (includes $9,592 and $11,886, respectively at fair value)	1,918,118		832,455
Loans receivable, net of allowance for loan losses of $12,604 and $12,704, respectively	2,347,906		2,045,423
Premises and equipment, net	26,580		15,136
Mortgage servicing rights	74,550		77,844
Interest receivable	17,415		13,827
Goodwill	15,574		17,477
Intangible assets, net	4,567		3,542
Other assets and receivables	33,174		32,596
Total assets	$	5,287,390	$	3,884,163
Liabilities and Shareholders’ Equity
Liabilities
Deposits
Noninterest-bearing	$	192,521	$	182,879
Interest-bearing	4,463,469		3,048,207
Total deposits	4,655,990		3,231,086
Borrowings	62,225		195,453
Other liabilities	54,162		36,387
Total liabilities	4,772,377		3,462,926
Commitments and Contingencies
Shareholders’ Equity
Common stock, without par value
Authorized - 50,000,000 shares
Issued and outstanding - 28,706,438 shares at June 30, 2018 and 28,694,036 shares at December 31, 2018	135,374		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 - 2,955,800 shares	72,095		—
Retained earnings	265,323		244,909
Accumulated other comprehensive income (loss)	640		(310		)
Total shareholders’ equity	515,013		421,237
Total liabilities and shareholders’ equity	$	5,287,390	$	3,884,163

Consolidated Statement of Income

(Unaudited)

(In thousands, except share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Interest Income
Loans	$	42,365		$	28,790		$	76,820		$	53,402
Investment securities:
Trading	1,967			1,489			3,012			2,478
Available for sale - taxable	1,477			1,625			3,028			3,167
Available for sale - tax exempt	53			—			149			—
Federal Home Loan Bank stock	257			81			480			210
Other	2,642			2,138			4,946			3,904
Total interest income	48,761			34,123			88,435			63,161
Interest Expense
Deposits	19,344			9,741			33,571			16,757
Borrowed funds	1,495			2,176			2,811			4,090
Total interest expense	20,839			11,917			36,382			20,847
Net Interest Income	27,922			22,206			52,053			42,314
Provision for loan losses	105			998			754			2,404
Net Interest Income After Provision for Loan Losses	27,817			21,208			51,299			39,910
Noninterest Income
Gain on sale of loans	9,104			7,831			11,747			18,723
Loan servicing fees, net	(1,561		)	2,555			(1,908		)	2,233
Mortgage warehouse fees	1,138			684			1,891			1,170
Gains/(losses) on sale of investments available for sale (includes $(3), $0, $124, and $0, respectively, related to accumulated other comprehensive earnings reclassifications)	(3		)	—			124			—
Other income	1,192			560			1,680			817
Total noninterest income	9,870			11,630			13,534			22,943
Noninterest Expense
Salaries and employee benefits	9,965			7,268			18,532			13,755
Loan expenses	1,345			1,302			2,279			2,258
Occupancy and equipment	946			761			1,822			1,326
Professional fees	453			677			992			1,165
Deposit insurance expense	218			236			495			482
Technology expense	629			293			1,101			584
Other expense	2,364			1,463			3,734			2,700
Total noninterest expense	15,920			12,000			28,955			22,270
Income Before Income Taxes	21,767			20,838			35,878			40,583
Provision for income taxes (includes $1, $0, $(31) and $0, respectively, related to income tax (expense)/benefit for reclassification items)	5,328			5,186			8,869			9,870
Net Income	$	16,439		$	15,652		$	27,009		$	30,713
Dividends on preferred stock	(1,743		)	(832		)	(2,576		)	(1,665		)
Net Income Allocated to Common Shareholders	14,696			14,820			24,433			29,048
Basic Earnings Per Share	$	0.51		$	0.52		$	0.85		$	1.01
Diluted Earnings Per Share	$	0.51		$	0.52		$	0.85		$	1.01
Weighted-Average Shares Outstanding
Basic	28,705,313			28,692,749			28,703,790			28,691,857
Diluted	28,746,297			28,720,805			28,741,877			28,715,687

Key Operating Results

(Unaudited)

($ in thousands)

	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2019			2019			2018			2019			2018
Noninterest expense	15,920			13,035			12,000			28,955			22,270
Net interest income (before provision for losses)	27,922			24,131			22,206			52,053			42,314
Noninterest income	9,870			3,664			11,630			13,534			22,943
Total income	37,792			27,795			33,836			65,587			65,257
Efficiency ratio	42.13		%	46.90		%	35.47		%	44.15		%	34.13		%
Average assets	4,661,138			3,697,945			3,684,225			4,182,203			3,525,080
Net income	16,439			10,570			15,652			27,009			30,713
Return on average assets before annualizing	0.35		%	0.29		%	0.42		%	0.65		%	0.87		%
Annualization factor	4.00			4.00			4.00			2.00			2.00
Return on average assets	1.41		%	1.14		%	1.70		%	1.29		%	1.74		%
Return on average tangible common shareholders’ equity (1)	15.38		%	10.67		%	17.41		%	13.08		%	17.41		%
Tangible book value per common share (1)	$	13.28		$	12.80		$	11.99		$	13.28		$	11.99
Tangible common shareholders’ equity/tangible assets (1)	7.24		%	9.29		%	9.11		%	7.24		%	9.11		%

(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									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2019			2019			2018			2019			2018
Net income	16,439			10,570			15,652			27,009			30,713
Less: preferred stock dividends	(1,743		)	(833		)	(832		)	(2,576		)	(1,665		)
Net income available to common shareholders	14,696			9,737			14,820			24,433			29,048
Average shareholders’ equity	495,789			429,230			389,069			462,694			382,415
Less: average goodwill & intangibles	(20,396		)	(20,982		)	(7,031		)	(20,688		)	(7,128		)
Less: average preferred stock	(93,108		)	(43,190		)	(41,581		)	(68,287		)	(41,581		)
Average tangible common shareholders’ equity	382,285			365,058			340,457			373,719			333,706
Annualization factor	4.00			4.00			4.00			2.00			2.00
Return on average tangible common shareholders’ equity	15.38		%	10.67		%	17.41		%	13.08		%	17.41		%
Total equity	515,013			477,831			392,919			515,013			392,919
Less: goodwill and intangibles	(20,141		)	(20,525		)	(7,208		)	(20,141		)	(7,208		)
Less: preferred stock	(113,676		)	(89,850		)	(41,581		)	(113,676		)	(41,581		)
Tangible common shareholders’ equity	381,196			367,456			344,130			381,196			344,130
Assets	5,287,390			3,976,725			3,786,682			5,287,390			3,786,682
Less: goodwill and intangibles	(20,141		)	(20,525		)	(7,208		)	(20,141		)	(7,208		)
Tangible assets	5,267,249			3,956,200			3,779,474			5,267,249			3,779,474
Ending common shares	28,706,438			28,704,163			28,694,036			28,706,438			28,694,036
Tangible book value per common share	$	13.28		$	12.80		$	11.99		$	13.28		$	11.99
Tangible common shareholders’ equity/tangible assets	7.24		%	9.29		%	9.11		%	7.24		%	9.11		%

Merchants Bancorp

Average Balance Analysis

($ in thousands)

(Unaudited)

	Three Months Ended							Three Months Ended							Three Months Ended
	June 30, 2019							March 31, 2019							June 30, 2018
	Average					Yield/		Average					Yield/		Average					Yield/
	Balance			Int.		Rate		Balance			Int.		Rate		Balance			Int.		Rate
Assets:
Interest-bearing deposits, and other	$	440,502		$	2,899	2.64	%	$	369,736		$	2,527	2.77	%	$	517,594		$	2,219	1.72	%
Securities available for sale - taxable	266,950			1,477		2.22	%	292,500			1,551		2.15	%	407,896			1,625		1.60	%
Securities available for sale - tax exempt	9,052			53		2.35	%	12,460			96		3.12	%	—			—		—
Trading securities	194,411			1,967		4.06	%	109,423			1,045		3.87	%	175,876			1,489		3.40	%
Loans and loans held for sale	3,580,620			42,365		4.75	%	2,746,562			34,455		5.09	%	2,451,061			28,790		4.71	%
Total interest-earning assets	4,491,535			48,761		4.35	%	3,530,681			39,674		4.56	%	3,552,427			34,123		3.85	%
Allowance for loan losses	(13,466		)					(12,704		)					(9,986		)
Noninterest-earning assets	183,069							179,968							141,784
Total assets	$	4,661,138						$	3,697,945						$	3,684,225
Liabilities & Shareholders’ Equity:
Interest-bearing checking	1,527,971			7,567		1.99	%	1,314,733			6,434		1.98	%	783,798			3,285		1.68	%
Savings deposits	144,315			81		0.23	%	147,534			80		0.22	%	264,343			190		0.29	%
Money market	959,296			4,725		1.98	%	892,806			4,208		1.91	%	796,217			3,265		1.64	%
Certificates of deposit	1,174,106			6,971		2.38	%	618,646			3,505		2.30	%	708,525			3,001		1.70	%
Total interest-bearing deposits	3,805,688			19,344		2.04	%	2,973,719			14,227		1.94	%	2,552,883			9,741		1.53	%
Borrowings	117,647			1,495		5.10	%	88,353			1,316		6.04	%	69,430			2,176		12.57	%
Total interest-bearing liabilities	3,923,335			20,839		2.13	%	3,062,072			15,543		2.06	%	2,622,313			11,917		1.82	%
Noninterest-bearing deposits	194,530							155,218							643,334
Noninterest-bearing liabilities	47,484							51,425							29,509
Total liabilities	4,165,349							3,268,715							3,295,156
Shareholders’ equity	495,789							429,230							389,069
Total liabilities and shareholders’ equity	$	4,661,138						$	3,697,945						$	3,684,225
Net interest income				$	27,922						$	24,131						$	22,206
Net interest spread						2.22	%						2.50	%						2.03	%
Net interest-earning assets	$	568,200						$	468,609						$	930,114
Net interest margin						2.49	%						2.77	%						2.51	%
Average interest-earning assets to average interest-bearing liabilities						114.48	%						115.30	%						135.47	%

Segment Results

(Unaudited)

($ in thousands)

	Net Income						Net Income
	Three Months Ended						Six Months Ended						Total Assets
	June 30,						June 30,						June 30,		December 31,
	2019			2018			2019			2018			2019		2018
Segment
Multi-family Mortgage Banking	$	2,517		$	4,765		$	1,805		$	10,249		$	164,990	$	166,102
Mortgage Warehousing	6,320			5,774			10,152			10,404			2,661,836		1,430,776
Banking	8,408			6,485			17,177			12,465			2,412,026		2,256,687
Other	(806		)	(1,372		)	(2,125		)	(2,405		)	48,538		30,598
Total	$	16,439		$	15,652		$	27,009		$	30,713		$	5,287,390	$	3,884,163