Merchants Bancorp(MBIN) - 2018 Q4 - Annual Report

Employee and Workplace Recognition - As of December 31, 2018, the company had approximately 259 employees and has been recognized as one of the "Best Places to Work in Indiana" since 2016[32]. Competitive Landscape - The company operates in highly competitive sectors including commercial and retail banking, residential mortgages, and multi-family loan originations, facing competition from both local and online financial institutions[31]. Capitalization and Financial Health - At December 31, 2018, Merchants Bank and FMBI were classified as "well capitalized" according to FDIC regulations, meeting all required capital ratios[60]. - The total assets of Merchants Bancorp increased to $3,884,163 thousand from $3,393,133 thousand in 2017, representing a growth of approximately 14.5%[353]. - The total shareholders' equity increased to $421,237 thousand in 2018 from $367,474 thousand in 2017, representing a growth of approximately 14.6%[353]. - The company reported a basic earnings per share of $2.08 for 2018, compared to $2.28 in 2017, reflecting a decrease in earnings per share despite higher net income[356]. - The company reported a total of $2,058,127,000 in loans as of December 31, 2018, indicating growth in the overall loan portfolio[462]. Regulatory Environment - The company is subject to extensive regulation under federal and state laws, which can impact growth and earnings performance[35]. - The Federal Reserve requires bank holding companies to serve as a source of financial and managerial strength to their subsidiary banks[49]. - The company faces regulatory scrutiny that includes regular examinations by regulatory agencies, impacting its operations and growth[37]. - The company is governed by the Bank Holding Company Act, which regulates acquisitions and control of banks and nonbanking companies[40]. Interest Rate Risk Management - Interest rate risk management is a key focus for Merchants Bank, with the Asset-Liability Committee monitoring sensitivity to interest rate changes quarterly[332]. - As of December 31, 2018, a +200 basis point increase in interest rates could result in a $22.4 million (21.4%) increase in net interest income, while a -200 basis point decrease could lead to a $25.2 million (24.1%) decrease[338]. - The bank's interest rate risk management policy limits changes in net interest income to 20% for +/- 100 basis point moves and 30% for +/- 200 basis point moves, remaining within policy limits as of December 31, 2018[338]. Financial Performance - The net income for the year ended December 31, 2018, was $62,874 thousand, an increase of 14.0% compared to $54,684 thousand in 2017[356]. - Total interest income rose to $140,563 thousand in 2018, up 48.9% from $94,387 thousand in 2017, driven primarily by an increase in loans[356]. - Noninterest income for 2018 was $49,585 thousand, a slight increase from $47,680 thousand in 2017, reflecting stable performance in loan sales and servicing fees[356]. - The provision for loan losses increased to $4,629 thousand in 2018, compared to $2,472 thousand in 2017, indicating a rise in expected credit losses[356]. Acquisitions and Market Expansion - The company completed acquisitions of FMBI and FMNBP, expanding its market presence in Indiana and Illinois[364]. - The acquisition of FMBI on January 2, 2018, cost approximately $5.5 million, with recorded goodwill of $988,000 and intangible assets of $478,000[373]. - The merger with FM Bancorp, Inc. on October 1, 2018, had a total purchase price of $21.9 million, with goodwill of $7.2 million and intangible assets of $1.9 million[374]. - The acquisition of NattyMac, LLC on December 31, 2018, resulted in goodwill of $5.0 million, aimed at increasing the geographic footprint in the warehouse business[375]. Loan Portfolio and Quality - The total loans receivable amounted to $2,045,423 thousand, an increase from $1,366,349 thousand in 2017, representing a growth of 49.6%[443]. - The allowance for loan losses at the end of 2018 was $12,704 thousand, up from $8,311 thousand in 2017, indicating a 53.5% increase[443]. - The company reported a total of $90,604,000 in loans classified as special mention (watch) as of December 31, 2018, compared to $16,294,000 in 2017, indicating increased risk in the loan portfolio[462]. - The total amount of loans classified as acceptable and above was $1,956,338,000 in 2018, up from $1,351,030,000 in 2017, showing improvement in loan quality[462]. Compliance and Risk Management - The company maintains an anti-money laundering program in compliance with the Bank Secrecy Act and the USA Patriot Act, including reporting cash transactions exceeding $10,000[56]. - The company is required to provide prior written notice to the Federal Reserve for any purchase or redemption of its own equity securities if it exceeds 10% of its consolidated net worth[50]. - The allowance for loan losses is evaluated regularly and is based on management's review of the collectability of loans, considering historical experience and current economic conditions[401][402]. Shareholder Returns - Dividends on common stock increased to $0.24 per share in 2018 from $0.20 per share in 2017, representing a 20% increase[360]. - The company paid dividends of $10,216,000, an increase from $7,950,000 in the previous year, reflecting a commitment to returning value to shareholders[362].