Merchants Bancorp(MBIN) - 2019 Q4 - Annual Report

Employee and Workplace Recognition - As of December 31, 2019, the company had approximately 329 full-time equivalent employees[39] - The company has been recognized as one of the "Best Places to Work in Indiana" every year since 2016[39] Capitalization and Regulatory Compliance - At December 31, 2019, Merchants Bank and FMBI were classified as well capitalized according to FDICIA and applicable FDIC regulations[69] - The company is subject to the Bank Holding Company Act, requiring annual reports and compliance with federal regulations[48] - The company has established an anti-money laundering program in compliance with the Bank Secrecy Act and the Patriot Act[64] - The company has not elected to be treated as a financial holding company, limiting its engagement in certain nonbanking activities[55] - The company must provide prior notice to the Federal Reserve for any purchase or redemption of its own equity securities if it exceeds 10% of consolidated net worth[57] - The regulatory framework includes supervision by the FDIC, Federal Reserve, and state regulatory agencies, impacting growth and earnings performance[42] Competition and Market Environment - The company faces strong competition in commercial and retail banking, residential mortgages, and multi-family loan originations[38] - The company competes with both traditional banks and online financial services, emphasizing the quality of its products and customer relationships[38] Financial Performance and Growth - Total assets increased to $6,371,928, up from $3,884,163 in 2018, representing a growth of 64%[382] - Net income for 2019 was $77,329, an increase of 23% compared to $62,874 in 2018[384] - Total interest income rose to $211,995, a 51% increase from $140,563 in 2018[384] - Net interest income after provision for loan losses reached $118,358, up from $85,342 in 2018, marking a 39% increase[384] - Total deposits grew to $5,478,075, a significant increase of 70% from $3,231,086 in 2018[382] - Basic earnings per share increased to $2.37, compared to $2.08 in 2018, reflecting a growth of 14%[384] - Retained earnings rose to $304,984, up from $244,909 in 2018, indicating a 24% increase[382] Loan and Provision for Losses - The company reported a provision for loan losses of $3,940, a decrease from $4,629 in 2018[384] - The allowance for loan losses was $15.842 million as of December 31, 2019, up from $12.704 million in 2018[486] - The Company reported a provision for loan losses charged to net interest income, reflecting an evaluation of the collectability of loans based on historical experience and current economic conditions[434] Interest Rate Risk Management - The company’s interest rate risk management policy limits the change in net interest income to 20% for a +/- 100 basis point move and 30% for a +/- 200 basis point move, remaining within policy limits as of December 31, 2019[366] - The company’s interest rate risk management policy limits the change in EVE to 15% for a +/- 100 basis point move and 20% for a +/- 200 basis point move, remaining within policy limits as of December 31, 2019[369] - The company has identified two primary sources of market risk: interest rate risk and price risk, which are managed through its ALCO[356] Acquisitions and Growth Strategy - The Company acquired FM Bancorp, Inc. for a total purchase price of $21.9 million, which included approximately $110 million in total assets and $95.7 million in deposits as of December 31, 2018[405] - The acquisition of NattyMac, LLC on December 31, 2018, resulted in goodwill and intangible assets of $3.7 million and $1.6 million, respectively, and is expected to enhance the Company's warehouse business and geographic footprint[406] - The Company recorded goodwill and intangible assets totaling $6.9 million and $1.9 million from the acquisition of FM Bancorp, Inc., with core deposit intangibles being amortized over 10 years[405] Consumer Protection and Regulatory Impact - The CFPB has broad rulemaking authority over consumer protection laws, impacting all providers of consumer financial products, including Merchants Bank[89] - The "ability to repay" rule requires lenders to consider a consumer's ability to repay a mortgage loan before extending credit, affecting mortgage origination practices[92] - The CFPB's mortgage servicing rules increase requirements for borrower communications and address procedural requirements for responding to borrower requests[93] - The company is subject to various federal consumer protection laws, including the Gramm-Leach-Bliley Act and the Fair Debt Collection Practices Act, which impact its operations[97] Financial Instruments and Valuation - Material estimates related to the allowance for loan losses and fair values of financial instruments are subject to significant change, impacting reported amounts in financial statements[411] - Mortgage servicing rights are measured at fair value, with changes in fair value reported in earnings, impacting noninterest income[450][451] - The Company engages in derivative financial instruments for interest rate risk management, with changes in fair value recognized in noninterest income[471] Cash Flow and Financing Activities - Net cash provided by financing activities in 2019 was $2,384,863,000, compared to $281,736,000 in 2018[392] - The company reported a net cash used in operating activities of $(1,257,003,000) in 2019, a decline from $204,335,000 in 2018[392] - The company issued preferred stock in 2019, generating proceeds of $192,915,000[392] Loan Portfolio and Performance - Total loans receivable increased to $3.012 billion in 2019 from $2.045 billion in 2018[486] - Multi-family and healthcare financing loans increased to $1.347 billion in 2019 from $914.393 million in 2018[486] - Nonaccrual loans, including troubled debt restructurings (TDRs), are classified as nonperforming loans and remain on nonaccrual status until three months of satisfactory borrower performance[442]