Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2019	Mar. 05, 2020	Jun. 28, 2019
Document and Entity Information
Entity Registrant Name	MERCHANTS BANCORP
Entity Central Index Key	0001629019
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Small Business	false
Entity Shell Company	false
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Public Float			$ 276.8
Entity Common Stock, Shares Outstanding		28,735,466
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Assets
Cash and due from banks	$ 13,909	$ 25,855
Interest-earning demand accounts	492,800	310,669
Cash and cash equivalents	506,709	336,524
Securities purchased under agreements to resell	6,723	6,875
Trading securities	269,891	163,419
Available for sale securities	290,243	331,071
Federal Home Loan Bank (FHLB) stock	20,369	7,974
Loans held for sale (includes $19,592 and $11,886 at fair value, respectively)	2,093,789	832,455
Loans receivable, net of allowance for loan losses of $15,842 and $12,704, respectively	3,012,468	2,045,423
Premises and equipment, net	29,274	15,136
Mortgage servicing rights	74,387	77,844
Interest receivable	18,359	13,827
Goodwill	15,845	17,477
Intangible assets, net	3,799	3,542
Other assets and receivables	30,072	32,596
Total assets	6,371,928	3,884,163
Deposits
Noninterest-bearing	272,037	182,879
Interest-bearing	5,206,038	3,048,207
Total deposits	5,478,075	3,231,086
Borrowings	181,439	195,453
Deferred and current tax liabilities, net	16,917	15,444
Other liabilities	41,769	20,943
Total liabilities	5,718,200	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 December 31, 2019 and 28,694,036 shares at December 31, 2018	135,640	135,057
Retained earnings	304,984	244,909
Accumulated other comprehensive income (loss)	458	(310)
Total shareholders' equity	653,728	421,237
Total liabilities and shareholders' equity	6,371,928	3,884,163
8% Preferred Stock
Shareholders' Equity
Preferred stock	41,581	$ 41,581
7% Preferred Stock
Shareholders' Equity
Preferred stock	50,221
6% Preferred Stock
Shareholders' Equity
Preferred stock	$ 120,844

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Loans held for sale at fair value	$ 19,592	$ 11,886
Allowance for loans losses	$ 15,842	$ 12,704
Stockholders' Equity:
Common stock, without par value (in dollars per share)
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	28,706,438	28,694,036
Common stock, shares outstanding	28,706,438	28,694,036
Preferred stock, without par value (in dollars per share)
Preferred stock, shares authorized	5,000,000	5,000,000
8% Preferred Stock
Stockholders' Equity:
Preferred stock, dividend rate (as a percent)	8.00%	8.00%
Preferred stock liquidation preference (in dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares authorized	50,000	50,000
Preferred stock, shares issued	41,625	41,625
Preferred stock, shares outstanding	41,625	41,625
7% Preferred Stock
Stockholders' Equity:
Preferred stock, dividend rate (as a percent)	7.00%
Preferred stock liquidation preference (in dollars per share)	$ 25
Preferred stock, shares authorized	3,500,000
Preferred stock, shares issued	2,081,800
Preferred stock, shares outstanding	2,081,800
6% Preferred Stock
Stockholders' Equity:
Preferred stock, dividend rate (as a percent)	6.00%
Preferred stock liquidation preference (in dollars per share)	$ 1,000
Preferred stock, shares authorized	125,000
Preferred stock, shares issued	125,000
Preferred stock, shares outstanding	125,000
Depositary shares	5,000,000

Consolidated Statements of Income - USD ($)	12 Months Ended
Consolidated Statements of Income - USD ($)	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Interest Income
Loans	$ 186,428,000	$ 119,457,000	$ 79,922,000
Investment securities:
Trading	6,690,000	5,012,000	5,187,000
Available for sale - taxable	6,208,000	6,448,000	4,531,000
Available for sale - tax exempt	272,000
Federal Home Loan Bank stock	932,000	385,000	321,000
Other	11,465,000	9,261,000	4,426,000
Total interest income	211,995,000	140,563,000	94,387,000
Interest Expense
Deposits	84,661,000	42,216,000	20,003,000
Borrowed funds	5,036,000	8,376,000	7,787,000
Total interest expense	89,697,000	50,592,000	27,790,000
Net interest income	122,298,000	89,971,000	66,597,000
Provision for loan losses	3,940,000	4,629,000	2,472,000
Net Interest Income After Provision for Loan Losses	118,358,000	85,342,000	64,125,000
Noninterest Income
Gain on sale of loans	35,411,000	39,266,000	37,790,000
Loan servicing fees, net	(1,118,000)	5,741,000	6,273,000
Mortgage warehouse fees	7,145,000	2,550,000	2,608,000
Gains/(losses) on sale of investments available for sale (includes $476, $0, and $0, respectively, related to accumulated other comprehensive earnings reclassifications)	476,000	0
Other income	5,175,000	2,028,000	1,009,000
Total noninterest income	47,089,000	49,585,000	47,680,000
Noninterest Expense
Salaries and employee benefits	38,093,000	32,240,000	21,472,000
Loan expenses	4,534,000	4,621,000	4,097,000
Occupancy and equipment	4,609,000	2,788,000	1,602,000
Professional fees	2,326,000	2,585,000	1,516,000
Deposit insurance expense	2,747,000	1,024,000	930,000
Technology expense	2,623,000	1,544,000	1,171,000
Other expense	8,381,000	6,098,000	3,856,000
Total noninterest expense	63,313,000	50,900,000	34,644,000
Income Before Income Taxes	102,134,000	84,027,000	77,161,000
Provision for income taxes (includes $(117), $0, and $0, respectively, related to income tax (expense)/benefit for reclassification items)	24,805,000	21,153,000	22,477,000
Net Income	77,329,000	62,874,000	54,684,000
Dividends on preferred stock	(9,216,000)	(3,330,000)	(3,330,000)
Net Income Allocated to Common Shareholders	$ 68,113,000	$ 59,544,000	$ 51,354,000
Basic Earnings Per Share (in dollar per share)	$ 2.37	$ 2.08	$ 2.28
Diluted Earnings Per Share (in dollar per share)	$ 2.37	$ 2.07	$ 2.28
Weighted-Average Shares Outstanding Basic (in Shares)	28,705,125	28,692,955	22,551,452
Weighted-Average Shares Outstanding Diluted (in Shares)	28,745,707	28,724,419	22,568,154

Consolidated Statements of Income (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Income
Reclassifications included in gains/(losses) on sale of investments	$ 476	$ 0	$ 0
Provision for income taxes related to income tax (expense)/benefit for reclassification items	$ (117)	$ 0	$ 0

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Comprehensive Income
Net Income	$ 77,329	$ 62,874	$ 54,684
Other Comprehensive Income (Loss):
Net change in unrealized losses on investment securities available for sale, net of (taxes) benefits of $(386), $(294), and $256, respectively	1,127	939	(378)
Less: Reclassification adjustment for gains/(losses) included in net income, net of tax (expense)/benefits of $(117), $0, and $0, respectively	359
Other comprehensive income (loss) for the period	768	939	(378)
Comprehensive Income	$ 78,097	$ 63,813	$ 54,306

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Consolidated Statements of Comprehensive Income
Net change in unrealized losses on investment securities available for sale, net of (taxes) benefits	$ (386)	$ (294)	$ 256
Reclassification adjustment for gains/(losses) included in net income, tax (expense)/benefits	$ (117)	$ 0	$ 0

Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands	Common Stock	Preferred Stock 8% Preferred Stock	Preferred Stock 7% Preferred Stock	Preferred Stock 6% Preferred Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	7% Preferred Stock	6% Preferred Stock	Total
Balance at beginning of the period at Dec. 31, 2016	$ 20,061	$ 41,581			$ 145,274	$ (628)			$ 206,288
Balance at beginning of the period (in shares) at Dec. 31, 2016	21,111,200	41,625
Condensed Consolidated Statements of Shareholders’ Equity
Net income					54,684				54,684
Shares issued for stock compensation plans	$ 458								458
Shares issued for stock compensation plans (in shares)	3,196
Shares issued for MCS acquisition	$ 8,127								8,127
Shares issued for MCS acquisition (in shares)	383,271
Issuance of shares	$ 106,245								106,245
Issuance of shares (in shares)	7,187,500
Dividends on preferred stock, annually					(3,330)				(3,330)
Dividends on common stock, annually					(4,620)				(4,620)
Other comprehensive income (loss)						(378)			(378)
Balance at end of the period at Dec. 31, 2017	$ 134,891	$ 41,581			192,008	(1,006)			367,474
Balance at end of the period (in shares) at Dec. 31, 2017	28,685,167	41,625
Condensed Consolidated Statements of Shareholders’ Equity
Net income					62,874				62,874
Shares issued for stock compensation plans	$ 166								166
Shares issued for stock compensation plans (in shares)	8,869
Dividends on preferred stock, annually					(3,330)				(3,330)
Dividends on common stock, annually					(6,886)				(6,886)
Reclassification of deferred tax asset due to tax reform					243	(243)
Other comprehensive income (loss)						939			939
Balance at end of the period at Dec. 31, 2018	$ 135,057	$ 41,581			244,909	(310)			421,237
Balance at end of the period (in shares) at Dec. 31, 2018	28,694,036	41,625
Condensed Consolidated Statements of Shareholders’ Equity
Net income					77,329				77,329
Shares issued for stock compensation plans	$ 583								583
Shares issued for stock compensation plans (in shares)	12,402
Issuance of shares			$ 72,071	$ 120,844			$ 72,071	$ 120,844
Issuance of shares (in shares)			2,955,800	125,000
Repurchase of Preferred Stock			$ (21,850)				$ (21,850)
Repurchase of Preferred Stock (in shares)			(874,000)
Dividends on 8% preferred stock, annually					(3,330)				(3,330)
Dividends on 7% preferred stock, annually, pro-rated					(3,115)				(3,115)
Dividends on 6% preferred stock, annually, pro-rated					(2,771)				(2,771)
Dividends on common stock, annually					(8,038)				(8,038)
Other comprehensive income (loss)						768			768
Balance at end of the period at Dec. 31, 2019	$ 135,640	$ 41,581	$ 50,221	$ 120,844	$ 304,984	$ 458			$ 653,728
Balance at end of the period (in shares) at Dec. 31, 2019	28,706,438	41,625	2,081,800	125,000

Consolidated Statements of Shareholders' Equity (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Dividends on preferred stock per share		$ 80.00	$ 80.00
Dividends on common stock per share	$ 0.28	$ 0.24	$ 0.20
8% Preferred Stock
Dividends on preferred stock per share	80.00
7% Preferred Stock
Dividends on preferred stock per share	$ 1.75
Offering expenses on issuance of stock	$ 1,824
6% Preferred Stock
Dividends on preferred stock per share	$ 60.00
Offering expenses on issuance of stock	$ 4,156

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Operating activities:
Net income	$ 77,329	$ 62,874	$ 54,684
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	852	461	296
Provision for loan losses	3,940	4,629	2,472
Deferred income tax, net	(978)	2,313	(2,415)
Gain on sale of securities	(476)
Gain on sale of loans	(35,411)	(39,266)	(37,790)
Proceeds from sales of loans	32,792,977	18,027,460	18,498,028
Loans and participations originated and purchased for sale	(34,025,666)	(17,832,035)	(18,702,694)
Change in mortgage servicing rights for paydowns and fair value adjustments	10,789	2,348	2,554
Net change in:
Trading securities	(106,472)	(22,582)	(3,162)
Other assets and receivables	(3,663)	(10,023)	11,501
Other liabilities	24,046	4,164	(850)
Other	5,730	3,992	1,490
Net cash provided by (used in) operating activities	(1,257,003)	204,335	(175,886)
Investing activities:
Net change in securities purchased under agreements to resell	152	168	(1,651)
Purchases of available-for-sale securities	(647,374)	(47,040)	(199,635)
Proceeds from the sale of available-for-sale securities	37,817	6,431	0
Proceeds from calls, maturities and paydowns of available-for-sale securities	651,798	188,252	116,506
Purchases of loans	(87,302)	(138,965)	(133,329)
Net change in loans receivable	(885,150)	(484,102)	(300,889)
Purchase of Federal Home Loan Bank stock	(15,875)	(956)
Proceeds from sale of Federal Home Loan Bank stock	3,481	700
Proceeds from sale of assets		10
Purchases of premises and equipment	(13,983)	(9,195)	(788)
Purchases of mortgage servicing rights		(6,313)	(1,209)
Purchase of limited partnership interests	(1,365)	(3,810)	(2,694)
Cash (paid) received in acquisition of subsidiary		(14,320)	363
Other investing activities	126	74	189
Net cash used in investing activities	(957,675)	(509,066)	(523,137)
Financing activities:
Net change in deposits	2,247,064	155,002	514,940
Proceeds from Federal Home Loan Bank borrowings	8,917,286	1,089,107	754,150
Repayment of Federal Home Loan Bank borrowings	(8,907,917)	(931,994)	(754,544)
Payments of contingent consideration	(1,999)	(745)
Proceeds from issuance of common stock			106,245
Proceeds from issuance of preferred stock	192,915
Repurchase of preferred stock	(21,850)
Proceeds from notes payable	6,318	19,116
Payments on notes payable	(29,700)	(38,534)
Dividends	(17,254)	(10,216)	(7,950)
Net cash provided by financing activities	2,384,863	281,736	612,841
Net Change in Cash and Cash Equivalents	170,185	(22,995)	(86,182)
Cash and Cash Equivalents, Beginning of Period	336,524	359,519	445,701
Cash and Cash Equivalents, End of Period	506,709	336,524	359,519
Additional Cash Flows Information:
Interest paid	81,892	49,276	26,763
Income taxes paid	$ 19,326	16,965	27,050
The Company purchased all of the capital stock of FMBI on January 2, 2018, the capital stock of FMNBP on October 1, 2018, and the assets of NattyMac, LLC on December 31, 2018. The Company also purchased all of the capital stock for MCS on August 15, 2017. In conjunction with the acquisitions, liabilities were assumed as follows:
Fair value of assets acquired		168,153	12,666
Cash paid for the capital stock/fair value common stock issued		29,872	8,127
Fair value of liabilities assumed		$ 138,281	$ 4,539

Nature of Operations and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Nature of Operations and Summary of Significant Accounting Policies

Basis of Presentation

Note 1: Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Merchants Bancorp, a registered bank holding company (the “Company”) and its wholly owned subsidiaries, Merchants Bank of Indiana (“Merchants Bank”) and Farmers-Merchants Bank of Illinois (“FMBI,” formerly Joy State Bank prior to October 22, 2018). Merchants Bank’s direct and indirect subsidiaries include Merchants Capital Corp. (“MCC”), Merchants Capital Servicing, LLC (“MCS”), Ash Realty Holdings, LLC (“Ash Realty”), MBI Midtown West, LLC (“MMW”), Natty Mac Funding, Inc. (“NMF,” which became dormant in the first quarter of 2019 after the Company’s acquisitions of the assets of NattyMac, LLC (“NattyMac”)), and OneTrust Funding, Inc. The Company also acquired Farmers-Merchants National Bank of Paxton (“FMNBP”) on October 1, 2018 through a merger with FMBI, with FMBI as the surviving entity. In August 2019 the company also formed PR Mortgage Investment, LP (“PRMI”), PRMIGP, LLC (“PRMIGP”), and PR Mortgage Investment Management, LLC (“PRMIM”). All these entities are collectively referred to as the “Company”. All significant intercompany accounts and transactions have been eliminated in consolidation.

Merchants Bank operates under an Indiana state bank charter and provides full banking services. As a state bank and non-Federal Reserve member, it is subject to the regulation of the Indiana Department of Financial Institutions (“IDFI”) and the Federal Deposit Insurance Corporation (“FDIC”). The Company is further subject to regulations of the Board of Governors of the Federal Reserve System (“Federal Reserve”) governing bank holding companies. Merchants Bank operates from six locations in Indiana, including Lynn, Spartanburg, Richmond, Carmel and Indianapolis. Merchants Bank generates commercial, mortgage and consumer loans and receives deposits from customers located primarily in Hamilton, Marion, Wayne, Randolph and surrounding counties in Indiana. Merchants Bank’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Merchants Bank’s Mortgage Warehousing segment funds and participates in single-family and multi‑family, agency eligible loans across the nation.

FMBI operates under an Illinois state bank charter and provides full banking services. As a state bank and non-Federal Reserve member, it is subject to the regulation of the Illinois Department of Financial and Professional Regulation (“IDFPR”) and the FDIC. FMBI operates from five offices located in Joy, New Boston, Paxton, Melvin, and Piper City, Illinois.

MCC is primarily engaged in mortgage banking, specializing in lending for multi‑family rental properties and healthcare facilities. It is an FHA approved mortgagee and a Ginnie Mae, Fannie Mae, and Freddie Mac issuer.

Ash Realty is primarily for the purpose of acquiring, holding and liquidating real estate acquired by Merchants Bank as a result of various foreclosures.

Prior to the Company acquiring all the assets of NattyMac from Home Point Financial Corporation (“Home Point”) on December 31, 2018, NMF provided loan participations and participation warehouse financing to Home Point, its subsidiaries, and customers. This entity is no longer active.

MMW is primarily for the purposes of holding the land and building for the Company’s new headquarters building that was completed in 2019.

OneTrust Funding, Inc. is primarily for the purposes of facilitating certain warehouse financing arrangements, similar to those between NMF and Home Point.

PRMI was formed as a limited partnership in a real estate financing fund, while PRMIGP will serve as the general partner of the fund and PRMIM will serve as the management company of the fund on behalf of PRMIGP.

Recent Acquisitions

On August 15, 2017, Merchants Bank acquired 100% of the equity interests of MCS (formerly RICHMAC Funding, LLC), which was a national multi-family housing mortgage lender and servicer. The purchase price was paid in shares of Company common stock with a value of $8.1 million. As of December 31, 2018, the Company recorded goodwill and intangible assets totaling $3.8 million and $1.6 million, respectively, in connection with the acquisition. As a result of the acquisition, the Company expanded its product offerings and benefited from economies of scale. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows.

On May 8, 2017, the Company entered into a Stock Purchase Agreement to acquire FMBI (formerly Joy State Bank). The acquisition closed on January 2, 2018 at a total cost of approximately $5.5 million. At December 31, 2017 Joy State Bank had $43 million in assets. The Company recorded goodwill and intangible assets totaling $988,000 and $478,000, respectively, in connection with the acquisition. The intangible assets consisted of core deposit intangibles that are being amortized over 10 years on an accelerated basis. The acquired time deposits of $16.7 million were recorded at a fair value of $16.9 million. The fair value premium of $185,000 is being accreted against interest expense over 20 months. The acquired loan portfolio of $27.9 million was recorded at a fair value of $27.5 million. The fair value discount of $458,000 is being accreted to interest income on a straight-line basis over an average of 39 months in accordance with ASC 310-20. While there were some loans identified for potential classification under ASC 310-30, they were not material to the transaction. On October 22, 2018, the Company changed the name of Joy State Bank to Farmers-Merchants Bank of Illinois (“FMBI”). Certain fair value measurements and the purchase price allocation are still being evaluated by management and are subject to change during the measurement period. As a result of the acquisition, the Company increased its deposit base and benefited from economies of scale. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows.

On October 1, 2018, the Company acquired FM Bancorp, Inc., a bank holding company, and its wholly owned subsidiary, FMNBP. On that date, FM Bancorp, Inc. ultimately merged with and into the Company, with the Company as the surviving entity, and FMNBP merged with and into Joy State Bank, with Joy State Bank as the surviving bank. Effective October 22, 2018, Joy State Bank’s name changed to Farmers-Merchants Bank of Illinois (“FMBI”). Under the terms of the merger agreement, shareholders of the 27,537 outstanding shares of FM Bancorp, Inc. were compensated $795.29 per share, for a total purchase price of $21.9 million. As of December 31, 2018, FM Bancorp, Inc. and Farmers-Merchants National Bank of Paxton had total assets of approximately $110.0 million, available for sale securities of $66.3 million, deposits of approximately $95.7 million, and net loan receivables of approximately $35.0 million. The Company recorded goodwill and intangible assets totaling $6.9 million and $1.9 million. The intangible assets consisted of core deposit intangibles that are being amortized over 10 years on an accelerated basis. The acquired available for sale securities of $66.3 million were recorded at fair value. A fair value discount associated with securities of $1.0 million is being accreted into interest income, in accordance with ASC 310-20. While there were some loans identified for potential classification under ASC 310-30, they were not material to the transaction. The acquired gross loan portfolio of $35.4 million was recorded at a fair value of $34.8 million. The fair value discount of $625,000 includes a discount related to interest assumptions for $279,000 and to credit assumptions for $346,000. The portion related to interest assumptions is being accreted into interest income on a straight-line basis over an average of 72 months in accordance with ASC 310-20. The discount portion related to credit assumptions is being accreted into interest income over the life of the loan. The acquired deposits of $95.7 million were recorded at a fair value of $95.7 million. As a result of the acquisition, the Company increased its deposit base and benefited from economies of scale. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows.

On December 31, 2018, the Company acquired the assets of NattyMac, LLC, a warehouse lender operating out of Clearwater, Florida, from Home Point. The Company also fully repaid Home Point the balance of, and all interest owed on, the $30 million subordinated debt it had previously invested in the Company. Goodwill and intangible assets of $3.7 million and $1.6 million, respectively, have been recorded by the Company. The intangible assets related to customer lists that are being amortized using the straight-line method over 21 months. As a result of the acquisition, the Company expects to increase its geographic footprint in the warehouse business, reduce its costs of borrowing, increase the earnings generated from its warehouse business, and benefit from its experienced talent pool. The acquisition did not materially impact the Company’s financial position, results of operations or cash flows.

Given the impact of the acquisitions was immaterial to the Company and its results of operations, pro forma information has not been included.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, loan servicing rights and fair values of financial instruments.

Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents consist primarily of cash amounts due from depository institutions, interest‑bearing deposits in other banks, money market accounts, and federal funds sold.

At December 31, 2019, the Company’s cash accounts exceeded federally insured limits by approximately $492.1 million. Included in this amount is approximately $478.8 million with the Federal Reserve and $2.3 million with the Federal Home Loan Bank of Indianapolis (“FHLBI”), and $20,000 with the Federal Home Loan Bank of Chicago (“FHLBC”).

At December 31, 2018, the Company’s cash accounts exceeded federally insured limits by approximately $331.2 million. Included in this amount is approximately $295.4 million with the FHLBI, $12.9 million with the FHLBC, and $15,000 with the Federal Home Loan Bank of Chicago.

Securities purchased under agreements to resell

Securities purchased pursuant to a simultaneous agreement (RRA) to resell the same securities at a specified price and date generally have maturity dates of 90 days or less and are carried at cost. Every 90 days the RRAs rollover.

Trading Activities

The Company engages in trading activities. Securities that are held principally for resale in the near term are recorded in the trading assets account at fair value with changes in fair value recorded in earnings. Trading securities include FHA and conventional participation certificates. Interest is included in net interest income.

Securities

Certain debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. The Company had no securities held to maturity at December 31, 2019 or 2018. Securities not classified as held to maturity or trading are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

For debt securities with fair value below amortized cost when the Company does not intend to sell a debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, it recognizes the credit component of an other‑than‑temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. For held‑to‑maturity debt securities, the amount of other‑than‑temporary impairment recorded in other comprehensive income for the noncredit portion of a previous other‑than‑temporary impairment is amortized prospectively over the remaining life of the security on the basis of the timing of future estimated cash flows of the security.

Loans Held for Sale under Mortgage Banking Activities

The Company uses participation agreements to fund mortgage loans held for sale from closing or purchase until sale to an investor. Under a participation agreement the Company elects to purchase a participation interest of up to 100% in individual loans. The Company shares proportionately in the interest income and the credit risk until the loan is sold to an investor. The Company holds the collateral until it is sent under a bailee arrangement to the investor. Typical investors are large financial institutions or government agencies. These loans are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance and included in noninterest income.

Other mortgage loans originated and intended for sale in the secondary market, for which the fair value option has been elected, are carried at fair value at each balance sheet date. The Company believes that the fair value is the best indicator of the resolution of these loans. The difference between the cost and fair value was not material at December 31, 2019.

For all loans held for sale, interest earned from the time of funding to the time of sale is accrued and recognized as interest income. Gains and losses on loan sales are recorded in noninterest income, and generally direct loan origination costs and fees are deferred at origination of the loan and are recognized in noninterest income and noninterest expense upon sale of the loan.

The gain on sale of loans in the income statement may include placement and origination fees, capitalized mortgage servicing rights, trading gains and losses and other related income.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding principal balances adjusted for unearned income, charge‑offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

For loans amortized at cost, interest income is accrued based on the unpaid principal balance.

The accrual of interest on loans is discontinued at the time the loan is 90 days past due unless the credit is well‑secured and in process of collection. Past‑due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

For loans that are placed on nonaccrual or that are charged off, all accrued interest is reversed against interest income. The interest on these loans is applied to the principal balance until the loan can be returned to an accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

For all loan portfolio segments, the Company promptly charges off loans, or portions thereof, when available information confirms that specific loans are uncollectable based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge‑off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

When cash payments are received on impaired loans in each loan class, the Company records the payment as interest income unless collection of the remaining recorded principal amount is doubtful, at which time payments are used to reduce the principal balance of the loan. Troubled debt restructured loans recognize interest income on an accrual basis at the renegotiated rate if the loan is in compliance with the modified terms.

The Company uses warehouse loans or credit to fund mortgage loans held for sale from closing until sale to an investor. Under a warehousing arrangement the Company funds a mortgage loan as secured financing. The warehousing arrangement is secured by the underlying mortgages and a combination of deposits, personal guarantees and advance rates.

The Company holds the collateral until it is sent under a bailee arrangement instructing the investor to send proceeds to the Company. Typical investors are large financial institutions or government agencies.

Interest earned from the time of funding to the time of sale is recognized as interest income as accrued. Fees earned agreements are recognized when collected as noninterest income.

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to net interest income. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows, collateral value, or observable market price of the impaired loan is lower than the carrying value of that loan. The general component covers non‑impaired loans and is based on historical charge off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case‑by‑case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and construction loans by the fair value of the collateral if the loan is collateral dependent, the loan’s obtainable market price, or present value of expected future cash flows discounted at the loan’s effective interest rate. For impaired loans where the Company utilizes discounted cash flows to determine the level of impairment, the Company includes the entire change in the present value of cash flows as bad debt expense.

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

In the course of working with borrowers, the Company may choose to restructure the contractual terms of certain loans. In restructuring the loan, the Company attempts to work out an alternative payment schedule with the borrower in order to optimize collectability of the loan. A troubled debt restructuring (TDR) occurs when, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider. Terms may be modified to fit the ability of the borrower to repay in line with its current financial status, and the restructuring of the loan may include the transfer of assets from the borrower to satisfy the debt, a modification of loan terms, or a combination of the two.

Nonaccrual loans, including TDRs that have not met the six-month minimum performance criterion, are reported as nonperforming loans. For all loan classes, it is the Company’s policy to have any restructured loans which are on nonaccrual status prior to being restructured remain on nonaccrual status until three months of satisfactory borrower performance, at which time management would consider its return to accrual status. A loan is generally classified as nonaccrual when the Company believes that receipt of principal and interest is doubtful under the terms of the loan agreement. Most generally, this is at 90 or more days past due.

With regard to determination of the amount of the allowance for credit losses, restructured loans are considered to be impaired. As a result, the determination of the amount of impaired loans for each portfolio segment within troubled debt restructurings is the same as detailed previously above.

Premises and Equipment

Depreciable assets are stated at cost less accumulated depreciation. Depreciation is charged to expense using the straight‑line method over the estimated useful lives of the assets.

The estimated useful lives for premises and equipment are as follows:


Buildings	10 to 40	years
Leasehold improvements	5 to 39	years
Furniture, fixtures and equipment	3 to 10	years
Vehicles	5	years

Expenditures for property and equipment and for renewals or betterments that extend the originally estimated economic life of the assets are capitalized. Expenditures for maintenance and repairs are charged to expense. When an asset is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the results of operations.

Federal Home Loan Bank Stock

Federal Home Loan Bank (FHLB) stock is a required investment for institutions that are members of a FHLB. The required investment in the common stock is based on a predetermined formula, carried at cost and evaluated for impairment.

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net income or expense from other real estate.

Mortgage Servicing Rights

Mortgage servicing assets are recognized separately when rights are acquired through purchase or through sale of financial assets. Under the servicing assets and liabilities accounting guidance (ASC 860‑50), servicing rights resulting from the sale or securitization of loans originated by the Company are initially measured at fair value at the date of transfer. The Company has elected to initially and subsequently measure the mortgage servicing rights for mortgage loans using the fair value method. Under the fair value method, the servicing rights are carried in the balance sheet at fair value and the changes in fair value are reported in earnings in the period in which the changes occur.

Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. The valuation model is from an independent third party and it incorporates assumptions that market participants would use in estimating future net servicing income, such as the cost to service, the discount rate, the custodial earnings rate, an inflation rate, ancillary income, prepayment speeds, prepayment penalties, and default rates and losses. These variables change from quarter to quarter as market conditions and projected interest rates change, and may have an adverse impact on the value of the mortgage‑servicing right and may result in a reduction to noninterest income.

Servicing fee income is recorded for fees earned for servicing loans. The fees are based on a contractual percentage of the outstanding principal or a fixed amount per loan and are recorded as income when earned. The change in the fair value of the mortgage‑servicing rights is netted against loan servicing fee income.

Goodwill and Intangible Assets

Goodwill is tested annually for impairment or more frequently if impairment indicators are present. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the financial statements.

Intangible assets, which include licenses and trade names, are amortized over a period ranging from 84 to 120 months using a straight-line method of amortization. Customer list intangible assets are amortized over 21 months using a straight-line method of amortization. Also included are core deposit intangibles that are amortized over a 10 year period using the accelerated sum of the years digits method of amortization. On a periodic basis, the Company evaluates events and circumstances that may indicate a change in the recoverability of the carrying value.

Investment in Qualified Affordable Housing Limited Partnerships

The Company has elected to account for its investment in affordable housing tax credit limited partnerships using the proportional amortization method described in FASB ASU 2014‑01, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (A Consensus of the FASB Emerging Issues Task Force).” Under the proportional amortization method, an investor amortizes the initial cost of the investment to income tax expense in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense. The investment in the limited partnerships is included in other assets in the consolidated balance sheets.

Income Taxes

The Company accounts for income taxes in accordance with income tax accounting guidance (ASC 740, Income Taxes). The income tax accounting guidance results in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur. Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Uncertain tax positions are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term more likely than not means a likelihood of more than 50 percent; the terms examined and upon examination also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more‑likely‑than‑not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more‑likely‑than‑not recognition threshold considers the facts, circumstances and information available at the reporting date and is subject to management’s judgment. With a few exceptions, the Company is no longer subject to U.S. federal, state and local or non‑U.S. income tax examinations by tax authorities for years before 2016.

The Company recognizes interest and penalties, if any, on income taxes as a component of income tax expense.

The Company files consolidated income tax returns with its subsidiaries.

Earnings Per Share

Basic earnings per share is the Company’s net income available to common shareholders, which represents net income less dividends paid or payable to preferred stock shareholders, if any, divided by the weighted‑average number of common shares outstanding during each period. Diluted earnings per share is calculated in the same manner as basic earnings per share, but also reflects the issuance of additional common shares that would have been diluted if such shares had been outstanding, as well as any adjustment to income that would result from the assumed issuance.

Share‑based Compensation Plan

The Company has a restricted stock plan that provides for annual awards of shares to certain members of senior management based upon the Company’s performance and attainment of certain performance goals established by the Board of Directors. Share awards are valued at the estimated fair value on the date of the award and generally vest over three years. Compensation expense for the awards is recognized in the consolidated financial statements ratably over the vesting period.

In 2018, the Compensation Committee of the Board of Directors also approved a plan for non-executive directors to receive a portion of their annual fees in the form of common stock, which is typically issued once per year, subsequent to the annual meeting of shareholders.

Revenue Recognition

The Company’s principal source of revenue is interest income from loans, investment securities and other financial instruments that are not within the scope of Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers”. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.

The Company recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectability is reasonably assured.

Interest income on loans is accrued as earned using the interest method based on unpaid principal balances except for interest on loans in nonaccrual status. Interest on loans in nonaccrual status is recorded as a reduction of loan principal when received.

The Company also earns other noninterest income through a variety of financial and transaction services provided to corporate and consumer clients such as deposit service charges, debit card network fees, collection fees, safe deposit box rental fees and gain/(loss) on sale of other real estate owned. Revenue is recorded for noninterest income based on the contractual terms for the service or transaction performed.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss), net of applicable income taxes. Other comprehensive income (loss) and accumulated other comprehensive income consist of unrealized appreciation (depreciation) on available‑for‑sale investment securities and reclassification adjustments for investment gains/(losses) on the sale of available-for-sale investment securities.

Derivative Financial Instruments

The Company occasionally enters into derivative financial instruments as part of its interest rate risk management strategies. These derivative financial instruments consist primarily of interest rate swaps and forward sale commitments. These derivative instruments are recorded on the Consolidated Statements of Financial Condition, as either an asset or liability, at their fair value. Changes in fair value are recognized in noninterest income on the Consolidated Statements of Income. The Company also began offering interest rate swaps to some customers through a third-party dealer. These derivatives generally work together as an economic interest rate hedge, but the Company does not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability are recorded as either a charge or credit to current earnings during the period in which the changes occurred, typically resulting in no net earnings impact.

Reclassifications

Certain reclassifications have been made to the 2018 and 2017 financial statements to conform to the financial statement presentation as of and for the year ended December 31, 2019. These reclassifications had no effect on net income.

Restriction on Cash and Due From Banks	12 Months Ended
Restriction on Cash and Due From Banks	Dec. 31, 2019
Restriction on Cash and Due From Banks
Restriction on Cash and Due From Banks	Note 2: Restriction on Cash and Due From Banks The Company is required to maintain reserve funds in cash and/or on deposit with the Federal Reserve. The reserve required at December 31, 2019 and 2018 was $184.5 million and $114.2 million, respectively.

Securities

12 Months Ended

Dec. 31, 2019

Securities

Securities

Note 3: Securities

Trading Securities

Securities that are held principally for resale in the near term are recorded as trading securities at fair value. Trading securities include FHA and conventional Fannie Mae and Freddie Mac participation certificates. The unrealized gains included in earnings for trading securities totaled $3.1 million and $870,000 at December 31, 2019 and 2018, respectively.

Securities Available-For-Sale

The amortized cost and approximate fair values, together with gross unrealized gains and losses, of securities are as follows:


	December 31, 2019
			Gross		Gross		Approximate
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Available-for-sale securities:
Treasury notes	$	4,744	$	21	$	—	$	4,765
Federal agencies		244,986		24		37		244,973
Municipals		5,577		360		—		5,937
Mortgage-backed - Government-sponsored entity (GSE) - residential		34,357		213		2		34,568
Total available-for-sale securities	$	289,664	$	618	$	39	$	290,243


	December 31, 2018
			Gross		Gross		Approximate
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Available-for-sale securities:
Treasury notes	$	11,928	$	26	$	13	$	11,941
Federal agencies		237,894		8		972		236,930
Municipals		21,014		336		18		21,332
Mortgage-backed - Government-sponsored entity (GSE) - residential		60,693		254		79		60,868
Total available-for-sale securities	$	331,529	$	624	$	1,082	$	331,071

The amortized cost and fair value of available‑for‑sale securities at December 31, 2019 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately.


	December 31, 2019
	Amortized		Fair
	Cost		Value
Contractual Maturity	(In thousands)
Within one year	$	23,250	$	23,233
After one through five years		226,748		226,783
After five through ten years		—		—
After ten years		5,309		5,659
		255,307		255,675
Mortgage-backed - Government-sponsored entity (GSE) - residential		34,357		34,568
	$	289,664	$	290,243

Certain investments in debt securities are reported in the consolidated financial statements at an amount less than their historical cost. Total fair value of these investments at December 31, 2019 and 2018 was $95.8 million and $240.2 million, respectively, which is approximately 33%, and 73%, respectively, of the Company’s available‑for‑sale investment portfolio.

The following tables show the Company’s gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other‑than‑temporarily impaired, aggregated by investment class and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019, and 2018:


	December 31, 2019
					12 Months or
	Less than 12 Months				Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Available-for-sale securities:
Treasury notes	$	—	$	—	$	—	$	—	$	—	$	—
Federal agencies		94,963		37		—		—		94,963		37
Municipals		—		—		—		—		—		—
Mortgage-backed - Government-sponsored entity (GSE) - residential		809		2		—		—		809		2
	$	95,772	$	39	$	—	$	—	$	95,772	$	39


	December 31, 2018
					12 Months or
	Less than 12 Months				Longer				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Available-for-sale securities:
Treasury notes	$	1,990	$	8	$	995	$	5	$	2,985	$	13
Federal agencies		28,296		97		191,280		875		219,576		972
Municipals		2,051		18		—		—		2,051		18
Mortgage-backed - Government-sponsored entity (GSE) - residential		15,543		79		—		—		15,543		79
	$	47,880	$	202	$	192,275	$	880	$	240,155	$	1,082

Unrealized losses on securities have not been recognized to income because the Company has the intent and ability to hold the securities for the foreseeable future, and the decline in fair value is primarily due to increased market interest rates. The fair value is expected to recover as the bonds approach the maturity date.

During the year ended December 31, 2019, proceeds from the sale of securities available for sale were $37.8 million, and a net gain of $476,000 was recognized, consisting of gross gains of $713,000 and gross losses of $237,000. During the year ended December 31, 2018, proceeds from the sale of securities available for sale were $6.4 million, and no gains or losses were recognized. There were no sales of securities available for sale during the year ended December 31, 2017.

The carrying value of securities pledged as collateral, to secure borrowings, pubic deposits and for other purposes, was $290.2 million, and $281.2 million at December 31, 2019 and 2018, respectively.

Loans and Allowance for Loan Losses

12 Months Ended

Dec. 31, 2019

Loans and Allowance for Loan Losses

Loans and Allowance for Loan Losses

Note 4: Loans and Allowance for Loan Losses

Classes of loans at December 31, 2019 and 2018, include:


	December 31,		December 31,
	2019		2018
	(In thousands)

Mortgage warehouse lines of credit	$	765,151	$	337,332
Residential real estate		413,835		410,871
Multi-family and healthcare financing		1,347,125		914,393
Commercial and commercial real estate		398,601		299,194
Agricultural production and real estate		85,210		79,255
Consumer and margin loans		18,388		17,082
		3,028,310		2,058,127
Less
Allowance for loan losses		15,842		12,704

Loans Receivable	$	3,012,468	$	2,045,423

Risk characteristics applicable to each segment of the loan portfolio are described as follows.

Mortgage Warehouse Lines of Credit (MTG WHLOC): Under its warehouse program, the Company provides warehouse financing arrangements to approved mortgage companies for the origination and sale of residential mortgage loans and to a lesser extent multi‑family loans. Agency eligible, governmental and jumbo residential mortgage loans that are secured by mortgages placed on existing one-to-four family dwellings may be originated or purchased and placed on each mortgage warehouse line.

As a secured line of credit, collateral pledged to the Company secures each individual mortgage until the lender sells the loan in the secondary market. A traditional secured warehouse line of credit typically carries a base interest rate of 30‑day LIBOR, plus a margin, or mortgage note rate, less a margin. The interest rate will typically not go below an agreed upon threshold.

Risk is evident if there is a change in the fair value of mortgage loans originated by mortgage bankers in warehouse, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit.

Residential Real Estate Loans (RES RE): Real estate loans are secured by owner occupied 1‑4 family residences. Repayment of residential real estate loans is primarily dependent on the personal income and credit rating of the borrowers. All-in-One mortgages included in this segment typically carry a base rate of 30-day LIBOR, plus a margin.

Multi‑Family and Healthcare Financing (MF RE): The Company engages in multi‑family and healthcare financing, including construction loans, specializing in originating and servicing loans for multi‑family rental and senior living properties. In addition, the Company originates loans secured by an assignment of federal income tax credits by partnerships invested in multi‑family real estate projects. Construction and land loans are generally based upon estimates of costs and estimated value of the completed project and include independent appraisal reviews and a financial analysis of the developers and property owners. Sources of repayment of these loans may include permanent loans, sales of developed property or an interim loan commitment from the Company until permanent agency-eligible financing is obtained. These loans are considered to be higher risk than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general economic conditions and the availability of long‑term financing. Credit risk in these loans may be impacted by the creditworthiness of a borrower, property values and the local economy in the Company’s market area. Repayment of these loans depends on the successful operation of a business or property and the borrower’s cash flows.

Commercial Lending and Commercial Real Estate Loans (CML & CRE): The commercial lending and commercial real estate portfolio includes loans to commercial customers for use in financing working capital needs, equipment purchases and expansions, as well as loans to commercial customers to finance land and improvements. It also includes loans collateralized by mortgage servicing rights of mortgage warehouse customers. The loans in this category are repaid primarily from the cash flow of a borrower’s principal business operation. Credit risk in these loans is driven by creditworthiness of a borrower and the economic conditions that impact the cash flow stability from business operations.

Agricultural Production and Real Estate Loans (AG & AGRE): Agricultural production loans are generally comprised of seasonal operating lines of credit to grain farmers to plant and harvest corn and soybeans and term loans to fund the purchase of equipment. The Company also offers long‑term financing to purchase agricultural real estate. Specific underwriting standards have been established for agricultural related loans including the establishment of projections for each operating year based on industry developed estimates of farm input costs and expected commodity yields and prices. Operating lines are typically written for one year and secured by the crop and other farm assets as considered necessary. The Company is approved to sell agricultural loans in the secondary market through the Federal Agricultural Mortgage Corporation and uses this relationship to manage interest rate risk within the portfolio.

Consumer and Margin Loans (CON & MAR): Consumer loans are those loans secured by household assets. Margin loans are those loans secured by marketable securities. The term and maximum amount for these loans are determined by considering the purpose of the loan, the margin (advance percentage against value) in all collateral, the primary source of repayment, and the borrower’s other related cash flow.

The following tables present by loan portfolio segment, the activity in the allowance for loan losses for the years ended December 31, 2019, 2018 and 2017 and the recorded investment in loans and impairment method as of December 31, 2019, 2018 and 2017:


	At or For the Year Ended December 31, 2019
	MTG WHLOC		RES RE		MF RE		CML & CRE		AG & AGRE		CON & MAR		TOTAL
	(In thousands)
Allowance for loan losses
Balance, beginning of period	$	1,068	$	1,986	$	6,030	$	3,051	$	429	$	140	$	12,704
Provision for loan losses		952		56		988		1,817		94		33		3,940
Loans charged to the allowance		(107)		—		—		(857)		—		—		(964)
Recoveries of loans previously charged off		—		—		—		162		—		—		162
Balance, end of period	$	1,913	$	2,042	$	7,018	$	4,173	$	523	$	173	$	15,842
Ending balance: individually evaluated for impairment	$	—	$	23	$	—	$	650	$	—	$	8	$	681
Ending balance: collectively evaluated for impairment	$	1,913	$	2,019	$	7,018	$	3,523	$	523	$	165	$	15,161
Loans
Ending balance	$	765,151	$	413,835	$	1,347,125	$	398,601	$	85,210	$	18,388	$	3,028,310
Ending balance individually evaluated for impairment	$	233	$	3,109	$	—	$	9,152	$	—	$	23	$	12,517
Ending balance collectively evaluated for impairment	$	764,918	$	410,726	$	1,347,125	$	389,449	$	85,210	$	18,365	$	3,015,793


	At or For the Year Ended December 31, 2018
	MTG WHLOC		RES RE		MF RE		CML & CRE		AG & AGRE		CON & MAR		TOTAL
	(In thousands)
Allowance for loan losses
Balance, beginning of period	$	283	$	1,587	$	3,502	$	2,362	$	320	$	257	$	8,311
Provision (credit) for loan losses		785		399		2,528		779		109		29		4,629
Loans charged to the allowance		—		—		—		(90)		—		(146)		(236)
Recoveries of loans previously charged off		—		—		—		—		—		—		—
Balance, end of period	$	1,068	$	1,986	$	6,030	$	3,051	$	429	$	140	$	12,704
Ending balance: individually evaluated for impairment	$	225	$	—	$	—	$	400	$	20	$	—	$	645
Ending balance: collectively evaluated for impairment	$	843	$	1,986	$	6,030	$	2,651	$	409	$	140	$	12,059
Loans
Ending balance	$	337,332	$	410,871	$	914,393	$	299,194	$	79,255	$	17,082	$	2,058,127
Ending balance individually evaluated for impairment	$	575	$	1,606	$	—	$	8,576	$	370	$	58	$	11,185
Ending balance collectively evaluated for impairment	$	336,757	$	409,265	$	914,393	$	290,618	$	78,885	$	17,024	$	2,046,942


	For the Year Ended December 31, 2017
	MTG WHLOC		RES RE		MF RE		CML & CRE		AG & AGRE		CON & MAR		TOTAL
	(In thousands)
Allowance for loan losses
Balance, beginning of year	$	373	$	2,170	$	1,962	$	1,374	$	269	$	102	$	6,250
Provision for loan losses		(90)		(583)		1,540		1,399		51		155		2,472
Loans charged to the allowance		—		—		—		(546)		—		—		(546)
Recoveries of loans previously charged off		—		—		—		135		—		—		135
Balance, end of year	$	283	$	1,587	$	3,502	$	2,362	$	320	$	257	$	8,311

Internal Risk Categories

In adherence with policy, the Company uses the following internal risk grading categories and definitions for loans:

Average or above - Loans to borrowers of satisfactory financial strength or better. Earnings performance is consistent with primary and secondary sources of repayment that are well defined and adequate to retire the debt in a timely and orderly fashion. These businesses would generally exhibit satisfactory asset quality and liquidity with moderate leverage, average performance to their peer group and experienced management in key positions. These loans are disclosed as “Acceptable and Above” in the following table.

Acceptable - Loans to borrowers involving more than average risk and which contain certain characteristics that require some supervision and attention by the lender. Asset quality is acceptable, but debt capacity is modest and little excess liquidity is available. The borrower may be fully leveraged and unable to sustain major setbacks. Covenants are structured to ensure adequate protection. Borrower’s management may have limited experience and depth. This category includes loans which are highly leveraged due to regulatory constraints, as well as loans involving reasonable exceptions to policy. These loans are disclosed as “Acceptable and Above” in the following table.

Special Mention (Watch) - This is a loan that is sound and collectable but contains considerable risk. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well‑defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following tables present the credit risk profile of the Company’s loan portfolio based on internal rating category and payment activity as of December 31, 2019 and 2018:


	December 31, 2019
	MTG WHLOC		RES RE		MF RE		CML & CRE		AG & AGRE		CON & MAR		TOTAL
	(In thousands)

Special Mention (Watch)	$	—	$	2,472	$	41,882	$	13,806	$	2,114	$	31	$	60,305
Substandard		233		3,109		—		9,152		—		23		12,517
Doubtful		—		—		—		—		—		—		—
Acceptable and Above		764,918		408,254		1,305,243		375,643		83,096		18,334		2,955,488
Total	$	765,151	$	413,835	$	1,347,125	$	398,601	$	85,210	$	18,388	$	3,028,310


	December 31, 2018
	MTG WHLOC		RES RE		MF RE		CML & CRE		AG & AGRE		CON & MAR		TOTAL
	(In thousands)

Special Mention (Watch)	$	—	$	443	$	71,734	$	14,650	$	3,096	$	681	$	90,604
Substandard		575		1,606		—		8,576		370		58		11,185
Doubtful		—		—		—		—		—		—		—
Acceptable and Above		336,757		408,822		842,659		275,968		75,789		16,343		1,956,338
Total	$	337,332	$	410,871	$	914,393	$	299,194	$	79,255	$	17,082	$	2,058,127

The Company evaluates the loan risk grading system definitions and allowance for loan loss methodology on an ongoing basis. No significant changes were made to either during the past year.

The following tables present the Company’s loan portfolio aging analysis of the recorded investment in loans as of December 31, 2019 and 2018:


	December 31, 2019
	30-59 Days		60-89 Days		Greater Than		Total				Total
	Past Due		Past Due		90 Days		Past Due		Current		Loans
	(In thousands)
MTG WHLOC	$	—	$	—	$	—	$	—	$	765,151	$	765,151
RES RE		3,089		562		2,324		5,975		407,860		413,835
MF RE		—		—		—		—		1,347,125		1,347,125
CML & CRE		2,293		335		1,663		4,291		394,310		398,601
AG & AGRE		2,047		—		195		2,242		82,968		85,210
CON & MAR		50		31		19		100		18,288		18,388
	$	7,479	$	928	$	4,201	$	12,608	$	3,015,702	$	3,028,310


	December 31, 2018
	30-59 Days		60-89 Days		Greater Than		Total				Total
	Past Due		Past Due		90 Days		Past Due		Current		Loans
	(In thousands)
MTG WHLOC	$	—	$	—	$	324	$	324	$	337,008	$	337,332
RES RE		579		178		825		1,582		409,289		410,871
MF RE		—		—		—		—		914,393		914,393
CML & CRE		245		52		253		550		298,644		299,194
AG & AGRE		91		—		588		679		78,576		79,255
CON & MAR		2		52		28		82		17,000		17,082
	$	917	$	282	$	2,018	$	3,217	$	2,054,910	$	2,058,127

A loan is considered impaired, in accordance with the impairment accounting guidance (ASC 310‑10‑35‑16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming commercial loans but also include loans modified in troubled debt restructurings.

The following tables present impaired loans and specific valuation allowance information based on class level as of December 31, 2019 and 2018:


	December 31, 2019
	MTG WHLOC		RES RE		MF RE		CML & CRE		AG & AGRE		CON & MAR		TOTAL
	(In thousands)
Impaired loans without a specific allowance:
Recorded investment	$	233	$	2,899	$	—	$	6,662	$	—	$	12	$	9,806
Unpaid principal balance		233		2,899		—		6,662		—		12		9,806
Impaired loans with a specific allowance:
Recorded investment		—		210		—		2,490		—		11		2,711
Unpaid principal balance		—		210		—		2,490		—		11		2,711
Specific allowance		—		23		—		650		—		8		681
Total impaired loans:
Recorded investment		233		3,109		—		9,152		—		23		12,517
Unpaid principal balance		233		3,109		—		9,152		—		23		12,517
Specific allowance		—		23		—		650		—		8		681


	December 31, 2018
	MTG WHLOC		RES RE		MF RE		CML & CRE		AG & AGRE		CON & MAR		TOTAL
	(In thousands)
Impaired loans without a specific allowance:
Recorded investment	$	251	$	1,606	$	—	$	5,636	$	88	$	58	$	7,639
Unpaid principal balance		251		1,606		—		5,636		88		58		7,639
Impaired loans with a specific allowance:
Recorded investment		324		—		—		2,940		282		—		3,546
Unpaid principal balance		324		—		—		2,940		282		—		3,546
Specific allowance		225		—		—		400		20		—		645
Total impaired loans:
Recorded investment		575		1,606		—		8,576		370		58		11,185
Unpaid principal balance		575		1,606		—		8,576		370		58		11,185
Specific allowance		225		—		—		400		20		—		645

The following tables present by portfolio class, information related to the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2019, 2018and 2017:


	December 31, 2019
	MTG						CML &		AG &		CON &
	WHLOC		RES RE		MF RE		CRE		AGRE		MAR		TOTAL
	(In thousands)
Average recorded investment in impaired loans	$	242	$	3,175	$	—	$	8,675	$	—	$	25	$	12,117
Interest income recognized		—		71		—		463		—		—		534


	December 31, 2018
	MTG						CML &		AG &		CON &
	WHLOC		RES RE		MF RE		CRE		AGRE		MAR		TOTAL
	(In thousands)
Average recorded investment in impaired loans	$	932	$	1,485	$	—	$	8,872	$	489	$	52	$	11,830
Interest income recognized		59		50		—		375		43		1		528


	December 31, 2017
	MTG						CML &			AG &	CON &
	WHLOC		RES RE		MF RE		CRE			AGRE	MAR		TOTAL
	(In thousands)
Average recorded investment in impaired loans	$	—	$	156	$	—	$	3,703	$	282	$	197	$	4,338
Interest income recognized		—		1		—		182		—		—		183

The following table presents the Company’s nonaccrual loans and loans past due 90 days or more and still accruing at December 31, 2019 and 2018.


	December 31,				December 31,
	2019				2018
			Total Loans >				Total Loans >
			90 Days &				90 Days &
	Nonaccrual		Accruing		Nonaccrual		Accruing
	(In thousands)
MTG WHLOC	$	233	$	—	$	575	$	—
RES RE		740		1,851		893		74
MF RE		—		—		—		—
CML & CRE		1,118		486		136		117
AG & AGRE		—		231		282		307
CON & MAR		18		1		18		9

	$	2,109	$	2,569	$	1,904	$	507

No troubled loans were restructured during 2019. During 2018, the Company had one newly classified troubled debt restructuring in the CML & CRE loan class. The loan had a pre and post modification balance of $2.0 million. During 2017, the Company had one newly classified troubled debt restructuring to the same borrower in the CML & CRE loan class. This loan also had a pre and post modification balance of $2.0 million. The modifications on both loans included a combination of term and rate concessions which reflect the unlikeliness of the borrower being able to obtain similar financing from another financial institution. For 2019, 2018 and 2017, no troubled debt restructurings modified in the prior 12 months subsequently defaulted.

There was one customer with a residential loan balance of $725,000 in the process of foreclosure at December 31, 2019. No residential loans were in the process of foreclosure at December 31, 2018.

Derivative Financial Instruments

12 Months Ended

Dec. 31, 2019

Derivative Financial Instruments

Derivative Financial Instruments

Note 5: Derivative Financial Instruments

The Company uses derivative financial instruments to help manage exposure to interest rate risk and the effects that changes in interest rates may have on net income and the fair value of assets and liabilities.

Forward Sales Commitments and Interest Rate Lock Commitments

The Company enters into forward contracts for the future delivery of mortgage loans to third party investors and enters into interest rate lock commitments with potential borrowers to fund specific mortgage loans that will be sold into the secondary market. The forward contracts are entered into in order to economically hedge the effect of changes in interest rates resulting from the Company’s commitment to fund the loans.

Each of these items are considered derivatives, but are not designated as accounting hedges, and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in other assets in the consolidated balance sheets while derivative instruments with a negative fair value are reported in other liabilities in the consolidated balance sheets.

The following table presents the notional amount and fair value of interest rate locks and forward contracts utilized by the Company at December 31, 2019 and December 31, 2018.


		Notional			Fair Value
		Amount	Balance Sheet Location		Asset		(Liability)
December 31, 2019		(In thousands)			(In thousands)
Interest rate lock commitments	$	17,826	Derivative assets/liabilities	$	186	$	—
Forward contracts		34,268	Derivative assets/liabilities		—		27
				$	186	$	27


		Notional			Fair Value
		Amount	Balance Sheet Location		Asset		(Liability)
December 31, 2018		(In thousands)			(In thousands)
Interest rate lock commitments	$	8,812	Derivative assets/liabilities	$	70	$	—
Forward contracts		19,640	Derivative assets/liabilities		—		9
				$	70	$	9

Fair values of derivative financial instruments were estimated using changes in mortgage interest rates from the date the Company entered into the interest rate lock commitment and the balance sheet date. The following tables summarizes the periodic changes in the fair value of the derivative financial instruments on the consolidated statements of income for the years ended December 31, 2019, 2018, and 2017.


	Year Ended
	December 31,
	2019		2018		2017
		(In thousands)
Interest rate lock commitments	$	116	$	70	$	—
Forward contracts (1)		(53)		(64)		—
Net gains (losses)		63	$	6	$	—

(1)

Amounts include pair-off settlements.

Derivatives on Behalf of Customers

The Company began offering derivative contracts to some customers in connection with their risk management needs during the year ended December 31, 2019. These derivatives include interest rate swaps. The Company manages the risk associated with these contracts by entering into an equal and offsetting derivative with a third-party dealer. These derivatives generally work together as an economic interest rate hedge, but the Company does not designate them for hedge accounting treatment. Consequently, changes in fair value of the corresponding derivative financial asset or liability were recorded as either a charge or credit to current earnings during the period in which the changes occurred, typically resulting in no net earnings impact. The fair values of derivative assets and liabilities related to derivatives for customers with interest rate swaps were recorded in the condensed consolidated balance sheets as follows:


		Notional			Fair Value
		Amount	Balance Sheet Location		Asset		Liability
		(In thousands)			(In thousands)
December 31, 2019	$	58,067	Other assets/liabilities	$	511	$	511
December 31, 2018		—	Other assets/liabilities	$	—	$	—

The gross gains and losses on these derivative assets and liabilities recorded in Other income in the condensed consolidated statements of income as follows:


	Year Ended
	December 31,
	2019		2018		2017
		(In thousands)
Gross swap gains	$	511	$	—	$	—
Gross swap losses		(511)		—		—
Net swap gains (losses)		—	$	—	$	—

The Company pledged $590,000 and $0 in collateral to secure its obligations under swap contracts at December 31, 2019 and December 31, 2018, respectively.

Loan Servicing

12 Months Ended

Dec. 31, 2019

Loan Servicing

Loan Servicing

Note 6: Loan Servicing

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets and represent agency eligible multi‑family loans. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates. Call protection is in place to deter from prepayments on a 10‑year sliding scale. The unpaid principal balances of mortgage and other loans serviced for others were $6.3 billion and $5.8 billion at December 31, 2019 and 2018, respectively. Mortgage loans sub‑serviced for others are not included in the accompanying balance sheets. The unpaid principal balances of loans sub‑serviced for others were $3.8 billion and $3.1 billion at December 31, 2019 and 2018, respectively.

The following summarizes the activity in mortgage servicing rights measured using the fair value method for the years ended December 31, 2019, 2018, and 2017:


	For the Year Ended
	December 31,
	2019		2018		2017
		(In thousands)
Balance, beginning of period	$	77,844	$	66,079	$	53,670
Additions
Originated and purchased servicing		7,332		14,113		10,993
Acquisition of MCS		—		—		3,970
Subtractions
Paydowns		(5,994)		(4,196)		(5,504)
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model		(4,795)		1,848		2,950
Balance, end of period	$	74,387	$	77,844	$	66,079

Contractually specified servicing fees for retained, purchased and sub‑serviced loans were $9.7 million, $8.7 million, and $8.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.

In connection with certain loan servicing and sub‑servicing agreements, the Company is to reconcile the payments received monthly on these loans, for principal and interest, taxes, insurance, and reserves for replacements. The funds are required to be maintained in separate trust accounts and not commingled with the Company’s general operating funds. At December 31, 2019 and 2018, MCC held restricted escrow funds for these loans, amounting to $459.3 million and $412.4 million, respectively.

Goodwill and Intangibles

12 Months Ended

Dec. 31, 2019

Goodwill and Intangibles

Goodwill and Intangibles

Note 7: Goodwill and Intangibles

Goodwill at December 31, 2019 decreased by approximately $1.6 million, compared with December 31, 2018, primarily as a result of purchase accounting adjustments to the FMNBP and NattyMac, LLC acquisitions. Included in those adjustments was a $1.6 million transfer of goodwill, related to the NattyMac, LLC acquisition, to intangible assets. Goodwill represents the amount by which the cost of an acquisition exceeded the fair value of net assets acquired. Goodwill is tested for impairment as of year‑end, or more frequently if events and circumstances exist that indicate a goodwill impairment test should be performed. Based upon management’s assessment and evaluation of goodwill at year‑end, the likelihood that an impairment of the current carrying amount of goodwill has occurred is considered remote.


	2019									2018								2017
	Multifamily		Banking		Warehouse		Total		Multifamily		Banking		Warehouse		Total		Multifamily		Banking		Warehouse		Total
	(In thousands)								(In thousands)								(In thousands)
Balance, beginning of period	$	3,791	$	8,686	$	5,000	$	17,477	$	3,379	$	523	$	—	$	3,902	$	—	$	523	$	—	$	523
Goodwill acquired during the period		—		—		—		—		—		8,163		5,000		13,163		3,379		—		—		3,379
Post-acquisition adjustments		—		(333)		(1,299)		(1,632)		412		—		—		412		—		—		—		—
Impairment losses		—		—		—		—		—		—		—		—		—		—		—		—
Balance, end of period	$	3,791	$	8,353	$	3,701	$	15,845	$	3,791	$	8,686	$	5,000	$	17,477	$	3,379	$	523	$	—	$	3,902

In conjunction with the acquisition of the assets of NattyMac, LLC on December 31, 2018, the Company recorded goodwill of $3.7 million in the Warehouse segment, after reflecting a $1.6 million transfer to intangible assets and a $271,000 purchase accounting adjustment related to contingent consideration that increased goodwill during 2019. Intangible assets of $1.6 million, related to customer lists, were recorded and are being amortized over 21 months using the straight-line method. Amortization of these intangible assets was $673,000 for the year ended December 31, 2019.

In conjunction with the acquisition of FMNBP on October 1, 2018, the Company recorded goodwill of $6.9 million in the Banking segment as of December 31, 2019, after reflecting a $333,000 purchase accounting adjustment, primarily related to the valuation of securities, that decreased goodwill during 2019. The Company also recorded intangible assets for core deposits, as summarized below. The core deposit intangibles are being amortized over 10 years using the accelerated sum of the years digits method. Amortization for these intangible assets was $339,000 and $85,000 for the years ended December 31, 2019 and December 31, 2018, respectively.

In conjunction with the acquisition of FMBI on January 2, 2018, the Company recorded goodwill of $988,000 in the Banking segment as of December 31, 2019. The Company also recorded intangible assets for core deposits, as summarized below. The core deposit intangibles are being amortized over 10 years using the accelerated sum of the years digits method. Amortization for these intangible assets was $82,000 and $84,000 for the years ended December 31, 2019 and December 31, 2018, respectively.

In conjunction with the acquisition of MCS on August 15, 2017, the Company recorded goodwill of $3.8 million in the Multi-family segment, after reflecting a purchase accounting adjustment of $412,000, related to contingent consideration for loans closed after the acquisition date, that increased goodwill during the year ended December 31, 2018. The Company also recorded intangible assets for licenses and trade names as summarized below. The licenses are being amortized over 84 months and trade names are being amortized over 120 months, both using the straight-line method. Amortization of these intangible assets was $218,000 for the year ended December 31, 2019, $218,000 for the year ended December 31, 2018, and $82,000 for the year ended December 31, 2017.


	2019						2018						2017
	Gross						Gross						Gross
	Carrying		Accumulated				Carrying		Accumulated				Carrying		Accumulated
	Amount		Amortization		Total		Amount		Amortization		Total		Amount		Amortization		Total
	(In thousands)						(In thousands)						(In thousands)
Licenses	$	1,370	$	(465)	$	905	$	1,370	$	(269)	$	1,101	$	1,370	$	(74)	$	1,296
Trade names		224		(53)		171		224		(31)		193		224		(8)		216
Customer list		1,570		(673)		897		—		—		—		—		—		—
Core deposit intangible		2,417		(591)		1,826		2,417		(169)		2,248		—		—		—
Total intangible Assets	$	5,581	$	(1,782)	$	3,799	$	4,011	$	(469)	$	3,542	$	1,594	$	(82)	$	1,512

Estimated amortization expense for future years is as follows (in thousands):


Year ending December 31,
2020	$	1,516
2021		577
2022		521
2023		462
2024		335
Thereafter		388
Total	$	3,799

Premises and Equipment

12 Months Ended

Dec. 31, 2019

Premises and Equipment

Premises and Equipment

Note 8: Premises and Equipment

Major classifications of premises and equipment, stated at cost, are as follows:


	December 31,
	2019		2018
	(In thousands)
Land	$	3,072	$	3,072
Buildings		22,775		4,095
Building in progress		—		8,272
Leasehold improvements		53		83
Furniture, fixtures and equipment		6,445		2,427
Total cost		32,345		17,949
Accumulated depreciation		(3,071)		(2,813)
Net premises and equipment	$	29,274	$	15,136

Other Assets and Receivables	12 Months Ended
Other Assets and Receivables	Dec. 31, 2019
Other Assets and Receivables.
Other Assets and Receivables	Note 9: Other Assets and Receivables The following items are included in other assets and receivables in the consolidated balance sheets. Investment in Qualified Affordable Housing Limited Partnerships The Company invests in qualified affordable housing limited partnerships. At December 31, 2019 and 2018, the balance of the investments for qualified affordable housing limited partnerships was $14.9 million and $17.2 million, respectively. The Company does not expect to contribute any additional investments related to the partnerships outstanding at December 31, 2019. During the years ended December 31, 2019 and 2018, the Company recorded amortization expense of $2.3 million and $1.2 million, respectively. Tax credits related to these investments were $2.5 million for the 2019 tax year and was $1.5 for the 2018 tax year. The Company expects to receive additional tax credits and other benefits in 2020 and will continue to amortize this investment based on the proportional amortization method. Other items included in other assets and receivables on the balance sheet are not individually significant.

Deposits

12 Months Ended

Dec. 31, 2019

Deposits

Deposits

Note 10: Deposits

Deposits were comprised of the following at and December 31, 2019 and 2018:


	December 31,
	2019		2018
	(In thousands)
Demand deposits	$	2,099,373	$	1,548,969
Savings deposits		1,204,363		1,001,663
Certificates of deposit		2,174,339		680,454
Total deposits	$	5,478,075	$	3,231,086

At December 31, 2019, the scheduled maturities of time deposits are as follows:


	December 31, 2019
	(In thousands)
Due within one year	$	2,084,369
Due in one year to two years		57,085
Due in two years to three years		25,038
Due in three years to four years		6,284
Due in four years to five years		1,563
	$	2,174,339

Certificates of deposit of $250,000 or more totaled $128.9 million at December 31, 2019 and $46.7 million at December 31, 2018.

Brokered deposit amounts at December 31, 2019 and 2018, were as follows:


	December 31,
	2019		2018
	(In thousands)
Brokered certificates of deposit	$	1,962,389	$	578,471
Brokered savings deposits		184,603		109,607
Brokered deposit on demand accounts		10,001		300,134
	$	2,156,993	$	988,212

Borrowings

12 Months Ended

Dec. 31, 2019

Borrowings

Borrowings

Note 11: Borrowings

Borrowings were comprised of the following at December 31, 2019 and 2018:


	December 31,
	2019		2018
	(In thousands)
Lines of credit	$	6,540	$	33,150
Short-term subordinated debt		12,200		10,582
FHLB advances		162,699		151,721
Total borrowings	$	181,439	$	195,453

The Company has a revolving line of credit (“LOC”) with the FHLB. This arrangement has a maximum borrowing limit of collateral pledged, with an outstanding balance at both December 31, 2019 and 2018 of $6.5 million and $8.2 million, respectively. The floating interest rate on the LOC is set daily at a fixed spread to the actual Federal Funds rate earned by the FHLB, or 1.77% at December 31, 2019 and 2.61% at December 31, 2018. The LOC is automatically renewed daily, unless either party notifies the other of its desire not to continue the arrangement.

During 2019 the Company also paid off a LOC with a bank for up to $25.0 million and allowed it to expire in August of 2019. The LOC had an outstanding balance at both December 31, 2018 of $25.0 million. The interest rate on the note was LIBOR Rate plus 1.85%, or 4.2%, at December 31, 2018. The LOC was collateralized by a pledge and first lien security interest in and to all of the issued and outstanding common stock of Merchants Bank of Indiana, the 100% owned subsidiary of the Company. The agreement also required Merchants Bank to maintain at all times a Tier 1 leverage ratio of not less than 8% and was tested on a quarterly basis.

The Company entered into a warehouse financing arrangement in April 24, 2018, whereby a customer agreed to invest up to $30 million in the Company’s subordinated debt. The subordinated debt balance as of December 31, 2019 and 2018 was $12.2 million and $10.6 million, respectively. Interest on the debt is paid quarterly by the Company at a rate equal to one-month LIBOR, plus 350 basis points, plus additional interest equal to 50% of the earnings generated. The agreement is automatically renewed annually on April 24th, unless either party notifies the other party at least 180 days prior to its renewable date, of its desire not to continue the relationship.

FHLB advances and the LOC are secured by mortgage loans totaling $1.4 billion and $88.1 million at, December 31, 2019 and 2018, respectively. In addition, available for sale securities and securities purchased under agreements to resell with a carrying value of $276.7 million and $269.3. million were pledged as of December 31, 2019 and 2018, respectively. At December 31, 2019, the FHLB advances had interest rates ranging from 1.58% to 4.74%, and at December 31, 2018, the FHLB advances had interest rates ranging from 1.79% to 4.74%, and were subject to restrictions or penalties in the event of prepayment.

Maturities of FHLB advances were as follows December 31, 2019:


	December 31,
	2019
	(In thousands)
Due within one year	$	145,589
Due in one year to two years		15,077
Due in two years to three years		59
Due in three years to four years		342
Due in four years to five years		61
Thereafter		1,571
	$	162,699

At December 31, 2019, the Company has excess borrowing capacity with the FHLB for approximately $425.0 million based on currently owned FHLB stock and $1.5 billion based on current collateral.

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes

Income Taxes

Note 12: Income Taxes

The provision for income taxes includes these components for the years ended December 31, 2019, 2018 and 2017:


	Year Ended
	December 31,
	2019				2018		2017
		(In thousands)
Income tax expense
Current tax payable
Federal	$	21,396		$	13,312		$	21,413
State		4,387			5,528			3,479
Deferred tax payable
Federal		(375)			1,583			(2,627)
State		(603)			730			212
Income tax expense	$	24,805		$	21,153		$	22,477
Effective tax rate		24.3	%		29.1	%		29.1	%

A reconciliation of income tax expense at the statutory rate to the Company’s actual income tax expense for the years ended December 31, 2019, 2018 and 2017, is shown below:


	Year Ended
	December 31,
	2019			2018	2017
	(In thousands)
Computed at the statutory rate (21% for 2019 and 2018, and 35% for 2017)	$	21,448	$	17,646	$	27,006
Increase resulting from
State income taxes		2,989		4,944		2,399
Effect of Tax Cuts and Jobs Act		—		—		(6,928)
Tax Credits net of related amortization		(190)		(1,533)		—
Other		558		96		—
Actual tax expense	$	24,805	$	21,153	$	22,477

The tax effects of temporary differences related to deferred taxes shown on the balance sheet were:


	December 31,
	2019		2018
	(In thousands)
Deferred tax assets
Allowance for loan losses	$	4,069	$	3,366
Unrealized loss on available for sale securities		—		148
Fair value adjustments on acquisitions		228		—
Other		1,309		854
Total assets		5,606		4,368
Deferred tax liabilities
Depreciation		(1,374)		(466)
Intangible assets		(466)		(618)
Mortgage servicing rights		(17,035)		(17,477)
Limited partnership investments		(1,791)		(2,212)
Unrealized loss on available for sale securities		(121)		—
Fair value adjustments on acquisitions		—		(3)
Total liabilities		(20,787)		(20,776)
Net deferred tax liability	$	(15,181)	$	(16,408)

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act, which significantly changes the existing U.S. tax laws, including a reduction in the corporate tax rate from 35% to 21%. As a result of enactment of the legislation, the Company recorded in the fourth quarter of 2017, an additional one-time income tax benefit of $6.9 million, primarily related to the re-measurement of certain deferred tax assets and liabilities and included an expense of $243,000 related to the adjustment of the deferred tax asset for net unrealized losses on available for sale securities.

Regulatory Matters

12 Months Ended

Dec. 31, 2019

Regulatory Matters

Regulatory Matters

Note 13: Regulatory Matters

The Company, Merchants Bank, and FMBI are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by federal and state banking regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company, Merchants Bank and FMBI must meet specific capital guidelines that involve quantitative measures of the Company’s, Merchants Bank’s, and FMBI’s assets, liabilities and certain off‑balance‑sheet items as calculated under regulatory accounting practices. The Company’s, Merchants Bank’s, and FMBI’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Furthermore, the Company’s, Merchants Bank’s, and FMBI’s regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Company, Merchants Bank, and FMBI to maintain minimum amounts and ratios (set forth in the table below). Management believes, as of December 31, 2019 and 2018, that the Company, Merchants Bank, and FMBI met all capital adequacy requirements to which they were subject.

As of December 31, 2019, the most recent notifications from the Federal Reserve categorized the Company as well capitalized and most recent notifications from the FDIC categorized Merchants Bank and FMBI as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, a company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Company, Merchants Bank, or FMBI’s category.

The Company’s, Merchants Bank’s, and FMBI’s actual capital amounts and ratios are also presented in the following tables.


					Minimum Amount
					Required for				Minimum Amount
					Adequately				To Be Well
	Actual				Capitalized(1)				Capitalized(1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
December 31, 2019
Total capital(1) (to risk-weighted assets)
Company	$	637,472	11.6	%	$	440,063	8.0	%	$	—	N/A
Merchants Bank		639,104	12.0	%		426,748	8.0	%		533,435	10.0	%
FMBI		21,726	13.1	%		13,306	8.0	%		16,632	10.0	%
Tier 1 capital(1) (to risk-weighted assets)
Company		621,630	11.3	%		330,047	6.0	%		—	N/A
Merchants Bank		623,716	11.7	%		320,061	6.0	%		426,748	8.0	%
FMBI		21,272	12.8	%		9,979	6.0	%		13,306	8.0	%
Common Equity Tier 1 capital(1) (to risk-weighted assets)
Company		408,984	7.4	%		247,536	4.5	%		—	N/A
Merchants Bank		623,716	11.7	%		240,046	4.5	%		346,733	6.5	%
FMBI		21,272	12.8	%		7,484	4.5	%		10,811	6.5	%
Tier 1 capital(1) (to average assets)
Company		621,630	9.4	%		264,324	4.0	%		—	N/A
Merchants Bank		623,716	9.7	%		257,487	4.0	%		321,859	5.0	%
FMBI		21,272	11.7	%		7,302	4.0	%		9,128	5.0	%

(1)

As defined by regulatory agencies.


					Minimum				Minimum
					Amount Required				Amount To Be
					for Adequately				Well
	Actual				Capitalized(1)				Capitalized(1)
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
December 31, 2018
Total capital(1) (to risk-weighted assets)
Company	$	393,654	12.3	%	$	255,884	8.0	%	$	—	N/A
Merchants Bank		412,386	13.3	%		248,290	8.0	%		310,363	10.0	%
FMBI		17,537	18.6	%		7,559	8.0	%		9,448	10.0	%
Tier 1 capital(1) (to risk-weighted assets)
Company		380,950	11.9	%		191,913	6.0	%		—	N/A
Merchants Bank		399,815	12.9	%		186,218	6.0	%		248,290	8.0	%
FMBI		17,404	18.4	%		5,669	6.0	%		7,559	8.0	%
Common Equity Tier 1 capital(1) (to risk-weighted assets)
Company		339,369	10.6	%		143,935	4.5	%		—	N/A
Merchants Bank		399,815	12.9	%		139,663	4.5	%		201,736	6.5	%
FMBI		17,404	18.4	%		4,252	4.5	%		6,141	6.5	%
Tier 1 capital(1) (to average assets)
Company		380,950	10.0	%		152,081	4.0	%		—	N/A
Merchants Bank		399,815	11.0	%		145,723	4.0	%		182,154	5	%
FMBI		17,404	10.8	%		6,453	4.0	%		8,066	5.0	%

(1)

As defined by regulatory agencies.

Beginning January 1, 2015, the Basel III capital rules applied to Merchants Bank. The following table lists the capital categories and ratios determined by the Federal Reserve and FDIC.


					Common Equity
	Total Risk-based		Tier 1 Risk-based		Tier 1 Risk-based		Tier 1
Capital Category	Capital ratio		Capital ratio		Capital ratio		Leverage ratio
Well capitalized	10	%	8	%	6.5	%	5	%
Adequately capitalized	8		6		4.5		4
Undercapitalized	<8		<6		<4.5		<4
Significantly undercapitalized	<6		<4		<3		<3
Critically undercapitalized	Tangible Equity/Total Assets </= 2%

The Basel III capital rules, among other things, (i) introduced a new capital measure called “Common Equity Tier 1” (CET1), (ii) specified that Tier 1 capital consist of CET1 and “Additional Tier 1 Capital” instruments meeting specified requirements, (iii) defined CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital and (iv) expanded the scope of the deductions/adjustments as compared to existing regulations.

Implementation of the deductions and other adjustments to CET1 began on January 1, 2015, and were phased in over a four-year period, becoming fully phased in on January 1, 2019. Additionally, under the Basel III Capital Rules, in order to avoid limitations on capital distributions of dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of capital above its minimum risk-based capital requirements. On January 1, 2019 the capital conservation buffer became fully phased in at 2.5%.

The Company’s principal source of funds for dividend payments to shareholders is dividends received from Merchants Bank and FMBI. Banking regulations limit the maximum amount of dividends that a bank may pay without requesting prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to Merchants Bank’s and FMBI’s retained net income (as defined) for the current year plus those for the previous two years, subject to the capital requirements described above. At December 31, 2019, the amount available, without prior regulatory approval, for dividends which could be paid by Merchants Bank and FMBI to the Company was $117.7 million.

- Definition

The entire disclosure for banks, savings institutions, and credit unions, for regulatory capital requirements imposed by the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) or for any state imposed capital requirements, as applicable. The disclosure may include (1) a description of regulatory capital requirements (a) for capital adequacy purposes and (b) established by the prompt corrective action provisions of Section 38 of the Federal Depository Insurance Act; (2) the actual or possible material effects of noncompliance with such requirements; (3) whether the entity is in compliance with the regulatory capital requirements including (a) required and actual ratios and amounts of Tier 1 leverage, Tier 1 risk-based, and total risk-based capital, tangible capital (for savings institutions), and Tier 3 capital for market risk (for certain banks and bank holding companies), (b) factors that may significantly affect capital adequacy; (4) the prompt corrective action category in which the entity was classified as of its most recent notification; (5) whether management believes any conditions or events since notification have changed the entity's category. Also may include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.

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+ Details

Earnings Per Share

12 Months Ended

Dec. 31, 2019

Earnings Per Share

Earnings Per Share

Note 14: Earnings Per Share

Earnings per share were computed as follows for years ended December 31, 2019, 2018 and 2017.


	Year Ended December 31,
	2019					2018					2017
			Weighted-	Per				Weighted-	Per				Weighted-	Per
	Net		Average	Share		Net		Average	Share		Net		Average	Share
	Income		Shares	Amount		Income		Shares	Amount		Income		Shares	Amount
	(In thousands)					(In thousands)						(In thousands)
Net income	$	77,329				$	62,874				$	54,684
Dividends on preferred stock		(9,216)					(3,330)					(3,330)
Net income allocated to common shareholders	$	68,113				$	59,544				$	51,354
Basic earnings per share			28,705,125	$	2.37			28,692,955	$	2.08			22,551,452	$	2.28
Effect of dilutive securities—restricted stock awards			40,582					31,464					16,702
Diluted earnings per share			28,745,707	$	2.37			28,724,419	$	2.07			22,568,154	$	2.28

Stock Splits	12 Months Ended
Stock Splits	Dec. 31, 2019
Stock Splits
Stock Splits	Note 15: Stock Splits On July 5, 2017, the Company approved an increase of authorized common shares to 50.0 million shares, and declared a 2.5‑for‑1 stock split effective July 6, 2017. The presentation of authorized common shares has been retrospectively adjusted to give effect to the increase, and all share and per share amounts have been retrospectively adjusted to give effect to these splits.

Initial Public Offering of Common Stock	12 Months Ended
Initial Public Offering of Common Stock	Dec. 31, 2019
Initial Public Offering of Common Stock
Initial Public Offering of Common Stock	Note 16: Initial Public Offering of Common Stock On October 26, 2017, the Company issued 6,250,000 shares of common stock in its initial public offering, and on November 2, 2017, the Company issued an additional 937,500 shares of common stock to the underwriters related to their exercise of an option to purchase additional shares. The aggregate gross offering proceeds for the shares issued by the Company was $115.0 million, and after deducting underwriting discounts and offering expenses of approximately $8.8 million paid to third parties, the Company received total net proceeds of $106.2 million.

Preferred Stock	12 Months Ended
Preferred Stock	Dec. 31, 2019
Preferred Stock
Private Placement Offering of Preferred Stock	Note 17: Preferred Stock Public Offerings of Preferred Stock On March 28, 2019 the Company issued 2,000,000 shares of 7.00% Fixed-to-Floating Rate Series A Non-Cumulative Perpetual Preferred Stock, without par value, and with a liquidation preference of $25.00 per share (the “Series A Preferred Stock”). The aggregate gross offering proceeds for the shares issued by the Company was $50.0 million, and after deducting underwriting discounts and commissions and offering expenses of approximately $1.7 million paid to third parties, the Company received total net proceeds of $48.3 million. On April 12, 2019, the Company issued an additional 81,800 shares of Series A Preferred Stock to the underwriters related to their exercise of an option to purchase additional shares under the associated underwriting agreement, resulting in an additional $2.0 million in net proceeds, after deducting $41,000 underwriting discounts. The Series A Preferred Stock have no voting rights with respect to matters that generally require the approval of our common shareholders. Dividends on the Series A Preferred Stock, to the extent declared by the Company’s board, are payable quarterly. The Company may redeem the Series A Preferred Stock, in whole or in part, at our option, on any dividend payment date on or after April 1, 2024, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption. On August 19, 2019 the Company issued 5,000,000 depositary shares, each representing a 1/40th interest in a share of its 6.00% Fixed-to-Floating Rate Series B Non-Cumulative Perpetual Preferred Stock, without par value (the “Series B Preferred Stock”), and with a liquidation preference of $1,000.00 per share (equivalent to $25.00 per depositary share). The aggregate gross offering proceeds for the shares issued by the Company was $125.0 million, and after deducting underwriting discounts and commissions and offering expenses of approximately $4.2 million paid to third parties, the Company received total net proceeds of $120.8 million. The Series B Preferred Stock have no voting rights with respect to matters that generally require the approval of our common shareholders. Dividends on the Series B Preferred Stock, to the extent declared by the Company’s board, are payable quarterly. The Company may redeem the Series A Preferred Stock, in whole or in part, at our option, on any dividend payment date on or after October 1, 2024, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption. Private Placement Offerings of Preferred Stock The Company previously issued a total of 41,625 shares of 8% Non-Cumulative, Perpetual Preferred Stock, without par value, with a liquidation preference of $1,000.00 per share (8% Preferred Stock”) in private placement offerings. The Company may redeem this Preferred Stock, in whole or in part, at our option, on any dividend payment date on or after December 31, 2020, subject to the approval of the appropriate federal banking agency, at the liquidation preference, plus any declared and unpaid dividends (without regard to any undeclared dividends) to, but excluding, the date of redemption. On June 27, 2019 the Company issued an additional 874,000 shares of its 7.00% Series A Preferred Stock, without par value and with a liquidation preference of $25.00 per share, for aggregate proceeds of $21.85 million. No underwriter or placement agent was involved in this private placement and the Company did not pay any brokerage or underwriting fees or discounts in connection with the issuance of such shares. The shares were purchased primarily by related parties, including Michael Petrie, Chairman and Chief Executive Officer; Randall Rogers, Vice Chairman and a director and members of his family; Michael Dury, President of Merchants Capital; and other accredited investors. Repurchase of Preferred Stock On September 23, 2019 the Company repurchased and subsequently retired 874,000 shares of its 7.00% Series A Preferred Stock, for its liquidation preference of $25 per share, at an aggregate cost of $21.85 million. There were no brokerage fees in connection with the transaction.

Related Party Transactions	12 Months Ended
Related Party Transactions	Dec. 31, 2019
Related Party Transactions
Related Party Transactions	Note 18: Related Party Transactions The Company has entered into transactions with certain directors, executive officers and their affiliates or associates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. In 2016, the Company purchased a 30% ownership in one of its key loan processing vendors, and in 2019 increased its ownership to 44.23%. The investment is accounted for using the equity method of accounting. Fees paid to this company during each of the years ended December 31, 2019, 2018, and 2017 were $3.1 million, $3.4 million, and $3.7 million, respectively. At December 31, 2019, 2018, and 2017, fees of $214,000, $226,000, and $253,000 were accrued for services received. The Company retained a law firm of which a Board member of Merchants Bank, and previously of Merchants Bancorp through July 5, 2017, is a partner. Services rendered are primarily related to documentation of current loan originations, and loan collections from Merchants Bank’s borrowers. Fees paid to the law firm totaled $3.6 million, $3.7 million, and $3.0 million for the years ended December 31, 2019, 2018 and 2017 respectively. During 2019 the Company purchased technology equipment and services for its new corporate headquarters building from a company owned by a Board member of Merchants Bancorp. Fees paid directly and indirectly to this company totaled $641,000 for the year ended December 31, 2019. No fees were incurred for the years ended December 31, 2018 or 2017. On May 8, 2017, the Company entered into a purchase agreement to acquire FMBI from Mr. Petrie, the Company’s Chairman and Chief Executive Officer and Mr. Rogers, a director of the Company. On October 31, 2016, the Company had entered into an Agreement and Plan of Merger to acquire FMBI. Because the timing and regulatory approval of the transaction was uncertain due to the Company’s capital position at December 31, 2016, the parties agreed that Messrs. Petrie and Rogers, would acquire FMBI. The acquisition of FMBI by the Messrs. Petrie and Rogers closed on April 3, 2017. The purchase agreement provided for the Company to pay a purchase price equal to approximately $5.4 million plus an approximate cost of funds of $16,000 for each 30 days after June 30, 2017, prorated to the closing date. The purchase price was equal to the price paid by Messrs. Petrie and Rogers, plus expenses and a cost of funds equal to 3.75%. The acquisition closed on January 2, 2018 at a total cost of approximately $5.5 million. At December 31, 2017 FMBI had $43 million in assets and $36.9 million of deposits.

Employee Benefits	12 Months Ended
Employee Benefits	Dec. 31, 2019
Employee Benefits
Employee Benefits	Note 19: Employee Benefits Effective January 1, 2016, the Company discontinued its SIMPLE IRA plan and began offering a 401(k) plan. Pursuant to the plan agreement, matching contributions equal to 100% of the employees’ elective deferrals which do not exceed 3% of the employees’ compensation will be made unless management elects to make either the alternative matching contribution or the non‑elective contribution. Employer contributions to the plans were $629,000, $464,000, and $294,000 for the years ended December 31, 2019, 2018, and 2017, respectively.

Share-Based Payment Plan	12 Months Ended
Share-Based Payment Plan	Dec. 31, 2019
Share-Based Payment Plan
Share-Based Payment Plan	Note 20: Share‑Based Payment Plan Equity-based incentive awards are currently issued pursuant to the 2017 Equity Incentive Plan (the “2017 Incentive Plan”). Prior to the adoption of the 2017 Incentive Plan, the equity awards issued historically consisted of restricted stock awards issued pursuant to the Incentive Plan for Merchants Bank Executive Officers (the “Prior Incentive Plan”). As of the effective date of the 2017 Equity Incentive Plan, no further awards will be granted under the Prior Incentive Plan. However, any previously outstanding incentive award granted under the Prior Incentive Plan remains subject to the terms of such plans until the time it is no longer outstanding. During the years ended December 31, 2019 and 2018, the Company issued 10,127 and 7,039 shares, respectively, pursuant under these plans. Expense recognized for these plans totaled $533,000, $171,000, and $458,000 for the years ended December 31, 2019, 2018, and 2017, respectively. At December 31, 2019 and 2018, there were 91,266 and 83,708 unvested shares awarded under the 2017 Plan, respectively. Unrecognized compensation cost totaled $1.3 million and $1.1 million at December 31, 2019 and 2018, respectively. During 2018, the Compensation Committee of the Board of Directors approved a plan for non-executive directors to receive a portion of their annual fees in the form of common stock equal to $10,000, rounded up to the nearest whole share. Accordingly, there were 2,275 total shares issued during the year ended December 31, 2019, reflecting $50,000 in expenses. There were 1,830 total shares issued during the year ended December 31, 2018, reflecting $50,000 in expenses.

Disclosures about Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2019

Disclosures about Fair Value of Assets and Liabilities

Disclosures about Fair Value of Assets and Liabilities

Note 21: Disclosures About Fair Value of Assets and Liabilities

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:


Level 1		Quoted prices in active markets for identical assets or liabilities
Level 2		Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities
Level 3		Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities

Recurring Measurements

The following tables present the fair value measurements of assets and liabilities recognized in the accompanying balance sheets measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2019 and 2018:


	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
Assets	Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2019
Trading securities	$	269,891	$	—	$	269,891	$	—
Available-for-sale securities:
Treasury notes		4,765		4,765		—		—
Federal agencies		244,973		—		244,973		—
Municipals		5,937		—		5,937		—
Mortgage-backed - Government-sponsored entity (GSE) - residential		34,568		—		34,568		—
Loans held for sale		19,592		—		19,592		—
Mortgage servicing rights		74,387		—		—		74,387
Derivative assets - interest rate lock commitments		186		—		—		186
Derivative asset - interest rate swap		511		—		511		—
Derivative liabilities - forward contracts		27		—		27		—
Derivative liabilities - interest rate swap		511		—		511		—


December 31, 2018
Trading securities	$	163,419	$	—	$	163,419	$	—
Available-for-sale securities:
Treasury notes		11,941		11,941		—		—
Federal agencies		236,930		—		236,930		—
Municipals		21,332		—		21,332		—
Mortgage-backed - Government-sponsored entity (GSE) - residential		60,868				60,868		—
Loans held for sale		11,886		—		11,886		—
Mortgage servicing rights		77,844		—		—		77,844
Derivative assets - interest rate lock commitments		70		—		—		70
Derivative liabilities - forward contracts		9		—		9		—

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such assets pursuant to the valuation hierarchy. There have been no significant changes in the valuation techniques during the years ended December 31, 2019 and 2018. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Trading and Available‑for‑Sale Securities

Where quoted market prices are available in an active market, securities such as U.S. Treasuries are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available, then fair values are estimated by using quoted prices of securities with similar characteristics or independent asset pricing services and pricing models, the inputs of which are market‑based or independently sourced market parameters, including, but not limited to, yield curves, interest rates, volatilities, prepayments, defaults, cumulative loss projections and cash flows. Such securities are classified in Level 2 of the valuation hierarchy including federal agencies, mortgage backed securities, equities and FHA participation certificates. In certain cases where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy.

Loans Held for Sale

Certain loans held for sale at fair value are saleable into the secondary mortgage markets and their fair values are estimated using observable quoted market or contracted prices, or market price equivalents, which would be used by other market participants. These saleable loans are considered Level 2.

Mortgage Servicing Rights

Mortgage servicing rights do not trade in an active, open market with readily observable prices. Accordingly, fair value is estimated using discounted cash flow models having significant inputs of discount rate, prepayment speed, and default rate. Due to the nature of the valuation inputs, mortgage servicing rights are classified within Level 3 of the hierarchy.

The Chief Financial Officer’s (CFO) office contracts with a pricing specialist to generate fair value estimates on a quarterly basis. The CFO’s office challenges the reasonableness of the assumptions used and reviews the methodology to ensure the estimated fair value complies with accounting standards generally accepted in the United States.

Derivative Financial Instruments

The Company estimates the fair value of interest rate lock commitments based on the value of the underlying mortgage loan, quoted mortgage backed security prices, estimates of the fair value of the mortgage servicing rights, and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of expenses. With respect to its interest rate lock commitments, management determined that a Level 3 classification was most appropriate based on the various significant unobservable inputs utilized in estimating the fair value of its interest rate lock commitments. The Company estimates the fair value of forward sales commitments based on market quotes of mortgage backed security prices for securities similar to the ones used, which are considered Level 2. The fair value of interest rate swaps is based on prices that are obtained from a third-party that uses observable market inputs, thereby supporting a Level 2 classification. Changes in fair value of the Company’s derivative financial instruments are recognized through noninterest income and/or noninterest expense on its condensed consolidated statement of income.

Level 3 Reconciliation

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements recognized in the accompanying balance sheets using significant unobservable (Level 3) inputs:


	Year Ended December 31,
	2019		2018		2017
	(In thousands)
Mortgage servicing rights
Balance, beginning of period	$	77,844	$	66,079	$	53,670
Additions
Originated and purchased servicing		7,332		14,113		10,993
Acquisition of MCS		—		—		3,970
Subtractions
Paydowns		(5,994)		(4,196)		(5,504)
Changes in fair value due to changes in valuation inputs or assumptions used in the valuation model		(4,795)		1,848		2,950
Balance, end of period	$	74,387	$	77,844	$	66,079

Available-for-sale securities - Municipals
Balance, beginning of period	$	—	$	6,688	$	—
Additions
Purchased securities		—		—		6,688
Subtractions
Paydowns		—		(257)		—
Sales		—		(6,431)		—
Unrealized gains (losses) included in other comprehensive income		—		—		—
Balance, end of period	$	—	$	—	$	6,688

Derivative Assets - interest rate lock commitments
Balance, beginning of period	$	70	$	—	$	—
Purchases		—		—		—
Changes in fair value		116		70		—
Balance, end of period	$	186	$	70	$	—

Nonrecurring Measurements

The following table presents the fair value measurement of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2019 and 2018:


	Fair Value Measurements Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Fair		Assets		Inputs		Inputs
Assets	Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2019
Impaired loans (collateral-dependent)	$	1,570	$	—	$	—	$	1,570
December 31, 2018
Impaired loans (collateral-dependent)	$	2,639	$	—	$	—	$	2,639

Following is a description of the valuation methodologies and inputs used for assets measured at fair value on a nonrecurring basis and recognized in the accompanying balance sheet, as well as the general classification of such assets pursuant to the valuation hierarchy. For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

Collateral-Dependent Impaired Loans, Net of Allowance for Loan Losses

The estimated fair value of collateral-dependent impaired loans is based on the appraised fair value of the collateral, less estimated cost to sell. Collateral‑dependent impaired loans are classified within Level 3 of the fair value hierarchy.

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect the fair value. Appraisals of the collateral underlying collateral dependent loans are obtained when the loan is determined to be collateral‑dependent and subsequently as deemed necessary by the Chief Credit Officer’s (CCO) office. Appraisals and evaluations are reviewed for accuracy and consistency by the CCO’s office. Appraisers are selected from the list of approved appraisers maintained by management. The appraised values are reduced by discounts to consider lack of marketability and estimated cost to sell if repayment or satisfaction of the loan is dependent on the sale of the collateral. These discounts and estimates are developed by the CCO’s office by comparison to historical results.

Unobservable (Level 3) Inputs:

The following table presents quantitative information about unobservable inputs used in recurring and nonrecurring Level 3 fair value measurements other than goodwill.


			Valuation
	Fair Value		Technique	Unobservable Inputs	Range
	(In thousands)
At December 31, 2019:
Collateral-dependent impaired loans	$	1,570	Market comparable properties	Marketability discount	37%-55%
Mortgage servicing rights	$	74,387	Discounted cash flow	Discount rate	8% - 13%
				Constant prepayment rate	1% - 39%
Derivative assets - interest rate lock commitments	$	186	Discounted cash flow	Loan closing rates	73-99%

At December 31, 2018:
Collateral-dependent impaired loans	$	2,639	Market comparable properties	Marketability discount	5% - 47%
Mortgage servicing rights	$	77,844	Discounted cash flow	Discount rate	8% - 13%
				Constant prepayment rate	1% - 36%
Derivative assets - interest rate lock commitments	$	70	Discounted cash flow	loan closing rates	95-100%

At December 31, 2017, municipal securities of $6.7 million were classified as Level 3, as there was no active market for these or similar securities. These securities were purchased on December 28, 2017, as such, they were valued as of December 31, 2017 at their purchase price. These securities were sold as of December 31, 2018.

Sensitivity of Significant Unobservable Inputs

The following is a discussion of the sensitivity of significant unobservable inputs, the interrelationships between those inputs and other unobservable inputs used in recurring fair value measurement and of how those inputs might magnify or mitigate the effect of changes in the unobservable inputs on the fair value measurement.

Mortgage Servicing Rights

The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are discount rates and constant prepayment rates. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

Fair Value of Financial Instruments

The following table presents the carrying amount and estimated fair values of the Company’s financial instruments not carried at fair value and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2019 and 2018.


			Fair Value Measurements Using
					Quoted Prices in		Significant
					Active Markets		Other		Significant
					for Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
Assets	Value		Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
December 31, 2019
Financial assets:
Cash and cash equivalents	$	506,709	$	506,709	$	506,709	$	—	$	—
Securities purchased under agreements to resell		6,723		6,723		—		6,723		—
FHLB stock		20,369		20,369		—		20,369		—
Loans held for sale		2,074,197		2,074,197		—		2,074,197		—
Loans, net		3,012,468		2,999,580		—		—		2,999,580
Interest receivable		18,359		18,359		—		18,359		—
Financial liabilities:
Deposits		5,478,075		5,478,682		3,303,736		2,174,946		—
Lines of credit		6,540		6,540		—		6,540		—
Short-term subordinated debt		12,200		12,200		—		12,200		—
FHLB advances		162,699		162,803		—		162,803		—
Interest payable		11,938		11,938		—		11,938		—


December 31, 2018
Financial assets:
Cash and cash equivalents	$	336,524	$	336,524	$	336,524	$	—	$	—
Securities purchased under agreements to resell		6,875		6,875		—		6,875		—
FHLB stock		7,974		7,974		—		7,974		—
Loans held for sale		820,569		820,569		—		820,569		—
Loans, net		2,045,423		2,041,772		—		—		2,041,772
Interest receivable		13,827		13,827		—		13,827		—
Financial liabilities:
Deposits		3,231,086		3,230,397		2,550,632		679,765		—
Lines of credit		33,150		33,150		—		33,150		—
Short-term subordinated debt		10,582		10,582		—		10,582		—
FHLB advances		151,721		151,723		—		151,723		—
Interest payable		4,132		4,132		—		4,132		—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Significant Estimates and Concentrations	12 Months Ended
Significant Estimates and Concentrations	Dec. 31, 2019
Significant Estimates and Concentrations
Significant Estimates and Concentrations	Note 22: Significant Estimates and Concentrations Accounting principles generally accepted in the United States of America require disclosure of certain significant estimates and current vulnerabilities due to certain concentrations. Estimates related to the provision and allowance for loan losses are reflected in the footnotes regarding loans and the allowance for loan losses (Notes 1 and 4). Estimates related to mortgage servicing rights are reflected in the notes on mortgage servicing rights and loan servicing (Notes 1 and 6). Estimates related to fair values are reflected in the footnote regarding fair values (Note 21). Current vulnerabilities due to certain concentrations of credit risk are discussed in the footnote on commitments, credit risk, and contingencies (Note 23). Other significant estimates and concentrations not discussed in those footnotes include: Mortgage‑backed Securities and Secondary Mortgage Market Programs The Company is involved in government programs for issuing mortgage‑backed securities (MBS). The objective of these programs is to facilitate secondary market activities in order to provide funding for the multi‑family mortgage market. The Company is subject to cancellation of secondary mortgage market programs, rapid increases in general interest rates, and competition associated with conventional mortgage programs. In addition, the Company could be responsible for covering shortfalls in amounts due to investors for delinquencies or foreclosures. No amounts have been reported in the consolidated financial statements since management believes that no near term financial losses will be incurred and these MBS programs will not be significantly affected by the controlling regulatory bodies. Major Customer The Company had no major customers whose business represented more than 10% of revenues during the year ended December 31, 2019 or 2018. For the year ended 2017 the Company had a major customer of the Mortgage Warehousing segment, whose business represented $14.3 million, or 10% of total revenues.

Commitments, Credit Risk, and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments, Credit Risk, and Contingencies

Commitments, Credit Risk, and Contingencies

Note 23: Commitments, Credit Risk, and Contingencies

Financial Instruments

Merchants offers certain financial instruments, including commitments with contracts that contain credit risk for the Company and others that are subject to certain performance criteria and cancellation by the Company. Such commitments were as follows at December 31, 2019 and 2018:


	December 31,
	2019		2018
	(In thousands)
Commitments subject to credit risk:
Commitments to extend credit	$	761,068	$	676,987
Standby letters of credit		26,944		23,030
Total commitments subject to credit risk		788,012		700,017

Commitments subject to certain performance criteria and cancellation:
Outstanding commitments to originate loans	$	886,017	$	507,216
Unfunded construction draws		287,659		457,762
Unfunded lines of warehouse credit		774,424		782,431
Total commitments subject to certain performance criteria and cancellation		1,948,100		1,747,409

Included in the chart above are the following commitments that are subject to credit risk:

Commitments to extend credit. These are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case‑by‑case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income‑producing commercial properties.

Standby letters of credit. These instruments are irrevocable, conditional commitments issued by the Company or by another party on behalf of the Company, for a fee, to guarantee the performance of a customer to a third party and they generally have fixed expiration dates or other termination clauses. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. The Company’s policy for obtaining collateral and/or guarantees and the nature thereof is generally the same as that involved extending commitments to its customers. The Company has not been required to fund nor has it incurred any losses on any standby letter of credit commitment during the years ended December 31, 2019, 2018 or 2017.

Included in the chart above are the following commitments that are subject to certain performance criteria and can be denied by the Company:

Outstanding commitments to originate loans. The Company has entered into funding commitments with customers who have applied for loans that are awaiting closing. The customers must meet certain credit and underwriting criteria before the Company is required to fund the loans. Closing and funding of the majority of these loans is contingent upon various performance criteria by the potential borrower and the commitment may be rescinded by the Company. The Company may also enter into a corresponding sales commitment if it is the Company’s intent to close the loan and to sell the loan after closing.

Unfunded construction draws. Through the Multi-family Mortgage Banking segment, the Company has made commitments to fund certain FHA insured construction loans that are drawn upon throughout the construction period. These commitments are subject to certain performance criteria and inspections throughout the project, and funding can be denied by the Company. As construction draws are disbursed, the amounts are securitized and sold to Ginnie Mae, and the Company continues to service the loans.

Unfunded warehouse lines of credit. Through the Mortgage Warehousing segment, the Company has line of credit agreements with its non‑depository financial institution customers engaged in mortgage lending. Funds drawn on the lines of credit are used by the borrowers to fund the loans they originate. The customers’ loans must meet certain credit and underwriting criteria before the Company will fund the draw requests on the lines of credit, and the draw requests can be denied by the Company.

Risk-Sharing Arrangements

As a Fannie Mae multifamily lender, Merchants assumes a limited portion of the risk of loss during the remaining term on each commercial mortgage loan that is sold to Fannie Mae. Under this loss sharing agreement, Merchants bears a risk of up to one-third of incurred losses resulting from borrower defaults. Accordingly, Merchants maintained a reserve liability for this risk-sharing obligation of $277,000 at December 31, 2019 and none at December 31, 2018. There have been no loans in default during the year ended December 31, 2019, 2018 or 2017.

Leases

The Company has several non-cancellable operating leases, primarily for office space, that expire over the next 1‑10 years. Rental expense for these leases was $1.8 million, $1.1 million, and $764,000 for the years ended December 31, 2019, 2018 and 2017, respectively.

Future minimum lease payments under operating leases as of December 31, 2019 are as follows:


	December 31,
	2019
	(In thousands)
Due within one year	$	1,564
Due in one year to two years		1,383
Due in two years to three years		1,208
Due in three years to four years		1,208
Due in four years to five years		1,003
Thereafter		1,551
Total minimum lease payments	$	7,917

Other

The Company and its subsidiaries can be parties to various claims and proceedings arising in the normal course of business. Management, after consultation with legal counsel, believes that the liabilities, if any, arising from such proceedings and claims will not be material to the Company’s consolidated financial position or results of operations.

Segment Information

12 Months Ended

Dec. 31, 2019

Segment Information

Segment Information

Note 24: Segment Information

The Company’s business segments are defined as Multi‑family Mortgage Banking, Mortgage Warehousing, and Banking. The reportable business segments are consistent with the internal reporting and evaluation of the principal lines of business of the Company. The Multi-family Mortgage Banking segment originates and services government sponsored mortgages for multi-family and healthcare facilities. The Mortgage Warehousing segment funds agency eligible residential loans from the date of origination or purchase, until the date of sale in the secondary market, as well as commercial loans to non-depository financial institutions. The Banking segment provides a wide range of financial products and services to consumers and businesses, including retail banking, commercial lending, agricultural lending, retail and correspondent residential mortgage banking, and Small Business Administration (“SBA”) lending. Other includes general and administrative expenses that provide services to all segments; internal funds transfer pricing offsets resulting from allocations to/from the other segments; certain elimination entries and investments in qualified affordable housing limited partnerships. All operations are domestic.

The tables below present selected business segment financial information for the years ended December 31, 2019, 2018 and 2017.


	Multi-family
	Mortgage		Mortgage
	Banking		Warehousing		Banking		Other		Total
	(In thousands)
Year Ended December 31, 2019
Interest income	$	1,328	$	102,157	$	106,443	$	2,067	$	211,995
Interest expense		—		50,880		45,681		(6,864)		89,697
Net interest income		1,328		51,277		60,762		8,931		122,298
Provision for loan losses		—		1,358		2,582		—		3,940
Net interest income after provision for loan losses		1,328		49,919		58,180		8,931		118,358
Noninterest income		41,682		7,178		1,005		(2,776)		47,089
Noninterest expense		22,556		11,397		17,738		11,622		63,313
Income before income taxes		20,454		45,700		41,447		(5,467)		102,134
Income taxes		5,691		10,934		9,593		(1,413)		24,805
Net income	$	14,763	$	34,766	$	31,854	$	(4,054)	$	77,329
Total assets	$	188,866	$	3,124,684	$	3,018,568	$	39,810	$	6,371,928


	Multi-family
	Mortgage		Mortgage
	Banking		Warehousing		Banking		Other			Total
	(In thousands)
Year Ended December 31, 2018
Interest income	$	712	$	58,784	$	79,332	$	1,735	$	140,563
Interest expense		—		24,369		29,508		(3,285)		50,592
Net interest income		712		34,415		49,824		5,020		89,971
Provision for loan losses		—		1,372		3,257		—		4,629
Net interest income after provision for loan losses		712		33,043		46,567		5,020		85,342
Noninterest income		45,831		2,550		3,150		(1,946)		49,585
Noninterest expense		19,205		7,721		14,876		9,098		50,900
Income before income taxes		27,338		27,872		34,841		(6,024)		84,027
Income taxes		7,528		6,872		8,572		(1,819)		21,153
Net income	$	19,810	$	21,000	$	26,269	$	(4,205)	$	62,874
Total assets	$	166,102	$	1,430,776	$	2,256,687	$	30,598	$	3,884,163


	Multi-family
	Mortgage		Mortgage
	Banking		Warehousing		Banking		Other			Total
	(In thousands)
Year Ended December 31, 2017
Interest income	$	414	$	48,798	$	44,454	$	721	$	94,387
Interest expense		—		13,673		14,853		(736)		27,790
Net interest income		414		35,125		29,601		1,457		66,597
Provision for loan losses		—		452		2,020		—		2,472
Net interest income after provision for loan losses		414		34,673		27,581		1,457		64,125
Noninterest income		43,715		2,836		1,943		(814)		47,680
Noninterest expense		10,911		7,710		9,835		6,188		34,644
Income before income taxes		33,218		29,799		19,689		(5,545)		77,161
Income taxes		4,557		11,558		8,279		(1,917)		22,477
Net income	$	28,661	$	18,241	$	11,410	$	(3,628)	$	54,684
Total assets	$	134,390	$	1,352,748	$	1,889,140	$	16,855	$	3,393,133

Condensed Financial Information (Parent Company Only)

12 Months Ended

Dec. 31, 2019

Condensed Financial Information (Parent Company Only)

Condensed Financial Information (Parent Company Only)

Note 25: Condensed Financial Information (Parent Company Only)

Presented below is condensed financial information of the Company as to financial position as of December 31, 2019 and 2018, and results of operations and cash flows for the years ended December 31, 2019, 2018 and 2017:

Condensed Balance Sheets


	December 31,
	2019		2018
	(In thousands)
Assets
Cash and cash equivalents	$	463	$	2,224
Investment in subsidiaries		664,878		453,028
Other assets		2,213		2,104
Total assets	$	667,554	$	457,356
Liabilities
Lines of credit	$	—	$	25,000
Short-term subordinated debt		12,200		10,582
Other liabilities		1,626		537
Total liabilities		13,826		36,119
Shareholders’ Equity		653,728		421,237
Total liabilities and shareholders’ equity	$	667,554	$	457,356

Condensed Statements of Income and Comprehensive Income


	Year Ended
	December 31,
	2019		2018		2017
	(In thousands)
Income
Dividends and return of capital from subsidiaries		43,903		37,816		13,632
Other Income		—		195		208
Total income		43,903		38,011		13,840
Expenses
Interest expense		3,641		8,055		7,603
Salaries and employee benefits		1,611		1,216		1,617
Professional fees		335		707		341
Other		423		420		251
Total expense		6,010		10,398		9,812
Income Before Income Tax and Equity in Undistributed Income of Subsidiaries		37,893		27,613		4,028
Income Tax Benefit		(1,433)		(2,542)		(3,670)
Income Before Equity in Undistributed Income of Subsidiaries		39,326		30,155		7,698
Equity in Undistributed Income of Subsidiaries		38,003		32,719		46,986
Net Income	$	77,329	$	62,874	$	54,684
Comprehensive Income	$	78,097	$	63,813	$	54,306

Condensed Statements of Cash Flows


	Year Ended
	December 31,
	2019		2018			2017
	(In thousands)
Operating Activities
Net income	$	77,329	$	62,874	$	54,684
Adjustments to reconcile net income to net cash used in operating activities		(36,567)		(30,522)		(44,185)
Net cash provided by operating activities		40,762		32,352		10,499
Investing Activities
Return of capital from/(contributed capital to) subsidiaries		(173,078)		19,368		(101,868)
Net cash paid for acquisitions		—		(27,209)		—
Other investing activity		126		74		189
Net cash used in investing activities		(172,952)		(7,767)		(101,679)
Financing Activities
Net change in lines of credit and subordinated debt		(23,382)		(19,418)		—
Dividends paid		(17,254)		(10,216)		(7,950)
Proceeds from issuance of common stock		—		—		106,245
Proceeds from issuance of preferred stock		192,915		—		—
Repurchase of preferred stock		(21,850)		—		—
Net cash provided by (used in) financing activities		130,429		(29,634)		98,295
Net Change in Cash and Due From Banks		(1,761)		(5,049)		7,115
Cash and Due From Banks at Beginning of Year		2,224		7,273		158
Cash and Due From Banks at End of Year	$	463	$	2,224		7,273

Recent Accounting Pronouncements

12 Months Ended

Dec. 31, 2019

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 26: Recent Accounting Pronouncements

The Company is an emerging growth company and as such will be subject to the effective dates noted for the private companies if they differ from the effective dates noted for public companies.

FASB ASU 2014‑09, Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2014‑09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in U.S. GAAP. In March 2016 the FASB issued ASU 2016‑08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” which clarifies the guidance in determining revenue recognition as principal versus agent. In April 2016, the FASB issued ASU 2016‑10, “Identifying Performance Obligations and Licensing,” which provides guidance in accounting for immaterial performance obligations and shipping and handling. In May 2016, the FASB issued ASU 2016‑12, “Narrow‑Scope Improvements and Practical Expedients,” which provides clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. This ASU also provides a practical expedient for contract modifications.

As an emerging growth company, these amendments were effective for annual reporting periods beginning after December 15, 2018, and for interim periods within annual periods beginning after December 15, 2019. The Company’s revenue is primarily comprised of net interest income on financial assets and financial liabilities, which is explicitly excluded from the scope of ASU 2014-09. The Company’s services that fall within the scope of this ASU are presented within noninterest income and are recognized as revenue as the Company satisfies its obligation to the customer. The services that are within scope include services charges on deposits, interchange income, collection fees, safe deposit box rental fees, and gain/(loss) on sale of other real estate owned. The Company has evaluated the nature of its contracts with customers and determined that further disaggregation of revenue from contracts with customers into more granular categories beyond what is presented in the Consolidated Statements of Income was not necessary. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying this ASU that significantly affects the determination of the amount and timing of revenue from contracts with customers. The Company adopted ASU 2014-09 on December 31, 2019, and it did not have an impact on the Company’s financial position or results of operations.

FASB ASU 2016‑01, Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016‑01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” For public business entities, the amendments in this update include the elimination of the requirement to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, the requirement to use the exit price notion when measuring fair value of financial instruments for disclosure purposes, the requirement to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument‑specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, the requirement for separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or accompanying notes to the financial statements, and the amendments clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available‑for‑sale securities in combination with the entity’s other deferred tax assets. An entity should apply the amendments to this update by means of a cumulative‑effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption.

As an emerging growth company, the amendments in this update were effective for fiscal years beginning after December 15, 2018, and interim periods within years beginning after December 15, 2019. An entity should present separately in other comprehensive income the portion of the total change in the fair value of a liability at fair value in accordance with the fair value option for financial instruments. An entity should apply the amendments to this update by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-01 on December 31, 2019, and the impact did not have a material impact on the Company’s financial position or results of operation, nor did it require any cumulative-effect adjustments.

FASB ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments

In August 2016, the FASB issued Accounting Standards Update ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments". ASU 2016-15 provides specific guidance on eight cash flow classification issues, including contingent consideration, debt prepayment or debt extinguishment costs and distributions received from equity method investees, to reduce diversity in practice. ASU 2016-15 requires a retrospective transition.

As an emerging growth company, the amendments in this update were effective for fiscal years beginning after December 15, 2018, and interim periods within years beginning after December 15, 2019. The Company adopted ASU 2016-15 on December 31, 2019 and the impact did not have a material impact on the Company’s financial position or results of operation.

FASB ASU 2016‑02, Leases

In February 2016, the FASB issued ASU 2016‑02, “Leases.” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short‑term leases) at the commencement date:

·

A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and

·

A right‑of‑use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, “Revenue from Contracts with Customers.” The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off‑balance sheet financing. Lessees (for capital and operating leases) and lessors (for sales‑type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.

As an emerging growth company, the amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2020, and for interim periods for years beginning after January 1, 2021. The Company is continuing to evaluate the impact of adopting this new guidance, but it does not expect the adoption to have a material impact on the Company’s financial position or results of operations.

FASB ASU 2016‑13, Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU 2016‑13, “Financial Instruments—Credit Losses”, commonly referred to as “CECL”. The amendments in this ASU replace the incurred loss model with a methodology that reflects the “current expected credit losses” over the life of the loan and requires consideration of a broader range of reasonable and supportable information to calculate credit loss estimates. ASU 2016‑13 replaces the incurred loss impairment methodology with a new methodology that reflects expected credit losses over the lives of the loans and requires consideration of a broader range of information to form credit loss estimates. The ASU requires an organization to estimate all expected credit losses for financial assets measured at amortized cost, including loans and held‑to‑maturity debt securities, based on historical experience, current conditions, and reasonable and supportable forecasts. Additional disclosures are required.

As an emerging growth company, the amendments in ASU 2016‑13 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.. Because the Company’s status as an emerging growth company is expected to expire on December 31, 2022, this standard will likely be implemented by December 31, 2022. The Company has established a cross-functional committee that has developed a project plan to review modeling data currently available and technology needed to ensure compliance of this standard. The committee has contracted with a vendor to assist in generating specific loan level details within our core systems, as well as compiling peer and industry data that would be useful in our modeling forecasts. While the Company generally expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, the Company cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the Company’s consolidated financial statements. Management continues to recognize that the implementation of this ASU may increase the balance of the allowance for loan losses and is continuing to evaluate the potential impact on the Company’s financial position and results of operations.

FASB ASU No. 2017‑04, Intangibles—Goodwill and Other (Topic 350)

In January 2017, the FASB issued ASU 2017‑04, “Intangibles—Goodwill and Other (Topic 350).” This ASU simplifies the test for goodwill impairment. Specifically, these amendments eliminate Step 2 from the goodwill impairment test, and also eliminate the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.

As an emerging growth company, the amendments in this ASU are effective for annual goodwill impairment tests in fiscal years beginning after December 15, 2021. Management continues to believe that the changes will not have a material effect on the Company’s financial position and results of operations.

Quarterly Condensed Financial Information (Unaudited)

12 Months Ended

Dec. 31, 2019

Quarterly Condensed Financial Information (Unaudited)

Quarterly Condensed Financial Information (Unaudited)

Note 27: Quarterly Condensed Financial Information (Unaudited)

The following tables present the unaudited quarterly condensed financial information for the years ended December 31, 2019 and 2018:


	2019 Quarter Ended
(Dollars in thousands, except per share data)	March 31		June 30		September 30		December 31

Interest income	$	39,674	$	48,761	$	59,761	$	63,799
Interest expense		15,543		20,839		27,137		26,178
Net interest income		24,131		27,922		32,624		37,621
Provision for loan losses		649		105		1,193		1,993
Net interest income after provision for loan losses		23,482		27,817		31,431		35,628
Noninterest income		3,664		9,870		10,852		22,703
Noninterest expense		13,035		15,920		15,522		18,836
Income before income taxes		14,111		21,767		26,761		39,495
Income taxes		3,541		5,328		6,502		9,434
Net income		10,570		16,439		20,259		30,061
Less: preferred stock dividends		833		1,743		3,022		3,618
Net income allocated to common shareholders	$	9,737	$	14,696	$	17,237	$	26,443
Per common share data:
Basic earnings per common share	$	0.34	$	0.51	$	0.60	$	0.92
Diluted earnings per common share		0.34		0.51		0.60		0.92


	2018 Quarter Ended
(Dollars in thousands, except per share data)	March 31		June 30		September 30		December 31

Interest income	$	29,038	$	34,123	$	37,577	$	39,825
Interest expense		8,930		11,917		14,095		15,650
Net interest income		20,108		22,206		23,482		24,175
Provision for loan losses		1,406		998		617		1,608
Net interest income after provision for loan losses		18,702		21,208		22,865		22,567
Noninterest income		11,313		11,630		11,907		14,735
Noninterest expense		10,270		12,000		12,449		16,181
Income before income taxes		19,745		20,838		22,323		21,121
Income taxes		4,684		5,186		5,584		5,699
Net income		15,061		15,652		16,739		15,422
Less: preferred stock dividends		833		832		833		832
Net income allocated to common shareholders	$	14,228	$	14,820	$	15,906	$	14,590
Per common share data:
Basic earnings per common share	$	0.50	$	0.52	$	0.55	$	0.51
Diluted earnings per common share		0.50		0.52		0.55		0.51

Subsequent Events	12 Months Ended
Subsequent Events	Dec. 31, 2019
Subsequent Events
Subsequent Events	Note 28: Subsequent Events No material events were noted.

Nature of Operations and Summary of Significant Accounting Policies (Policies)