SOURCE: Merchants Bancshares

Merchants Bancshares

October 24, 2013 16:11 ET

Merchants Bancshares, Inc. Announces Third Quarter 2013 Results Highlighted by Strong Loan and Deposit Growth

SOUTH BURLINGTON, VT--(Marketwired - Oct 24, 2013) - Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.67 million and $11.31 million, or diluted earnings per share of $0.58 and $1.79, for the three and nine months ended September 30, 2013, respectively. This compares to net income of $4.00 million and $11.35 million, or diluted earnings per share of $0.64 and $1.81, for the three and nine months ended September 30, 2012, respectively.

The return on average assets was 0.88% and 0.90% for the three and nine months ended September 30, 2013, respectively, compared to 0.97% and 0.92% for the same periods in 2012. The return on average equity was 12.89% and 12.94% for the three and nine months ended September 30, 2013, respectively, compared to 13.95% and 13.47% for the same periods in 2012. We previously announced the declaration of a dividend of $0.28 per share, payable November 14, 2013, to shareholders of record as of October 31, 2013.

"The first three quarters of 2013 have been highlighted by strong growth in loans and deposits. The loan growth has allowed us to continue shifting our asset mix away from investments and has helped to slow down the rate of margin compression. Although we have witnessed a small decline in net interest income year to date we have been able to offset this with a reduction of approximately $1 million in recurring non-interest expenses. Ultimately we should start to see the margin benefit with the growth in loans if rates increase," commented Michael R. Tuttle, our President and CEO.

Shareholders' equity ended the quarter at $116.92 million, and our book value per share was $18.53 at September 30, 2013. Our capital ratios remain strong at September 30, 2013. Our Tier 1 leverage ratio increased to 8.41% compared to 8.08% at December 31, 2012; total risk-based capital ratio increased to 16.13% compared to 16.00% at December 31, 2012; and our tangible capital ratio increased to 7.01% at September 30, 2013 compared to 6.92% at December 31, 2012.

Quarterly average loan balances for the third quarter were $1.15 billion, an increase of $81 million over average loan balances for the fourth quarter of 2012; this represents an average annualized growth rate of 10.0%. Ending loan balances in the table below at September 30, 2013, June 30, 2013 and December 31, 2012 reflect the reclassification of $35.07 million, $34.63 million, and $29.56 million, respectively, in non-owner occupied residential real estate loans from the residential real estate category to the commercial real estate category. This presentation more accurately presents the risk profile of these loans.

The following table summarizes the components of our loan portfolio as of the periods indicated:

           
(In thousands) September 30, 2013   June 30, 2013   December 31, 2012
Commercial, financial and agricultural $163,138   $ 169,215     $165,023
Municipal loans 96,491   45,319     84,689
Real estate loans - residential 493,667   485,764     460,395
Real estate loans - commercial 373,085   365,693     357,178
Real estate loans - construction 32,768   31,813     10,561
Installment loans 5,898   5,667   4,701
All other loans 454   544   376
Total loans $1,165,501   $1,104,015     $1,082,923
           

Growth in our commercial real estate and construction loan categories has been driven by new customer acquisition and expansion of existing relationships. Growth in our residential real estate loan portfolio continues to be driven by increased mortgage refinance volume due to the low interest rate environment. Mortgage application volumes decreased during the quarter and are expected to continue decreasing if rates are stable or increase.

The average investment portfolio balance for the third quarter of 2013 was $419.92 million, a reduction of $90.64 million from the fourth quarter of 2012. The ending balance in the investment portfolio at September 30, 2013 was $405.69 million, compared to $509.09 million at December 31, 2012. We are intentionally allowing the investment portfolio to run off and using the cash flow to fund our loan growth. This will help us control overall asset growth and strengthen our capital ratios and returns. During the third quarter we moved securities with a September 30, 2013 carrying value of $136.02 million from the Available for Sale ("AFS") category to the Held to Maturity ("HTM") category. We selected securities that had the most price volatility in a rising rate environment to move to the HTM category. We recorded an after tax charge to Accumulated Other Comprehensive Income of $3.16 million as a result of the transfer. This change will protect our tangible capital from further price deterioration on that portion of our investment portfolio.

We recorded a $400 thousand and $800 thousand provision for credit losses during the three and nine months ended September 30, 2013, respectively, compared to $250 thousand and $700 thousand for the three and nine months ended September 30, 2012, respectively. Our continued loan growth was the primary factor for the provision to date in 2013. Credit quality continues to be very healthy, we are a top performer in this measure. Performing loans past due 30-89 days were 0.01% of total loans at September 30, 2013 and December 31, 2012. Nonperforming loans as a percent of total loans were 0.23% at September 30, 2013 compared to 0.27% at December 31, 2012. Accruing substandard loans increased to 2.21% of total loans at September 30, 2013 compared to 1.60% at December 31, 2012. Net charge-offs for the first nine months of 2013 total $121 thousand. 

Total deposits at September 30, 2013 were $1.33 billion compared to $1.27 billion at December 31, 2012, a $60.17 million, or annualized 6.3%, increase. Growth during 2013 has been concentrated in our transaction account categories, with continued reductions in time deposit balances. Securities sold under agreement to repurchase, which represent collateralized customer accounts, declined to $179.49 million at September 30, 2013 from $287.52 million at December 31, 2012 as a result of seasonal municipal cash flows combined with migration to other deposit products. Short-term wholesale borrowings increased to $8.20 million at September 30, 2013 from zero at December 31, 2012.

Our taxable equivalent net interest income was $12.71 million and $38.24 million for the three and nine months ended September 30, 2013, respectively, compared to $13.15 million and $38.97 million for the same periods in 2012. Our taxable equivalent net interest margin was 3.14% and 3.17% compared to 3.29% and 3.30% for the three and nine months ended September 30, 2013 and 2012, respectively. Though margin compression has slowed, it continues to be a challenge. Most of the margin compression is concentrated in our loan yields, which decreased 30 basis points and 12 basis points since December 31, 2012 and June 30, 2013, respectively. One of the factors influencing our loan yields is an increase in variable rate loans. Average variable rate loans for the third quarter were $304.06 million, an increase of $42.12 million from the fourth quarter of 2012. These loans have a lower current yield than fixed rate loans, but will have higher yields when rates start to rise. Our average cost of interest bearing liabilities declined five basis points since December 31, 2012 and two basis points since June 30, 2013. 

Total noninterest income decreased $678 thousand to $2.79 million for the third quarter of 2013 compared to the third quarter of 2012 and decreased $1.43 million for the first nine months of 2013 compared to the same period in 2012. Excluding net gains on investment securities and gains on sales of other assets, total noninterest income increased $44 thousand for the third quarter of 2013 compared to the third quarter of 2012, and increased $87 thousand for the first nine months of 2013 compared to the same period in 2012. Increases in cash management fees and other service charge income more than offset continued reductions in overdraft fees. Trust division income increased $89 thousand and $278 thousand for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012. 

Total noninterest expense decreased $814 thousand to $9.90 million for the third quarter of 2013 compared to the same period in 2012 and decreased $2.34 million to $29.77 million for the first nine months of 2013 compared to the same periods in 2012. Excluding a $677 thousand and $1.36 million prepayment penalty incurred during the three and nine months ended September 30, 2012, noninterest expense decreased $137 thousand and $973 thousand for the three and nine months ended September 30, 2013, respectively, compared to the same periods in 2012. Total compensation and benefits decreased $55 thousand for the third quarter of 2013 compared to the same period in 2012, and decreased $697 thousand for the first nine months of 2013 compared to the same period in 2012. Strong growth and performance ahead of plan triggered an increase to our incentive accrual of $175 thousand during the third quarter of 2013. This increase was offset by reductions in the cost of our self-funded health insurance during 2013 as a result of positive claims experience. Additionally, the overfunded status of our pension plan is producing income for us in 2013 instead of expense. The timing of investments in low income housing partnerships and their associated tax credits led to a reduction in expenses related to real estate limited partnerships to $271 thousand and $811 thousand for the three and nine months ended September 30, 2013 compared to $370 thousand and $1.19 million for the same periods in 2012.

Our effective tax rate for 2013 was negatively impacted by the timing of investments in low income housing partnerships discussed above, which produced a lower level of tax credits for us in 2013 compared to 2012. Our effective tax rate was positively impacted by the donation of our branch building in North Bennington, Vermont, to a non-profit organization during the second quarter of 2013. This donation along with the tax credits from housing partnership investments yielded an effective tax rate to 21% for the first nine months of 2013 compared to 20% for the first nine months of 2012.

Michael R. Tuttle, our President and Chief Executive Officer, Janet P. Spitler, our Executive Vice President and Chief Financial Officer and Geoffrey R. Hesslink, our Executive Vice President, Chief Operating Officer and Senior Lender, will host a conference call to discuss these earnings results, business highlights and outlook at 9:00 a.m. Eastern Time on Friday, October 25, 2013. Interested parties may participate in the conference call by dialing U.S. number (888) 317-6016, Canada number (855) 669-9657, or international number (412) 317-6016. The title of the call is Merchants Bancshares, Inc. Q3 2013 Earnings Call. Participants are asked to call a few minutes prior to register. A replay will be available until 9:00 a.m. Eastern Time on November 1, 2013. The U.S. replay dial-in telephone number is (877) 344-7529. The international replay telephone number is (412) 317-0088. The replay access code for both replay telephone numbers is 10023214. Additionally, a webcast of the call will be available on our website at www.mbvt.com shortly after the conclusion of the call.

Established in 1849, Merchants Bank is the largest Vermont-based bank, independent and locally operated. Consumer, business, municipal and investment customers enjoy personalized relationships, sophisticated online and mobile banking options, more than 30 community bank locations statewide, plus a nationwide network of over 55,000 surcharge-free Allpoint ATMs. Merchants Bank (Member FDIC, Equal Housing Lender, NASDAQ: MBVT), and Merchants Trust Company employ approximately 300 full-time employees and 40 part-time employees statewide, and has earned several "Best Place to Work in Vermont" awards. American Banker ranks Merchants Bank #10 in America among 851 peers. www.mbvt.com

Non-GAAP Financial Measure. In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures. In several places net interest income is presented on a fully taxable equivalent basis. Specifically included in interest income was tax-exempt interest income from certain tax-exempt loans. An amount equal to the tax benefit derived from this tax exempt income is added back to the interest income total, to produce net interest income on a fully taxable equivalent basis. The amount added back was $561 thousand and $1.53 million, respectively, for the three and nine months ended September 30, 2013, and $485 thousand and $1.53 million, respectively, for the same period in 2012. An additional non-GAAP financial measure we use is the tangible capital ratio. Because we have no intangible assets, our tangible shareholder's equity is the same as our shareholder's equity. We believe that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a company's financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non- GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names.

Certain statements contained in this press release that are not historical facts may constitute forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe Merchants' future plans, strategies and expectations, can generally be identified by the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. Our actual results could differ materially from those projected in the forward-looking statements as a result of, among others, continued weakness in general, national, regional or local economic conditions, the performance of our investment portfolio, quality of credits or the overall demand for services; changes in loan default and charge-off rates which could affect the allowance for credit losses; volatility in the equity and financial markets; reductions in deposit levels which could necessitate increased and/or higher cost borrowing to fund loans and investments; declines in mortgage loan refinancing, equity loan and line of credit activity which could reduce net interest and non-interest income; changes in the domestic interest rate environment and inflation; changes in the carrying value of investment securities and other assets; misalignment of our interest-bearing assets and liabilities; increases in loan repayment rates affecting interest income and the value of mortgage servicing rights; changing business, banking, or regulatory conditions or policies, or new legislation affecting the financial services industry that could lead to changes in the competitive balance among financial institutions, restrictions on bank activities, changes in costs (including deposit insurance premiums), increased regulatory scrutiny, declines in consumer confidence in depository institutions, or changes in the secondary market for bank loans and other products; and changes in accounting rules, federal and state laws, IRS regulations, and other regulations and policies governing financial holding companies and their subsidiaries which may impact our ability to take appropriate action to protect our financial interests in certain loan situations.

You should not place undue reliance on our forward-looking statements, and are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, which are included in more detail in our Annual Report on Form 10-K, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

     
     
Merchants Bancshares, Inc.    
Financial Highlights (unaudited)    
(Dollars in thousands except share and per share data)    
                     
    September 30,   June 30,   December 31,   September 30,    
    2013   2013   2012   2012    
Balance Sheets - Period End                    
Total assets   $ 1,667,130   $ 1,619,807   $ 1,708,550   $ 1,685,836    
Loans   1,165,501   1,104,015   1,082,923   1,072,879    
Allowance for loan losses ("ALL")   12,199   11,890   11,562   11,444    
Net loans   1,153,302   1,092,125   1,071,361   1,061,435    
Investments-available for sale, taxable   269,676   428,068   508,681   526,257    
Investments-held to maturity, taxable   136,017   325   407   443    
Federal Home Loan Bank ("FHLB") stock   7,496   7,496   8,145   8,145    
Cash and due from banks   35,634   31,458   34,547   30,097    
Interest earning cash and other short-term investments   21,648   17,672   42,681   22,935    
Other assets   43,357   42,663   42,728   36,524    
Non-interest bearing deposits   267,608   242,393   240,491   227,879    
Savings, interest bearing checking and money market accounts   745,814   751,599   700,191   687,267    
Time deposits   317,824   318,527   330,398   337,817    
Total deposits   1,331,246   1,312,519   1,271,080   1,252,963    
Short-term borrowings   8,200   21,000   --   55,600    
Securities sold under agreement to repurchase, short-term   179,490   141,055   287,520   227,996    
Other long-term debt   2,423   2,443   2,483   2,503    
Junior subordinated debentures issued to unconsolidated subsidiary trust   20,619   20,619   20,619   20,619    
Other liabilities   8,229   7,152   8,627   8,126    
Shareholders' equity   116,923   115,019   118,221   118,029    
                     
Balance Sheets - Quarter-to-Date Averages                    
Total assets   $ 1,661,517   $ 1,681,747   $ 1,682,673   $ 1,649,457    
Loans   1,154,967   1,122,201   1,074,007   1,064,507    
Allowance for loan losses   11,946   11,842   11,542   11,309    
Net loans   1,143,021   1,110,359   1,062,465   1,053,198    
Investments-available for sale, taxable   310,165   466,566   510,129   499,224    
Investments-held to maturity, taxable   109,753   343   428   464    
FHLB stock   7,496   7,496   8,145   8,145    
Cash and due from banks   27,913   25,533   28,730   25,793    
Interest earning cash and other short-term investments   21,700   23,371   26,036   16,241    
Other assets   41,469   48,079   46,740   46,392    
Non-interest bearing deposits   252,795   239,601   235,007   220,646    
Savings, interest bearing checking and money market accounts   772,234   711,895   680,330   677,321    
Time deposits   318,795   324,157   332,678   341,231    
Total deposits   1,343,824   1,275,653   1,248,015   1,239,198    
Short-term borrowings   26,451   28,565   34,347   60,141    
Securities sold under agreement to repurchase, short-term   145,962   228,726   250,355   196,117    
Other long-term debt   2,430   2,450   2,490   9,032    
Junior subordinated debentures issued to unconsolidated subsidiary trust   20,619   20,619   20,619   20,619    
Other liabilities   8,150   7,465   9,430   9,466    
Shareholders' equity   114,081   118,269   117,417   114,884    
Earning assets   1,604,081   1,619,977   1,618,745   1,588,581    
Interest bearing liabilities   1,286,491   1,316,412   1,320,819   1,304,461    
                     
Ratios and Supplemental Information - Period End                    
Book value per share   $ 19.50   $ 19.19   $ 19.84   $ 19.82    
Book value per share (1)   $ 18.53   $ 18.24   $ 18.82   $ 18.81    
Tier I leverage ratio   8.41%   8.36%   8.08%   8.10%    
Total risk-based capital ratio   16.13%   16.42%   16.00%   15.83%    
Tangible capital ratio (2)   7.01%   7.10%   6.92%   7.00%    
Period end common shares outstanding (1)   6,311,332   6,304,649   6,282,385   6,274,683    
                     
Credit Quality - Period End                    
Nonperforming loans ("NPLs")   $ 2,684   $ 1,600   $ 2,912   $ 2,740    
Nonperforming assets ("NPAs")   $ 2,707   $ 1,740   $ 2,912   $ 2,740    
NPLs as a percent of total loans   0.23%   0.14%   0.27%   0.26%    
NPAs as a percent of total assets   0.16%   0.11%   0.17%   0.16%    
ALL as a percent of NPLs   455%   743%   397%   418%    
ALL as a percent of total loans   1.05%   1.08%   1.07%   1.07%    
   
(1) This book value and period end common shares outstanding includes 314,953; 310,381; 324,515; and 319,572 Rabbi Trust shares for the periods noted above, respectively.
   
(2) The tangible capital ratio is calculated by dividing tangible equity by tangible assets. Because we have no intangible assets, our tangible shareholder's equity is the same as our shareholder's equity.
                     
                     
                     
    For the Nine Months Ended            
    September 30,            
    2013   2012            
Balance Sheets - Year to-Date Averages                    
Total assets   $ 1,674,726   $ 1,636,883            
Loans   1,121,404   1,051,886            
Allowance for loan losses   11,827   11,061            
Net loans   1,109,577   1,040,825            
Investments-available for sale, taxable   426,023   497,491            
Investments-held to maturity, taxable   37,228   500            
FHLB stock   7,660   8,265            
Cash and due from banks   26,232   24,037            
Interest earning cash and other short-term investments   21,265   18,454            
Other assets   46,741   47,311            
Non-interest bearing deposits   238,655   207,097            
Savings, interest bearing checking and money market accounts   727,042   660,386            
Time deposits   325,718   346,347            
Total deposits   1,291,415   1,213,830            
Short-term borrowings   23,009   39,614            
Securities sold under agreement to repurchase, short-term   212,755   223,540            
Other long-term debt   2,450   17,420            
Junior subordinated debentures issued to unconsolidated subsidiary trust   20,619   20,619            
Other liabilities   7,952   9,514            
Shareholders' equity   116,526   112,346            
Earning assets   1,613,580   1,576,596            
Interest bearing liabilities   1,311,593   1,307,926            
                     
                     
                     
    For the Three Months Ended   For the Nine Months Ended
    September 30,   June 30,   September 30,   September 30,   September 30,
    2013   2013   2012   2013   2012
Operating Results                    
Interest income                    
Interest and fees on loans   $ 11,070   $ 11,044   $ 11,278   $ 32,864   $ 33,860
Interest and dividends on investments   2,314   2,576   2,951   7,687   9,034
Total interest and dividend income   13,384   13,620   14,229   40,551   42,894
Interest expense                    
Deposits   948   728   860   2,422   2,748
Securities sold under agreement to repurchase and other short-term borrowings   83   377   341   817   1,454
Long-term debt   201   205   364   602   1,253
Total interest expense   1,232   1,310   1,565   3,841   5,455
Net interest income   12,152   12,310   12,664   36,710   37,439
Provision for credit losses   400   150   250   800   700
Net interest income after provision for credit losses   11,752   12,160   12,414   35,910   36,739
Noninterest income                    
Trust division income   759   761   670   2,278   2,000
Service charges on deposits   995   992   1,033   2,972   3,001
Debit card income, net   720   739   686   2,114   2,102
Gain (losses) on investment securities, net   1   (13)   (26)   (12)   422
Gain on sale of other assets   --   --   749   --   1,083
Other noninterest income   311   286   352   846   1,020
Total noninterest income   2,786   2,765   3,464   8,198   9,628
Noninterest expense                    
Compensation and benefits   4,754   4,510   4,809   14,059   14,756
Occupancy and equipment expenses   1,910   1,933   1,837   5,853   5,527
Legal and professional fees   695   619   677   2,001   1,954
Marketing expenses   393   485   360   1,158   1,264
Equity in losses of real estate limited partnerships, net   271   270   370   811   1,189
State franchise taxes   363   362   321   1,082   965
FDIC insurance   215   220   217   655   644
Prepayment penalty   --   --   677   --   1,363
Other real estate owned   17   54   65   84   129
Other noninterest expense   1,282   1,394   1,381   4,063   4,311
Total noninterest expense   9,900   9,847   10,714   29,766   32,102
Income before provision for income taxes   4,638   5,078   5,164   14,342   14,265
Provision for income taxes   964   1,053   1,159   3,034   2,911
Net income   $ 3,674   $ 4,025   $ 4,005   $ 11,308   $ 11,354
                     
Ratios and Supplemental Information                    
Weighted average common shares outstanding   6,308,796   6,298,019   6,269,347   6,297,965   6,251,967
Weighted average diluted shares outstanding   6,323,602   6,309,890   6,280,479   6,311,098   6,264,340
Basic earnings per common share   $ 0.58   $ 0.64   $ 0.64   $ 1.80   $ 1.82
Diluted earnings per common share   $ 0.58   $ 0.64   $ 0.64   $ 1.79   $ 1.81
Return on average assets   0.88%   0.96%   0.97%   0.90%   0.92%
Return on average shareholders' equity   12.89%   13.61%   13.95%   12.94%   13.47%
Average yield on loans   4.00%   4.12%   4.40%   4.10%   4.49%
Average yield on investments   2.14%   2.17%   2.30%   2.17%   2.38%
Average yield of earning assets   3.45%   3.49%   3.68%   3.49%   3.76%
Average cost of interest bearing deposits   0.34%   0.28%   0.34%   0.31%   0.36%
Average cost of borrowed funds   0.58%   0.83%   0.98%   0.73%   1.20%
Average cost of interest bearing liabilites   0.38%   0.40%   0.48%   0.39%   0.56%
Net interest rate spread   3.07%   3.09%   3.20%   3.10%   3.20%
Net interest margin   3.14%   3.17%   3.29%   3.17%   3.30%
Net interest income on a fully taxable equivalent basis   $ 12,713   $ 12,795   $ 13,149   $ 38,238   $ 38,970
Net recoveries (charge-offs) to Average Loans   (0.01)%   (0.01)%   0.00%   (0.01)%   0.00%
Net recoveries (charge-offs)   $(67)   $(80)   $ 13   $(121)   $ 27
Efficiency ratio (1)   59.63%   58.55%   58.64%   59.63%   60.59%
   
(1) The efficiency ratio excludes amortization of intangibles, equity in losses of real estate limited partnerships, OREO expenses, gain/loss on sales of securities, state franchise taxes, and any significant nonrecurring items.
Note: As of September 30, 2013, Merchants Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $5.08 million.
Amounts reported for prior periods are reclassified, where necessary, to be consistent with the current period presentation.
 

Contact Information

  • Contact:
    Margaret Bouffard
    Merchants Bank
    (802) 865-1807