SOUTH BURLINGTON, VT--(Marketwire - Jan 23, 2013) - Merchants Bancshares, Inc. (
"We are very pleased to report our annual results for 2012 are second only to our record high year of 2010. Highlights for the year include strong organic growth in loans, deposits and trust fees. At the same time, asset quality was maintained at high levels throughout the year, nonperforming assets and delinquencies remain at very low levels," commented Michael R. Tuttle, our President and Chief Executive Officer.
Total assets reached a record high of $1.71 billion at December 31, 2012, an increase of $96.68 million, or 6.00%, from December 31, 2011. Total shareholders' equity also reached a record high of $118.22 million at December 31, 2012. Book value per share increased $1.25 per share, or 7.11%, to $18.82 at year-end 2012, compared to year-end 2011. Our capital ratios remain strong, with a Tier 1 leverage ratio of 8.08%, a total risk-based capital ratio of 16.05% and a tangible capital ratio of 6.92%.
Our loan portfolio continued to grow during the quarter, reaching a new record high of $1.08 billion. For the year ended December 31, 2012 the loan portfolio grew $55.30 million, or 5.38%.
The following table summarizes the components of our loan portfolio as of the periods indicated:
|(In thousands)||December 31, 2012||September 30, 2012||December 31, 2011|
|Commercial, financial and agricultural||$||165,023||$||169,450||$||146,990|
|Real estate loans - residential||489,951||477,321||439,818|
|Real estate loans - commercial||327,622||327,182||313,915|
|Real estate loans - construction||10,561||11,285||18,993|
|All other loans||376||334||399|
Year-to-date growth in our commercial loan portfolio has been driven by new customer acquisition and expansion of existing relationships. Reduced loan demand by our municipal customers has led to a year-to-date reduction in municipal balances. Growth in our residential real estate loan portfolio continues to be driven by increased mortgage refinance volume due to the low interest rate environment.
We booked a $250 thousand provision for credit losses during the fourth quarter of 2012 and 2011. The 2012 provision for credit losses was $950 thousand, compared to $750 thousand for 2011. Asset quality remained strong throughout 2012; nonperforming assets totaled $2.91 million, or 0.17% of total assets, at December 31, 2012, compared to $2.87 million, or 0.18% of total assets, at December 31, 2011. Additionally, loans past due 30-89 days were zero at December 31, 2012, compared to $213 thousand at December 31, 2011. We booked net charge-offs of $18 thousand during the fourth quarter of 2012, and net recoveries of $9 thousand for the year.
Our investment portfolio totaled $509.09 million at December 31, 2012, a decrease of $3.22 million from the December 31, 2011 ending balance of $512.31 million. We sold bonds with a book value of $129.43 million during 2012 for a net pre-tax gain of $507 thousand. These trades allowed us to lock in gains on faster paying mortgage-backed securities and helped us to reduce our exposure to accelerated premium amortization in the portfolio.
Total deposits also reached a record high during 2012 and ended the year at $1.27 billion, an increase of $93.20 million, or 7.91%, from balances of $1.18 billion at December 31, 2011, and an increase of $18.12 million from balances at September 30, 2012. Growth during 2012 has been concentrated in our transaction account categories. Demand deposits have shown solid growth during 2012, increasing by $42.97 million, or 21.75%, to $240.49 million at December 31, 2012 from $197.52 million at December 31, 2011. Other transaction account categories have increased by $68.08 million, or 10.77% to $700.19 million during 2012, compared to 2011. Deposits continued to migrate away from time deposit categories during 2012. Total time deposits decreased during 2012 by $17.85 million, or 5.13%, to $330.40 million, compared to 2011. Securities sold under agreement to repurchase, which represent collateralized customer accounts, ended 2012 at $287.52 million, a $24.99 million increase from December 31, 2011.
Our taxable equivalent net interest income was $13.02 million and $51.99 million for the three months and year ended December 31, 2012, respectively, compared to $12.92 million and $51.30 million for same periods in 2011; and $13.15 million for the third quarter of 2012. Our taxable equivalent net interest margin decreased 9 basis points to 3.20% during the fourth quarter of 2012 from 3.29% for the third quarter of 2012. Compared to the same periods in 2011, our taxable equivalent net interest margin decreased 17 basis points for the fourth quarter of 2012 and 23 basis points for the year. Our continued growth in earning assets has helped to offset margin compression and allowed us to increase net interest income during 2012. Average earning assets for the three months and year ended December 31, 2012 were $1.62 billion and $1.59 billion, respectively, an increase of $98.39 million and $125.83 million over the same periods in 2011, and an increase of $30.16 million over the third quarter of 2012.
The extended low-interest rate environment continues to present a challenge as our assets reprice down at a steady rate and new assets come on at lower rates. Overall asset yields were 3.55% for the fourth quarter of 2012, compared to 3.68% for the third quarter of 2012 and 3.89% for the fourth quarter of 2011. The average rate on our loan portfolio was 4.30% for the fourth quarter of 2012, a 10 basis point decrease from the third quarter of 2012, and a 38 basis point decrease from the fourth quarter of 2011. The average rate on our investment portfolio for the fourth quarter of 2012 was 2.17%, a 13 basis point decrease from the third quarter of 2012, and a 40 basis point decrease from the fourth quarter of 2011. These decreases were offset, in part, by decreases in the cost of our interest bearing liabilities. The average cost of interest bearing liabilities for the fourth quarter of 2012 was 43 basis points, a 5 basis point decrease from the prior quarter, and a 20 basis point decrease from the fourth quarter of 2011. We have prepaid a total of $20 million in long-term FHLB advances at a rate of 2.75% during 2012, incurring total prepayment penalties of $1.36 million. These prepayments will reduce our overall cost of funds going forward.
"Similar to last year, growth in our balance sheet helped us to offset compression in the net interest margin in 2012. We are very pleased to have increased taxable equivalent net interest income during the year," commented Mr. Tuttle.
Total noninterest income increased to $2.76 million for the fourth quarter of 2012 from $2.32 million for the same period in 2011, and increased to $11.48 million for 2012 from $10.38 million for 2011. During the third quarter of 2012, we recognized a net gain on the sale of one of our branch locations of $749 thousand. Additionally, during the second quarter of 2012, we recognized a gain of $334 thousand on the sale of the mineral rights we owned on properties in Oklahoma which we acquired in a bank acquisition in 1971. We also recognized net gains (losses) on investment securities of $85 thousand and $507 thousand during the quarter and year ended December 31, 2012, respectively, compared to $(53) thousand and $994 thousand for the same periods in 2011. Excluding net gains (losses) on investment securities and the gains on the sale of the branch location and mineral rights, noninterest income increased slightly to $2.67 million for the fourth quarter of 2012 from $2.37 million for the fourth quarter of 2011, and increased to $9.89 million for 2012 from $9.39 million for 2011. The change for the quarter and year ended December 31, 2012, compared to the same periods in 2011, is primarily a result of increases in net debit card income and Trust division income, offset in part by decreased overdraft fee revenue. Additionally, the timing of investments in low income housing partnerships and their associated tax credits led to a reduction in Equity in losses of real estate limited partnerships to $(327) thousand for the fourth quarter of 2012 from $(442) thousand for the fourth quarter of last year, and $(1.52) million for 2012, compared to $(1.77) million for 2011. Trust assets under management have continued to grow in 2012 and now total $555 million.
Total noninterest expense increased $239 thousand to $10.14 million for the fourth quarter of 2012 from $9.90 million for the same period in 2011; and increased $74 thousand to $41.33 million for 2012, compared to $41.26 million for 2011. As stated above, we prepaid $20 million in FHLB long-term debt during 2012 and incurred prepayment penalties totaling $1.36 million during 2012. We also prepaid $16 million in FHLB debt during 2011, and incurred a prepayment penalty of $861 thousand. Excluding the prepayment penalties, noninterest expense decreased $428 thousand for 2012, compared to 2011. Compensation and benefits were slightly higher for the fourth quarter of 2012, compared to the third quarter of 2012, as a result of an increased incentive accrual during the fourth quarter of 2012. Compensation and benefits were $935 thousand lower for 2012, compared to 2011; normal salary increases were offset by higher than normal vacant positions during 2012, a lower incentive accrual, and credits related to loan origination fees. Additionally, a change to our health insurance plan for 2012 resulted in a $274 thousand reduction in health and group insurance expense for 2012, compared to 2011. Occupancy and equipment expenses for 2012 increased $262 thousand to $7.45 million from $7.19 million for 2011, a result of ongoing capital investments related to maintenance, increased compliance requirements and enhancement and expansion of customer service delivery channels. The effective tax rate for 2012 was 21%, compared to 18% for 2011. Taxes for 2011 were positively impacted by the purchase of large historic rehabilitation credits that were available in 2011. Absent those credits, our effective tax rate for 2011 would have been approximately 20%.
Michael R. Tuttle, our President and Chief Executive Officer, Janet P. Spitler, Executive Vice President and Chief Financial Officer and Geoffrey R. Hesslink, Executive Vice President 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 Thursday, January 24, 2013. Interested parties may participate in the conference call by dialing U.S. number (888) 317-6016, Canadian number (855) 669-9657 or international number (412) 317-6016; the title of the call is Merchants Bancshares, Inc. 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 Thursday, January 31, 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 10023203.
Established in 1849, Merchants Bank strives to deliver a fully integrated customer experience to its retail, commercial and investment customers, with a comprehensive array of online and mobile delivery options-and 33 community bank offices and 41 ATMs throughout Vermont. Merchants Bank and its holding company, Merchants Bancshares, Inc., employ approximately 300 full-time employees and 40 part-time employees. Merchants Trust Company, a division of Merchants Bank, provides investment management, financial planning and trustee services. Please visit www.mbvt.com for access to Merchants Bank information, programs and services. Merchants' stock is traded on the NASDAQ Global Select Market under the symbol "MBVT." Member FDIC. Equal Housing Lender.
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 $484 thousand and $2.01 million for the three months and year ended December 31, 2012, respectively, and $534 thousand and $1.93 million was added back for the three months and year ended December 31, 2011, respectively. An additional non-GAAP financial measure we use is the tangible equity ratio. Because we have no intangible assets, our tangible equity is the same as our book 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; declines 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 loan 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)|
|December 31,||September 30,||December 31,||September 30,|
|Balance Sheets - Period End|
|Allowance for loan losses ("ALL")||11,562||11,444||10,619||10,480|
|Federal Home Loan Bank ("FHLB") stock||8,145||8,145||8,630||8,630|
|Cash and due from banks||34,547||30,097||10,392||10,945|
|Interest earning cash and other short-term investments||42,681||22,935||27,420||86,438|
|Non-interest bearing deposits||240,491||227,879||197,522||180,696|
|Savings, interest bearing checking and money market accounts||700,191||687,267||632,110||630,355|
|Securities sold under agreement to repurchase, short-term||287,520||227,996||262,527||222,338|
|Other long-term debt||2,483||2,503||22,562||22,581|
|Junior subordinated debentures issued to unconsolidated subsidiary trust||20,619||20,619||20,619||20,619|
|Balance Sheets - Quarter-to-Date Averages|
|Allowance for loan losses||11,542||11,309||10,584||10,550|
|Cash and due from banks||28,730||25,793||10,186||10,389|
|Interest earning cash and other short-term investments||26,036||16,241||53,907||76,887|
|Non-interest bearing deposits||235,007||220,646||190,864||171,648|
|Savings, interest bearing checking and money market accounts||680,330||677,321||622,208||600,639|
|Securities sold under agreement to repurchase, short-term||250,355||196,117||238,935||207,037|
|Securities sold under agreement to repurchase, long-term||--||--||--||3,995|
|Other long-term debt||2,490||9,032||22,569||27,763|
|Junior subordinated debentures issued to unconsolidated subsidiary trust||20,619||20,619||20,619||20,619|
|Interest bearing liabilities||1,320,819||1,304,461||1,255,961||1,216,652|
|Ratios and Supplemental Information - Period End|
|Book value per share||$||19.84||$||19.82||$||18.54||$||18.29|
|Book value per share (1)||$||18.82||$||18.81||$||17.57||$||17.35|
|Tier I leverage ratio||8.08||%||8.10||%||8.08||%||8.26||%|
|Total risk-based capital ratio||16.05||%||15.83||%||15.92||%||15.81||%|
|Tangible capital ratio (2)||6.92||%||7.00||%||6.80||%||6.92||%|
|Period end common shares outstanding (1)||6,282,385||6,274,683||6,232,783||6,224,886|
|Credit Quality - Period End|
|Nonperforming loans ("NPLs")||$||2,912||$||2,740||$||2,511||$||3,192|
|Nonperforming assets ("NPAs")||$||2,912||$||2,740||$||2,869||$||3,532|
|NPLs as a percent of total loans||0.27||%||0.26||%||0.24||%||0.32||%|
|NPAs as a percent of total assets||0.17||%||0.16||%||0.18||%||0.23||%|
|ALL as a percent of NPLs||397||%||418||%||423||%||328||%|
|ALL as a percent of total loans||1.07||%||1.07||%||1.03||%||1.04||%|
|(1) This book value and period end common shares outstanding includes 324,515; 319,572; 325,703; and 320,845 Rabbi Trust shares for the periods noted above, respectively.|
|(2) The tangible capital ratio is a non-GAAP financial measure which we believe provides investors with information that is useful inunderstanding our financial performance. Because we have no intangible assets, our tangible equity is the same as our book equity.|
|For the Twelve Months Ended|
|Balance Sheets - Year to-Date Averages|
|Allowance for loan losses||11,182||10,432|
|Cash and due from banks||25,217||10,686|
|Federal funds sold and other short-term investments||20,360||54,186|
|Non-interest bearing deposits||214,113||163,090|
|Savings, interest bearing checking and money market accounts||665,399||599,296|
|Securities sold under agreement to repurchase, short-term||230,281||217,823|
|Securities sold under agreement to repurchase, long-term||--||4,726|
|Other long-term debt||13,667||28,117|
|Junior subordinated debentures issued to unconsolidated subsidiary trust||20,619||20,619|
|Interest bearing liabilities||1,311,167||1,230,582|
|For the Three Months Ended||For the Twelve Months Ended|
|December 31,||September 30,||December 31,||December 31,||December 31,|
|Interest and fees on loans||$||11,117||$||11,278||$||11,441||$||44,977||$||45,271|
|Interest and dividends on investments||2,846||2,951||2,949||11,880||12,747|
|Total interest and dividend income||13,963||14,229||14,390||56,857||58,018|
|Securities sold under agreement to repurchase and other short-term borrowings||336||341||523||1,790||2,065|
|Total interest expense||1,428||1,565||2,005||6,883||8,644|
|Net interest income||12,535||12,664||12,385||49,974||49,374|
|Provision for credit losses||250||250||250||950||750|
|Net interest income after provision for credit losses||12,285||12,414||12,135||49,024||48,624|
|Trust division income||685||670||622||2,685||2,516|
|Service charges on deposits||1,077||1,033||1,103||4,078||4,298|
|Gain (loss) on investment securities, net||85||(26||)||2||507||1,049|
|Gain on sale of other assets||--||749||--||1,083||--|
|Other-than-temporary impairment losses on securities||--||--||(55||)||--||(55||)|
|Equity in losses of real estate limited partnerships, net||(327||)||(370||)||(442||)||(1,516||)||(1,766||)|
|Other noninterest income||1,238||1,143||1,085||4,644||4,338|
|Total noninterest income||2,758||3,199||2,315||11,481||10,380|
|Compensation and benefits||4,826||4,809||4,973||19,582||20,517|
|Occupancy and equipment expenses||1,925||1,837||1,813||7,452||7,190|
|Legal and professional fees||591||677||713||2,545||2,811|
|State franchise taxes||330||321||314||1,295||1,265|
|Other real estate owned||68||65||65||197||193|
|Other noninterest expense||1,598||1,486||1,350||6,193||5,754|
|Total noninterest expense||10,137||10,449||9,898||41,334||41,260|
|Income before provision for income taxes||4,906||5,164||4,552||19,171||17,744|
|Provision for income taxes||1,066||1,159||843||3,977||3,124|
|Ratios and Supplemental Information|
|Weighted average common shares outstanding||6,279,279||6,269,347||6,229,430||6,258,832||6,212,187|
|Weighted average diluted shares outstanding||6,291,237||6,280,479||6,243,632||6,271,102||6,223,769|
|Basic earnings per common share||$||0.61||$||0.64||$||0.60||$||2.43||$||2.35|
|Diluted earnings per common share||$||0.61||$||0.64||$||0.59||$||2.42||$||2.35|
|Return on average assets||0.91||%||0.97||%||0.95||%||0.92||%||0.97||%|
|Return on average shareholders' equity||13.08||%||13.95||%||13.77||%||13.37||%||14.11||%|
|Average yield on loans||4.30||%||4.40||%||4.68||%||4.44||%||4.86||%|
|Average yield on investments||2.17||%||2.30||%||2.57||%||2.32||%||2.90||%|
|Average yield of earning assets||3.55||%||3.68||%||3.89||%||3.71||%||4.10||%|
|Average cost of interest bearing deposits||0.32||%||0.34||%||0.42||%||0.35||%||0.47||%|
|Average cost of borrowed funds||0.81||%||0.98||%||1.36||%||1.10||%||1.52||%|
|Average cost of interest bearing liabilites||0.43||%||0.48||%||0.63||%||0.52||%||0.70||%|
|Net interest rate spread||3.12||%||3.20||%||3.26||%||3.19||%||3.40||%|
|Net interest margin||3.20||%||3.29||%||3.37||%||3.28||%||3.51||%|
|Net interest income on a fully taxable equivalent basis||$||13,019||$||13,149||$||12,919||$||51,989||$||51,304|
|Net (charge-offs) recoveries to Average Loans||0.00||%||0.00||%||0.00||%||0.00||%||(0.02||%)|
|Net (charge-offs) recoveries||$||(18||)||$||12||$||14||$||9||$||(151||)|
|Efficiency ratio (1)||60.74||%||58.64||%||61.55||%||60.63||%||62.61||%|
|(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 December 31, 2012, Merchants Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $4.48 million.|
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