SOUTH BURLINGTON, VT--(Marketwired - Apr 23, 2013) - Merchants Bancshares, Inc. (
"The quarter continued the trends we have been experiencing throughout the past two years of steady loan growth accompanied by margin compression. Increased non-interest income and decreased non-interest expense allowed us to offset reduced net interest income. The current interest rate environment will require us to continue these same trends of loan growth accompanied by increased non-interest income and decreased non-interest expense," commented Michael R. Tuttle, our President and Chief Executive Officer.
Shareholders' equity reached another record high of $119.15 million at March 31, 2013. Our book value per share increased to $18.94 at March 31, 2013 from $18.82 at December 31, 2012. Our capital ratios remain strong at March 31, 2013. Our Tier 1 leverage ratio increased to 8.22%, total risk-based capital ratio increased to 16.12% and our tangible capital ratio increased to 7.04% at March 31, 2013.
Our balance sheet contracted slightly during the quarter. Deposits and investments were essentially flat, while loans grew almost $19 million, funded by reductions in short term investment balances. Seasonal reductions in collateralized customer accounts (securities sold under agreements to repurchase) were offset by increased short-term borrowings from the Federal Home Loan Bank of Boston.
Ending loan balances at March 31, 2013 reached a new record high of $1.10 billion, an increase of $18.79 million over ending loan balances at December 31, 2012. This represents an annualized loan growth rate of 7%.
The following table summarizes the components of our loan portfolio as of the periods indicated:
|(In thousands)||March 31, 2013||December 31, 2012||March 31, 2012|
|Commercial, financial and agricultural||$||168,500||$||165,023||$||146,660|
|Real estate loans - residential||504,226||489,951||446,480|
|Real estate loans - commercial||324,208||327,622||330,873|
|Real estate loans - construction||14,115||10,561||11,884|
|All other loans||261||376||330|
Growth in our commercial loan portfolio 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.
We recorded a $250 thousand provision for credit losses during the three months ended March 31, 2013, and 2012. Although we experienced modest credit quality deterioration during the quarter, overall asset quality remains strong and continues to be a core strength for our company. Our continued loan growth was the primary factor for the provision to date in 2013. Our nonperforming loan totals were 0.31% of total loans at March 31, 2013, compared to 0.27% of total loans at December 31, 2012 and 0.22% of total loans at March 31, 2012. Loans past due 30-89 days were 0.09% of total loans at March 31, 2013. For the first three months of 2013 we have booked net recoveries of $26 thousand.
Total deposits at March 31, 2013 were essentially unchanged from $1.27 billion at December 31, 2012. Quarterly average balances increased by $5.76 million to $1.25 billion during the quarter. Securities sold under agreement to repurchase, which represent collateralized customer accounts, were $243.20 million at March 31, 2013, a reduction of $44.32 million from $287.52 million at December 31, 2012 as a result of seasonal cash flows combined with migration to other deposit products due to the low interest rate environment. Short-term wholesale borrowings increased to $30.90 million at March 31, 2013 from zero at December 31, 2012.
Our taxable equivalent net interest income was $12.76 million for the three months ended March 31, 2013, compared to $12.97 million for the same period in 2012 and $13.02 million for the fourth quarter of 2012. Our taxable equivalent net interest margin for the three months ended March 31, 2013 was unchanged from the fourth quarter of 2012 at 3.20%, and was 14 basis points lower than the first quarter of 2012. Overall earning asset yields were two basis points lower for the first quarter of 2013 compared to the fourth quarter of 2012, and were 32 basis points lower for the first quarter of 2013 compared to the first quarter of 2012. This decrease results from a combination of reductions in average yields on both loans and investments. The decrease in asset yields was offset by a reduction in the cost of interest bearing liabilities. The cost of interest bearing deposits decreased three basis points from the fourth quarter of 2012 and decreased 10 basis points for the first quarter of 2013 compared to the same period in 2012. The cost of borrowed funds decreased 57 basis points for the first quarter of 2013 compared to the first quarter of 2012, and decreased seven basis points from the fourth quarter of 2012. The biggest change in our interest expense for the quarter was due to the expiration, on December 14, 2012, of an interest rate swap on $10 million of our trust preferred securities ("TRUPs"). The expiration of the swap reduced our interest rate from a fixed rate of 6.50%, to a floating rate of three month LIBOR plus 1.95%. Interest expense on the entire $20 million TRUPs was reduced to $184 thousand for the first quarter of 2013 compared to $276 thousand for the fourth quarter of 2012, and $295 thousand for the first quarter of 2012.
Total noninterest income increased $117 thousand to $2.48 million for the first quarter of 2013 compared to 2012. Excluding net gains on investment securities, total noninterest income increased $193 thousand to $2.48 million for the first quarter of 2013 compared to $2.29 million for the first quarter of 2012. Trust division income for the first quarter of 2013 increased $101 thousand to $758 thousand compared to the first quarter of 2012. Trust assets under management have continued to grow in 2013 and now total $577 million. Deposit service charges and cash management fees increased by $84 thousand for the first quarter of 2013 compared to the same period in 2012. This increase was offset almost entirely by a reduction in overdraft fees, resulting in an overall $10 thousand increase in service charges on deposits. 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 $(270) thousand for the first quarter of 2013 from $(410) thousand for the first quarter of 2012. There was a related decrease in tax credits for the first quarter of 2013 compared to the first quarter of 2012, leading to an increase in our effective tax rate to 22% for the first quarter of 2013 from 19% for the first quarter of 2012.
Total noninterest expense decreased $219 thousand to $9.88 million for the first quarter of 2013 compared to the same period in 2012. Compensation and benefits decreased $393 thousand to $4.80 million for the first quarter of 2013 compared to the same period in 2012. Salary increases were offset by increased vacancies and a lower incentive accrual. Additionally, the overfunded status of our pension plan produced a $115 thousand swing in pension expense from a $79 thousand expense for the first quarter of 2012 to $36 thousand in income for the first quarter of 2013.
Michael R. Tuttle, our President and Chief Executive Officer, Janet P. Spitler, our Chief Financial Officer and Executive Vice President, and Geoffrey R. Hesslink, our Senior Lender and Executive Vice President, will host a conference call to discuss these earnings results, business highlights and outlook at 9:00 a.m. Eastern Time on Wednesday, April 24, 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. Q1 2013 Earnings. Participants are asked to call a few minutes prior to register. A replay will be available until 9:00 a.m. Eastern Time on Wednesday, May 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 10023207.
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 40 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 $482 thousand for the three months ended March 31, 2013, and $530 thousand for the same period in 2012. 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.
|March 31,||December 31,||March 31,||December 31,|
|Balance Sheets - Period End|
|Allowance for loan losses ("ALL")||11,796||11,562||11,049||10,619|
|Federal Home Loan Bank ("FHLB") stock||7,496||8,145||8,145||8,630|
|Cash and due from banks||25,537||34,547||27,003||10,392|
|Interest earning cash and other short-term investments||17,486||42,681||17,161||27,420|
|Non-interest bearing deposits||225,884||240,491||195,347||197,522|
|Savings, interest bearing checking and money market accounts||708,797||700,191||658,141||632,110|
|Securities sold under agreement to repurchase, short-term||243,204||287,520||228,409||262,527|
|Other long-term debt||2,463||2,483||22,542||22,562|
|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||11,689||11,542||10,736||10,584|
|Cash and due from banks||25,469||28,730||21,332||10,186|
|Interest earning cash and other short-term investments||18,442||26,036||21,686||53,907|
|Non-interest bearing deposits||223,245||235,007||195,425||190,864|
|Savings, interest bearing checking and money market accounts||696,160||680,330||640,937||622,208|
|Securities sold under agreement to repurchase, short-term||264,884||250,355||249,009||238,935|
|Other long-term debt||2,470||2,490||22,549||22,569|
|Junior subordinated debentures issued to unconsolidated subsidiary trust||20,619||20,619||20,619||20,619|
|Interest bearing liabilities||1,332,379||1,320,819||1,303,608||1,255,961|
|Ratios and Supplemental Information - Period End|
|Book value per share||$||19.91||$||19.84||$||18.90||$||18.54|
|Book value per share (1)||$||18.94||$||18.82||$||17.97||$||17.57|
|Tier I leverage ratio||8.22||%||8.08||%||7.94||%||8.08||%|
|Total risk-based capital ratio||16.12||%||16.00||%||15.95||%||15.92||%|
|Tangible capital ratio (2)||7.04||%||6.92||%||6.88||%||6.80||%|
|Period end common shares outstanding (1)||6,289,748||6,282,385||6,240,525||6,232,783|
|Credit Quality - Period End|
|Nonperforming loans ("NPLs")||$||3,415||$||2,912||$||2,315||$||2,511|
|Nonperforming assets ("NPAs")||$||3,415||$||2,912||$||2,665||$||2,869|
|NPLs as a percent of total loans||0.31||%||0.27||%||0.22||%||0.24||%|
|NPAs as a percent of total assets||0.20||%||0.17||%||0.16||%||0.18||%|
|ALL as a percent of NPLs||345||%||397||%||477||%||423||%|
|ALL as a percent of total loans||1.07||%||1.07||%||1.06||%||1.03||%|
|(1) This book value and period end common shares outstanding includes 305,231; 324,515; 309,175; and 325,703 Rabbi Trust shares for the periods noted above, respectively.|
|(2) The tangible capital ratio is a non-GAAP financial measure which we believe provides investors with information that is useful in understanding our financial performance. Because we have no intangible assets, our tangible equity is the same as our book equity.|
|For the Three Months Ended|
|March 31,||March 31,||December 31,|
|Interest and fees on loans||$||10,784||$||11,329||$||11,117|
|Interest and dividends on investments||2,797||3,090||2,846|
|Total interest and dividend income||13,581||14,419||13,963|
|Securities sold under agreement to repurchase and other short-term borrowings||357||576||336|
|Total interest expense||1,299||1,983||1,428|
|Net interest income||12,282||12,436||12,535|
|Provision for credit losses||250||250||250|
|Net interest income after provision for credit losses||12,032||12,186||12,285|
|Trust division income||758||657||685|
|Service charges on deposits||987||977||1,077|
|Gain on investment securities, net||--||76||85|
|Equity in losses of real estate limited partnerships, net||(270||)||(410||)||(327||)|
|Other noninterest income||1,003||1,061||1,238|
|Total noninterest income||2,478||2,361||2,758|
|Compensation and benefits||4,795||5,188||4,826|
|Occupancy and equipment expenses||2,010||1,878||1,925|
|Legal and professional fees||687||611||591|
|State franchise taxes||357||328||330|
|Other real estate owned||13||33||68|
|Other noninterest expense||1,522||1,439||1,598|
|Total noninterest expense||9,884||10,103||10,137|
|Income before provision for income taxes||4,626||4,444||4,906|
|Provision for income taxes||1,017||831||1,066|
|Ratios and Supplemental Information|
|Weighted average common shares outstanding||6,286,838||6,237,232||6,279,279|
|Weighted average diluted shares outstanding||6,299,561||6,252,418||6,291,237|
|Basic earnings per common share||$||0.57||$||0.58||$||0.61|
|Diluted earnings per common share||$||0.57||$||0.58||$||0.61|
|Return on average assets||0.86||%||0.89||%||0.91||%|
|Return on average shareholders' equity||12.31||%||13.15||%||13.08||%|
|Average yield on loans||4.21||%||4.61||%||4.30||%|
|Average yield on investments||2.21||%||2.45||%||2.17||%|
|Average yield of earning assets||3.53||%||3.85||%||3.55||%|
|Average cost of interest bearing deposits||0.29||%||0.39||%||0.32||%|
|Average cost of borrowed funds||0.74||%||1.31||%||0.81||%|
|Average cost of interest bearing liabilites||0.40||%||0.61||%||0.43||%|
|Net interest rate spread||3.13||%||3.24||%||3.12||%|
|Net interest margin||3.20||%||3.34||%||3.20||%|
|Net interest income on a fully taxable equivalent basis||$||12,764||$||12,966||$||13,019|
|Net recoveries (charge-offs) to Average Loans||0.00||%||0.00||%||0.00||%|
|Net recoveries (charge-offs)||$||26||$||29||$||(18||)|
|Efficiency ratio (1)||61.08||%||62.16||%||60.74||%|
|(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 March 31, 2013, Merchants Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $4.71 million.|