SOUTH BURLINGTON, VT -- (Marketwired) -- 01/28/14 -- Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.82 million and $15.13 million, or diluted earnings per share of $0.60 and $2.40, for the three months and year ended December 31, 2013, respectively. This compares to net income of $3.84 million and $15.19 million, or diluted earnings per share of $0.61 and $2.42, for the three months and year ended December 31, 2012, respectively.
The return on average assets was 0.91% and 0.90% for the three months and year ended December 31, 2013, respectively, compared to 0.91% and 0.92% for the same periods in 2012. The return on average equity was 13.07% and 12.97% for the three months and year ended December 31, 2013, respectively, compared to 13.08% and 13.37% for the same periods in 2012. We previously announced the declaration of a dividend of $0.28 per share, payable February 20, 2014, to shareholders of record as of February 6, 2014.
Shareholders' equity ended the year at $119.61 million, and our book value per share was $18.93 at December 31, 2013. Our capital ratios remain strong at December 31, 2013, with a Tier 1 leverage ratio of 8.44%, compared to 8.08% at December 31, 2012, and a total risk-based capital ratio of 16.12%, compared to 16.00% at December 31, 2012.
"We are very pleased to report another strong year for our company. The loan growth we experienced during the first three quarters of 2013 allowed us to shrink our investment portfolio and reduce our exposure to price volatility associated with fixed rate bonds. Although the margin continued to decline, the rate of compression slowed as the yield curve steepened. We were able to reduce costs enough to offset the decline in net interest income," commented Michael R. Tuttle, our President and CEO.
We realized a one time gain of $898 thousand during the fourth quarter in conjunction with the sale of one of our locations. The total gain on the sale was $1.83 million; the balance of the gain of $934 thousand will be deferred and amortized over 10 years as we are leasing back a portion of the sold property. We also took an impairment charge totaling $166 thousand related to our $38 million portfolio of collateralized loan obligations ("CLOs") portfolio. Under the recently finalized Volcker rule, we may be required to divest of some of our CLOs by July of 2015. During January of 2014 we sold $15.74 million of our CLOs for a modest gain.
Quarterly average loan balances for the fourth quarter were $1.17 billion, an increase of $96 million over average loan balances for the fourth quarter of 2012; this represents an average annualized growth rate of 9%.
The following table summarizes the components of our ending loan portfolio balances as of the periods indicated:
December 31, September 30, December 31, (In thousands) 2013 2013 2012 ------------- -------------- -------------- Commercial, financial and agricultural $ 172,810 $ 163,138 $ 165,023 Municipal loans 94,007 96,491 84,689 Real estate loans - residential 489,706 493,667 460,395 Real estate loans - commercial 371,319 373,085 357,178 Real estate loans - construction 31,841 32,768 10,561 Installment loans 5,655 5,898 4,701 All other loans 895 454 376 ------------- -------------- -------------- Total loans $ 1,166,233 $ 1,165,501 $ 1,082,923 ------------- -------------- --------------
Year to date growth in our commercial loan portfolio has been primarily driven by new customer acquisition and expansion of existing relationships. Higher long-term interest rates have led to a reduction in refinancing applications in our residential loan portfolio resulting in lower outstanding balances. Heightened competition in the commercial real estate space resulted in a reduction in that segment of our portfolio during the quarter.
The average investment portfolio balance for the fourth quarter of 2013 was $402.99 million, a reduction of $107.57 million from the fourth quarter of 2012. The ending balance in the investment portfolio at December 31, 2013 was $393.34 million, compared to $509.09 million at December 31, 2012. We intentionally allowed the investment portfolio to run off during the year and deployed the cash to fund our loan growth. This allowed us to control overall asset growth and strengthen our capital ratios and returns.
Very strong credit quality combined with low loan growth during the fourth quarter resulted in a zero provision for credit losses during the fourth quarter of 2013. Year to date our provision for credit losses totaled $800 thousand, compared to $250 thousand and $950 thousand for the three months and year ended December 31, 2012, respectively. Our overall loan growth during 2013 was the primary factor for the provision in 2013. Credit quality improved further during the quarter with non-performing loans at $906 thousand, or 0.08% of total loans at the end of 2013.
Total deposits at December 31, 2013 were $1.32 billion compared to December 31, 2012 balances of $1.27 billion. Total average deposits for the fourth quarter of 2013 were $1.32 billion, a $75.27 million increase over average balances for the fourth quarter of 2012. This represents a 6.03% annualized growth rate. 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, increased $70.82 million to $250.31 million at December 31, 2013 from $179.49 million at September 30, 2013, and decreased $37.21 million from $287.52 million at December 31, 2012. The quarter-over-quarter increase was a result of seasonal municipal cash flows, while the decrease compared to 2012 year end resulted from migration to deposit products.
Our taxable equivalent net interest income was $12.74 million and $50.96 million for the three months and year ended December 31, 2013, respectively, compared to $13.02 million and $51.99 million for the same periods in 2012. Our taxable equivalent net interest margin decreased four basis points to 3.10% for the fourth quarter of 2013 from 3.14% for the third quarter of 2013. Quarter-over-quarter and year-over-year, our taxable equivalent net interest margin decreased 10 basis points and 13 basis points, respectively. The margin compression during the fourth quarter of 2013 was due primarily to temporarily high cash balances, driven by a combination of seasonal municipal cash flows, flat linked quarter loan balances and a smaller securities portfolio. Most of the margin compression during 2013 was concentrated in our average asset yields, which decreased 25 basis points during 2013. Average loans yields decreased 38 basis points and average investment yields decreased 14 basis points. One of the factors influencing our loan yields was an increase in variable rate loans. Average variable rate loans for the fourth quarter of 2013 were $315.58 million, an increase of $53.63 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.
Total noninterest income increased $736 thousand to $3.52 million for the fourth quarter of 2013 compared to the third quarter of 2013 and decreased $983 thousand to $11.63 million for 2013 compared to 2012. Excluding net gains on investment securities, other than temporary impairment charges, and gains on sales of other assets, total noninterest income increased $19 thousand to $2.80 million for the fourth quarter of 2013 compared to the third quarter of this year, and decreased $9 thousand to $11.01 million for 2013 compared to 2012. Increases in cash management fees and other service charge income offset continued reductions in overdraft fees during 2013. Trust division income increased $377 thousand for 2013 compared to 2012. Other noninterest income decreased $318 thousand to $1.09 million for 2013 compared to 2012; $168 thousand of this reduction was a result of the discontinuation of our credit card affinity program at the end of 2012.
Total noninterest expense increased $1.04 million to $10.94 million for the fourth quarter of 2013 compared to the third quarter of 2013 and decreased $1.85 million to $40.62 million for 2013 compared to 2012. Excluding a $1.36 million prepayment penalty incurred during 2012, noninterest expense decreased $485 thousand for the year ended December 31, 2013 compared to 2012.
- Total compensation and benefits increased $352 thousand for the fourth quarter of 2013 compared to the third quarter of 2013 and decreased $417 thousand for the year ended December 31, 2013 compared to 2012. There are a number of reasons for these changes. Strong growth and performance ahead of plan triggered an addition to our incentive accrual of $120 thousand during the fourth quarter of 2013. Additionally, a number of vacant positions were filled during the quarter. We experienced higher than usual claim volume in our self funded group health insurance plan during the fourth quarter of this year leading to an additional expense of $140 thousand. The decrease for 2013 compared to 2012 was primarily a result of reduced employee benefit costs as normal salary increases for 2013 were offset by reduced incentive expense. Expenses related to our group health insurance plan were $146 thousand lower for the year ended December 31, 2013 compared to 2012. Additionally, the overfunded status of our pension plan produced $162 thousand in income for us in 2013 compared to an expense of $252 thousand in 2012.
- Occupancy and equipment expenses increased $294 thousand to $2.20 million for the fourth quarter of 2013 compared to the third quarter of this year, and increased $605 thousand for year ended December 31, 2013 compared to 2012. This increase was a result of additional investments we made in our facilities and in technology to increase efficiency and improve customer service. Additionally, we will be changing our core system provider during 2014 and have accelerated the write off of certain assets during the fourth quarter related to the current core system.
- The timing of certain events and donations resulted in a $205 thousand increase in marketing expenses for the fourth quarter of 2013 compared to the third quarter of 2013. Year to date marketing expenses are $85 thousand lower than 2012.
- 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 $1.08 million for the year ended December 31, 2013 compared to $1.52 million for 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. This was offset by the positive impact on our tax rate of the donation of our branch building in North Bennington, Vermont, to a non-profit organization during the second quarter of 2013. Our effective tax rate for both 2012 and 2013 was 21%.
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 Wednesday, January 29, 2014. 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. Q4 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 February 6, 2014. 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 10036734. 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 $530 thousand and $2.06 million, respectively, for the three months and year ended December 31, 2013, compared to $484 thousand and $2.02 million, respectively, for the same periods 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) December 31, September 30, December 31, September 30, ------------ ------------- ------------ ------------- 2013 2013 2012 2012 ------------ ------------- ------------ ------------- Balance Sheets - Period End Total assets $ 1,725,469 $ 1,667,130 $ 1,708,550 $ 1,685,836 Loans 1,166,233 1,165,501 1,082,923 1,072,879 Allowance for loan losses ("ALL") 12,042 12,199 11,562 11,444 Net loans 1,154,191 1,153,302 1,071,361 1,061,435 Investments-available for sale, taxable 252,513 269,676 508,681 526,257 Investments-held to maturity, taxable 140,826 136,017 407 443 Federal Home Loan Bank ("FHLB") stock 7,496 7,496 8,145 8,145 Cash and due from banks 30,434 35,634 34,547 30,097 Interest earning cash and other short-term investments 85,037 21,648 42,681 22,935 Other assets 54,972 43,357 42,728 36,524 Non-interest bearing deposits 266,299 267,608 240,491 227,879 Savings, interest bearing checking and money market accounts 752,171 745,814 700,191 687,267 Time deposits 305,106 317,824 330,398 337,817 Total deposits 1,323,576 1,331,246 1,271,080 1,252,963 Short-term borrowings -- 8,200 -- 55,600 Securities sold under agreement to repurchase, short- term 250,314 179,490 287,520 227,996 Other long-term debt 2,403 2,423 2,483 2,503 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 8,946 8,229 8,627 8,126 Shareholders' equity 119,611 116,923 118,221 118,029 Balance Sheets - Quarter-to-Date Averages Total assets $ 1,685,103 $ 1,661,517 $ 1,682,673 $ 1,649,457 Loans 1,169,935 1,154,967 1,074,007 1,064,507 Allowance for loan losses 12,256 11,946 11,542 11,309 Net loans 1,157,679 1,143,021 1,062,465 1,053,198 Investments-available for sale, taxable 265,667 310,165 510,129 499,224 Investments-held to maturity, taxable 137,319 109,753 428 464 FHLB stock 7,496 7,496 8,145 8,145 Cash and due from banks 29,626 27,913 28,730 25,793 Interest earning cash and other short-term investments 47,624 21,700 26,036 16,241 Other assets 39,692 41,469 46,740 46,392 Non-interest bearing deposits 267,838 252,795 235,007 220,646 Savings, interest bearing checking and money market accounts 744,634 772,234 680,330 677,321 Time deposits 310,817 318,795 332,678 341,231 Total deposits 1,323,289 1,343,824 1,248,015 1,239,198 Short-term borrowings 198 26,451 34,347 60,141 Securities sold under agreement to repurchase, short- term 212,313 145,962 250,355 196,117 Other long-term debt 2,409 2,430 2,490 9,032 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 9,297 8,150 9,430 9,466 Shareholders' equity 116,978 114,081 117,417 114,884 Earning assets 1,628,041 1,604,081 1,618,745 1,588,581 Interest bearing liabilities 1,290,990 1,286,491 1,320,819 1,304,461 Ratios and Supplemental Information - Period End Book value per share $ 19.94 $ 19.50 $ 19.84 $ 19.82 Book value per share (1) $ 18.93 $ 18.53 $ 18.82 $ 18.81 Tier I leverage ratio 8.44% 8.42% 8.08% 8.10% Total risk-based capital ratio 16.12% 16.13% 16.00% 15.83% Tangible capital ratio (2) 6.93% 7.01% 6.92% 7.00% Period end common shares outstanding (1) 6,318,708 6,311,332 6,282,385 6,274,683 Credit Quality - Period End Nonperforming loans ("NPLs") $ 906 $ 2,684 $ 2,912 $ 2,740 Nonperforming assets ("NPAs") $ 1,015 $ 2,707 $ 2,912 $ 2,740 NPLs as a percent of total loans 0.08% 0.23% 0.27% 0.26% NPAs as a percent of total assets 0.06% 0.16% 0.17% 0.16% ALL as a percent of NPLs 1329% 455% 397% 418% ALL as a percent of total loans 1.03% 1.05% 1.07% 1.07% (1) This book value and period end common shares outstanding includes 319,854; 314,956; 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 Twelve Months Ended December 31, 2013 2012 ----------- ----------- Balance Sheets - Year-to-Date Averages Total assets $ 1,677,342 $ 1,648,393 Loans 1,133,637 1,057,446 Allowance for loan losses 11,935 11,182 Net loans 1,121,702 1,046,264 Investments-available for sale, taxable 385,604 500,667 Investments-held to maturity, taxable 62,457 482 FHLB stock 7,618 8,235 Cash and due from banks 27,087 25,217 Interest earning cash and other short-term investments 27,909 20,360 Other assets 44,965 47,168 Non-interest bearing deposits 246,011 214,113 Savings, interest bearing checking and money market accounts 731,476 665,399 Time deposits 321,962 342,911 Total deposits 1,299,449 1,222,423 Short-term borrowings 17,260 38,290 Securities sold under agreement to repurchase, short-term 212,644 230,281 Other long-term debt 2,439 13,667 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 Other liabilities 8,291 9,492 Shareholders' equity 116,640 113,621 Earning assets 1,617,225 1,587,190 Interest bearing liabilities 1,306,400 1,311,167 For the Twelve Months For the Three Months Ended Ended ---------------------------------- ---------------------- December September December December December 31, 30, 31, 31, 31, ---------- ---------- ---------- ---------- ---------- 2013 2013 2012 2013 2012 ---------- ---------- ---------- ---------- ---------- Operating Results Interest income Interest and fees on loans $ 11,123 $ 11,070 $ 11,117 $ 43,987 $ 44,977 Interest and dividends on investments 2,293 2,314 2,846 9,980 11,880 Total interest and dividend income 13,416 13,384 13,963 53,967 56,857 Interest expense Deposits 928 948 803 3,350 3,551 Securities sold under agreement to repurchase and other short- term borrowings 97 83 336 914 1,790 Long-term debt 204 201 289 806 1,542 Total interest expense 1,229 1,232 1,428 5,070 6,883 Net interest income 12,187 12,152 12,535 48,897 49,974 Provision for credit losses -- 400 250 800 950 Net interest income after provision for credit losses 12,187 11,752 12,285 48,097 49,024 Noninterest income Trust division income 784 759 685 3,062 2,685 Service charges on deposits 1,017 995 1,077 3,989 4,078 Debit card income, net 761 720 752 2,875 2,854 Gain (losses) on investment securities, net -- 1 85 (12) 507 Other-than- temporary impairment losses on securities (166) -- -- (166) -- Gain on sale of other assets 884 -- -- 794 1,083 Other noninterest income 242 311 386 1,088 1,406 Total noninterest income 3,522 2,786 2,985 11,630 12,613 Noninterest expense Compensation and benefits 5,106 4,754 4,826 19,165 19,582 Occupancy and equipment expenses 2,204 1,910 1,925 8,057 7,452 Legal and professional fees 754 695 591 2,755 2,545 Marketing expenses 598 393 577 1,756 1,841 Equity in losses of real estate limited partnerships, net 273 271 327 1,084 1,516 State franchise taxes 357 363 330 1,439 1,295 FDIC insurance 217 215 222 872 866 Prepayment penalty -- -- -- -- 1,363 Other real estate owned 37 17 68 121 197 Other noninterest expense 1,396 1,282 1,498 5,369 5,809 Total noninterest expense 10,942 9,900 10,364 40,618 42,466 Income before provision for income taxes 4,767 4,638 4,906 19,109 19,171 Provision for income taxes 944 964 1,066 3,978 3,977 Net income $ 3,823 $ 3,674 $ 3,840 $ 15,131 $ 15,194 Ratios and Supplemental Information Weighted average common shares outstanding 6,315,936 6,308,796 6,279,279 6,302,494 6,258,832 Weighted average diluted shares outstanding 6,330,303 6,323,602 6,291,237 6,315,936 6,271,102 Basic earnings per common share $ 0.61 $ 0.58 $ 0.61 $ 2.40 $ 2.43 Diluted earnings per common share $ 0.60 $ 0.58 $ 0.61 $ 2.40 $ 2.42 Return on average assets 0.91% 0.88% 0.91% 0.90% 0.92% Return on average shareholders' equity 13.07% 12.89% 13.08% 12.97% 13.37% Average yield on loans 3.95% 4.00% 4.30% 4.06% 4.44% Average yield on investments 2.19% 2.14% 2.17% 2.18% 2.32% Average yield of earning assets 3.40% 3.45% 3.55% 3.46% 3.71% Average cost of interest bearing deposits 0.34% 0.34% 0.32% 0.32% 0.35% Average cost of borrowed funds 0.51% 0.58% 0.81% 0.68% 1.10% Average cost of interest bearing liabilites 0.37% 0.38% 0.43% 0.39% 0.52% Net interest rate spread 3.03% 3.07% 3.12% 3.07% 3.19% Net interest margin 3.10% 3.14% 3.20% 3.15% 3.28% Net interest income on a fully taxable equivalent basis $ 12,735 $ 12,713 $ 13,019 $ 50,955 $ 51,989 Net recoveries (charge-offs) to Average Loans (0.01)% (0.01)% 0.00% (0.02)% 0.00% Net recoveries (charge-offs) $ (162) $ (67) $ (18)$ (283) $ 9 Efficiency ratio (1) 66.20% 59.63% 60.74% 61.28% 60.63% (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, 2013, Merchants Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $4.73 million. Amounts reported for prior periods are reclassified, where necessary, to be consistent with the current period presentation.
Contact: Margaret Bouffard Merchants Bank (802) 865-1807
Source: Merchants Bancshares, Inc.
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