Merchants Bancshares reports Q1 results, to merge on May 12

-A A +A

Merchants Bancshares reports Q1 results, to merge on May 12

Thu, 04/20/2017 - 4:49pm -- tim

Vermont Business Magazine In what will likely be its final quarterly report, Merchants Bancshares, Inc  (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.6 million and $0.52 per diluted share for the first quarter of 2017 compared to net income of $3.1 million or $0.45 per diluted share in the fourth quarter of 2016 and $3.5 million in net income or $0.50 per diluted share in the first quarter of 2016. Excluding Community Bank System, Inc merger costs, net of tax, the company's adjusted net income was $4.5 million or $0.66 per diluted share for the first quarter of 2017. This compares to adjusted net income of $5.1 million or $0.73 per diluted share on a linked quarter basis and adjusted net income of $3.8 million or $0.55 per diluted share in the first quarter of 2016.

Community Bank System announced last fall that it would acquire Merchants in mid-2017. The boards and shareholders of both banking companies have approved the transaction. Merchants sent a letter to customers dated April 12 that the merger would take place the weekend of May 12-14, subject to regulatory approval. Assuming that goes as planned, the letter goes on to say that, "Merchants Bank and/or NUVO accounts will become Community Bank NA accounts and all Merchant Bank branches will become Community Bank NA branches after close of business on Friday, May 12, 2017." NUVO is a division of Merchants.

RELATED STORY: Merchants Bancshares stockholders approve $304 million merger with Community Bank

For the quarter ended March 31, 2017, the return on average assets was 0.71% compared to 0.62% for the quarter ended December 31, 2016 and 0.71% for the quarter ended March 31, 2016. For the quarter ended March 31, 2017, the return on average equity was 9.06% compared to 7.83% for the quarter ended December 31, 2016 and 9.32% for the quarter ended March 31, 2016.

The Company's Board of Directors approved a dividend of $0.28 per share, payable May 10, 2017, to stockholders of record as of May 1, 2017. Based on the closing price of $48.70 per share on March 31, 2017 and the annual dividend payout of $1.12 per share, the dividend represents an annualized yield of 2.30%.

Due to the pending transaction with Community Bank System, Inc., Merchants Bancshares will not have an earnings call for its first quarter results.

Q1 2017 Financial Highlights

Balance Sheet:

  • Total assets were $2.02 billion as of March 31, 2017, a decrease of $39.1 million over the linked quarter and $59.9 million increase from March 31, 2016. The decrease in total assets over the linked quarter was due primarily to a decrease in investment balances partially offset by an increase in loan balances. The increase in total assets from March 31, 2016 was due primarily to an increase in loan balances partially offset by decreases in the investment balances and interest earning cash and other short-term investments.
  • Gross loans as of March 31, 2017 totaled $1.54 billion, an increase of $28.5 million over the linked quarter and a $121.1 million increase from March 31, 2016. The increase in gross loans over the linked quarter consisted primarily of growth in commercial and commercial real estate loans partially offset by a decline in residential real estate and construction loans.  Total commercial loans, defined as commercial, commercial real estate and construction, increased $39.2 million over the linked quarter. The increase in gross loans from March 31, 2016 was primarily due to an increase of $115.9 million in commercial real estate loans partially offset by a decline in residential real estate loans.
  • Total deposits were $1.51 billion as of March 31, 2017, a decrease of $15.8 million over the linked quarter and a decrease of $15.1 million from March 31, 2016. The decrease in total deposits over the linked quarter was driven by a decrease in non-interest bearing deposits and a planned decrease in higher cost acquired time deposits at the NUVO division. The decrease in total deposits over the first quarter of 2016 was attributable to a planned decrease in higher cost acquired time deposits at the NUVO division.
  • Total stockholders' equity as of March 31, 2017 was $158.6 million. Tangible book value per share was $21.76 per share at March 31, 2017 compared to $21.54 at December 31, 2016 and $21.06 per share at March 31, 2016. Book value per share was $22.94 per share at March 31, 2017 compared to $22.72 at December 31, 2016 and $22.25 per share at March 31, 2016.

Income Statement:

  • Taxable equivalent net interest income was $14.8 million for the first quarter of 2017, which represents an increase of $0.4 million over the linked quarter and an increase of $0.5 million over the same period in 2016. GAAP net interest income in the first quarter of 2017 was $14.2 million, compared to $13.9 million in the linked quarter and $13.7 million in the same period of 2016. The increases in GAAP net interest income over the linked quarter and the same period in 2016 were due to a growth in gross loans.
  • Taxable equivalent net interest margin for the first quarter of 2017 was 3.02%, an increase of 4 basis points over the linked quarter and was unchanged from the same period in 2016. The linked quarter increase reflected higher asset yields.
  • Provision for credit losses was $500 thousand for the first quarter of 2017, compared to $200 thousand in the linked quarter and $205 thousand in the same period in 2016. The increase in the provision for credit losses over the linked quarter and the same quarter in 2016 primarily reflected new loan growth.
  • Noninterest income for the first quarter of 2017 was $3.3 million, a decrease of $149 thousand over the linked quarter and an increase of $339 thousand from the same period in 2016. The decrease over the linked quarter is due to a decline in trust fees offset by a net gain on the sale of investment securities. The increase over the same period in 2016 was due primarily to a net gain on the sale of investment securities.
  • Noninterest expense was $12.0 million for the first quarter of 2017, compared to $13.1 million in the linked quarter and $11.9 million in the same period in 2016. The decrease in noninterest expense over the linked quarter was due primarily to greater expenses incurred in connection with the pending merger with Community Bank System, Inc. during the fourth quarter of 2016. Adjusted noninterest expense (excluding acquisition, merger, severance and retirement costs) was $10.7 million in the first quarter of 2017, compared to $10.6 million in the linked quarter and $11.5 million in the same period in 2016.
  • The effective tax rate for the quarter ended March 31, 2017 was 28% compared to 22% for the linked quarter and 23% for the quarter ended March 31, 2016. The increases over the linked quarter and the same period in 2016 were due primarily to an increase in estimated non-deductible merger expenses.

Credit Quality and Capital Ratios:

  • The allowance for loan losses ("ALL") as of March 31, 2017 was $13.2 million, or 0.85% of gross loans, compared to $12.7 million, or 0.84% of gross loans as of December 31, 2016 and $12.2 million, or 0.86% of gross loans, as of March 31, 2016.
  • Nonperforming loans were $4.2 million, or 0.27% of gross loans, at March 31, 2017, compared to $3.2 million, or 0.21% of gross loans at December 31, 2016 and $4.6 million, or 0.33% of gross loans at March 31, 2016. ALL as a percentage of nonperforming loans was 313% at March 31, 2017 compared to 398% at December 31, 2016 and 262% at March 31, 2016. Accruing loans 31 to 90 days past due as a percent of total loans were 0.09% at March 31, 2017 compared to 0.03% at December 31, 2016 and 0.28% at March 31, 2016. Merchants Bank continues to experience excellent credit quality.
  • Estimated regulatory capital ratios at March 31, 2017:
    • Common Equity Tier 1 – 12.38%
    • Tier 1 Leverage – 8.63%
    • Total Risk-Based Capital – 15.09%
    • Tangible Capital – 7.47%

Proposed Transaction with Community Bank System, Inc.

On October 22, 2016, Merchants Bancshares and Community Bank System, Inc. (NYSE: CBU) entered into a definitive agreement under which Community Bank System, Inc. will acquire Merchants Bancshares in a cash and stock transaction.  The combination will provide natural market extension for both companies, joining two high-quality, low-risk franchises with long histories of service to their customers and communities.  

Under the terms of the agreement, shareholders of Merchants Bancshares will have the option to receive, at their election, consideration per share equal to (i) 0.963 shares of Community Bank System, Inc. common stock, (ii) $40.00 in cash or (iii) the combination of 0.6741 shares of Community Bank System, Inc. common stock and $12.00 in cash, subject to an overall proration to 70% stock and 30% cash. The merger is expected to close in the second quarter of 2017 and is subject to customary closing conditions, including the required regulatory approvals. Additional information about the transaction can be found in the joint press release issued on October 24, 2016, which is available on the Investor Relations section of the Company's website at www.mbvt.com.

 

 

Merchants Bancshares, Inc.

Financial Highlights (unaudited)

(Dollars in thousands except share and per share data)

                       
 

March 31,

 

December 31,

 

March 31,

 

2017

 

2016

 

2016

Balance Sheets - Period End

                     

Cash and due from banks

$

29,466

   

$

26,116

   

$

27,586

 

Interest earning cash and other short-term investments

 

30,296

     

56,837

     

53,054

 

Investments-available for sale, taxable

 

287,989

     

333,998

     

294,048

 

Investments-held to maturity, taxable

 

80,991

     

85,694

     

115,392

 

Loans

 

1,542,718

     

1,514,209

     

1,421,603

 

Allowance for loan losses ("ALL")

 

13,187

     

12,659

     

12,173

 

Net loans

 

1,529,531

     

1,501,550

     

1,409,430

 

Federal Home Loan Bank ("FHLB") stock

 

7,044

     

4,976

     

3,863

 

Bank premises and equipment, net

 

12,597

     

13,078

     

14,532

 

Investment in real estate limited partnerships

 

7,560

     

6,356

     

5,827

 

Bank owned life insurance

 

10,805

     

10,758

     

10,606

 

Core deposit intangible

 

1,113

     

1,156

     

1,309

 

Goodwill

 

7,011

     

7,011

     

6,872

 

Other assets

 

19,141

     

15,128

     

21,111

 

Total assets

 

2,023,544

     

2,062,658

     

1,963,630

 

Non-interest bearing deposits

 

630,718

     

640,922

     

620,190

 

Savings, interest bearing checking and money market accounts

 

690,448

     

687,340

     

677,600

 

Time deposits

 

190,510

     

199,208

     

228,998

 

Total deposits

 

1,511,676

     

1,527,470

     

1,526,788

 

Short-term borrowings

 

75,000

     

40,000

     

 

Securities sold under agreement to repurchase, short-term

 

249,582

     

312,118

     

249,003

 

Other long-term debt

 

3,630

     

3,651

     

4,716

 

Junior subordinated debentures issued to unconsolidated subsidiary trust

 

20,619

     

20,619

     

20,619

 

Other liabilities

 

4,389

     

2,297

     

9,903

 

Total liabilities

 

1,864,896

     

1,906,155

     

1,811,029

 

Stockholders' equity

 

158,648

     

156,503

     

152,601

 
                       

Balance Sheets - Quarter-to-Date Averages

                     

Cash and due from banks

$

25,375

   

$

30,138

   

$

31,058

 

Interest earning cash and other short-term investments

 

38,058

     

49,005

     

74,294

 

Investments-available for sale, taxable

 

311,861

     

296,292

     

279,327

 

Investments-held to maturity, taxable

 

82,989

     

88,391

     

117,390

 

Loans

 

1,538,136

     

1,488,960

     

1,417,710

 

Allowance for loan losses

 

12,775

     

12,600

     

12,073

 

Net loans

 

1,525,361

     

1,476,360

     

1,405,637

 

FHLB stock

 

7,162

     

4,994

     

3,784

 

Bank owned life insurance

 

10,775

     

10,728

     

10,571

 

Other assets

 

44,075

     

49,141

     

51,411

 

Total assets

 

2,045,656

     

2,005,049

     

1,973,472

 

Non-interest bearing deposits

 

626,936

     

635,512

     

616,553

 

Savings, interest bearing checking and money market accounts

 

687,259

     

671,126

     

671,823

 

Time deposits

 

196,039

     

203,969

     

239,818

 

Total deposits

 

1,510,234

     

1,510,607

     

1,528,194

 

Short-term borrowings

 

72,789

     

13,380

     

 

Securities sold under agreement to repurchase, short-term

 

276,755

     

288,343

     

259,999

 

Other long-term debt

 

3,637

     

3,659

     

4,833

 

Junior subordinated debentures issued to unconsolidated subsidiary trust

 

20,619

     

20,619

     

20,619

 

Other liabilities

 

2,025

     

10,138

     

9,973

 

Total liabilities

 

1,886,059

     

1,846,746

     

1,823,618

 

Stockholders' equity

 

159,597

     

158,303

     

149,854

 

Earning assets

 

1,978,206

     

1,927,642

     

1,892,505

 

Interest bearing liabilities

 

1,257,098

     

1,201,096

     

1,197,092

 

 

 

 

Merchants Bancshares, Inc.

Financial Highlights (unaudited)

(Dollars in thousands except share and per share data)

                     

Loan Portfolios:

                   
                     
   

March 31,

 

December 31,

 

March 31,

 
   

2017

 

2016

 

2016

 

Period End

                   

Commercial, financial and agricultural

 

$

276,915

 

$

257,078

 

$

247,074

 

Municipal loans

   

113,875

   

114,509

   

105,433

 

Real estate loans - residential

   

438,424

   

447,527

   

461,009

 

Real estate loans - commercial

   

672,712

   

636,755

   

556,836

 

Real estate loans - construction

   

35,964

   

52,533

   

42,209

 

Installment loans

   

4,813

   

5,790

   

9,009

 

All other loans

   

15

   

17

   

33

 

Total Loans

 

$

1,542,718

 

$

1,514,209

 

$

1,421,603

 

 

Ratios and Supplemental Information:

                     
                       
 

March 31,

 

December 31,

 

March 31,

 

2017

 

2016

 

2016

Ratios and Supplemental Information - Period End

                     

Book value per share

$

22.94

   

$

22.72

   

$

22.25

 

Tangible book value per share (1)

$

21.76

   

$

21.54

   

$

21.06

 

Common Equity Tier 1

 

12.38

%

   

12.42

%

   

12.95

%

Tier I leverage ratio

 

8.63

%

   

8.71

%

   

8.53

%

Total risk-based capital ratio

 

15.09

%

   

15.14

%

   

15.85

%

Tangible capital ratio (1)

 

7.47

%

   

7.22

%

   

7.39

%

Period end common shares outstanding

 

6,916,443

     

6,887,856

     

6,858,473

 
                       

Credit Quality - Period End

                     

Nonperforming loans ("NPLs") (2)

$

4,212

   

$

3,182

   

$

4,641

 

Nonperforming assets ("NPAs") (2)

$

4,289

   

$

3,258

   

$

4,713

 

NPLs as a percent of total loans (2)

 

0.27

%

   

0.21

%

   

0.33

%

NPAs as a percent of total assets (2)

 

0.21

%

   

0.16

%

   

0.24

%

ALL as a percent of NPLs (2)

 

313

%

   

398

%

   

262

%

ALL as a percent of total loans

 

0.85

%

   

0.84

%

   

0.86

%

Accruing loans 31 to 90 days past due as a percent of total loans

 

0.09

%

   

0.03

%

   

0.28

%

                         

(1)

The tangible book value per share is calculated by dividing tangible equity by period end common shares outstanding. The tangible capital ratio is calculated by dividing tangible equity by tangible assets.  See our non-GAAP reconciliation titled "Tangible Capital Ratio & Tangible Book Value per Share (Non-GAAP)" on page 7.

(2)

Non-performing loans have been updated to exclude accruing troubled debt-restructured loans.  Prior periods have been reclassified to be consistent with the current period presentation.

 

 

 

Merchants Bancshares, Inc.

Financial Highlights (unaudited)

(Dollars in thousands except share and per share data)

                           
   

For the Three Months Ended

 
   

March 31,

 

December 31,

 

March 31,

 
   

2017

 

2016

 

2016

 

Operating Results

                         

Interest income

                         

Interest and fees on loans

 

$

13,507

   

$

13,170

   

$

12,804

   

Interest and dividends on investments

   

1,836

     

1,752

     

1,997

   

Interest on interest earning deposits with banks and other short-term investments

   

82

     

63

     

81

   

Total interest and dividend income

   

15,425

     

14,985

     

14,882

   

Interest expense

                         

Savings, interest bearing checking and money market accounts

   

471

     

442

     

440

   

Time deposits

   

265

     

295

     

391

   

Total deposits

   

736

     

737

     

831

   

Short-term borrowings

   

140

     

16

     

   

Securities sold under agreement to repurchase, short-term

   

152

     

135

     

109

   

Long-term debt

   

161

     

217

     

210

   

Total interest expense

   

1,189

     

1,105

     

1,150

   

Net interest income

   

14,236

     

13,880

     

13,732

   

Provision for credit losses

   

500

     

200

     

205

   

Net interest income after provision for credit losses

   

13,736

     

13,680

     

13,527

   

Noninterest income

                         

Trust division income

   

824

     

1,164

     

867

   

Net debit card income

   

760

     

802

     

649

   

Overdraft income

   

597

     

638

     

631

   

Service charges on deposits

   

423

     

433

     

415

   

Net gains on investment securities

   

255

     

     

   

Other noninterest income

   

403

     

375

     

362

   

Total noninterest income

   

3,262

     

3,412

     

2,924

   

Noninterest expense

                         

Compensation and benefits

   

5,823

     

5,427

     

6,308

   

Occupancy expense

   

1,101

     

1,128

     

1,139

   

Equipment expense

   

650

     

635

     

719

   

Telephone expense

   

171

     

159

     

198

   

Legal and professional fees

   

414

     

632

     

593

   

Mobile & internet banking

   

346

     

333

     

366

   

Core / Item processing

   

453

     

496

     

517

   

Marketing expenses

   

120

     

206

     

192

   

State franchise taxes

   

399

     

390

     

398

   

FDIC insurance

   

217

     

133

     

254

   

Community Bank System, Inc. merger costs

   

1,302

     

2,543

     

   

NUVO Bank & Trust Company acquisition costs

   

     

     

133

   

Core deposit intangible amortization

   

43

     

51

     

51

   

Other noninterest expense

   

914

     

946

     

1,051

   

Total noninterest expense

   

11,953

     

13,079

     

11,919

   

Income before provision for income taxes

   

5,045

     

4,013

     

4,532

   

Provision for income taxes

   

1,434

     

897

     

1,042

   

Net income

   

3,611

     

3,116

     

3,490

   
                           

Amounts reported for prior periods are reclassified, where necessary, to be consistent with the current period presentation.

 

 

Merchants Bancshares, Inc.

Financial Highlights (unaudited)

(Dollars in thousands except share and per share data)

                           

Ratios and Supplemental Information:

                       
                           
   

For the Three Months Ended

 
   

March 31,

 

December 31,

 

March 31,

 
   

2017

 

2016

 

2016

 

Ratios and Supplemental Information

                         

Weighted average common shares outstanding

   

6,903,801

     

6,886,127

     

6,855,975

   

Weighted average diluted shares outstanding

   

6,928,613

     

6,923,006

     

6,965,886

   

Basic earnings per common share

 

$

0.52

   

$

0.45

   

$

0.51

   

Diluted earnings per common share

 

$

0.52

   

$

0.45

   

$

0.50

   

Return on average assets

   

0.71

%

   

0.62

%

   

0.71

%

 

Return on average stockholders' equity

   

9.06

%

   

7.83

%

   

9.32

%

 

Average yield on loans

   

3.70

%

   

3.67

%

   

3.78

%

 

Average yield on investments

   

1.83

%

   

1.80

%

   

2.01

%

 

Average yield of earning assets

   

3.26

%

   

3.21

%

   

3.28

%

 

Average cost of interest bearing deposits

   

0.34

%

   

0.33

%

   

0.37

%

 

Average cost of borrowed funds

   

0.49

%

   

0.45

%

   

0.45

%

 

Average cost of interest bearing liabilities

   

0.38

%

   

0.37

%

   

0.39

%

 

Net interest rate spread

   

2.88

%

   

2.84

%

   

2.89

%

 

Net interest margin

   

3.02

%

   

2.98

%

   

3.02

%

 

Net interest income on a fully taxable equivalent basis

 

$

14,787

   

$

14,358

   

$

14,265

   

Net (charge-offs) recoveries to average loans

   

(0.01)

%

   

(0.02)

%

   

(0.02)

%

 

Net (charge-offs) recoveries

 

$

(38)

   

$

(66)

   

$

(82)

   

Efficiency ratio (1)

   

57.30

%

   

57.13

%

   

64.27

%

 
                             

(1)  The efficiency ratio excludes amortization of intangibles, OREO expenses, gain/loss on sales of securities, state franchise taxes and any significant nonrecurring items.

 

Tangible Capital Ratio & Tangible Book Value per Share (Non-GAAP):

                       
                         
 

March 31,

 

December 31,

 

March 31,

 
 

2017

 

2016

 

2016

 

Period End

                       

Total assets

$

2,023,544

   

$

2,062,658

   

$

1,963,630

   

Core deposit intangible

 

1,113

     

1,156

     

1,309

   

Goodwill

 

7,011

     

7,011

     

6,872

   

Tangible assets

 

2,015,420

     

2,054,491

     

1,955,449

   
                         

Total stockholders' equity

 

158,648

     

156,503

     

152,601

   

Core deposit intangible

 

1,113

     

1,156

     

1,309

   

Goodwill

 

7,011

     

7,011

     

6,872

   

Tangible stockholders' equity

 

150,524

     

148,336

     

144,420

   
                         

Tangible capital ratio

 

7.47

%

   

7.22

%

   

7.39

%

 
                         

Period end common shares outstanding

 

6,916,443

     

6,887,856

     

6,858,473

   
                         

Tangible book value per share

$

21.76

   

$

21.54

   

$

21.06

   

 

Adjusted Net Income (Non-GAAP):

                   
                     
   

For the Three Months Ended

 
   

March 31,

 

December 31,

 

March 31,

 
   

2017

 

2016

 

2016

 

Adjusted Net Income

                   

Community Bank System, Inc. merger costs

 

$

1,302

 

$

2,543

 

$

 

NUVO Bank & Trust Company acquisition costs

   

   

   

133

 

Severance and retirement costs

   

   

(24)

   

289

 

Tax effect

   

370

   

563

   

97

 

Adjustments, net of tax

 

$

932

 

$

1,956

 

$

325

 
                     

GAAP net income as reported

   

3,611

   

3,116

   

3,490

 

Adjusted net income

 

$

4,543

 

$

5,072

 

$

3,815

 
                     

Weighted average common shares outstanding

   

6,904

   

6,886

   

6,856

 

Weighted average diluted shares outstanding

   

6,929

   

6,923

   

6,966

 
                     

Adjusted basic earnings per common share

 

$

0.66

 

$

0.74

 

$

0.56

 

Adjusted diluted earnings per common share

 

$

0.66

 

$

0.73

 

$

0.55

 

 

Fully Taxable Equivalent Net Interest Income (Non-GAAP):

                   
                     
   

For the Three Months Ended

 
   

March 31,

 

December 31,

 

March 31,

 
   

2017

 

2016

 

2016

 

Fully Taxable Equivalent Net Interest Income

                   

Net interest income

 

$

14,236

 

$

13,880

 

$

13,732

 

Tax equivalent adjustment

   

551

   

478

   

533

 

Fully taxable equivalent net interest income

 

$

14,787

 

$

14,358

 

$

14,265

 

 

Source: SOUTH BURLINGTON, Vt., April 20, 2017 /PRNewswire/ -- Merchants Bancshares, Inc