Merchants Bancshares announces dividend and Q1 2016 results

Submitted by tim on Thu, 04/28/2016 - 12:41

Merchants Bancshares, Inc (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.49 million, or $0.51 per basic share and $0.50 per diluted share for the first quarter of 2016. Excluding merger costs and severance expense, net of tax, the company's core net income was $3.82 million or $0.56 per basic share and $0.55 per diluted share. This compares to core net income of $3.94 million or $0.61 per basic and diluted share on a linked quarter basis.

The return on average assets was 0.71% for the three months ended March 31, 2016, compared to 0.78% for the same period in 2015. The return on average equity was 9.32% for the three months ended March 31, 2016, compared to 10.56% for the same period in 2015. The Company's Board of Directors approved a dividend of $0.28 per share, payable May 26, 2016, to stockholders of record as of May 12, 2016.

Geoffrey Hesslink, Merchants Bancshares, Inc.'s President and Chief Executive Officer commented, "This quarter we completed the integration of NUVO Bank into Merchants with a very successful systems conversion. Further we are seeing benefits of the roll out of Merchants deposit pricing to customers in the Springfieldmarket. Our material merger related expenses and activities are behind us and we are focused on serving our new customers and growing our business in western Massachusetts." Hesslink also noted, "Competitive loan markets and the current interest rate environment present industry challenges. We remain disciplined with our credit and return standards. We are confident this discipline will benefit our stockholders over the long term."

First Quarter 2016 Financial Highlights

Balance Sheet:

The investment portfolio ended the first quarter of 2016 at $413.3 million, an increase of $6.4 million from the fourth quarter of 2015 and an increase of $25.7 million from the first quarter of 2015.
Loans at March 31, 2016 totaled $1.4 billion, an increase of $7.3 million on a linked quarter basis. Total commercial loans, defined as commercial, commercial real estate and construction, increased $15.9 million, while residential real estate and installment loans decreased $7.4 million and $1.1 million, respectively. Loan balances increased $221.4 million from the first quarter of 2015, which reflects organic growth and the acquired NUVO loan portfolio which totaled $146.7 million at March 31, 2016.
The allowance for loan losses ("ALL") as of March 31, 2016 was $12.2 million, or 0.86% of gross loans, compared to $12.0 million, or 0.85% of gross loans, on a linked quarter basis and $12.0 million, or 1.00% of gross loans, as of March 31, 2015. ALL as a percentage of gross loans remained flat on a linked quarter basis. The decrease in ALL as a percentage of gross loans from the first quarter in 2015 was due to the increase in loan balances acquired from NUVO Bank & Trust Company ("NUVO"). These loans were acquired at fair value on the acquisition date.
Total deposits were $1.5 billion for the first quarter of 2016, a decrease of $24.7 million on a linked quarter basis and an increase of $197.0 million from the first quarter of 2015. The decrease on a linked quarter basis was primarily attributable to maturing NUVO time deposits. The increase from the first quarter of 2015 was due to higher retail and trust account deposits as well as the acquired NUVO deposits.
Total stockholders' equity ended the quarter at $152.6 million. The tangible book value per share atMarch 31, 2016 was $21.06 per share, an increase of $0.68 from $20.38 at December 31, 2015. The major components of the linked quarter increase were $0.51 of earnings and $0.41 mark to market securities gains, offset by $0.28 of dividends paid.

Income Statement:

Net interest income on a fully-taxable basis was $14.27 million for the three months ended March 31, 2016, compared to $13.25 million for the quarter ending December 31, 2015, and $12.06 million for the same period in 2015. The increases in net interest income reflect higher loan balances.
The Company recorded a $205 thousand provision for credit losses during the first quarter of 2016 reflecting a modest decline in credit quality. The full year 2015 provision for credit losses was $250 thousand.
Noninterest income for the first quarter of 2016 was $2.9 million, a decrease of $163.0 thousand on a linked quarter basis and an increase of $254 thousand from the first quarter of 2015. The decrease on a linked quarter basis was attributable to lower debit card and other fee income. The increase from the first quarter of 2015 was due to higher service charges on deposit accounts.
Excluding merger, severance and retirement costs, noninterest expense was $11.5 million for the first quarter of 2016, an increase of $644 thousand on a linked quarter basis which is primarily attributable to a full quarter of operating as a combined entity with NUVO.
The effective tax rate was 23% for the three months ended March 31, 2016, compared to 20% for three months ended December 31, 2015, and 21% for the first quarter of 2015. The increase in the effective tax rate on a linked quarter basis and from the first quarter of 2015 reflects reduced Low Income Housing Partnership tax credits.

Other Items:

The taxable equivalent net interest margin for the three months ended March 31, 2016 was 3.02%, an increase of 13 basis points on a linked quarter basis. This increase reflects the impact of a full quarter of NUVO loans which were accretive to loan yield and a more favorable asset mix, partially offset by a full quarter impact of NUVO deposits.
Nonperforming loans were $4.85 million, or 0.34% of total loans, at March 31, 2016, compared to 0.30% of total loans at December 31, 2015 and 0.11% of total loans at March 31, 2015. Total nonperforming loans increased $652 thousand on a linked quarter basis. This increase is attributed to the loan portfolio acquired with NUVO.
Regulatory Capital Ratios at March 31, 2016:
- Common Equity Tier 1 – 12.95%
- Tier 1 Leverage – 8.53%
- Total Risk-Based Capital – 15.85%
- Tangible Capital – 7.39%

Geoffrey R. Hesslink, President and Chief Executive Officer, Eric A. Segal, Interim PFO, PAO and Treasurer, and Marie Thresher, Executive Vice President and Chief Operating Officer, will host a conference call to discuss these earnings results, business and outlook at 10:00 a.m. Eastern Time on Friday, April 29, 2016. Interested parties may participate in the conference call by dialing U.S. number (866) 218-2405, Canada number (855) 669-9657, or international number (412) 902-4124. The title of the call is Merchants Bancshares, Inc. Q1 2016 Earnings Call. Participants are asked to call a few minutes prior to register. A replay will be available until 12:01 a.m. Eastern Time on Friday, May 13, 2016. The U.S. replay dial-in telephone number is (877) 344-7529. TheCanada replay telephone number is (855) 669-9658, the international replay telephone number is (412) 317-0088. The replay access code for all replay telephone numbers is 10068680. Additionally, a recording of the call will be available on Merchants 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,
	2016		2015		2015
Balance Sheets - Period End
Total assets	$	1,963,630	$	2,021,237	$	1,694,985
Cash and due from banks		27,586		30,605		25,627
Interest earning cash and other short-term investments		38,054		104,578		42,292
Fed funds sold		15,000		15,000		—
Investments-available for sale, taxable		294,048		283,454		248,987
Investments-held to maturity, taxable		115,392		119,674		134,245
Loans		1,421,603		1,414,280		1,200,170
Allowance for loan losses ("ALL")		12,173		12,040		11,989
Net loans		1,409,430		1,402,240		1,188,181
Federal Home Loan Bank ("FHLB") stock		3,863		3,797		4,378
Bank premises and equipment, net		14,532		15,030		15,581
Bank owned life insurance		10,606		10,551		10,372
Goodwill		6,872		6,967		—
Investment in real estate limited partnerships		5,827		5,687		5,470
Core deposit intangible		1,309		1,360		—
Other assets		21,111		22,294		19,852
Non-interest bearing deposits		620,190		631,244		583,486
Savings, interest bearing checking and money market accounts		677,600		665,623		541,878
Time deposits		228,998		254,572		204,433
Total deposits		1,526,788		1,551,439		1,329,797
Securities sold under agreement to repurchase, short-term		249,003		286,639		206,386
Other long-term debt		4,716		5,238		2,300
Junior subordinated debentures issued to unconsolidated subsidiary trust		20,619		20,619		20,619
Other liabilities		9,903		9,248		7,422
Stockholders' equity		152,601		148,054		128,461

Balance Sheets - Quarter-to-Date Averages
Total assets	$	1,973,472	$	1,891,143	$	1,718,309
Cash and due from banks		31,058		28,380		25,478
Interest earning cash and other short-term investments		74,294		106,681		102,394
Investments-available for sale, taxable		279,327		279,416		225,277
Investments-held to maturity, taxable		117,390		122,924		136,404
Loans		1,417,710		1,306,613		1,187,278
Allowance for loan losses		12,073		12,269		11,892
Net loans		1,405,637		1,294,344		1,175,386
FHLB stock		3,784		3,571		4,378
Bank owned life insurance		10,571		10,515		10,334
Other assets		51,411		45,312		38,658
Non-interest bearing deposits		616,553		610,499		582,573
Savings, interest bearing checking and money market accounts		671,823		632,481		540,846
Time deposits		239,818		210,527		207,849
Total deposits		1,528,194		1,453,507		1,331,268
Securities sold under agreement to repurchase, short-term		259,999		268,614		230,113
Other long-term debt		4,833		3,255		2,307
Junior subordinated debentures issued to unconsolidated subsidiary trust		20,619		20,619		20,619
Other liabilities		9,973		7,972		7,708
Stockholders' equity		149,854		137,176		126,294
Earning assets		1,892,505		1,819,205		1,655,731
Interest bearing liabilities		1,197,092		1,135,496		1,001,734

Merchants Bancshares, Inc.
Financial Highlights (unaudited)
(Dollars in thousands except share and per share data)


	March 31,			December 31,			March 31,
	2016			2015			2015
Ratios and Supplemental Information - Period End
Book value per share	$	22.25		$	21.59		$	20.30
Tangible book value per share	$	21.06		$	20.38		$	20.30
Common Equity Tier 1		12.95	%		12.86	%		13.85	%
Tier I leverage ratio		8.53	%		8.77	%		8.95	%
Total risk-based capital ratio		15.85	%		15.77	%		17.17	%
Tangible capital ratio (1)		7.39	%		6.94	%		7.58	%
Period end common shares outstanding		6,858,473			6,855,294			6,328,818

Credit Quality - Period End
Nonperforming loans ("NPLs")	$	4,847		$	4,195		$	1,298
Nonperforming assets ("NPAs")	$	4,918		$	4,207		$	1,298
NPLs as a percent of total loans		0.34	%		0.30	%		0.11	%
NPAs as a percent of total assets		0.25	%		0.21	%		0.08	%
ALL as a percent of NPLs		251	%		287	%		924	%
ALL as a percent of total loans		0.86	%		0.85	%		1.00	%
______________________________________
(1) The tangible capital ratio is calculated by dividing tangible equity by tangible assets. See Non-GAAP reconciliation on page 7.

	March 31,		December 31,		March 31,
	2016		2015		2015
Loan Portfolios- Period End
Commercial, financial and agricultural	$	247,074	$	237,451	$	195,782
Municipal loans		105,433		105,421		91,410
Real estate loans - commercial		556,836		558,004		419,500
Real estate loans - residential		461,009		468,443		461,459
Real estate loans - construction		42,209		34,802		28,512
Installment Loans		9,009		10,115		3,454
All other loans		33		44		53
Total Loans	$	1,421,603	$	1,414,280	$	1,200,170

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,
	2016		2015		2015
Operating Results
Interest income
Interest and fees on loans	$	12,804	$	11,609	$	10,623
Interest and dividends on investments		1,997		1,995		1,910
Interest on interest earning deposits with banks and other short-term investments		81		94		73
Total interest and dividend income		14,882		13,698		12,606
Interest expense
Savings, interest bearing checking and money market accounts		440		358		367
Time deposits $100 thousand and greater		118		105		122
Other time deposits		273		232		212
Total deposits		831		695		701
Securities sold under agreement to repurchase and other short-term borrowings		109		108		155
Long-term debt		210		202		197
Total interest expense		1,150		1,005		1,053
Net interest income		13,732		12,693		11,553
Provision for credit losses		205		—		—
Net interest income after provision for credit losses		13,527		12,693		11,553
Noninterest income
Trust division income		867		858		895
Net, debit card income		649		779		693
Overdraft income		631		678		446
Service charges on deposits		415		396		340
Other noninterest income		362		376		296
Total noninterest income		2,924		3,087		2,670
Noninterest expense
Compensation and benefits		6,308		6,133		5,048
Occupancy expense		1,139		1,023		1,143
Equipment expense		719		747		766
Telephone expense		198		179		217
Legal and professional fees		593		596		442
Mobile & internet banking		366		402		386
Core / Item processing		517		476		406
Marketing expenses		192		125		152
State franchise taxes		398		408		286
FDIC insurance		254		233		218
Merger costs		133		1,511		—
Core deposit intangible amortization		51		17		—
Other noninterest expense		1,051		1,042		943
Total noninterest expense		11,919		12,892		10,007
Income before provision for income taxes		4,532		2,888		4,216
Provision for income taxes		1,042		579		880
Net income	$	3,490	$	2,309	$	3,336

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)

	For the Three Months Ended
	March 31,			December 31,			March 31,
	2016			2015			2015
Ratios and Supplemental Information
Weighted average common shares outstanding		6,855,975			6,493,154			6,328,623
Weighted average diluted shares outstanding		6,965,886			6,525,559			6,342,490
Basic earnings per common share	$	0.51		$	0.36		$	0.53
Diluted earnings per common share	$	0.50		$	0.36		$	0.53
Return on average assets		0.71	%		0.49	%		0.78	%
Return on average stockholders' equity		9.32	%		6.73	%		10.56	%
Average yield on loans		3.78	%		3.69	%		3.80	%
Average yield on investments		2.01	%		1.97	%		2.12	%
Average yield of earning assets		3.28	%		3.12	%		3.21	%
Average cost of interest bearing deposits		0.37	%		0.35	%		0.38	%
Average cost of borrowed funds		0.45	%		0.42	%		0.57	%
Average cost of interest bearing liabilities		0.39	%		0.35	%		0.43	%
Net interest rate spread		2.89	%		2.77	%		2.78	%
Net interest margin		3.02	%		2.89	%		2.95	%
Net interest income on a fully taxable equivalent basis	$	14,265		$	13,247		$	12,057
Net (charge-offs) recoveries to average loans		(0.02)	%		(0.01)	%		(0.03)	%
Net (charge-offs) recoveries	$	(82)		$	(43)		$	(76)
Efficiency ratio (1)		64.27	%		63.70	%		65.89	%
______________________________________
(1) The efficiency ratio excludes amortization of intangibles, OREO expenses, gain/loss on sales of securities, state franchise taxes, and any significant nonrecurring items.

Non-GAAP Reconciliation:

	March 31,		December 31,
Core Net Interest Income - Period End	2016		2015
Merger related expenses and retirement costs	$	422	$	2,039
Tax effect		97		408
Merger related expenses and retirement costs, net of tax	$	325	$	1,631

GAAP net income as reported		3,490		2,309
Core net income	$	3,815	$	3,940

Weighted average common shares outstanding		6,856		6,493
Weighted average diluted shares outstanding		6,966		6,526

Core basic earnings per common share	$	0.56	$	0.61
Core diluted earnings per common share	$	0.55	$	0.61

Tangible Capital Ratio:

	March 31,			December 31,			March 31,
Period End	2016			2015			2015
Total assets	$	1,963,630		$	2,021,237		$	1,694,985
Core deposit intangible		1,309			1,360			—
Goodwill		6,872			6,967			—
Tangible assets		1,955,449			2,012,910			1,694,985

Total stockholders' equity		152,601			148,054			128,461
Core deposit intangible		1,309			1,360			—
Goodwill		6,872			6,967			—
Tangible stockholders' equity		144,420			139,727			128,461

Tangible capital ratio		7.39	%		6.94	%		7.58	%

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, such as core net income, tangible capital ratio and fully taxable equivalent net interest income. 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. Merchants Bancshares believes 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. Additionally, capital ratios as presented are preliminary and will not be finalized until the Bank completes and files its regulatory reporting.

Cautionary Note Regarding Forward-Looking Statements

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 Bancshares' 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. Actual results could differ materially from those projected in the forward-looking statements as a result of, among others; costs or difficulties related to the integration of NUVO; weakness in general, national, regional or local economic conditions, the performance of the 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 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 Merchants Bancshares' ability to take appropriate action to protect financial interests in certain loan situations.

You should not place undue reliance on 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 the Annual Report on Form 10-K, as updated by Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Merchants Bancshares' does 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.

SOURCE SOUTH BURLINGTON, Vt., April 28, 2016 /PRNewswire/ -- Merchants Bancshares, Inc.