Merchants Bancshares, Inc (NASDAQ:MBVT),theparentcompany of Merchants Bank, today announced net income of $2.50 million, or $0.40 per basic and $0.39 per diluted share for the fourth quarter of 2014. This compares to net income of $3.82 million, or $0.61 per basic and $0.60 per diluted share for the fourth quarter of 2013. For the year ended December 31, 2014, net income totaled $12.13 million, or $1.92 per basic and $1.91 per diluted share, compared to net income of $15.13 million, or $2.40 per basic and diluted share for the year ended December 31, 2013. The return on average assets was 0.59% and 0.73% for the three months and year ended December 31, 2014, respectively, compared to 0.91% and 0.90% for the same periods in 2013. The return on average equity was 7.95% and 9.84% for the three months and year ended December 31, 2014, respectively,comparedto13.07%and12.97%forthesameperiodsin2013.The Company's Board of Directors approved a dividend of $0.28 per share, payable February 26, 2015, to shareholders of record as of February 12, 2015.
"This past year the Bank has completed a substantial transition that covered our balance sheet, core operating system and management team. The balance sheet is now more liquid, less exposed to price volatility through the investment portfolio and well positioned to fund loan growth. Our new core operating system will provide a solid platform for growth and ultimately improve service levels. The management team is committed to growing our Company and capitalizing on the opportunities presented with these transitions and realizing a return of the investments we made in 2014. This will take some time and should build throughout 2015," said Michael R Tuttle, Merchants Bancshares, Inc.'s President and Chief Executive Officer.
Pre-tax expenses related to the core conversion project incurred during the quarter and year ended December 31, 2014 were $489 thousand and $1.32 million, respectively, which represented $0.05 and $0.14 per share after tax.
Shareholders' equity ended the quarter at $125.82 million, and the book value per share increased to $19.89 per share at December 31, 2014 from $18.93 at December 31, 2013. Merchants' capital ratios remain strong at December 31, 2014. At December 31, 2014, the Tier 1 leverage ratio increased to 8.65%, total risk-based capital ratio increased to 16.78%, and the tangible capital ratio increased to 7.30% from 8.44%, 16.12% and 6.93%, respectively, at December 31, 2013.
Merchants' taxable equivalent net interest income was $12.02 million and $48.53 million for the three months and year ended December 31, 2014, respectively, compared to $12.74 million and $50.96 million for the same periods in 2013. The taxable equivalent net interest margin decreased ten basis points to 2.93% for the fourth quarter of 2014 from 3.03% for the third quarter of 2014. Year over year, the taxable equivalent net interest margin decreased by twelve basis points. The margin compression during the fourth quarter of 2014 was due primarily to temporarily higher cash balances which negatively affected the margin by seven basis points for the quarter. With the exception of cash and cash equivalents, interest earning assets have remained relatively flat with a quarter to date average balance of $1.58 billion, compared to the average balance of interest earning assets for the quarter ended September 30, 2014. The linked quarter demonstrated an increase in average cash, due to municipal funding. At the same time the loan yields have continued to compress due to the extended low interest rate environment and tighter credit spreads.
Average loan balances for the fourth quarter of 2014 were $1.16 billion, $1.54 million higher than quarterly average balances for the linked quarter ended September, 30 2014. Year to date average loans increased nearly $32 million in 2014 compared to 2013, and the ending loan balance at December 31, 2014 was $16.1 million higher than the ending balance at December 31, 2013. Loan balances reflected increased commercial real estate origination activity concentrated in December.
The following table summarizes the components of the loan portfolio as of the periods indicated:
| (In thousands) | December 31, 2014 | September 30, 2014 | December 31, 2013 |
| Commercial, financial and agricultural | $ 177,597 | $ 183,069 | $ 172,810 |
| Municipal loans | 94,366 | 96,258 | 94,007 |
| Real estate loans - residential | 469,529 | 472,986 | 489,706 |
| Real estate loans - commercial | 428,647 | 381,301 | 371,319 |
| Real estate loans - construction | 7,658 | 17,970 | 31,841 |
| Installment Loans | 4,504 | 4,793 | 5,655 |
| All other loans | 33 | 286 | 895 |
| Total Loans | $ 1,182,334 | $ 1,156,663 | $ 1,166,233 |
Strong credit quality supports Merchants decision for a zero provision for credit losses during the fourth quarter of 2014. The year to date provision for credit losses totaled $150 thousand compared to zero and $800 thousand for the three and twelve months ended December 31, 2013. Nonperforming loans and nonperforming assets were $791 thousand, representing 0.07% of total loans and 0.05% of total assets at the end of 2014.
The average investment portfolio for the fourth quarter of 2014 was $341.27 million, a decrease of $69.21 million from average balances for the fourth quarter of 2013, and decreased by $97.40 million to an annual average of $358.28 million for the year ended December 31, 2014. The ending balance in the investment portfolio at December 31, 2014 was $346.27 million, compared to $332.54 million at September 30, 2014 and $400.84 million at December 31, 2013. The balance of the portfolio at December 31, 2014 included a $2.31 million unrealized gain on the available for sale portion of the investment portfolio, compared to an unrealized loss of ($220) thousand at December 31, 2013. Interest rates have trended down over the course of 2014 which has positively impacted the value of the largely fixed rate investment portfolio.
Average deposits for 2014 were $1.32 billion, a $20.94 million increase compared to average deposits for 2013. Growth in business demand deposits and retail money market categories have been offset by reduced time deposit balances. The quarterly average non-interest bearing deposits increased by $291.12 million compared to the quarter ended December 31, 2013; as previously stated last quarter, we converted certain deposits from interest bearing to non-interest bearing. Average securities sold under agreement to repurchase, which represent collateralized customer accounts, increased by $15.77 million to $228.1 million for the quarter ended December 31, 2014 from $212.31 million for the quarter ended December 31, 2013. Additionally, average securities sold under agreement to repurchase were $75.63 million higher compared to the third quarter of 2014, due to seasonal municipal cash flows.
Total noninterest income for the fourth quarter of 2014 was $2.80 million, a decrease of $72 thousand on a linked quarter basis. Noninterest income for the twelve months ended December 31, 2014 was $11.57 million, compared to $11.63 million for 2013, demonstrating a decrease of $56 thousand. The fourth quarter of 2014 total noninterest income decreased $718 thousand from the fourth quarter of 2013, due to a one-time gain of $898 thousand realized during the fourth quarter of 2013 in conjunction with a sale leaseback transaction, offset by an investment impairment charge of $166 thousand also in the fourth quarter of 2013. Setting aside the net gain in 2013, total noninterest income was consistent at $2.80 million for the three months ended December 31, 2014 and 2013. In 2014, Merchants realized a year-to-date gain on sale of investment securities of $107 thousand. Excluding the net gains experienced in both 2013 and 2014, total noninterest income increased by $454 thousand year to date from 2013. This increase in noninterest income is attributed to bank owned life insurance income, service charges, and trust fees combined to offset decreases in debit card income and overdraft fees. Merchants Trust division income for the quarter remained consistent to the quarter ended September 30, 2014, and increased $331 thousand from the year ended December 31, 2013, as trust division assets under management have continued to show strong growth and now total $637 million.
Total noninterest expense increased $537 thousand to $11.21 million for the fourth quarter of 2014 compared to 2013 and annual expense increased $2.68 million to $42.21 million for 2014 compared to 2013. Excluding the previously mentioned core system conversion costs, total noninterest expense increased $48 thousand to $10.72 million for the fourth quarter of 2014 compared to the same period in 2013 and increased $1.36 million to $40.90 million for 2014 compared to 2013.
- Compensation and benefits increased $428 thousand and $1.27 million for the three months and year ended December 31, 2014, respectively, compared to the same periods in 2013. The increase is partly attributable to severance accruals of $925 thousand for the year ended December 31, 2014, $407 thousand of which occurred in the fourth quarter of 2014. In November and December of 2014, Merchants experienced higher than usual claim volume in the self-funded group health insurance plan. Setting aside severance payments, total compensation and benefits for 2014 would have been $349 thousand higher when compared to 2013, with the remaining variance being due to staffing investments for the Executive, Finance and Risk areas combined with lower credits related to loan originations.
- Occupancy and equipment costs were flat for the fourth quarter of 2014 compared to the fourth quarter of 2013, and were $158 thousand higher on a linked quarter basis. Increases in the annual expense include rent escalations, some upgrades to various branches, as well as new core processing services, previously included in legal and professional fees.
- During the first quarter of 2014 Merchants adopted, Financial Accounting Standards Board Accounting Standards Update 2014-01, "Accounting for Investments in Qualified Affordable Housing Projects" and applied retrospectively and prior periods have been reclassified accordingly. This adoption allows investors in low income housing tax credit entities that meet certain conditions to account for the investments entirely in income tax expense, which more accurately reflects the economics of the investment. The application of this standard reduced total noninterest expense by $327 thousand and $1.31 thousand for the quarter and twelve months ended December 31, 2014, respectively, and by $273 thousand and $1.08 million for the quarter and twelve months ended December 31, 2013, respectively.
Merchants Bancshares' effective tax rate for 2014 was impacted by our adoption of the above-referenced accounting standard noted above, by increasing the effective tax rate, and retrospectively increasing the prior year from 21% to 25% for the twelve months ended December 31, 2013, respectively. The effective tax rate was 20% and 23% for the three months and year ended December 31, 2014.
| Merchants Bancshares, Inc. | ||||||
| Financial Highlights (unaudited) | ||||||
| (Dollars in thousands except share and per share data) | ||||||
| December 31 | September 30 | December 31 | September 30 | |||
| 2014 | 2014 | 2013 | 2013 | |||
| Balance Sheets - Period End | ||||||
| Total assets | $ 1,723,465 | $ 1,647,586 | $ 1,725,469 | $ 1,667,130 | ||
| Loans | 1,182,334 | 1,156,663 | 1,166,233 | 1,165,501 | ||
| Allowance for loan losses ("ALL") | 11,833 | 12,019 | 12,042 | 12,199 | ||
| Net loans | 1,170,502 | 1,144,644 | 1,154,191 | 1,153,302 | ||
| Investments-available for sale, taxable | 203,473 | 186,050 | 252,513 | 269,676 | ||
| Investments-held to maturity, taxable | 138,421 | 142,110 | 140,826 | 136,017 | ||
| Federal Home Loan Bank ("FHLB") stock | 4,378 | 4,378 | 7,496 | 7,496 | ||
| Cash and due from banks | 23,745 | 27,283 | 30,434 | 35,634 | ||
| Interest earning cash and other short-term investments | 130,714 | 92,374 | 85,037 | 21,648 | ||
| Bank owned life insurance | 10,311 | 10,237 | 10,000 | - | ||
| Other assets | 41,922 | 40,510 | 44,972 | 43,357 | ||
| Non-interest bearing deposits | 566,366 | 544,425 | 266,299 | 267,608 | ||
| Savings, interest bearing checking and money market accounts | 530,722 | 525,680 | 752,171 | 745,814 | ||
| Time deposits | 211,684 | 233,976 | 305,106 | 317,824 | ||
| Total deposits | 1,308,772 | 1,304,081 | 1,323,576 | 1,331,246 | ||
| Short-term borrowings | - | - | - | 8,200 | ||
| Securities sold under agreement to repurchase, short-term | 258,464 | 188,157 | 250,314 | 179,490 | ||
| Other long-term debt | 2,320 | 2,341 | 2,403 | 2,423 | ||
| Junior subordinated debentures issued to | ||||||
| unconsolidated subsidiary trust | 20,619 | 20,619 | 20,619 | 20,619 | ||
| Other liabilities | 7,469 | 6,644 | 8,946 | 8,229 | ||
| Shareholders' equity | 125,821 | 125,744 | 119,611 | 116,923 | ||
| Balance Sheets - Quarter-to-Date Averages | ||||||
| Total assets | 1,692,286 | $ 1,642,390 | $ 1,685,103 | $ 1,661,517 | ||
| Loans | 1,163,776 | 1,162,236 | 1,169,935 | 1,154,967 | ||
| Allowance for loan losses | 12,079 | 12,090 | 12,256 | 11,946 | ||
| Net loans | 1,151,697 | 1,150,146 | 1,157,679 | 1,143,021 | ||
| Investments-available for sale, taxable | 196,557 | 191,771 | 265,667 | 310,165 | ||
| Investments-held to maturity, taxable | 140,339 | 144,510 | 137,319 | 109,753 | ||
| FHLB stock | 4,378 | 4,883 | 7,496 | 7,496 | ||
| Cash and due from banks | 26,476 | 27,871 | 29,626 | 27,913 | ||
| Interest earning cash and other short-term investments | 124,913 | 72,400 | 47,624 | 21,700 | ||
| Bank owned life insurance | 10,270 | 10,190 | - | - | ||
| Other assets | 37,657 | 40,619 | 39,692 | 41,469 | ||
| Non-interest bearing deposits | 558,960 | 475,101 | 267,838 | 252,795 | ||
| Savings, interest bearing checking and money market accounts | 529,189 | 612,811 | 744,634 | 772,234 | ||
| Time deposits | 220,114 | 247,297 | 310,817 | 318,795 | ||
| Total deposits | 1,308,263 | 1,335,209 | 1,323,289 | 1,343,824 | ||
| Short-term borrowings | - | 96 | 198 | 26,451 | ||
| Securities sold under agreement to repurchase, short-term | 228,080 | 152,451 | 212,313 | 145,962 | ||
| Other long-term debt | 2,327 | 2,348 | 2,409 | 2,430 | ||
| Junior subordinated debentures issued to | ||||||
| unconsolidated subsidiary trust | 20,619 | 20,619 | 20,619 | 20,619 | ||
| Other liabilities | 7,139 | 7,250 | 9,297 | 8,150 | ||
| Shareholders' equity | 125,858 | 124,417 | 116,978 | 114,081 | ||
| Earning assets | 1,629,963 | 1,575,800 | 1,628,041 | 1,604,081 | ||
| Interest bearing liabilities | 1,000,329 | 1,035,622 | 1,290,990 | 1,286,491 | ||
| Ratios and Supplemental Information - Period End | ||||||
| Book value per share | $ 20.91 | $ 20.87 | $ 19.94 | $ 19.50 | ||
| Book value per share (1) | $ 19.89 | $ 19.86 | $ 18.93 | $ 18.53 | ||
| Tier I leverage ratio | 8.65% | 8.95% | 8.44% | 8.42% | ||
| Total risk-based capital ratio | 16.78% | 17.29% | 16.12% | 16.13% | ||
| Tangible capital ratio (2) | 7.30% | 7.63% | 6.93% | 7.01% | ||
| Period end common shares outstanding (1) | 6,327,226 | 6,329,958 | 6,318,708 | 6,311,332 | ||
| Credit Quality - Period End | ||||||
| Nonperforming loans ("NPLs") | 791 | $ 732 | $ 906 | $ 2,684 | ||
| Nonperforming assets ("NPAs") | 791 | $ 732 | $ 1,015 | $ 2,707 | ||
| NPLs as a percent of total loans | 0.07% | 0.06% | 0.08% | 0.23% | ||
| NPAs as a percent of total assets | 0.05% | 0.04% | 0.06% | 0.16% | ||
| ALL as a percent of NPLs | 1496% | 1642% | 1329% | 455% | ||
| ALL as a percent of total loans | 1.00% | 1.04% | 1.03% | 1.05% | ||
| (1) This book value and period end common shares outstanding includes 308,670, 304,119, 319,854; and 314,956 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 equityis the same as our shareholder's equity. | ||||||
| Merchants Bancshares, Inc. | ||
| Financial Highlights (unaudited) | ||
| (Dollars in thousands except share and per share data) | ||
| For the Twelve Months Ended | ||
| 31-Dec | ||
| 2014 | 2013 | |
| Balance Sheets - Year-to-Date Averages | ||
| Total assets | $ 1,667,666 | $ 1,677,342 |
| Loans | 1,165,586 | 1,133,637 |
| Allowance for loan losses | 12,123 | 11,935 |
| Net loans | 1,153,463 | 1,121,702 |
| Investments-available for sale, taxable | 208,169 | 385,604 |
| Investments-held to maturity, taxable | 144,322 | 62,457 |
| FHLB stock | 5,784 | 7,618 |
| Cash and due from banks | 27,351 | 27,087 |
| Interest earning cash and other short-term investments | 79,599 | 27,909 |
| Bank owned life insurance | 10,150 | 10,000 |
| Other assets | 38,827 | 34,965 |
| Non-interest bearing deposits | 393,355 | 246,011 |
| Savings, interest bearing checking and money market accounts | 668,815 | 731,476 |
| Time deposits | 258,220 | 321,962 |
| Total deposits | 1,320,390 | 1,299,449 |
| Short-term borrowings | 212 | 17,260 |
| Securities sold under agreement to repurchase, short-term | 192,868 | 212,644 |
| Other long-term debt | 2,358 | 2,439 |
| Junior subordinated debentures issued to | ||
| unconsolidated subsidiary trust | 20,619 | 20,619 |
| Other liabilities | 7,936 | 8,291 |
| Shareholders' equity | 123,283 | 116,640 |
| Earning assets | 1,603,460 | 1,617,225 |
| Interest bearing liabilities | 1,143,093 | 1,306,400 |
| Merchants Bancshares, Inc. | |||||
| Financial Highlights (unaudited) | |||||
| (Dollars in thousands except share and per share data) | |||||
| For the Three Months Ended | For the Twelve Months Ended | ||||
| December 31 | September 30 | December 31 | December 31 | December 31 | |
| 2014 | 2014 | 2013 | 2014 | 2013 | |
| Operating Results | |||||
| Interest income | |||||
| Interest and fees on loans | $ 10,655 | $ 10,642 | $ 11,123 | $ 42,815 | $ 43,987 |
| Interest and dividends on investments | 1,902 | 1,922 | 2,293 | 8,157 | 9,980 |
| Total interest and dividend income | 12,557 | 12,564 | 13,416 | 50,972 | 53,967 |
| Interest expense | |||||
| Deposits | 732 | 803 | 928 | 3,372 | 3,350 |
| Securities sold under agreement to repurchase and other short-term borrowings | 111 | 62 | 97 | 353 | 914 |
| Long-term debt | 202 | 201 | 204 | 800 | 806 |
| Total interest expense | 1,045 | 1,066 | 1,229 | 4,525 | 5,070 |
| Net interest income | 11,512 | 11,498 | 12,187 | 46,447 | 48,897 |
| Provision for credit losses | - | - | 150 | 800 | |
| Net interest income after provision for credit losses | 11,512 | 11,498 | 12,187 | 46,297 | 48,097 |
| Noninterest income | |||||
| Trust division income | 856 | 856 | 784 | 3,393 | 3,062 |
| Service charges on deposits | 392 | 331 | 320 | 1,369 | 1,231 |
| Debit card income, net | 645 | 678 | 761 | 2,660 | 2,875 |
| Overdraft income | 554 | 639 | 680 | 2,473 | 2,758 |
| Gain (losses) on investment securities, net | - | (37) | - | 107 | (12) |
| Other-than-temporary impairment losses on securities | - | - | (166) | - | (166) |
| Gain (losses) on sale of other assets | - | - | 884 | 794 | |
| Other noninterest income | 356 | 409 | 261 | 1,574 | 1,088 |
| Total noninterest income | 2,804 | 2,876 | 3,522 | 11,574 | 11,630 |
| Noninterest expense | |||||
| Compensation and benefits | 5,534 | 5,145 | 5,106 | 20,439 | 19,165 |
| Occupancy and equipment expenses | 2,201 | 2,042 | 2,204 | 8,411 | 8,057 |
| Legal and professional fees | 549 | 679 | 754 | 2,560 | 2,755 |
| Marketing expenses | 294 | 422 | 449 | 1,218 | 1,429 |
| State franchise taxes | 339 | 340 | 357 | 1,435 | 1,439 |
| FDIC insurance | 207 | 218 | 217 | 857 | 872 |
| Conversion costs | 489 | 442 | - | 1,319 | - |
| Other noninterest expense | 1,593 | 1,436 | 1,590 | 5,975 | 5,817 |
| Total noninterest expense | 11,206 | 10,725 | 10,669 | 42,213 | 39,534 |
| Income before provision for income taxes | 3,111 | 3,649 | 5,040 | 15,657 | 20,193 |
| Provision for income taxes | 608 | 843 | 1,217 | 3,531 | 5,062 |
| Net income | $ 2,503 | $ 2,806 | $ 3,823 | $ 12,125 | $ 15,131 |
| Ratios and Supplemental Information | |||||
| Weighted average common shares outstanding | 6,330,244 | 6,329,081 | 6,315,936 | 6,326,142 | 6,302,494 |
| Weighted average diluted shares outstanding | 6,347,281 | 6,344,834 | 6,330,303 | 6,343,837 | 6,315,936 |
| Basic earnings per common share | $ 0.40 | $ 0.44 | $ 0.61 | $ 1.92 | $ 2.40 |
| Diluted earnings per common share | $ 0.39 | $ 0.44 | $ 0.60 | $ 1.91 | $ 2.40 |
| Return on average assets | 0.59% | 0.68% | 0.91% | 0.73% | 0.90% |
| Return on average shareholders' equity | 7.95% | 9.02% | 13.07% | 9.84% | 12.97% |
| Average yield on loans | 3.81% | 3.81% | 3.95% | 3.85% | 4.06% |
| Average yield on investments | 2.12% | 2.19% | 2.19% | 2.22% | 2.18% |
| Average yield of earning assets | 3.18% | 3.29% | 3.40% | 3.31% | 3.46% |
| Average cost of interest bearing deposits | 0.39% | 0.37% | 0.34% | 0.36% | 0.32% |
| Average cost of borrowed funds | 0.50% | 0.60% | 0.51% | 0.53% | 0.68% |
| Average cost of interest bearing liabilities | 0.41% | 0.41% | 0.37% | 0.40% | 0.39% |
| Net interest rate spread | 2.77% | 2.88% | 3.03% | 2.91% | 3.07% |
| Net interest margin | 2.93% | 3.03% | 3.10% | 3.03% | 3.15% |
| Net interest income on a fully taxable equivalent basis | $ 12,023 | $ 12,007 | $ 12,735 | $ 48,526 | $ 50,955 |
| Net recoveries (charge-offs) to Average Loans | (0.02)% | (0.02)% | (0.01)% | (0.01)% | (0.03)% |
| Net recoveries (charge-offs) | $ (67) | $ (48) | $ (162) | $ (164) | $ (283) |
| Efficiency ratio (1) | 65.46% | 64.10% | 66.20% | 63.94% | 1.28% |
| (1) The efficiency ratio excludes amortization of intangibles, OREO expenses, gain/loss on sales of securities, state franchise taxes, and any significant nonrecurring items. | |||||
| Note: As of December 31, 2014, Merchants Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $8.77 million. | |||||
| Amounts reported for prior periods are reclassified, where necessary, to be consistent with the current period presentation. | |||||
Michael R. Tuttle, Merchants Bancshares, Inc.'s President and Chief Executive Officer, Geoffrey R. Hesslink, Merchants Bank's President and Chief Executive Officer, and Thomas J. Meshako, Merchants' Senior Vice President and Chief Financial Officer, hosted a conference call to discuss these earnings results, business and outlook at 9:00 a.m. Eastern Time on Friday, January 30, 2015. A replay will be available until 9:00 a.m. Eastern Time on Monday, February 9, 2015. The U.S. replay dial-in telephone number is (877) 344-7529. The Canada 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 10057162. Additionally, a recording of the call will be available on Merchants website at www.mbvt.com
Established in 1849, Merchants Bank is the largest Vermont-based bank, independently and locally operated. Consumer, business, municipal and investment customers enjoy personalized relationships, sophisticated online and mobile banking options, and 32 branches statewide. Merchants Bank (Member FDIC, Equal Housing Lender, NASDAQ "MBVT") and Merchants Trust Company employ approximately 287 full-time employees and 27 part-time employees statewide, and have earned several "Best Places to Work in Vermont" awards. American Banker ranks Merchants Bank a "Top 200" in America among 851 peers. www.mbvt.com
Source: SOUTH BURLINGTON, Vt., Jan. 29, 2015 /PRNewswire/ --Merchants Bancshares, Inc