SOUTH BURLINGTON, Vt., April 20, 2017 /PRNewswire/ — Merchants Bancshares, Inc.  (NASDAQ: MBVT) (the «Company»), 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.

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.

Non-GAAP Financial Measures

In addition to results presented in accordance with generally accepted accounting principles («GAAP»), this press release contains certain non-GAAP financial measures, such as adjusted 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 Company 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 our  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. These statements include, among others, statements regarding our intent, belief or expectations with respect to economic conditions, trends affecting our financial condition or results of operations, and our exposure to market, interest rate and credit risk. 

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 other factors, adverse conditions in the capital and debt markets; changes in interest rates; competitive pressures from other financial institutions and non-bank entities; weakness in general economic conditions on a national basis or in the local markets in which we operate, including changes which adversely affect borrowers’ ability to service and repay our loans; changes in the value of securities and other assets; changes in loan default and charge-off rates; the adequacy of loan loss reserves; reductions in deposit levels necessitating increased borrowing to fund loans and investments; changes in government regulation; failure to obtain the approval of our stockholders in connection with our proposed merger with Community Bank System, Inc. («Community»);  the timing to consummate the proposed merger with Community;  the risk that a condition to closing of the proposed merger may not be satisfied; the risk that a regulatory approval that may be required for the proposed merger is not obtained or is obtained subject to conditions that are not anticipated; the parties’ ability to achieve the synergies and value creation contemplated by the proposed merger; the parties’ ability to successfully integrate operations in the proposed merger; the effect of the announcement of the proposed merger on our ability to maintain relationships with our key partners, customers and employees, and on our operating results and business generally; and changes in assumptions used in making such forward-looking statements, as well as the other 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 («SEC»). 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.

 

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

 

Contact: Jamie Oberle, Merchants Bank, at (802) 865-1603

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SOURCE Merchants Bancshares, Inc.