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Merchants: Third Quarter 2015 Earnings Conference Call

The following excerpt is from the company's SEC filing.

CORPORATE PARTICIPANTS

Michael Tuttle,

President and Chief Executive Officer

Geoffrey Hesslink

President and Chief Executive Officer, Merchants Bank

Thomas Meshako,

Chief Financial Officer

PRESENTATION

Operator

This communication does not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities. On April 27, 2015, Merchants Bancshares, Inc. announced the proposed acquisition of NUVO Bank & Trust Company, headquartered in Springfield, Ma ssachusetts, pursuant to an agreement and plan of the merger, dated as of April 27, 2015. The proposed merger was approved by the shareholders of NUVO at a special meeting of shareholders held on September 30, 2015. Completion of the transaction is expected in the fourth quarter of 2015, subject to satisfaction of customary closing conditions, including receipt of required regulatory approvals

Merchants has filed with the Securities and Exchange Commission a registration statement on Form S-4 to register the securities that it will issue in the merger. Investors and security holders are urged to read the registration statement, including the proxy statement prospectus contained therein describing the proposed merger as well as the other documents filed by Merchants with the SEC, because they contain important information about the merger and the parties to the transaction. You may obtain a free copy of the proxy statement prospectus when available and other related documents filed by Merchants with the SEC at the SEC’s website at www.sec.gov. You may also obtain a free copy of the proxy statement prospectus as well as other filings containing information about Merchants on its website at www.mbvt.com. Copies of the proxy statement prospectus can be obtained without charge by directing a request to Merchants Bancshares, Inc., 275 Kennedy Drive, P.O. Box 1009, South Burlington, Vermont 05402, to the attention of Investor Relations, or by calling Merchants Investor Relations at 802-865-1807.

Good morning, and welcome to the Merchants Bancshares third quarter 2015 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note this event is being recorded.

I would now like to turn the conference over to Michael Tuttle, President and CEO. Please go ahead, sir.

Great. Thank you, and good morning, everyone. I appreciate your taking the time to visit with us. Hopefully, you’ve had a chance to review the release that went out after the market closed yesterday. We were very pleased to be able to announce these results. They demonstrate, as you can see from the numbers, good progress on the revenue front in a number of categories, not only on a linked-quarter basis but also versus the third quarter of ’14.

I am joined here this morning by Geoffrey Hesslink, President and CEO of Merchants Bank, and Tom Meshako, our CFO. They’re going to walk you through the components of our revenue and expenses for Q3 and give you some guidance on what we see coming forward as well, and, at this point, I’m going to turn the call over to Tom so he can start that process with you. He will in turn hand it over to Geoffrey, and, of course, as always, we’re happy to take your questions after we’ve finished our prepared remarks. Tom?

Merchant Bancshares, Inc.

October 27, 2015, at 10:00 AM Eastern

Thank you, Mike. Good morning. The company reported $3.86 million and $10.31 million, or 61 cents and $1.62 per share, for the three and nine months ended September 30, 2015, compared to $2.81 million and $9.62 million, or 44 cents and $1.52 per share, for the three and nine months of 2014. The company’s book value continues to rise. At September 30, it was $20.93 compared to $19.89 at year end 2014.

As of September 30, 2015, compared to December 30 of 2014, the company’s ending loan balances increased by $76 million, or 6.39 percent. Average loans increased $25.4 million on a linked-quarter basis and $82.1 from the quarter ended December 31, 2014. Total commercial loans, defined as commercial real estate, commercial, and commercial construction, grew 18.4 percent on an annualized basis, while at the same time our asset quality remained strong. Non-performing loans were 11 basis points of total loans, and accruing past due 31 to 91 days was one basis point of total loans at September 30, 2015. The continued growth in the loan balances resulted in the bank recording a $150,000 provision for loan losses for the third quarter. At September 30, 2015, the allowance for loan losses represented 0.97 percent of total loans. This is compared to 1 percent at December 31 of 2014 and 1.04 percent at September 30, 2014. As you can see, the coverage ratio has remained strong.

Total customer funding, defined as total deposits plus customer repurchase agreements, ending balances increased by $138 million on a linked-quarter basis and increased $163 million on a year-over-year basis. This increase from the second quarter was due to normal seasonal municipal cash flows and new commercial and municipal account relationships. More importantly, non-maturity average deposits increased $48 million on a linked-quarter basis and $126 million on a year-over-year basis. As time deposits mature, the funds continue to flow into money market accounts. Average deposits on a linked quarter increased $42 million due to the increase in commercial demand deposit accounts, new and existing municipal accounts, and the growth in the cash position of the trust customer balances.

The net interest margin was 2.96 percent for the third quarter, which is up one basis point on a linked-quarter basis. This stable margin is driven by lower interest-earning cash equivalents of $13 million due to loan growth coupled with an increase in investment securities. The net interest income increased $328,000 to $12.07 million on a linked-quarter basis. The non-interest income was $3.45 million in the third quarter of 2015 compared to $2.75 million on a linked quarter. The increase of $700,000 is due to non-recurring miscellaneous income of $440,000 due to a one-time credit we negotiated with a third-party vendor and an increase in overdraft fee income.

Total non-interest expense for the third...


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