SOURCE: Merchants Bancshares, Inc.

Merchants Bancshares, Inc.

January 27, 2010 16:31 ET

Merchants Bancshares, Inc. Announces 2009 Results

SOUTH BURLINGTON, VT--(Marketwire - January 27, 2010) - Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $12.48 million or diluted earnings per share of $2.04 for the year ended December 31, 2009. This compares with net income of $11.92 million or diluted earnings per share of $1.96 for the previous year. Merchants earned $3.80 million or diluted earnings per share of $0.62 for the quarter ended December 31, 2009, compared to net income of $3.06 million or diluted earnings per share of $0.51 for the same quarter of the previous year. Merchants previously announced the declaration of a dividend of 28 cents per share, payable February 18, 2010, to shareholders of record as of February 4, 2010.

The return on average assets was 1.07% and 0.91% for the quarter and year ended December 31, 2009, respectively, compared to 0.93% for both the quarter and year ended December 31, 2008. The return on average equity was 16.69% and 14.67% for the quarter and year ended December 31, 2009, respectively, compared to 16.32% and 15.83% the same periods in 2008. "We are very pleased with the results for both the quarter and the year. The year over year improvement in net income and diluted earnings per share in a very challenging economic environment is a great testament to the efforts of our people, and a strong display of confidence in Merchants Bank by our customers," commented Michael R. Tuttle, Merchants' President and Chief Executive Officer.

Merchants' taxable equivalent net interest income increased $6.65 million to $50.38 million for 2009 compared to 2008, a 15.2% increase. Merchants' taxable equivalent net interest margin increased to 3.80% from 3.58% over the same time period. The year over year increase in Merchants' taxable equivalent net interest income was driven by a combination of an increase in average interest earning assets, a shift in the composition of the balance sheet, and lower funding costs during 2009. Merchants' average earning asset base increased $105.93 million to $1.33 billion at an average yield of 5.02% for 2009 compared to $1.22 billion at an average yield of 5.63% for 2008. The decrease in the average rate earned on assets was more than offset by decreases in the cost of interest bearing liabilities, which decreased to 1.40% for 2009 from 2.33% for 2008.

Loans ended 2009 at $918.54 million, a $71.41 million, or 8.4%, increase over 2008 ending balances. The largest increase was in municipal loans, which increased $41.99 million over 2008 ending balances. Residential real estate loans grew $39.44 million, or 10.0%, commercial real estate balances grew $17.21 million, or 6.3%, and commercial loans declined $12.29 million, or 9.7% over 2008 ending balances. Growth in residential real estate loans was driven by the favorable rate environment coupled with the fact that Merchants does not originate these loans for sale. Commercial loans decreased as borrowers accelerated the retirement of debt during this period of reduced economic activity.

Year-end loan balances were as follows:

(In thousands)                        December 31, 2009  December 31, 2008
                                      ------------------ ------------------
Commercial, financial and
 agricultural                         $          113,980 $          126,266
Municipal loans                                   44,753              2,766
Real estate loans - residential                  435,273            395,834
Real estate loans - commercial                   290,737            273,526
Real estate loans - construction                  25,146             40,357
Installment loans                                  7,711              7,670
All other loans                                      938                708
                                      ------------------ ------------------
Total loans                           $          918,538 $          847,127
                                      ================== ==================

Merchants' year-end investment portfolio decreased $25.80 million from 2008 to 2009. Merchants worked to decrease its credit exposure in the non-Agency sector of the investment portfolio during 2009, and sold its entire portfolio of commercial mortgage backed securities and several of its non-Agency CMOs during 2009. Additionally, Merchants sold three of its low coupon 30 year MBS during the last quarter of 2009 for a total gain of $1.15 million. Merchants sold bonds with a total par value of $73.16 million during 2009 for a net gain of $1.22 million. All securities purchased during 2009 were Agency backed paper.

Merchants' year-end deposit balances increased $112.52 million, or 12.1%, to $1.04 billion at December 31, 2009 from $930.80 million at December 31, 2008. All deposit categories grew over 2008 year end balances. Free Checking for Life balances ended 2009 at $234.03 million, a 28.2% increase over year end 2008 balances. Money market accounts ended 2009 at $247.17 million, a 19.4% increase over year end 2008 balances. Time deposits ended 2009 at $394.54 million, a 2.4% increase over year end 2008 balances and represented 37.8% of Merchants' total deposits at December 31, 2009 compared to 41.4% of total deposits at December 31, 2008. Growth in all municipal categories accounted for $25.80 million of total deposit growth during 2009. "It is unusual to see growth in both loans and deposits during a recession, but that is exactly what happened in 2009. Clearly our communities responded to our position as Vermont's only statewide independent bank," commented Mr. Tuttle.

Balances in Merchants' cash management sweep product totaled $178.31 million at December 31, 2009, compared to $92.41 million at December 31, 2008. The balances are included with "Securities sold under agreements to repurchase and other short-term debt" on the accompanying balance sheet. The increase from 2008 to 2009 is primarily a result of strong growth in Merchants' municipal portfolio. Merchants' other long-term debt position decreased to $31.22 million at December 31, 2009 from $118.64 million at December 31, 2008. Merchants prepaid a total of $60.63 million in FHLB debt, at an average rate of 3.74%, over the course of 2009. Merchants incurred a prepayment penalty of $1.55 million in conjunction with the prepayment, Merchants estimates that it earned back approximately 40% of that prepayment penalty during 2009.

The provision for credit losses for 2009 was $4.10 million compared to $1.53 million for 2008. The increased provision expense was the result of a number of factors:

--  As mentioned previously, loans ended 2009 at $918.54 million, a
    $71.41 million, or 8.4% increase over year end 2008.
    
--  Non-accruing loans increased to $14.30 million at December 31, 2009
    from $11.48 million at December 31, 2008, total non-performing loans
    increased to $14.48 million at December 31, 2009 from $11.64 million at
    December 31, 2008.
    
--  Accruing classified loans increased to $16.19 million at December 31,
    2009 from $13.74 million at December 31, 2008, after reaching a high point
    of $37.86 million at June 30, 2009.
    
--  Net charge-offs for 2009 were $1.71 million compared to $564 thousand
    for 2008.
    
--  The prolonged period of high economic uncertainty that existed
    throughout 2009 is projected to continue through much of 2010.
    
Although non-accruing loans increased when comparing 2009 year end balances to 2008 year end balances, the individual loans that make up the balances changed significantly during the course of 2009 as a result of Merchants' active account management process. The following discussion highlights the dynamic nature of these balances:

--  Non-accrual loan balances ended 2008 at $11.48 million.  Balances on
    these loans were reduced significantly during 2009 as a result of $5.67
    million in collections during 2009 combined with $1.09 million in write-
    downs, resulting in ending balances at December 31, 2009 of $4.72 million
    on this group of non-accruing loans.
    
--  New loans totaling $12.37 million were added to non-accrual during
    2009.  Balances on these loans were reduced during 2009 by $2.01 million in
    repayments and $780 thousand in write downs resulting in ending balances at
    December 31, 2009 of $9.58 million on this group of non-accruing loans.
    
--  The total December 31, 2009 ending balance of $14.30 million in non-
    accruing loans consists of $4.72 million in net balances that have been on
    non-accruing for more than one year, and $9.58 million in net balances that
    were added during 2009.
    

The additions to non-accrual reflected management's concerns regarding fundamental credit issues which could affect borrowers' ability to repay the loans and not, in most cases, as a result of payment delinquencies. Of the total non-accruing loans at year-end 2009, approximately 77% were attributable to six borrowers. Approximately $4.65 million of total classified loans carry some form of government guarantee. "Asset quality will remain a major focus for us in 2010. We have made good progress in reducing the non-accrual balances that started the year and also have detailed plans to reduce the December 31, 2009 balances during the course of 2010," stated Mr. Tuttle.

Merchants' noninterest income increased $1.66 million to $10.32 million for 2009 compared to $8.66 million for 2008. Excluding gains (losses) on security transactions, Merchants' noninterest income increased $151 thousand to $9.10 million from $8.95 million for 2009 compared to 2008. Trust Company income continued to decrease through the first three quarters of 2009 compared to 2008, but was higher for the fourth quarter of 2009 compared to the fourth quarter of 2008. Although the value of Trust Company assets under management has rebounded during 2009, values have not returned to their early 2008 levels. Service charges on deposits were $234 thousand higher in 2009 than 2008, primarily a result of slightly higher net overdraft fee revenue. Merchants' expense related to Equity in Losses of Real Estate Limited Partnerships increased to $2.05 million for 2009 compared to $1.85 million for 2008 as Merchants continued its support of affordable housing in Vermont. Some of these partnerships generate historic rehabilitation credits which helped to reduce Merchants' effective tax rate for 2009 to 23.1% compared to 24.0% for 2008. Other non-interest income was positively impacted by a gain of $180 thousand on the sale of Merchants' Windsor, VT office.

Total noninterest expense increased 14.2% to $40.10 million from $35.10 million for 2009 compared to 2008. There are several reasons for this increase:

--  Salaries and wages increased $780 thousand, or 5.7%, to $14.51 million
    compared to $13.73 million for 2009 compared to 2008.  Normal pay increases
    and a $149 thousand higher incentive payout for 2009 compared to 2008
    combined with additional staff hired in the corporate banking, government
    banking and trust areas contributed to the increase over the prior period.
    
--  Employee benefits increased $475 thousand, or 12.3%, to $4.35 million
    from $3.87 million for 2009 compared to 2008.  The largest year-over-year
    increase was Merchants' pension plan expense, which increased $391 thousand
    when comparing 2009 to 2008.  The increases in the remaining categories are
    directly related to salary increases during 2009.
    
--  Merchants' total FDIC insurance expense increased $1.61 million to $1.96
    million for 2009 compared to $356 thousand in 2008. Merchants recorded a
    $630 thousand expense related to the FDIC's special assessment during the
    second quarter of 2009.  Additionally, Merchants' regular FDIC insurance
    assessment, excluding the special assessment, increased $978 thousand to
    $1.33 million for 2009, compared to 2008, due to both an increase in the
    FDIC's assessment rates and an increase in deposits.
    
--  Other noninterest expense increased $1.87 million, or 31.7%, to $7.76
    million from $5.89 million for 2009 compared to 2008. There were a number
    of reasons for this increase.  As mentioned previously, Merchants prepaid
    $60.63 million in FHLB debt during 2009, resulting in a $1.55 million
    prepayment penalty. Expenses related to problem loans and OREO totaled $292
    thousand for 2009 compared to $25 thousand for 2008. Additionally,
    Merchants' correspondent bank service charges have increased to $414
    thousand for 2009, compared to $247 thousand for 2008. The large increases
    are a result of increased fees being passed on to Merchants by its primary
    correspondent bank, and a result of the very low interest rate environment.
    Merchants' expenses related to Internet banking and its Cash Rewards
    Checking product were $225 thousand higher for 2009 compared to 2008.  At
    the same time Merchants reduced losses related to fraudulent activity by
    $225 thousand during 2009. Most categories of operating expenses increased
    for 2009 compared to 2008.
    

Mr. Michael Tuttle, Merchants' President and Chief Executive Officer; and Ms. Janet Spitler, Merchants' Chief Financial Officer, will host a conference call to discuss these earnings results at 9:30 a.m. Eastern Time on Friday, January 29, 2010. Interested parties may participate in the conference call by dialing (800) 230-1074; the title of the call is Earnings Release for Merchants Bancshares, Inc. Participants are asked to call a few minutes prior to register. A replay will be available until noon on Friday, February 5, 2010. The U.S. replay dial-in telephone number is (800) 475-6701. The international replay telephone number is (320) 365-3844. The replay access code for both replay telephone numbers is 143115.

Vermont Matters. Merchants Bank strives to fulfill its role as the state's leading independent community bank through a wide range of initiatives. The bank supports organizations throughout Vermont in addressing essential needs, sustaining community programs, providing small business and job start capital, funding financial literacy education and delivering enrichment through local sports activities.

Merchants Bank was established in 1849 in Burlington, Vermont. Its continuing mission is to provide Vermonters with a statewide community bank that combines a strong technology platform with a genuine appreciation for local markets. Merchants Bank delivers this commitment through a branch-based system that includes: 34 community bank offices and 42 ATMs throughout Vermont; local branch presidents and personal bankers dedicated to high-quality customer service; free online banking, phone banking, and electronic bill payment services; high-value depositing programs that feature Free Checking for Life®, Cash Rewards Checking, Rewards Checking for Business, business cash management, money market accounts, health savings accounts, certificates of deposit, Flexible CD, IRAs, and overdraft assurance; feature-rich loan programs including mortgages, home equity credit, vehicle loans, personal and small business loans and lines of credit; and merchant card processing. Merchants Bank offers a strong set of commercial and government banking solutions, delivered by experienced banking officers in markets throughout the state; these teams provide customized financing for medium-to-large companies, non-profits, cities, towns, and school districts. Merchants Trust Company, a division of Merchants Bank, provides investment management, financial planning and trustee services. Please visit www.mbvt.com for access to Merchants Bank information, programs, and services. Merchants' stock is traded on the NASDAQ National Market system under the symbol MBVT. Member FDIC. Equal Housing Lender.

Some of the statements contained in this press release may constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. The forward-looking statements reflect Merchants' current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause Merchants' actual results to differ significantly from those expressed in any forward-looking statement. Forward-looking statements should not be relied on since they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond Merchants' control and which could materially affect actual results. The factors that could cause actual results to differ materially from current expectations include changes in general economic conditions in Vermont, changes in interest rates, changes in competitive product and pricing pressures among financial institutions within Merchants' markets, and changes in the financial condition of Merchants' borrowers. The forward-looking statements contained herein represent Merchants' judgment as of the date of this release, and Merchants cautions readers not to place undue reliance on such statements. For further information, please refer to Merchants' reports filed with the Securities and Exchange Commission.


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


                             12/31/09    09/30/09    12/31/08    09/30/08
                            ----------- ----------- ----------- -----------
Balance Sheets - Period End
Total assets                $ 1,435,248 $ 1,405,994 $ 1,341,210 $ 1,317,312
Loans                           918,538     929,236     847,127     814,598
Allowance for loan losses
 ("ALL")                         10,976      11,177       8,894       8,367
Net loans                       907,562     918,059     838,233     806,231
Securities available for
 sale                           404,652     353,842     429,872     436,021
Securities held to maturity       1,159       1,306       1,737       3,174
Federal Home Loan Bank
 ("FHLB") stock                   8,630       8,630       8,523       8,403
Federal funds sold and
 other short-term
 investments                     10,270      10,260         111         111
Other assets                    102,975     113,897      62,734      63,372
Deposits                      1,043,319   1,030,802     930,797     949,521
Securities sold under
 agreement to repurchase
 and other short-term debt      179,718     122,421     124,408      89,298
Securities sold under
 agreement to repurchase,
 long-term                       54,000      54,000      54,000      54,000
Other long-term debt             31,215      68,698     118,643     117,758
Junior subordinated
 debentures issued to
 unconsolidated subsidiary
 trust                           20,619      20,619      20,619      20,619
Other liabilities                15,365      19,069      13,046       9,295
Shareholders' equity             91,012      90,385      79,697      76,821
Balance Sheets -
 Quarter-to-Date Averages
Total assets                $ 1,412,900 $ 1,394,457 $ 1,320,845 $ 1,307,023
Loans                           920,846     922,704     825,395     800,126
Allowance for loan losses        11,510      10,958       8,596       8,509
Net loans                       909,336     911,746     816,799     791,617
Securities available for
 sale and FHLB stock            371,059     367,979     436,712     446,688
Securities held to maturity       1,224       1,374       2,187       2,909
Federal funds sold and
 other short-term
 investments                     63,553      53,576       2,420       5,664
Other assets                     67,728      59,782      62,727      60,145
Deposits                      1,037,955   1,026,527     946,534     947,674
Securities sold under
 agreement to repurchase
 and  other short-term debt     148,282     115,447      96,736      82,794
Securities sold under
 agreement to repurchase,
 long-term                       54,000      54,000      54,000      72,913
Other long-term debt             46,097      79,107     117,996      99,355
Junior subordinated
 debentures issued to
 unconsolidated subsidiary
 trust                           20,619      20,619      20,619      20,619
Other liabilities                14,999      13,209       9,845       9,979
Shareholders' equity             90,948      85,548      75,115      73,689
Interest earning assets       1,356,682   1,345,633   1,266,714   1,255,387
Interest bearing
 liabilities                  1,180,087   1,179,117   1,110,612   1,100,447


                             12/31/09    09/30/09    12/31/08    09/30/08
                            ----------- ----------- ----------- -----------

Ratios and Supplemental
 Information - Period End
Book value per share        $    15.65  $    15.55  $    13.89  $    13.40
Book value per share (1)    $    14.82  $    14.74  $    13.15  $    12.70
Tier I leverage ratio             7.67%       7.60%       7.42%       7.50%
Tangible capital ratio (2)        6.34%       6.43%       5.94%       5.83%
Period end common shares
 outstanding (1)             6,141,823   6,131,175   6,061,182   6,049,720
Credit Quality - Period End
Nonperforming loans
 ("NPLs")                   $   14,481  $   10,584  $   11,643  $   11,594
Nonperforming assets
 ("NPAs")                   $   15,136  $   11,386  $   12,445  $   11,594
NPLs as a percent of total
 loans                            1.58%       1.14%       1.37%       1.42%
NPAs as a percent of total
 assets                           1.05%       0.81%       0.93%       0.88%
ALL as a percent of NPLs            76%        106%         76%         72%
ALL as a percent of total
 loans                            1.19%       1.20%       1.05%       1.03%

(1) This book value and period end common shares outstanding includes
    326,453; 320,371; 323,754; and 317,161 Rabbi Trust shares for the
    periods noted above, respectively.
(2) The tangible capital ratio is a non-GAAP financial measure which we
    believe provides investors with information that is useful in
    understanding our financial performance.



                                                         December 31,
                                                       2009        2008
                                                    ----------- -----------
Balance Sheets - Year to-Date Averages
Total assets                                        $ 1,376,441 $ 1,277,242
Loans                                                   901,582     781,645
Allowance for loan losses                                10,430       8,415
Net loans                                               891,152     773,230
Securities available for sale and FHLB stock            386,772     425,038
Securities held to maturity                               1,443       3,160
Federal funds sold and other short-term investments      36,529      10,551
Other assets                                             60,545      65,263
Deposits                                              1,003,778     923,863
Securities sold under agreement to repurchase and
 other short-term debt                                  115,395      89,382
Securities sold under agreement to repurchase,
 long-term                                               54,000      62,046
Other long-term debt                                     83,676      93,753
Junior subordinated debentures issued to
 unconsolidated subsidiary trust                         20,619      20,619
Other liabilities                                        13,880      12,276
Shareholders' equity                                     85,093      75,303
Interest earning assets                               1,326,326   1,220,394
Interest bearing liabilities                          1,162,402   1,070,181





                                For the Three Months     For the Twelve
                                        Ended             Months Ended
                                    December 31,          December 31,
                                  2009       2008       2009       2008
                                ---------  ---------  ---------  ---------
Operating Results
Interest income
Interest and fees on loans      $  11,855  $  11,797  $  47,646  $  46,611
Interest and dividends on
 investments                        4,158      5,777     18,694     21,971
Total interest and dividend
 income                            16,013     17,574     66,340     68,582
Interest expense
Deposits                            1,854      3,386      9,605     16,246
Short-term borrowings                 308        277        641      1,686
Long-term debt                      1,147      1,812      5,978      6,997
Total interest expense              3,309      5,475     16,224     24,929
Net interest income                12,704     12,099     50,116     43,653
Provision for credit losses           600        600      4,100      1,525
Net interest income after
 provision for credit losses       12,104     11,499     46,016     42,128
Noninterest income
Trust Company income                  469        396      1,724      1,831
Service charges on deposits         1,454      1,436      5,671      5,437
Gain on investment securities       1,163       (369)     1,219       (287)
Equity in losses of real estate
 limited partnerships, net           (583)      (462)    (2,049)    (1,849)
Other noninterest income              875        823      3,750      3,526
Total noninterest income            3,378      1,824     10,315      8,658
Noninterest expense
Salaries and wages                  4,210      3,837     14,510     13,730
Employee benefits                     663      1,038      4,348      3,873
Occupancy and equipment
 expenses                           1,616      1,557      6,405      6,082
Legal and professional fees           600        541      2,499      2,449
Marketing expenses                    328        314      1,470      1,652
State franchise taxes                 276        263      1,142      1,066
FDIC Insurance                        315        195      1,964        356
Other noninterest expense           2,410      1,499      7,760      5,893
Total noninterest expense          10,418      9,244     40,098     35,101
Income before provision for
 income taxes                       5,064      4,079     16,233     15,685
Provision for income taxes          1,268      1,015      3,754      3,768
Net income                      $   3,796  $   3,064  $  12,479  $  11,917
Ratios and Supplemental
 Information
Weighted average common shares
 outstanding                    6,139,739  6,058,922  6,105,909  6,069,653
Weighted average diluted shares
 outstanding                    6,139,739  6,063,815  6,107,389  6,079,274
Basic earnings per common share $    0.62  $    0.51  $    2.04  $    1.96
Diluted earnings per common
 share                          $    0.62  $    0.51  $    2.04  $    1.96
Return on average assets             1.07%      0.93%      0.91%      0.93%
Return on average shareholders'
 equity                             16.69%     16.32%     14.67%     15.83%
Net interest rate spread             3.61%      3.56%      3.62%      3.30%
Net interest margin                  3.75%      3.81%      3.80%      3.58%
Net recoveries (charge-offs) to
 Average Loans                      (0.09%)     0.00%     (0.19%)   (0.07%)
Net recoveries (charge-offs)    ($    824) $      18  ($  1,708) ($    564)
Efficiency ratio (1)                58.81%     60.75%     59.47%     62.27%

(1)   The efficiency ratio excludes amortization of intangibles, equity in
      losses of real estate limited partnerships, OREO expenses, gain/loss
      on sales of securities, state franchise taxes, and any significant
      nonrecurring items.
Note: As of December 31, 2009, the Bank had off-balance sheet liabilities
      in the form of standby letters of credit to customers in the amount
      of $3.80 million.

Contact Information

  • Contact:
    Lisa Razo
    Merchants Bank
    (802) 865-1838