SOURCE: Merchants Bancshares, Inc.

Merchants Bancshares, Inc.

April 29, 2010 16:06 ET

Merchants Bancshares, Inc. Announces Record First Quarter 2010 Results

SOUTH BURLINGTON, VT--(Marketwire - April 29, 2010) - Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.83 million or diluted earnings per share of $0.62 for the three months ended March 31, 2010. This compares with net income of $2.91 million or diluted earnings per share of $0.48 for the same period in 2009. Merchants previously announced the declaration of a dividend of 28 cents per share, payable May 13, 2010, to shareholders of record as of April 29, 2010.

The return on average assets was 1.09% for the quarter ended March 31, 2010 compared to 0.87% for the quarter ended March 31, 2009. The return on average equity for the first quarter of 2010 was 16.61% compared to 14.50% for the first quarter of 2009. Merchants' earnings for the quarter were impacted by several events: Merchants realized $709 thousand in security gains during the first quarter of 2010, compared to losses of $205 thousand for the first quarter of 2009, and also recorded expense recoveries related to the sale of an OREO property of $318 thousand. These items were offset in part by an $80 thousand other-than-temporary impairment ("OTTI") charge on one of its investment securities during the quarter, and the accelerated premium amortization of approximately $200 thousand due to Freddie Mac and Fannie Mae repurchases of certain delinquent mortgage loans. "This represents another strong quarter for our company. We did benefit from the transactions just described, but our net income excluding those transactions was up 10% over the same quarter in 2009," commented Michael R. Tuttle, Merchants' President and Chief Executive Officer.

Merchants' taxable equivalent net interest income for the first quarter of 2010 was $12.42 million, a slight increase over $12.36 million for the same period in 2009. During the first quarter of 2010, Freddie Mac and Fannie Mae announced that they would buy back certain delinquent mortgages contained in securities previously sold to investors, including Merchants. These prepayments reduced Merchants' net interest income by approximately $200 thousand. Merchants' taxable equivalent net interest margin decreased by twelve basis points to 3.73% for the first quarter of 2010 from 3.85% for the first quarter of 2009, and decreased by two basis points on a linked quarter basis. The margin for the quarter was negatively impacted by six basis points by the accelerated amortization discussed above. The balance of the quarter over quarter decrease in Merchants' margin was primarily a result of the sustained low interest rate environment. Although Merchants increased its average earning assets quarter over quarter by $50.18 million, the yield on those assets decreased by 70 basis points. At the same time, Merchants has had success in reducing its funding costs, decreasing the average rate paid on interest bearing liabilities by 66 basis points over the same time frame. When comparing the first quarter of 2010 to the fourth quarter of 2009, Merchants' average earning assets have contracted slightly. The average yield on those assets has decreased by ten basis points, a result of a lower average yield on the investment portfolio primarily driven by the premium amortization discussed above. The average cost of interest bearing liabilities also decreased by ten basis points from the fourth quarter of 2009 to the first quarter of 2010.

Merchants' quarterly average loans were $915.57 million, a decrease of $5.28 million over the fourth quarter of 2009, and ending balances were $9.67 million lower than year end balances. Decreases in commercial loans, and commercial and residential real estate loans were offset by increases in municipal loans. The decrease in commercial loans may be attributable to the reluctance of businesses to increase capital investments as well as a decrease in utilization rates of lines of credit. Residential refinance activity was substantially lower in the first quarter of 2010 compared to the first quarter of 2009.

The following table summarizes the components of Merchants' loan portfolio as of the periods indicated:

(In thousands)                           March 31, 2010   December 31, 2009
                                        ----------------- -----------------
Commercial, financial and agricultural  $         109,352 $         113,980
Municipal loans                                    48,862            44,753
Real estate loans - residential                   433,579           435,273
Real estate loans - commercial                    281,135           290,737
Real estate loans - construction                   27,864            25,146
Installment loans                                   7,276             7,711
All other loans                                       801               938
                                        ----------------- -----------------
Total loans                             $         908,869 $         918,538
                                        ================= =================

"Loan demand remained soft during the first 90 days of 2010; however, we are starting to see some evidence of increased activity that may reverse this trend during the second half of 2010," commented Mr. Tuttle.

Merchants' investment portfolio totaled $428.95 million at March 31, 2010, an increase of $20.14 million from December 31, 2009 ending balances of $408.81 million. Merchants has been working to redeploy excess cash into the investment portfolio, but has found it challenging to find Agency-backed investments at an acceptable yield in the current environment. Merchants sold two of its low coupon 30 year mortgage backed securities and one callable agency bond during the quarter with a total par value of $19.54 million for a gain of $709 thousand. Merchants also took an $80 thousand OTTI charge against one of its asset backed securities during the quarter.

Both ending and quarterly average deposits were essentially flat at approximately $1.03 billion for the first quarter of 2010 compared to the fourth quarter of 2009; however, ending deposit balances were $59.18 million higher and quarterly average deposit balances were $80.70 million higher than the first quarter of 2009. Merchants has historically experienced seasonal fluctuation during the first quarter of the year that typically leads to decreases in deposits during the first quarter of the calendar year. Since the end of the year there has been some migration from time deposit categories, which have decreased $11.83 million, into Savings, NOW and money market accounts, which have increased $6.11 million. Relationships continue to be added across all business lines, with notable new deposits within the government banking space.

Merchants recorded a $600 thousand provision for credit losses during the first quarter of 2010 compared to $600 thousand for the fourth quarter of 2009 and $900 thousand for the first quarter of last year. There were several factors that influenced the provision expense this quarter:

--  Total loans decreased during the quarter to $908.87
    million compared to $918.54 million at year end;
--  Although Merchants experienced net charge-offs of $1.89 million for the
    quarter, almost all of those charges were against specific reserves
    allocated by Merchants to troubled borrowers in the fourth quarter of
    2009;
--  Non-accruing loans decreased $5.37 million, or 37.5% to $8.93 million
    at March 31, 2010 compared to $14.30 million at December 31, 2009. The
    reduction in non-accruing loans is primarily attributable to a
    combination of paydowns totaling $3.64 million as well as the write
    down of $1.90 million in loan balances outstanding. As mentioned
    previously, the majority of these write downs had been  reserved for
    in prior quarters.

Total loans 30 to 89 days past due at March 31, 2010 were $1.23 million or 0.14% of total loans, which is generally consistent with delinquency levels in prior periods:

            Quarter Ending:               30-89 Days
            -----------------             ----------
            December 31, 2009               0.09%
            March 31, 2009                  0.05%
            December 31, 2008               0.16%

Merchants' residential mortgage loan portfolio continues to perform well, even under the currently stressed economic conditions. Residential loans 30 to 89 days past due at March 31, 2010 totaled 9 basis points as a percentage of residential mortgages, consistent with prior periods and total past due residential loans, including non-accruing mortgages, were 45 basis points as a percentage of residential mortgages.

"The trend in asset quality represents dramatic improvement from the year end numbers. Based upon what we know today it appears as though we have turned the corner on credit quality costs. We conducted several property and equipment auctions during the quarter and were very pleased with the results," stated Mr. Tuttle.

Total noninterest income increased to $2.91 million for the first quarter of 2010 from $1.93 million for the first quarter of 2009. Excluding net gains (losses) on security sales and the OTTI loss mentioned previously, noninterest income increased slightly to $2.28 million for the first quarter of 2010 from $2.13 million for the same period last year. Most of the increase for the first quarter of 2010 compared to 2009 was attributable to Merchants Trust Company income which increased 29% to $518 thousand from $401 thousand for the first quarter of this year compared to the same period last year.

Total noninterest expense decreased slightly to $9.47 million for the first quarter of 2010 from $9.54 million for the first quarter of 2009. There were a number of increases and decreases that contributed to this overall decrease. Salaries and wages increased to $3.70 million for the first quarter of this year, compared to $3.43 million for the same period last year. Legal and professional fees were $591 thousand for the first quarter of 2010 compared to $689 thousand for the first quarter of 2009, primarily due to the timing of projects and related expenses. Other noninterest expenses decreased $256 thousand to $1.32 million for the first quarter of 2010 compared to $1.58 million for the first quarter of 2009. Merchants sold one of its OREO properties during the first quarter of 2010 and recorded expense recoveries of approximately $318 thousand.

Michael R. Tuttle, Merchants' President and Chief Executive Officer; and Janet P. Spitler, Merchants' Chief Financial Officer, will host a conference call to discuss these earnings results at 9:30 a.m. Eastern Time on Friday, April 30, 2010. Interested parties may participate in the conference call by dialing (800) 230-1096; 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, May 7, 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 143116.

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)



                             03/31/10    12/31/09    03/31/09    12/31/08
                            ----------  ----------  ----------  ----------
Balance Sheets - Period End
Total assets                $1,418,477  $1,435,248  $1,350,280  $1,341,210
Loans                          908,869     918,538     892,579     847,127
Allowance for loan losses
 ("ALL")                         9,950      10,976       9,446       8,894
Net loans                      898,919     907,562     883,133     838,233
Securities available for
 sale                          427,903     407,652     397,473     429,872
Securities held to maturity      1,045       1,159       1,586       1,737
Federal Home Loan Bank
 ("FHLB") stock                  8,630       8,630       8,630       8,523
Federal funds sold and
 other short-term
 investments                     5,270      10,270         260         111
Other assets                    76,710      99,975      59,198      62,734
Deposits                     1,036,069   1,043,319     976,886     930,797
Securities sold under
 agreement to repurchase
 and other short-term debt     172,801     179,718      92,705     124,408
Securities sold under
 agreement to repurchase,
 long-term                      54,000      54,000      54,000      54,000
Other long-term debt            31,196      31,215     107,540     118,643
Junior subordinated
 debentures issued to
 unconsolidated
 subsidiary trust               20,619      20,619      20,619      20,619
Other liabilities                9,889      15,365      14,046      13,046
Shareholders' equity            93,903      91,012      84,484      79,697
Balance Sheets -
 Quarter-to-Date Averages
Total assets                $1,410,412  $1,412,900  $1,343,670  $1,320,845
Loans                          915,569     920,846     865,962     825,395
Allowance for loan losses       11,173      11,510       9,238       8,596
Net loans                      904,396     909,336     856,724     816,799
Securities available for
 sale and FHLB stock           413,799     371,059     427,661     436,712
Securities held to maturity      1,104       1,224       1,668       2,187
Federal funds sold and
 other short-term investments   20,068      63,553       5,073       2,420
Other assets                    71,045      67,728      52,544      62,727
Deposits                     1,029,183   1,037,955     948,484     946,534
Securities sold under
 agreement to repurchase
 and other short-term debt     169,713     148,282     113,521      96,736
Securities sold under
 agreement to repurchase,
 long-term                      54,000      54,000      54,000      54,000
Other long-term debt            31,203      46,097     114,073     117,996
Junior subordinated
 debentures issued to
 unconsolidated
 subsidiary trust               20,619      20,619      20,619      20,619
Other liabilities               13,480      14,999      12,819       9,845
Shareholders' equity            92,214      90,948      80,154      75,115
Interest earning assets      1,350,540   1,356,682   1,300,364   1,266,714
Interest bearing
 liabilities                 1,186,346   1,180,087   1,140,582   1,110,612
Ratios and Supplemental
 Information - Period End
Book value per share        $    16.07  $    15.65  $    14.62  $    13.89
Book value per share (1)    $    15.26  $    14.82  $    13.88  $    13.15
Tier I leverage ratio             7.85%       7.67%       7.42%       7.42%
Tangible capital ratio (2)        6.62%       6.34%       6.26%       5.94%
Period end common shares
 outstanding (1)             6,153,361   6,141,823   6,084,600   6,061,182
Credit Quality - Period End
Nonperforming loans
 ("NPLs")                   $    9,029  $   14,481  $   11,519  $   11,643
Nonperforming assets
 ("NPAs")                   $    9,698  $   15,136  $   12,322  $   12,445
NPLs as a percent of total
 loans                            0.99%       1.58%       1.29%       1.37%
NPAs as a percent of total
 assets                           0.68%       1.05%       0.91%       0.93%
ALL as a percent of NPLs           110%         76%         82%         76%
ALL as a percent of total
 loans                            1.09%       1.19%       1.06%       1.05%

(1) This book value and period end common shares outstanding includes
    309,583; 326,453; 307,809 and 323,754 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.





                                            For the Three Months Ended

                                              March 31,        December 31,
                                        ----------------------  ----------
                                           2010        2009        2009
                                        ----------  ----------  ----------
Operating Results
Interest income
Interest and fees on loans              $   11,489  $   11,768  $   11,855
Interest and dividends on investments        3,743       5,267       4,158
Total interest and dividend income          15,232      17,035      16,013
Interest expense
Deposits                                     1,564       2,836       1,854
Short-term borrowings                          409          85         308
Long-term debt                                 994       1,773       1,147
Total interest expense                       2,967       4,694       3,309
Net interest income                         12,265      12,341      12,704
Provision for credit losses                    600         900         600
Net interest income after provision for
 credit losses                              11,665      11,441      12,104
Noninterest income
Trust Company income                           518         401         469
Service charges on deposits                  1,239       1,238       1,454
Gain (loss) on investment securities, net      709        (205)      1,163
Other-than-temporary impairment losses
 on securities                                 (80)         --          --
Equity in losses of real estate limited
 partnerships, net                            (434)       (463)       (583)
Other noninterest income                       958         958         875
Total noninterest income                     2,910       1,929       3,378
Noninterest expense
Salaries and wages                           3,701       3,425       4,210
Employee benefits                            1,270       1,260         663
Occupancy and equipment expenses             1,610       1,639       1,616
Legal and professional fees                    591         689         600
Marketing expenses                             315         341         328
State franchise taxes                          279         298         276
FDIC Insurance                                 380         314         315
Other noninterest expense                    1,320       1,576       2,410
Total noninterest expense                    9,466       9,542      10,418
Income before provision for income
 taxes                                       5,109       3,828       5,064
Provision for income taxes                   1,280         922       1,268
Net income                              $    3,829  $    2,906  $    3,796
Ratios and Supplemental Information
Weighted average common shares
 outstanding                             6,151,639   6,068,082   6,139,739
Weighted average diluted shares
 outstanding                             6,151,639   6,069,955   6,139,739
Basic earnings per common share         $     0.62  $     0.48  $     0.62
Diluted earnings per common share       $     0.62  $     0.48  $     0.62
Return on average assets                      1.09%       0.87%       1.07%
Return on average shareholders' equity       16.61%      14.50%      16.69%
Net interest rate spread                      3.61%       3.65%       3.61%
Net interest margin                           3.73%       3.85%       3.75%
Net recoveries (charge-offs) to Average
 Loans                                     (0.21%)     (0.04%)     (0.09%)
Net recoveries (charge-offs)            ($   1,892) ($     348) ($     824)
Efficiency ratio (1)                         61.18%      61.65%      58.81%

(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 March 31, 2010, the Bank had off-balance sheet liabilities in
      the form of standby letters of credit to customers in the amount of
      $3.88 million.

Contact Information

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