SOURCE: Merchants Bancshares, Inc.

Merchants Bancshares, Inc.

April 28, 2011 16:35 ET

Merchants Bancshares, Inc. Announces First Quarter 2011 Results

SOUTH BURLINGTON, VT--(Marketwire - Apr 28, 2011) - Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.10 million, or diluted earnings per share of $0.50 for the quarter ended March 31, 2011. This compares with net income of $3.83 million or diluted earnings per share of $0.62 for the quarter ended March 31, 2010, and net income of $2.54 million, or diluted earnings per share of $0.41 for the quarter ended December 31, 2010. Merchants previously announced the declaration of a dividend of $0.28 per share, payable May 19, 2011, to shareholders of record as of May 5, 2011. The return on average assets was 0.84% for the quarter ended March 31, 2011 compared to 1.09% for the same period in 2010, and 0.68% for the fourth quarter of 2010. The return on average equity was 12.54% for the quarter ended March 31, 2011 compared to 16.61% for the same period in 2010, and 10.31% for the fourth quarter of 2010.

"Although earnings decreased versus record results for the first quarter of 2010, our results still represent a solid quarter. The first quarter of last year benefited significantly from some one-time events. Our margin expanded on a linked quarter basis and should continue to benefit from a slow down in prepayments in the investment portfolio, combined with continued growth in the loan portfolio. The new business loan pipeline is at the strongest level we have seen for the past three years, a function of the capacity we have added over the last 18 months and our unique position as Vermont's only independent statewide bank," commented Michael R. Tuttle, Merchants' President and Chief Executive Officer.

Our taxable equivalent net interest income for the first quarter of 2011 was $12.16 million compared to $12.42 million for the first quarter of 2010 and $12.22 million for the fourth quarter of 2010. Our taxable equivalent net interest margin decreased 28 basis points to 3.45% for the first quarter of 2011 compared to 3.73% for the first quarter of 2010 and increased by eight basis points compared to the fourth quarter of 2010 at 3.37%. Yields on our interest earning assets fell more quickly than the cost of our interest bearing liabilities when comparing the first quarter of 2011 to the first quarter of 2010. The prepayment of $46.50 million in long-term debt at an average cost of 3.74% late in the fourth quarter of 2010 contributed to the increase in the margin for the first quarter of 2011 compared to the fourth quarter of 2010.

Due to continued strong asset quality and a small net recovery, we did not record a provision for credit losses during the first quarter of 2011. This compares to a provision of $600 thousand for the first quarter of 2010. Our non-performing asset totals decreased to $3.91 million at March 31, 2011 from $4.30 million at December 31, 2010 and $9.70 million at March 31, 2010. Additionally, accruing substandard loans decreased to $13.50 million at March 31, 2011 from $18.07 million at December 31, 2010 and $23.55 million at March 31, 2010.

Our quarterly average loans for the first quarter of 2011 were $916.38 million, an increase of $11.34 million over the fourth quarter of 2010, and ending balances at March 31, 2011 were $922.13 million, $11.33 million higher than balances at December 31, 2010. A combination of modest incremental demand from existing customers together with some new customer relationships led to increased loan balances in the first quarter of 2011.

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



(In thousands)                         March 31, 2011    December 31, 2010
                                     -----------------   -----------------
Commercial, financial and
 agricultural loans                  $         132,657   $         112,514
Municipal loans                                 75,375              72,261
Real estate loans - residential                418,703             422,981
Real estate loans - commercial                 276,184             279,896
Real estate loans - construction                12,283              16,420
Installment loans                                6,461               6,284
All other loans                                    464                 438
                                     -----------------   -----------------
Total loans                          $         922,127   $         910,794
                                     -----------------   -----------------


Total deposits at March 31, 2011 were $1.10 billion, an increase of $6.47 million from year end 2010 balances of $1.09 billion. Average balances for the first quarter of 2011 were $1.09 billion, an increase of $9.90 million from average balances of $1.08 billion for the fourth quarter of 2010.

Our liquidity position remained very strong through the first quarter of 2011, and we continued to work to keep our cash fully invested. Our investment portfolio grew to $477.03 million at March 31, 2011 from $466.76 million at December 31, 2010.

Total noninterest income decreased to $2.10 million for the first quarter of 2011 compared to $2.91 million for the first quarter of 2010, and $2.54 million for the fourth quarter of 2010. Net security gains for the first quarter of 2010 were $629 thousand compared to a loss of $10 thousand for the first quarter of 2011, and net gains of $185 thousand for the fourth quarter of 2010. Excluding net gains and losses on security sales and other than temporary impairment losses, noninterest income decreased by $178 thousand to $2.10 million for the first quarter of 2011 compared to $2.28 million for the same period in 2010 and decreased by $253 thousand from $2.36 million for the fourth quarter of 2010. Trust division income increased to $623 thousand for the first quarter of 2011 compared to $518 thousand for the first quarter of 2010, and $573 thousand for the fourth quarter of 2010. Revenue related to service charges on deposits decreased to $962 thousand for the first quarter of 2011 compared to $1.24 million for the first quarter of 2010, and $1.08 million for the fourth quarter of 2010. This decrease is almost entirely related to reduced overdraft service charge revenue. Net overdraft fee revenue for the first quarter of 2011 was 26% lower than the first quarter of 2010 at $756 thousand compared to $1.02 million for the first quarter of 2010 and $858 thousand for the fourth quarter of 2010. Reductions in overdraft fee revenue are almost entirely a result of legislative changes that went into effect on August 15, 2010. At the same time, other noninterest income increased slightly to $975 thousand for the first quarter of 2011 compared to $958 thousand for the first quarter of 2010, and decreased slightly from $1.12 million for the fourth quarter of 2010. Net debit card fee income for the first quarter of 2011 was $654 thousand compared to $630 thousand for the first quarter of 2010 and $775 thousand for the fourth quarter of 2010. Debit card fee income is typically lower in the first quarter of the year than in the fourth quarter. The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the Federal Reserve Board to regulate debit card interchange fees; although the changes are aimed at large banks, it is possible that all banks will be impacted. It is not possible to predict at this time what, if any, impact the changes will have on our debit card revenue.

Total noninterest expense for the first quarter of 2011 was $10.11 million compared to $9.47 million for the first quarter of 2010 and $13.34 million for the fourth quarter of 2010. There were several factors that combined to produce the changes. We incurred a $3.07 million prepayment penalty during the fourth quarter of 2010 related to the prepayment of $46.50 million in long term debt. No prepayment penalties were incurred in the first quarter of 2011 or of 2010. Salaries and wages were $3.76 million for the first quarter of 2011 compared to $3.70 million for the first quarter of 2010, and $4.33 million for the fourth quarter of 2010. Increased base salaries for the first quarter of 2011 compared to the same period in 2010 were largely offset by a lower incentive accrual for the first quarter of 2011 compared to the same period in 2010. The reduction in salaries when comparing the first quarter of 2011 to the fourth quarter of 2010 was primarily a result of a higher incentive accrual for the fourth quarter of 2010 as a result of our very strong results for 2010. We booked expense recoveries and gains related to the sale of OREO properties totaling $318 thousand during the first quarter of 2010. This gain resulted in a negative OREO expense during the first quarter of 2010 of ($194) thousand, compared to $16 thousand for the first quarter of 2011 and $1 thousand for the fourth quarter of 2010.

Michael R. Tuttle, Janet P. Spitler, Merchants' Chief Financial Officer and Geoffrey R. Hesslink, Executive Vice President and Senior Lender will host a conference call to discuss these earnings results at 10:00 a.m. Eastern Time on Friday, April 29, 2011. Interested parties may participate in the conference call by dialing U.S. number (800) 230-1074; the title of the call is Merchants Bancshares, Inc. Earnings Call. Participants are asked to call a few minutes prior to register. A replay will be available until noon on Friday, May 6, 2011. 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 200982.

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 an independent, 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 43 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 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 Global Select Market under the symbol MBVT. Member FDIC. Equal Housing Lender.

Non-GAAP Financial Measure. In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures. Merchants' management believes that the supplemental non-GAAP information, which consists of the tangible capital ratio, 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.

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 Merchants' 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. Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. Merchants' actual results could differ materially from those projected in the forward-looking statements as a result of, among others, general, national, regional or local economic conditions which are less favorable than anticipated, including continued global recession, impacting the performance of Merchants' investment portfolio, quality of credits or the overall demand for services; changes in loan default and charge-off rates which could affect the allowance for credit losses; declines in the equity and financial markets; reductions in deposit levels which could necessitate increased and/or higher cost borrowing to fund loans and investments; declines in mortgage loan refinancing, equity loan and line of credit activity which could reduce net interest and non-interest income; changes in the domestic interest rate environment and inflation; changes in the carrying value of investment securities and other assets; misalignment of Merchants' interest-bearing assets and liabilities; increases in loan repayment rates affecting interest income and the value of mortgage servicing rights; changing business, banking, or regulatory conditions or policies, or new legislation affecting the financial services industry, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, that could lead to changes in the competitive balance among financial institutions, restrictions on bank activities, changes in costs (including deposit insurance premiums), increased regulatory scrutiny, declines in consumer confidence in depository institutions, or changes in the secondary market for bank loan and other products; and changes in accounting rules, federal and state laws, IRS regulations, and other regulations and policies governing financial holding companies and their subsidiaries which may impact Merchants' ability to take appropriate action to protect Merchants' financial interests in certain loan situations.

You should not place undue reliance on Merchants' forward-looking statements, and are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, which are included in more detail in Merchants' Annual Report on Form 10-K, as updated by our Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Merchants 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)


                          03/31/11     12/31/10     03/31/10     12/31/09
                        -----------  -----------  -----------  -----------
Balance Sheets - Period
 End
Total assets            $ 1,491,186  $ 1,487,644  $ 1,418,090  $ 1,434,861
Loans                       922,127      910,794      908,869      918,538
Allowance for loan
 losses ("ALL")              10,232       10,135        9,950       10,976
Net loans                   911,895      900,659      898,919      907,562
Securities available
 for sale                   476,328      465,962      427,903      407,652
Securities held to
 maturity                       702          794        1,045        1,159
Federal Home Loan Bank
 ("FHLB") stock               8,630        8,630        8,630        8,630
Interest earning cash
 and other short-term
 investments                 45,542       62,273        5,270       47,714
Other assets                 48,089       49,326       76,323       62,144
Deposits                  1,098,662    1,092,196    1,036,069    1,043,319
Securities sold under
 agreement to
 repurchase and other
 short-term debt            211,758      227,657      172,801      179,718
Securities sold under
 agreement to
 repurchase, long-term        7,500        7,500       54,000       54,000
Other long-term debt         31,119       31,139       31,196       31,215
Junior subordinated
 debentures issued to
 unconsolidated
 subsidiary trust            20,619       20,619       20,619       20,619
Other liabilities            20,669        9,202        9,889       15,365
Shareholders' equity        100,859       99,331       93,516       90,625

Balance Sheets -
 Quarter-to-Date
 Averages
Total assets            $ 1,480,601  $ 1,488,753  $ 1,410,025  $ 1,412,513
Loans                       916,384      905,048      915,569      920,846
Allowance for loan
 losses                      10,259       10,676       11,173       11,510
Net loans                   906,125      894,372      904,396      909,336
Securities available
 for sale and FHLB
 stock                      469,179      482,846      413,799      371,059
Securities held to
 maturity                       738          830        1,104        1,224
Interest earning cash
 and other short-term
 investments                 44,816       48,217       20,068       63,553
Other assets                 59,743       62,488       70,658       67,341
Deposits                  1,090,692    1,080,790    1,029,183    1,037,955
Securities sold under
 agreement to
 repurchase and other
 short-term debt            220,209      205,529      169,713      148,282
Securities sold under
 agreement to
 repurchase, long-term        7,500       38,353       54,000       54,000
Other long-term debt         31,127       31,145       31,203       46,097
Junior subordinated
 debentures issued to
 unconsolidated
  subsidiary trust           20,619       20,619       20,619       20,619
Other liabilities            11,540       13,621       13,480       14,999
Shareholders' equity         98,914       98,696       91,827       90,561
Interest earning assets   1,431,117    1,436,942    1,350,540    1,356,682
Interest bearing
 liabilities              1,230,477    1,233,261    1,186,346    1,180,087

Ratios and Supplemental
 Information -
 Period End
Book value per share    $     17.14  $     16.95  $     16.00  $     15.58
Book value per share
 (1)                    $     16.28  $     16.06  $     15.20  $     14.76
Tier I leverage ratio          8.06%        7.90%        7.85%        7.64%
Tangible capital ratio
 (2)                           6.76%        6.68%        6.62%        6.32%
Period end common
 shares outstanding (1)   6,195,463    6,186,363    6,153,361    6,141,823

Credit Quality -
 Period End
Nonperforming loans
 ("NPLs")               $     3,736  $     4,104  $     9,029  $    14,481
Nonperforming assets
 ("NPAs")               $     3,907  $     4,295  $     9,698  $    15,136
NPLs as a percent of
 total loans                   0.41%        0.45%        0.99%        1.58%
NPAs as a percent of
 total assets                  0.26%        0.29%        0.68%        1.05%
ALL as a percent of
 NPLs                           274%         247%         110%          76%
ALL as a percent of
 total loans                   1.11%        1.11%        1.09%        1.19%

(1) This book value and period end common shares outstanding includes
    310,250; 327,100; 309,582; and 326,453 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.






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


                                             For the Three Months Ended
                                                 March 31,       December,
                                           --------------------  ---------
                                             2011       2010       2010
                                           ---------  ---------  ---------
Operating Results
Interest income
Interest and fees on loans                 $  10,999  $  11,489  $  11,366
Interest and dividends on investments          3,052      3,743      3,038
Total interest and dividend income            14,051     15,232     14,404
Interest expense
Deposits                                       1,201      1,564      1,276
Short-term borrowings                            537        409        459
Long-term debt                                   561        994        850
Total interest expense                         2,299      2,967      2,585
Net interest income                           11,752     12,265     11,819
Provision (Credit) for credit losses              --        600     (1,950)
Net interest income after provision for
 credit losses                                11,752     11,665     13,769
Noninterest income
Trust Company income                             623        518        573
Service charges on deposits                      962      1,239      1,076
Loss (gain) on investment securities, net        (10)       709        185
Other-than-temporary impairment losses on
 securities                                       --        (80)        --
Equity in losses of real estate limited
 partnerships, net                              (457)      (434)      (409)
Other noninterest income                         975        958      1,116
Total noninterest income                       2,093      2,910      2,541
Noninterest expense
Salaries and wages                             3,755      3,701      4,329
Employee benefits                              1,404      1,270      1,046
Occupancy and equipment expenses               1,830      1,610      1,743
Legal and professional fees                      603        591        592
Marketing expenses                               339        315        492
State franchise taxes                            313        279        279
FDIC Insurance                                   352        380        350
Other real estate owned                           16       (194)         1
Prepayment penalty                                --         --      3,071
Other noninterest expense                      1,499      1,514      1,434
Total noninterest expense                     10,111      9,466     13,337
Income before provision for income taxes       3,734      5,109      2,973
Provision for income taxes                       633      1,280        429
Net income                                 $   3,101  $   3,829  $   2,544

Ratios and Supplemental Information
Weighted average common shares outstanding 6,188,546  6,151,639  6,183,555
Weighted average diluted shares
 outstanding                               6,200,173  6,151,639  6,195,206
Basic earnings per common share            $    0.50  $    0.62  $    0.41
Diluted earnings per common share          $    0.50  $    0.62  $    0.41
Return on average assets                        0.84%      1.09%      0.68%
Return on average shareholders' equity         12.54%     16.61%     10.31%
Net interest rate spread                        3.34%      3.61%      3.26%
Net interest margin                             3.45%      3.73%      3.37%
Net recoveries (charge-offs) to
 Average Loans                                  0.00%   (0.21%)       0.23%
Net recoveries (charge-offs)               $       2  ($  1,892) $   2,084
Efficiency ratio (1)                           66.51%     61.18%     66.66%

(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, 2011, the Bank had off-balance sheet liabilities in
      the form of standby letters of credit to customers in the amount of
      $5.10 million.


Contact Information

  • Contact:
    Janet Kinney
    Merchants Bank
    (802) 865-1838