SOURCE: Merchants Bancshares, Inc.

Merchants Bancshares, Inc.

July 25, 2011 17:16 ET

Merchants Bancshares, Inc. Announces Second Quarter 2011 Results

SOUTH BURLINGTON, VT--(Marketwire - Jul 25, 2011) - Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $3.63 million and $6.73 million, or diluted earnings per share of $0.58 and $1.08, for the quarter and six months ended June 30, 2011, respectively. This compares with net income of $4.59 million and $8.42 million, or diluted earnings per share of $0.74 and $1.37, for the quarter and six months ended June 30, 2010, respectively. Merchants previously announced the declaration of a dividend of $0.28 per share, payable August 18, 2011, to shareholders of record as of August 4, 2011. The return on average assets was 0.98% and 0.91% for the quarter and six months ended June 30, 2011 compared to 1.29% and 1.19% for the same periods in 2010. The return on average equity was 14.20% and 13.38% for the quarter and six months ended June 30, 2011 compared to 19.48% and 18.10% for the same periods in 2010.

"The second quarter demonstrated significant improvement compared to the first quarter of this year. We saw healthy increases in loans and our net interest margin. At this point we believe we are on track to post loan growth for the year that will meet or exceed 10%. Although we are trailing 2010's record results we believe we are in line to report another very solid year," commented Michael R. Tuttle, President and Chief Executive Officer.

Our taxable equivalent net interest income was $12.95 million and $25.11 million for the quarter and six months ended June 30, 2011, respectively, compared to $12.90 million and $25.32 million for the same periods in 2010. Our taxable equivalent net interest margin decreased 19 basis points to 3.62% for the second quarter of 2011 compared to 3.81% for the same period in 2010, and decreased 24 basis points to 3.53% for the six months ended June 30, 2011 compared to 3.77% for the same period in 2010. The margin for the second quarter of 2011 increased by 25 basis points when compared to the fourth quarter of 2010, and increased 17 basis points from the first quarter of 2011.

We recorded a $250 thousand provision for credit losses during the second quarter of 2011, compared to no provision in the second quarter of 2010. Our provision for credit losses for the first six months of 2011 was $250 thousand compared to $600 thousand for the first six months of 2010. Our non-performing asset totals decreased to $3.44 million at June 30, 2011 from $4.30 million at December 31, 2010 and $8.78 million at June 30, 2010.

Our quarterly average loans for the second quarter of 2011 were $944.81 million compared to $916.38 million for the first quarter of 2011 and $905.05 million for the fourth quarter of 2010. Ending balances at June 30, 2011 were $943.35 million, $32.56 million higher than balances at December 31, 2010. During the second quarter, growth in average monthly loan balances was strong with average monthly loan balances for April 2011 at $931.64 million, increasing to $943.84 million for May, and $958.99 million in June. Growth in commercial loans reflects new customers and expansion of existing relationships combined with increased utilization of credit lines by existing customers. Seasonal fluctuations in municipal cash flows reduced June 30, 2011 loan balances by almost $26 million. Municipal loan balances increased to $82.72 million at July 1, 2011 from $37.93 million at June 30, 2011. Total loans at July 1, 2011 were $987.03 million.

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

(In thousands) June 30, 2011 December 31, 2010
Commercial, financial and agricultural $ 165,665 $ 112,514
Municipal loans 37,933 67,861
Real estate loans - residential 418,246 422,981
Real estate loans - commercial 304,347 284,296
Real estate loans - construction 10,303 16,420
Installment loans 6,319 6,284
All other loans 537 438
Total loans $ 943,350 $ 910,794

Total deposits at June 30, 2011 were $1.10 billion, slightly higher than balances at December 31, 2010. Although deposit growth from the end of last year to the end of the second quarter was minimal, the composition of the deposit base has shifted away from interest bearing deposits and into demand deposits. Demand deposits grew $19.73 million to $161.14 million at June 30, 2011 from $141.41 million at December 31, 2010. Approximately $10 million of that growth is a result of a shift in our retail cash rewards checking product from interest bearing to non-interest bearing. Securities sold under agreement to repurchase ("repos") decreased by $71.70 million to $160.49 million at June 30, 2011 compared to December 31, 2010, primarily a result of seasonal fluctuations concentrated in municipal cash flows.

Our investment portfolio totaled $405.53 million at June 30, 2011, a decrease of $61.23 million from the December 31, 2010 ending balance of $466.76 million. We are working to reduce our exposure to premium write off in the investment portfolio and have sold $77.03 million in collateralized mortgage obligations for a total net gain of $127 thousand during 2011. Proceeds from the sales have funded our strong loan growth, and have replaced reductions in repo balances.

Total noninterest income decreased to $2.56 million and $4.65 million for the quarter and six months ended June 30, 2011, respectively, compared to $3.16 million and $6.07 million for the same periods in 2010. Excluding net gains (losses) on security sales and other than temporary impairment losses, noninterest income decreased $229 thousand to $2.42 million for the second quarter of this year compared to $2.65 million for the same period in 2010 and decreased $407 thousand to $4.53 million for the first six months of 2011 compared to the first six months of 2010. This decrease is primarily a result of reductions in overdraft fee revenue attributable to legislative changes that went into effect on August 15, 2010. Trust division income continued to grow during 2011 and increased to $632 thousand and $1.26 million for the quarter and six months ended June 30, 2011, respectively, compared to $533 thousand and $1.05 million for the same periods in 2010. Trust division assets under management have grown to $488.85 million at June 30, 2011 from $460.42 million at December 31, 2010 and $388.24 million at June 30, 2010. Other categories of noninterest income were generally flat compared to 2010.

Total noninterest expense was $10.21 million and $20.32 million for the quarter and six months ended June 30, 2011, respectively, compared to $9.62 million and $19.09 million for the same periods in 2010. There were several factors that combined to produce the changes. Salaries and wages and employee benefits were slightly higher for the quarter and six months ended June 30, 2011 compared to the same periods in 2010, primarily a result of normal salary increases. Occupancy and Equipment expenses were $1.76 million and $3.59 million for the quarter and six months ended June 30, 2011 compared to $1.62 million and $3.23 million for the same periods in 2010. This increase is primarily a result of depreciation related to significant bank-wide investments in telecommunication and computer equipment. We anticipate that these investments will provide us with additional operating efficiencies and cost savings. FDIC insurance expense for the second quarter of 2011 was $194 thousand compared to $340 thousand for the same period in 2010, a result of the new deposit insurance assessment rates effective April 1, 2011. We booked expense recoveries and gains related to the sale of other real estate owned ("OREO") properties totaling $318 thousand during the first quarter of 2010. This gain resulted in a negative OREO expense during the quarter and six months ended June 30, 2010 of $(196) thousand and $(390) thousand, respectively, compared to expenses of $65 thousand and $81 thousand for the quarter and six months ended June 30, 2011.

Michael R. Tuttle, Merchants' President and Chief Executive Officer, Janet P. Spitler, Merchants' Chief Financial Officer and Geoffrey R. Hesslink, Executive Vice President and Senior Lender of Merchants will host a conference call to discuss these earnings results at 10:00 a.m. Eastern Time on Wednesday, July 27, 2011. Interested parties may participate in the conference call by dialing U.S. number (800) 230-1059; 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 Wednesday, August 3, 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 200985.

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 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 National Market system 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)
06/30/11 12/31/10 06/30/10 12/31/09
Balance Sheets - Period End
Total assets $ 1,430,807 $ 1,487,644 $ 1,390,569 $ 1,434,861
Loans 943,350 910,794 895,819 918,538
Allowance for loan losses ("ALL") 10,438 10,135 10,157 10,976
Net loans 932,912 900,659 885,662 907,562
Securities available for sale 404,879 465,962 420,475 407,652
Securities held to maturity 651 794 955 1,159
Federal Home Loan Bank ("FHLB") stock 8,630 8,630 8,630 8,630
Interest earning cash and other short-term investments 38,513 62,273 5,270 47,714
Other assets 45,222 49,326 69,577 62,144
Deposits 1,103,098 1,092,196 1,037,072 1,043,319
Securities sold under agreement to repurchase and other short-term debt
155,208

227,657

136,461

179,718
Securities sold under agreement to repurchase, long-term 7,500 7,500 54,000 54,000
Other long-term debt 31,100 31,139 31,177 31,215
Junior subordinated debentures issued to unconsolidated subsidiary trust
20,619

20,619

20,619

20,619
Other liabilities 8,496 9,202 13,682 15,365
Shareholders' equity 104,786 99,331 97,558 90,625
Balance Sheets - Quarter-to-Date Averages
Total assets $ 1,481,633 $ 1,488,753 $ 1,418,595 $ 1,412,513
Loans 944,813 905,048 911,211 920,846
Allowance for loan losses 10,329 10,676 10,132 11,510
Net loans 934,484 894,372 901,079 909,336
Securities available for sale and FHLB stock 451,632 482,846 422,989 371,059
Securities held to maturity 677 830 1,005 1,224
Interest earning cash and other short-term investments 37,005 48,217 22,188 63,553
Other assets 57,835 62,488 71,334 67,341
Deposits 1,099,176 1,080,790 1,043,813 1,037,955
Securities sold under agreement to repurchase and other short-term debt

210,230



205,529



163,362



148,282
Securities sold under agreement to repurchase, long-term 7,500 38,353 54,000 54,000
Other long-term debt 31,108 31,145 31,203 46,097
Junior subordinated debentures issued to unconsolidated subsidiary trust

20,619



20,619



20,619



20,619
Other liabilities 10,748 13,621 11,425 14,999
Shareholders' equity 102,252 98,696 94,173 90,561
Interest earning assets 1,434,127 1,436,942 1,357,393 1,356,682
Interest bearing liabilities 1,219,111 1,233,261 1,190,525 1,180,087
Ratios and Supplemental Information - Period End
Book value per share $ 17.76 $ 16.95 $ 16.68 $ 15.58
Book value per share (1) $ 16.86 $ 16.06 $ 15.83 $ 14.76
Tier I leverage ratio 8.20% 7.90% 8.03% 7.64%
Tangible capital ratio (2) 7.32% 6.68% 7.05% 6.32%
Period end common shares outstanding (1) 6,216,323 6,186,363 6,164,006 6,141,823
Credit Quality - Period End
Nonperforming loans ("NPLs") $ 3,444 $ 4,104 $ 8,334 $ 14,481
Nonperforming assets ("NPAs") $ 3,444 $ 4,295 $ 8,778 $ 15,136
NPLs as a percent of total loans 0.37% 0.45% 0.93% 1.58%
NPAs as a percent of total assets 0.24% 0.29% 0.63% 1.05%
ALL as a percent of NPLs 303% 247% 122% 76%
ALL as a percent of total loans 1.11% 1.11% 1.13% 1.19%

(1) This book value and period end common shares outstanding includes 315,642; 327,100; 315,738; 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.

For the Six Months Ended
June 30,
2011 2010
Balance Sheets - Year to-Date Averages
Total assets $ 1,481,116 $ 1,414,334
Loans 930,677 913,378
Allowance for loan losses 10,294 10,650
Net loans 920,383 902,728
Securities available for sale and FHLB stock 460,283 418,418
Securities held to maturity 707 1,055
Federal funds sold and other short-term investments 40,889 21,134
Other assets 58,854 70,999
Deposits 1,094,957 1,036,539
Securities sold under agreement to repurchase and other short-term debt

215,192



166,520
Securities sold under agreement to repurchase, long-term 7,500 54,000
Other long-term debt 31,117 31,203
Junior subordinated debentures issued to unconsolidated subsidiary trust

20,619



20,619
Other liabilities 11,142 12,447
Shareholders' equity 100,589 93,006
Interest earning assets 1,432,556 1,353,985
Interest bearing liabilities 1,224,762 1,188,447

For the Three Months Ended For the Six Months Ended
June 30, June 30,
2011 2010 2011 2010
Operating Results
Interest income
Interest and fees on loans $ 11,190 $ 11,602 $ 22,189 $ 23,091
Interest and dividends on investments 3,522 3,855 6,574 7,598
Total interest and dividend income 14,712 15,457 28,763 30,689
Interest expense
Deposits 1,132 1,422 2,333 2,986
Short-term borrowings 517 381 1,054 790
Long-term debt 570 1,013 1,131 2,007
Total interest expense 2,219 2,816 4,518 5,783
Net interest income 12,493 12,641 24,245 24,906
Provision (Credit) for credit losses 250 -- 250 600
Net interest income after provision for credit losses 12,243 12,641 23,995 24,306
Noninterest income
Trust Company income 632 533 1,255 1,051
Service charges on deposits 1,072 1,395 2,034 2,634
Gain (loss) on investment securities, net 137 503 127 1,212
Other-than-temporary impairment losses on securities -- -- -- (80 )
Equity in losses of real estate limited partnerships, net (426 ) (421 ) (883 ) (855 )
Other noninterest income 1,145 1,145 2,120 2,103
Total noninterest income 2,560 3,155 4,653 6,065
Noninterest expense
Salaries and wages 3,977 3,906 7,732 7,607
Employee benefits 1,157 1,103 2,561 2,373
Occupancy and equipment expenses 1,764 1,621 3,594 3,231
Legal and professional fees 774 664 1,377 1,255
Marketing expenses 445 366 784 681
State franchise taxes 317 295 630 574
FDIC Insurance 194 340 546 720
Other real estate owned 65 (196 ) 81 (390 )
Other noninterest expense 1,513 1,522 3,012 3,036
Total noninterest expense 10,206 9,621 20,317 19,087
Income before provision for income taxes 4,597 6,175 8,331 11,284
Provision for income taxes 968 1,589 1,601 2,869
Net income $ 3,629 $ 4,586 $ 6,730 $ 8,415
Ratios and Supplemental Information
Weighted average common shares outstanding 6,206,047 6,161,934 6,198,862 6,156,798
Weighted average diluted shares outstanding 6,216,046 6,162,437 6,209,675 6,157,300
Basic earnings per common share $ 0.58 $ 0.74 $ 1.09 $ 1.37
Diluted earnings per common share $ 0.58 $ 0.74 $ 1.08 $ 1.37
Return on average assets 0.98 % 1.29 % 0.91 % 1.19 %
Return on average shareholders' equity 14.20 % 19.48 % 13.38 % 18.10 %
Net interest rate spread 3.51 % 3.69 % 3.43 % 3.65 %
Net interest margin 3.62 % 3.81 % 3.53 % 3.77 %
Net recoveries (charge-offs) to Average Loans (0.01 %) 0.02 % (0.01 %) (0.19 %)
Net recoveries (charge-offs) ($105 ) $ 195 ($103 ) ($1,697 )
Efficiency ratio (1) 62.17 % 59.63 % 64.26 % 60.39 %

(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 June 30, 2011, the Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $5.12 million.

Contact Information

  • Contact:
    Lisa Razo
    (802) 865-1838