SOURCE: Merchants Bancshares, Inc.

Merchants Bancshares, Inc.

October 25, 2010 16:25 ET

Merchants Bancshares, Inc. Announces Strong 3rd Quarter Results

SOUTH BURLINGTON, VT--(Marketwire - October 25, 2010) - Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $4.50 million and $12.92 million, or diluted earnings per share of $0.73 and $2.10 for the quarter and nine months ended September 30, 2010, respectively. This compares with net income of $3.71 million and $8.68 million or diluted earnings per share of $0.61 and $1.42 for the same periods in 2009. Merchants previously announced the declaration of a dividend of $0.28 per share, payable November 18, 2010, to shareholders of record as of November 4, 2010. The return on average assets was 1.25% and 1.21% for the quarter and nine months ended September 30, 2010, respectively, compared to 1.07% and 0.85% for the same periods in 2009. The return on average equity was 18.39% and 18.14% for the quarter and nine months ended September 30, 2010, respectively, compared to 17.37% and 13.93% for the same periods in 2009.

"We are continuing the trend from the first half of this year with our strong core earnings this quarter. Absent the net impact of securities transactions and OREO recoveries, net income is up 16% for the third quarter of 2010 compared to last year and 33% compared to the first nine months of 2009," commented Michael R. Tuttle, Merchants' President and Chief Executive Officer.

Merchants' earnings for the third quarter and first nine months of 2010 were positively impacted by security gains and improvements in asset quality. Merchants recognized $596 thousand and $1.73 million in pre-tax security gains, net of impairment losses, during the third quarter and first nine months of 2010, respectively. Merchants recorded a $400 thousand negative provision for credit losses during the third quarter of 2010, and has recorded a $200 thousand provision for credit losses for the first nine months of 2010 compared to $600 thousand for the third quarter of 2009 and $3.50 million for the first nine months of 2009. The negative provision was a result of net recoveries of previously charged off loans during the quarter of $415 thousand combined with a more than 25% reduction in internally classified loans since June 30, 2010. In addition, Merchants' non-performing loans decreased to $3.44 million at September 30, 2010 from $8.33 million at June 30, 2010 and $14.48 million at December 31, 2009.

"The positive trend in asset quality continued during the third quarter. Total nonperforming assets have been reduced by $11.68 million from December 31, 2009 and are now just 0.38% of total loans. Current trends are very encouraging and our outlook on credit quality remains positive based on recent developments," stated Mr. Tuttle.

Merchants' quarterly average loans were $917.68 million, a decrease of $3.16 million over the fourth quarter of 2009, and ending balances were $906.91 million, $11.63 million lower than balances at December 31, 2009. Loan demand in Merchants' markets remained soft during the first nine months of 2010; many businesses are continuing to pay down term debt and substantially reducing utilization of credit lines. This trend combined with the previously discussed reduction in substandard loans has dampened growth in the loan portfolio this year.

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

                                  September 30,               December 31,
 (In thousands)                       2010      June 30, 2010     2009
                                  ------------- ------------- -------------
Commercial, financial and
 agricultural loans               $     100,638 $     109,805 $     113,980
Municipal loans                          71,822        31,940        44,753
Real estate loans - residential         428,260       435,070       435,273
Real estate loans - commercial          279,885       279,958       290,737
Real estate loans - construction         17,600        30,864        25,146
Installment loans                         7,507         7,387         7,711
All other loans                           1,194           795           938
                                  ------------- ------------- -------------
Total loans                       $     906,906 $     895,819 $     918,538
                                  ------------- ------------- -------------

Merchants' investment portfolio totaled $503.33 million at September 30, 2010, an increase of $94.52 million from December 31, 2009 ending balance of $408.81 million. Merchants has taken advantage of favorable pricing during 2010 and captured gains on several of its mortgage-backed securities that appeared to have heightened prepayment risk. Merchants sold bonds during the third quarter of 2010 with a total par value of $13.90 million for a net pre-tax gain of $686 thousand. During the first nine months of 2010, Merchants has sold bonds with a total par value of $43.06 million for a pre-tax gain of $1.90 million. Additionally, Merchants sold two non-agency collateralized mortgage obligations ("CMOs") and two low yielding Agency CMOs during early October for a total loss of $89 thousand. These bonds were marked down to their fair value as of September 30, 2010 due to Merchants' intent to sell them in a subsequent period. These selective bond sales will help to better position Merchants' investment portfolio from a credit and interest rate risk standpoint.

Total deposits ended the quarter at $1.07 billion, an increase of $29.33 million from year end balances of $1.04 billion. Average balances for the third quarter of this year were $1.06 billion, an increase of $21.64 million from fourth quarter 2009 average balances of $1.04 billion. Since the end of 2009 there has been continued migration from time deposit categories, which have decreased $24.46 million, into savings, NOW and money market accounts, which have increased $36.89 million. Time deposits as a percentage of total deposits have decreased from 37.8% at year end 2009 to 34.5% at September 30, 2010. Demand deposits have shown solid growth during 2010, increasing $16.89 million to $136.64 million at September 30, 2010, from $119.74 million at year end.

Merchants' taxable equivalent net interest income for the third quarter of 2010 was $12.82 million, and was $38.13 million for the first nine months of 2010, compared to $12.79 million for the third quarter of 2009 and $37.55 million for the first nine months of 2009. Merchants' taxable equivalent net interest margin decreased eleven basis points during the third quarter to 3.70% from 3.81% for the second quarter of the current year, and decreased by seven basis points compared to the third quarter of 2009. The margin for the first nine months of 2010 decreased by six basis points to 3.75% from 3.81% for the same period in 2009.

"Net interest income is under significant pressure in the current environment. The low yields available for reinvestment of cash flows from the investment portfolio dictate that we need to increase the size of our loan book if we are to increase our net interest income. We have added resources to the lending area and are actively working to position ourselves for growth during the fourth quarter and into 2011," commented Mr. Tuttle.

Total noninterest income increased to $3.03 million and $9.09 million for the third quarter and first nine months of 2010 from $2.60 million and $6.94 million for the same periods in 2009. Excluding net gains (losses) on security sales and other than temporary impairment losses, noninterest income increased to $2.43 million and $7.36 million for the quarter and nine months ended September 30, 2010 compared to $2.34 million and $6.88 million for the same periods last year. Income from Merchants Trust Company division increased to $539 thousand and $1.59 million for the quarter and nine months ended September 30, 2010, compared to $441 thousand and $1.26 million for the same periods last year, a result of a combination of increased sales and better market performance. Revenue related to service charges on deposits decreased to $1.22 million for the third quarter of 2010 compared to $1.49 million for the third quarter of last year, and to $3.85 million for the first nine months of 2010 compared to $4.22 million for the same period last year. These decreases are primarily a result of reduced overdraft service charge revenue. Net overdraft fee revenue for the third quarter of 2010 was $1.00 million and was $3.20 million year to date, compared to $1.25 million for the third quarter of 2009 and $3.51 million for the first nine months of 2009. Reductions in overdraft fee revenue are almost entirely a result of legislative changes that went into effect on August 15, 2010. At this point it is not possible to predict the ultimate impact of the legislative change on future overdraft income. At the same time Other noninterest income increased to $1.08 million from $952 thousand for the third quarter of 2010 compared to 2009, and increased to $3.18 million from $2.88 million for the first nine months of 2010 compared to 2009. This increase is primarily a result of increased net debit card income. The recently enacted Dodd-Frank bill 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 what impact the changes will have on Merchants debit card revenue.

Total noninterest expense increased to $10.00 million from $9.80 million for the first nine months of 2010 compared to 2009; and decreased to $29.09 million from $29.68 million for the first nine months of 2010 compared to 2009. There were a number of increases and decreases that contributed to this overall decrease. Salaries and wages increased to $4.10 million and $11.70 million for the third quarter and first nine months of 2010 compared to $3.68 million and $10.30 million for the same periods in 2009. Merchants has added staff in its corporate banking and trust areas during 2010. Additionally, Merchants' strong results for the first nine months of 2010 compared to 2009 have led to a higher incentive accrual for 2010. Merchants' FDIC insurance expense for 2010 is lower than 2009 as a result of the $630 thousand special assessment recorded during the second quarter of 2009. Additionally, Merchants booked expense recoveries and gains during 2010 related to sales of OREO properties leading to a negative year to date expense of $299 thousand compared to an expense of $305 thousand for the first nine months of 2009. During 2009, Other noninterest expenses were negatively impacted by prepayment penalties on FHLB debt totaling $280 thousand for the third quarter of 2009 and $584 thousand for the first nine months of 2009.

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 Wednesday, October 27, 2010. Interested parties may participate in the conference call by dialing (800) 230-1085; 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 Wednesday, November 3, 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 143118.

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, 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)


                          09/30/10     12/31/09     09/30/09     12/31/08
                        -----------  -----------  -----------  -----------
Balance Sheets - Period
 End
Total assets            $ 1,482,295  $ 1,435,248  $ 1,405,994  $ 1,341,210
Loans                       906,906      918,538      929,236      847,127
Allowance for loan
 losses ("ALL")              10,090       10,976       11,177        8,894
Net loans                   896,816      907,562      918,059      838,233
Securities available
 for sale                   502,467      407,652      353,842      429,872
Securities held to
 maturity                       865        1,159        1,306        1,737
Federal Home Loan Bank
 ("FHLB") stock               8,630        8,630        8,630        8,523
Interest earning cash
 and other short-term
 investments                  7,239       47,714       70,282        5,130
Other assets                 66,278       62,531       53,875       57,715
Deposits                  1,072,649    1,043,319    1,030,802      930,797
Securities sold under
 agreement to
 repurchase and other
 short-term debt            175,133      179,718      122,421      124,408
Securities sold under
 agreement to
 repurchase, long-term       54,000       54,000       54,000       54,000
Other long-term debt         31,158       31,215       68,698      118,643
Junior subordinated
 debentures issued to
 unconsolidated
 subsidiary trust            20,619       20,619       20,619       20,619
Other liabilities            29,236       15,365       19,069       13,046
Shareholders' equity         99,500       91,012       90,385       79,697
Balance Sheets -
 Quarter-to-Date
 Averages
Total assets            $ 1,437,090  $ 1,412,900  $ 1,394,457  $ 1,320,845
Loans                       917,682      920,846      922,704      825,395
Allowance for loan
 losses                      10,461       11,510       10,958        8,596
Net loans                   907,221      909,336      911,746      816,799
Securities available
 for sale and FHLB
 stock                      424,116      371,059      367,979      436,712
Securities held to
 maturity                       920        1,224        1,374        2,187
Interest earning cash
 and other short-term
 investments                 29,933       63,553       53,576        2,420
Other assets                 74,900       67,728       59,782       62,727
Deposits                  1,059,591    1,037,955    1,026,527      946,534
Securities sold under
 agreement to
 repurchase and
 other short-term debt      160,738      148,282      115,447       96,736
Securities sold under
 agreement to
 repurchase, long-term       54,000       54,000       54,000       54,000
Other long-term debt         31,165       46,097       79,107      117,996
Junior subordinated
 debentures issued to
 unconsolidated
 subsidiary trust            20,619       20,619       20,619       20,619
Other liabilities            13,061       14,999       13,209        9,845
Shareholders' equity         97,916       90,948       85,548       75,115
Interest earning assets   1,372,651    1,356,682    1,345,633    1,266,714
Interest bearing
 liabilities              1,190,679    1,180,087    1,179,117    1,110,612
Ratios and Supplemental
 Information - Period
 End
Book value per share    $     17.00  $     15.65  $     15.55  $     13.89
Book value per
 share (1)              $     16.11  $     14.82  $     14.74  $     13.15
Tier I leverage ratio          8.13%        7.67%        7.41%        7.42%
Tangible capital
 ratio (2)                     6.71%        6.34%        6.43%        5.94%
Period end common
 shares outstanding (1)   6,174,524    6,141,823    6,131,175    6,061,182
Credit Quality - Period
 End
Nonperforming loans
 ("NPLs")               $     3,437  $    14,481  $    10,584  $    11,643
Nonperforming assets
 ("NPAs")               $     3,457  $    15,136  $    11,386  $    12,445
NPLs as a percent of
 total loans                   0.38%        1.58%        1.14%        1.37%
NPAs as a percent of
 total assets                  0.23%        1.05%        0.81%        0.93%
ALL as a percent of
 NPLs                           294%          76%         106%          76%
ALL as a percent of
 total loans                   1.11%        1.19%        1.20%        1.05%

(1) This book value and period end common shares outstanding includes
    321,776; 326,453; 320,371 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.



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


                                                      For the Nine Months
                                                       Ended September 30,
                                                       2010        2009
                                                    ----------- -----------
Balance Sheets - Year-to-Date Averages
Total assets                                        $ 1,422,259 $ 1,364,154
Loans                                                   914,828     895,090
Allowance for loan losses                                10,586      10,066
Net loans                                               904,242     885,024
Securities available for sale and FHLB stock            420,339     392,069
Securities held to maturity                               1,009       1,516
Interest earning cash and other short-term
 investments                                             24,099      27,421
Other assets                                             72,570      58,124
Deposits                                              1,044,308     992,261
Securities sold under agreement to repurchase and
 other short-term debt                                  164,571     104,313
Securities sold under agreement to repurchase,
 long-term                                               54,000      54,000
Other long-term debt                                     31,190      96,340
Junior subordinated debentures issued to
 unconsolidated subsidiary trust                         20,619      20,619
Other liabilities                                        12,654      13,502
Shareholders' equity                                     94,917      83,119
Interest earning assets                               1,360,275   1,316,096
Interest bearing liabilities                          1,189,199   1,156,444



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


                                For the Three Months  For the Nine Months
                                 Ended September 30,   Ended September 30,
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Operating Results
Interest income
Interest and fees on loans      $  11,584  $  12,079  $  34,675  $  35,791
Interest and dividends on
 investments                        3,585      4,500     11,183     14,536
Total interest and dividend
 income                            15,169     16,579     45,858     50,327
Interest expense
Deposits                            1,352      2,235      4,338      7,751
Short-term borrowings                 374        201      1,164        333
Long-term debt                      1,013      1,447      3,020      4,831
Total interest expense              2,739      3,883      8,522     12,915
Net interest income                12,430     12,696     37,336     37,412
(Credit) provision for credit
 losses                              (400)       600        200      3,500
Net interest income after
 provision for credit losses       12,830     12,096     37,136     33,912
Noninterest income
Trust Company income                  539        441      1,590      1,255
Service charges on deposits         1,219      1,490      3,853      4,217
Gain (loss) on investment
 securities, net                      685        261      1,897         56
Other-than-temporary impairment
 losses on securities                 (89)        --       (169)        --
Equity in losses of real estate
 limited partnerships, net           (408)      (542)    (1,263)    (1,466)
Other noninterest income            1,079        952      3,182      2,875
Total noninterest income            3,025      2,602      9,090      6,937
Noninterest expense
Salaries and wages                  4,097      3,675     11,704     10,300
Employee benefits                   1,047      1,091      3,420      3,685
Occupancy and equipment
 expenses                           1,661      1,587      4,892      4,789
Legal and professional fees           596        553      1,851      1,899
Marketing expenses                    332        363      1,013      1,142
State franchise taxes                 298        266        872        866
FDIC Insurance                        345        393      1,065      1,649
Other real estate owned                91         87       (299)       305
Other noninterest expense           1,536      1,788      4,572      5,045
Total noninterest expense          10,003      9,803     29,090     29,680
Income before provision for
 income taxes                       5,852      4,895     17,136     11,169
Provision for income taxes          1,350      1,181      4,219      2,486
Net income                      $   4,502  $   3,714  $  12,917  $   8,683
Ratios and Supplemental
 Information
Weighted average common shares
 outstanding                    6,172,479  6,120,199  6,162,049  6,094,398
Weighted average diluted shares
 outstanding                    6,176,434  6,121,585  6,163,535  6,096,370
Basic earnings per common share $    0.73  $    0.61  $    2.10  $    1.42
Diluted earnings per common
 share                          $    0.73  $    0.61  $    2.10  $    1.42
Return on average assets             1.25%      1.07%      1.21%      0.85%
Return on average shareholders'
 equity                             18.39%     17.37%     18.14%     13.93%
Net interest rate spread             3.58%      3.61%      3.63%      3.64%
Net interest margin                  3.70%      3.77%      3.75%      3.81%
Net recoveries (charge-offs) to
 Average Loans                       0.05%      0.01%    (0.14%)    (0.10%)
Net recoveries (charge-offs)    $     415  $      95  $  (1,282)  $   (884)
Efficiency ratio (1)                61.42%     58.51%     60.73%     59.70%

(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 September 30, 2010, the Bank had off-balance sheet liabilities
      in the form of standby letters of credit to customers in the amount
      of $4.00 million.


Contact Information

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