SOUTH BURLINGTON, Vt., Oct. 23 /PRNewswire-FirstCall/ -- Merchants Bancshares, Inc. , the parent company of Merchants Bank, today announced net income of $3.31 million, or diluted earnings per share of $0.55, for the quarter ended September 30, 2008, a $683 thousand, or 26%, increase over net income of $2.63 million for the third quarter of 2007 and a $0.12, or 28% increase over diluted earnings per share of $0.43 for the third quarter of 2007. The return on average assets for the third quarter of 2008 and 2007 was 1.01% and 0.94%, respectively. The return on average equity for the third quarter of 2008 and 2007 was 17.98% and 15.04%, respectively. Merchants declared a dividend on October 16, 2008, of 28 cents per share payable November 13, 2008, to shareholders of record as of October 30, 2008.
"In contrast to the volatility evidenced in the daily headlines, Merchants had a very productive and successful third quarter," said Michael R. Tuttle, Merchants' President and CEO. "For the third quarter of this year, versus the same quarter last year, net income was up by 26%, earnings per share were up by 28%, and net interest income was up by 20%. Loans and deposits continued to demonstrate strong growth during the quarter. Merchants is well positioned to serve our markets in the current environment and we provide a stable, secure, and reliable resource for our depositors and borrowing customers."
Merchants' net interest income increased $1.92 million, or 20%, for the third quarter of 2008 compared to 2007 and increased $936 thousand, or 9%, on a linked quarter basis. These increases are a result of strong growth in both loans and deposits, and a result of the leverage that Merchants has put on over the last year to take advantage of the favorable interest rate environment. Average interest earning assets for the quarter were $1.26 billion, compared to $1.06 billion for the third quarter of 2007. Merchants' net interest margin for the third quarter of 2008 was 3.63%, six basis points higher than the third quarter of 2007, and 15 basis points higher than the second quarter of the current year. The increase in the net interest margin from the second quarter of 2008 to the third quarter was primarily a result of lower overall funding costs.
Merchants' quarterly average investment portfolio was $449.60 million, an increase of $151.09 million over the same quarter of 2007; and was $4.06 million higher on a linked quarter basis. Investments purchased during the last year have consisted exclusively of government agency mortgage backed securities. With the exception of one AA rated security, all securities in Merchants' investment portfolio were either Agency guaranteed or rated AAA at September 30, 2008.
Quarterly average loans were $800.13 million, an increase of $72.97 million, or 10% over the third quarter of 2007, and were $37.37 million, or 5%, higher on a linked quarter basis. Loans ended the third quarter of 2008 at $814.60 million, an increase of $83.09 million over December 31, 2007 ending balances of $731.51 million. The increase since December 31, 2007 is primarily comprised of residential and commercial mortgages, and commercial loans. "The system-wide stress in credit markets has provided us with numerous opportunities to expand market share with strong, credit worthy borrowers. We have added personnel to take advantage of these selected opportunities," commented Tuttle.
Non-performing assets increased to $11.59 million at September 30, 2008, from $9.71 million at December 31, 2007, and $5.34 million at June 30, 2008. Tuttle remarked, "The increase in non-performing assets during the third quarter is a result of two commercial accounts that witnessed significant deterioration in their business during the quarter. We have been monitoring and working with these accounts closely for an extended period of time. Non- performing assets levels are still very manageable." Merchants recorded a $575 thousand provision for loan losses during the third quarter, compared to $700 thousand for the same quarter of last year, and $50 thousand for the second quarter of the current year. Increased loan production, as well as increased non-performing loans and net charge-offs, resulted in a higher provision for the third quarter of 2008, compared to the first two quarters of 2008. Net charge-offs for the third quarter of 2008 were $647 thousand and were $582 thousand for the first nine months of 2008, compared to net charge-offs of $158 thousand for the third quarter of 2007 and $107 thousand for the first nine months of last year.
The allowance for loan losses at September 30, 2008 stood at $8.37 million, 1.03% of total loans at September 30, 2008, compared to $8.00 million, 1.09% of total loans at December 31, 2007; and $7.73 million, 1.05% of total loans at September 30, 2007.
Quarterly average deposits were $947.68 million, an increase of $75.71 million, or 8% over the same quarter of 2007 and were $25.79 million, or 3%, higher on a linked quarter basis. Deposits ended the quarter at $949.52 million, an increase of $82.08 million over year end balances of $867.44 million. Much of that increase was concentrated in time deposits which have increased by $51.92 million during 2008. Merchants' savings, NOW and money market accounts have grown $25.94 million during 2008, while demand deposits have increased $4.22 million.
Total non-interest income decreased slightly to $2.29 million for the third quarter of 2008 from $2.32 million for the third quarter of 2007. Non- interest income excluding gains/losses on investment securities decreased slightly to $6.75 million for the first nine months of 2008, compared to $6.81 million for the first nine months of 2007.
Total non-interest expense increased $1.06 million to $8.78 million for the third quarter of 2008 from $7.72 million for the third quarter of 2007; and increased $1.72 million to $25.86 million for the first nine months of 2008, compared to 2007. Salaries and Employee benefits increased $655 thousand to $4.51 million for the third quarter of 2008 compared to 2007, and increased $1.07 million to $12.73 million for the first nine months of 2008, compared to 2007. This increase is primarily a result of additional staff that we have hired in the corporate banking, executive and trust areas during 2008; as well as increases in health insurance costs. Legal and professional fees were $629 thousand for the quarter, a $106 thousand increase over last year, and were $1.91 million for the first nine months of the year, compared to $1.76 million for the same period in 2007. These increases are a result of a combination of overall increased third party provider fees and professional fees related to specific projects. Marketing expenses increased $60 thousand to $342 thousand for the third quarter of 2008 compared to 2007, and $437 thousand to $1.34 million for the first nine months of this year, compared to last year. Other non-interest expenses increased $197 thousand to $1.57 million for the third quarter of 2008 compared to 2007, and decreased $42 thousand to $4.56 million for the first nine months of 2008, compared to 2007. Merchants experienced large increases in its FDIC insurance premiums and state assessment fees during 2008. Additionally, most categories of operating expenses have increased for 2008 compared to 2007.
Mr. Michael Tuttle, Merchants' President and Chief Executive Officer; and Ms. Janet Spitler, Merchants' Chief Financial Officer, will host a conference call to discuss these earnings results at 9:00 a.m. Eastern Time on Wednesday, October 29, 2008. Interested parties may participate in the conference call by dialing (888) 423-3273; the title of the call is Earnings Release Conference Call 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 5, 2008. 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 902418.
Vermont Matters.(R) The continuing mission of Merchants Bank is to provide Vermonters with a statewide community bank that blends a strong technology platform with a genuine appreciation for local markets. Merchants Bank fulfills this commitment through a branch-based system that includes 36 community bank offices and 44 ATMs throughout Vermont, Personal Bankers dedicated to top-quality customer service and streamlined solutions, including: Personal Checking and Savings with Free Checking for Life(R), Cash Rewards Checking, a low-cost Money Market Account, Free Online Banking and Bill Pay, Overdraft Coverage, Direct Deposit, Free Debit Card, and Free Automated Phone Banking; Business Banking with Rewards Checking for Business, Business Online Banking and Bill Pay, Business Lines of Credit and Merchant Card Processing; Small Business Loans; Health Savings Accounts; Credit Cards; Flexible Certificates of Deposit; Vehicle Loans; Home Equity Credit; and Home Mortgages. Visit mbvt.com for more information. 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 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 report, 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) (In thousands except share and per share data) 09/30/08 12/31/07 09/30/07 12/31/06 Balance Sheets - Period End Total assets $1,317,312 $1,170,743 $1,116,079 $1,136,958 Loans 814,598 731,508 739,175 689,283 Allowance for loan losses ("ALL") 8,367 8,002 7,726 6,911 Net loans 806,231 723,506 731,449 682,372 Securities available for sale 436,021 361,512 298,338 333,958 Securities held to maturity 3,174 4,078 4,395 5,615 Federal funds sold and other short-term investments 111 20,100 15,500 42,000 Other assets 71,775 61,547 66,397 73,013 Deposits 949,521 867,437 866,948 877,352 Securities sold under agreement to repurchase and other short-term debt 89,298 98,917 84,484 90,547 Securities sold under agreement to repurchase, long-term 54,000 41,500 20,000 20,000 Other long-term debt 117,758 62,117 44,586 53,863 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 9,295 4,846 7,435 4,880 Shareholders' equity 76,821 75,307 72,007 69,697 Balance Sheets - Quarter- to-Date Averages Total assets $1,307,023 $1,169,811 $1,113,404 $1,130,370 Loans 800,126 730,688 727,159 685,284 Allowance for loan losses 8,509 7,840 7,217 6,882 Net loans 791,617 722,848 719,942 678,402 Securities available for sale and FHLB stock 446,687 340,598 298,195 352,393 Securities held to maturity 2,909 4,247 5,424 5,615 Federal funds sold and other short-term investments 5,664 38,227 26,389 26,815 Other assets 60,146 63,891 63,454 67,145 Deposits 947,674 874,406 871,969 864,966 Securities sold under agreement to repurchase and other short-term debt 82,794 94,785 80,579 92,779 Securities sold under agreement to repurchase, long-term 72,913 35,646 20,000 20,000 Other long-term debt 99,355 60,811 44,843 55,778 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 9,979 10,780 5,458 6,710 Shareholders' equity 73,689 72,764 69,936 69,518 Interest earning assets 1,255,387 1,113,760 1,057,167 1,070,107 Interest bearing liabilities 1,100,447 958,669 913,927 930,485 Ratios and Supplemental Information - Period End Book value per share $13.40 $13.05 $12.43 $11.87 Book value per share (1) $12.70 $12.35 $11.78 $11.25 Tier I leverage ratio 7.50% 8.14% 8.45% 8.24% Tangible capital ratio 5.83% 6.42% 6.44% 6.11% Period end common shares outstanding (1) 6,049,720 6,096,737 6,113,818 6,196,328 Credit Quality - Period End Nonperforming loans ("NPLs") $11,594 $9,231 $9,934 $2,698 Nonperforming assets ("NPAs") $11,594 $9,706 $9,934 $2,956 NPLs as a percent of total loans 1.42% 1.26% 1.34% 0.39% NPAs as a percent of total assets 0.88% 0.83% 0.89% 0.26% ALL as a percent of NPLs 72% 87% 78% 256% ALL as a percent of total loans 1.03% 1.09% 1.05% 1.00%
(1) This book value and period end common shares outstanding includes 317,161; 325,789; 321,753; and 323,038 Rabbi Trust shares for the periods noted above, respectively.
Merchants Bancshares, Inc. Financial Highlights (unaudited) (In thousands except share and per share data) For the Three Months For the Nine Months Ended Ended September 30, September 30, 2008 2007 2008 2007 Operating Results Interest income Interest and fees on loans $11,875 $12,073 $34,814 $35,282 Interest and dividends on investments 5,742 3,911 16,194 12,753 Total interest and dividend income 17,617 15,984 51,008 48,035 Interest expense Deposits 3,966 4,518 12,860 13,409 Short-term borrowings 356 839 1,409 2,603 Long-term debt 1,869 1,125 5,185 3,438 Total interest expense 6,191 6,482 19,454 19,450 Net interest income 11,426 9,502 31,554 28,585 Provision for credit losses 575 700 925 850 Net interest income after provision for credit losses 10,851 8,802 30,629 27,735 Noninterest income Trust Company income 457 492 1,435 1,451 Service charges on deposits 1,354 1,364 4,001 4,013 Gain (Loss) on investment securities -- (60) 82 (97) Equity in losses of real estate limited partnerships, net (463) (423) (1,387) (1,267) Other noninterest income 938 951 2,703 2,615 Total noninterest income 2,286 2,324 6,834 6,715 Noninterest expense Salaries, wages and employee benefits 4,508 3,853 12,728 11,656 Occupancy and equipment expenses 1,482 1,467 4,525 4,495 Legal and professional fees 629 523 1,908 1,758 Marketing expenses 342 282 1,338 901 State franchise taxes 253 222 803 733 Other noninterest expense 1,569 1,372 4,555 4,597 Total noninterest expense 8,783 7,719 25,857 24,140 Income before provision for income taxes 4,354 3,407 11,606 10,310 Provision for income taxes 1,042 778 2,753 2,368 Net income $3,312 $2,629 $8,853 $7,942 Ratios and Supplemental Information Weighted average common shares outstanding 6,065,705 6,123,080 6,073,322 6,160,863 Weighted average diluted shares outstanding 6,073,138 6,139,247 6,084,250 6,177,262 Basic earnings per common share $0.55 $0.43 $1.46 $1.29 Diluted earnings per common share 0.55 0.43 1.46 1.29 Return on average assets 1.01% 0.94% 0.93% 0.95% Return on average shareholders' equity 17.98% 15.04% 15.66% 15.14% Net interest rate spread 3.35% 3.19% 3.20% 3.23% Net interest margin 3.63% 3.57% 3.51% 3.60% Efficiency ratio (1) 60.31% 61.49% 62.83% 62.50%
(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, 2008, the Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $4.74 million.
