SOUTH BURLINGTON, Vt., July 29 /PRNewswire-FirstCall/ -- Merchants Bancshares, Inc. , the parent company of Merchants Bank, today announced net income of $2.06 million and $4.97 million, or diluted earnings per share of $0.34 and $0.82, for the quarter and six months ended June 30, 2009, respectively. This compares with net income of $2.88 million and $5.54 million, or diluted earnings per share of $0.47 and $0.91, for the second quarter and first half of the previous year, respectively. The return on average assets for the quarter and six months ended June 30, 2009 was 0.61% and 0.74%, respectively, compared to 0.90% and 0.89% for the same periods in 2008. The return on average equity for the quarter and six months ended June 30, 2009 was 9.87% and 12.14%, respectively, compared to 15.26% and 14.54% for the same periods in 2008. Merchants declared a dividend on July 16, 2009, of 28 cents per share payable August 13, 2009, to shareholders of record as of July 30, 2009.
There were several specific events that negatively impacted Merchants earnings for the second quarter of 2009. Merchants recorded a $625 thousand expense related to the FDIC's special assessment on all banks during the quarter. Additionally, Merchants recorded a $2.00 million loan loss provision during the second quarter of 2009, bringing the total provision expense to $2.90 million for the first six months of this year; compared to $50 thousand for the second quarter of 2008, and $350 thousand for the first six months of 2008. The higher provision expense during 2009 was primarily a result of increases in nonperforming and classified loans and net charge-offs. Lastly, as a result of strong deposit growth during the quarter, Merchants was able to pre-pay $18 million of relatively expensive FHLB debt, and incurred a $304 thousand prepayment penalty as a result. Merchants estimates that it will earn back this prepayment penalty in approximately six months.
"We experienced strong growth in both loans and deposits, net interest income continues to set new records for us, and we feel we are well positioned for a solid second half of the year," said Michael R. Tuttle, Merchants' President and CEO. "Our performance for the second quarter was negatively impacted by previously mentioned events as well as some deterioration in asset quality."
Merchants' net interest income for the second quarter of 2009 was $12.38 million, an 18.0% increase over the same period in 2008; Merchants' net interest income for the first half of 2009 was $24.72 million, a 22.8% increase over the same period last year. Merchants' net interest margin for the second quarter of 2009 was 3.81%, a 33 basis point increase over the same period in 2008. The increase in net interest income and net interest margin was primarily a result of strong growth in both loans and deposits, and a result of funding costs falling more rapidly than asset repricing. Merchants' net interest margin compressed by four basis points on a linked-quarter basis. This compression was a result of strong deposit growth and investment portfolio cash flows which outpaced loan demand. Increased deposits and investment portfolio cash flows that were not redeployed into the loan portfolio were used in part to pay down FHLB advances as mentioned previously. The balance was invested short term at current low interest rates, contributing to the four basis points decrease in the margin.
Merchants' quarterly average loans were $895.98 million, an increase of 17.5% over the second quarter of 2008 average of $762.76 million, and were $30.02 million, or 3.47% higher on a linked-quarter basis. Loans ended the second quarter of 2009 at $896.09 million, a 5.8% increase over December 31, 2008 ending balances of $847.13 million. The increase since December 31, 2008 is made up of residential and commercial mortgages, and commercial loans. Tuttle commented, "Loan growth was strong during the first half of 2009, but slowed down substantially during the most recent quarter. The continuing deep recession has served to depress loan demand and limit the pool of strong credit prospects. Strong residential refinancing demand has continued, but at a slower pace than the first quarter."
Quarter end loans balances were as follows: (In thousands) June 30, 2009 March 31, 2009 December 31, 2008 -------------- ------------- -------------- ------------ Commercial, financial and agricultural $135,031 $140,866 $129,032 Real estate loans - residential 436,423 423,161 395,834 Real estate loans - commercial 291,321 279,041 273,526 Real estate loans - construction 24,555 40,478 40,357 Installment loans 7,834 7,545 7,670 All other loans 923 1,488 708 --------------- --- ----- --- Total loans $896,087 $892,579 $847,127 =========== ======== ======== ========
Merchants' investment portfolio totaled $374.30 million at June 30, 2009, a decrease of $57.31 million from December 31, 2008 ending balances of $431.61 million. This decrease is a result of Merchants decision to use most of the cash flows from the investment portfolio to fund loan growth. Investments purchased during the last year have consisted exclusively of government agency bonds. With the exception of six bonds with a current aggregate book value of $10.38 million, all securities in Merchants' investment portfolio were either Agency guaranteed or rated AAA by all rating agencies at June 30, 2009. Merchants has no corporate debt exposure in its investment portfolio and does not own any perpetual preferred stock in FHLMC or FNMA, nor any interests in pooled trust preferred securities.
Quarterly average deposits were $1.00 billion, an increase of 8.6%, over second quarter 2008 average balances of $921.88 million. Deposits ended the quarter at $1.02 billion, an increase of 9.1% over year-end 2008 balances of $930.80 million. Approximately $17.28 million of the new deposit growth is attributable to Merchants' new government banking group. Merchants hired two experienced government banking officers during 2008, who provide depository, lending and other banking services to municipalities, school districts and other governmental authorities or agencies in Merchants' service area.
Merchants' capital levels remain strong at June 30, 2009 with a Tier 1 leverage ratio of 7.41% and a tangible capital ratio of 6.25%. Merchants will seek to maximize its use of capital through an emphasis on continued growth of its core franchise, while limiting additional leverage through a continued shift of its asset and liability mix.
Merchants recorded a $2.00 million provision for credit losses during the second quarter of 2009 and $2.90 million year-to-date, compared to $50 thousand and $350 thousand for the second quarter and first six months of 2008, respectively. The increase in the provision during the second quarter of this year is primarily a result of increased levels of non-performing and classified loans, combined with increased net charge-offs, continued economic uncertainty and strong loan growth over the first six months of 2009. Merchants net charge-offs for the first six months of this year were $979 thousand compared to net recoveries of $65 thousand for the same period in 2008. Nonperforming loans increased $2.00 million to $13.65 million at June 30, 2009 from $11.64 million at December 31, 2008. Management made progress in collection efforts for loans in non-accrual status at December 31, 2008, which were reduced by approximately 13%. However, this progress was more than offset by management's decision to place a number of additional commercial relationships into non-accruing status during the first half of 2009. The allowance for loan losses at June 30, 2009 was $10.60 million; 1.18% of total loans and 78% of nonperforming loans at June 30, 2009. "We are closely monitoring the operating performance of our customers, and actively managing credit risk," Tuttle commented. "We expect that this will continue to be a major point of focus for the balance of 2009 and into 2010. To date we have seen limited evidence of any improvement in the economy. "
Noninterest income, excluding gains/losses on investment securities, increased slightly to $2.41 million for the second quarter of 2009 from $2.31 million for the second quarter of 2008, and to $4.54 million for the first half of 2009, from $4.47 million for the first half of last year. Trust Company income decreased during 2009. Although Merchants has experienced increases in overall trust relationships, these increases have not generated enough additional revenue to offset lost revenue due to market value declines in the current volatile environment. Merchants experienced slight increases in its net overdraft income for the second quarter of 2009 compared to last year, which made up for decreases in this fee category in the first quarter of 2009. On a year to date basis, service charges on deposits for 2009 are slightly higher than 2008.
Total noninterest expenses increased $1.39 million, or 15.5%, to $10.34 million for the second quarter of 2009 from $8.95 million for the second quarter of 2008, and by $2.81 million, or 16.4% to $19.88 million for the first half of 2009 from $17.07 million for the same period last year. The largest increase was in Merchants' expenses related to FDIC insurance which have increased by $1.21 million year to date. As mentioned previously, Merchants recorded a $625 thousand estimated expense related to the FDIC's special assessment during the quarter. Additionally, Merchants' year-to-date FDIC insurance expense, excluding the special assessment, increased $581 thousand to $631 thousand from $50 thousand for the first half of 2009 compared to 2008. Merchants also prepaid $18 million in FHLB debt during the quarter, resulting in a $304 thousand prepayment penalty which is included in Other Expenses. Salaries and Wages decreased slightly for the second quarter of 2009 compared to 2008, but have increased for the first half of this year compared to last year. The year to date increase is a result of normal pay increases combined with additional staff that Merchants hired in the corporate banking, executive and trust areas over the course of 2008. The decrease for the second quarter is the result of lower anticipated incentive payouts for 2009 compared to 2008. Employee benefits have also increased for 2009. The largest year over year increases were in health insurance costs and pension plan expenses.
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 9:30 a.m. Eastern Time on Friday, July 31, 2009. 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 Friday, August 7, 2009. 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 967738.
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. Please visit http://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 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) (Dollars in thousands except share and per share data) 06/30/09 12/31/08 06/30/08 12/31/07 -------- -------- -------- -------- Balance Sheets - Period End Total assets $1,355,583 $1,341,210 $1,292,325 $1,170,743 Loans 896,087 847,127 774,194 731,508 Allowance for loan losses ("ALL") 10,605 8,894 8,439 8,002 Net loans 885,482 838,233 765,755 723,506 Securities available for sale 372,876 429,872 441,834 361,512 Securities held to maturity 1,425 1,737 3,445 4,078 Federal Home Loan Bank ("FHLB") stock 8,630 8,523 6,748 5,114 Federal funds sold and other short-term investments 260 111 6,110 20,100 Other assets 86,910 62,734 68,433 56,433 Deposits 1,015,398 930,797 945,644 867,437 Securities sold under agreement to repurchase and other short-term debt 83,787 124,408 82,168 98,917 Securities sold under agreement to repurchase, long-term 54,000 54,000 74,000 41,500 Other long-term debt 83,129 118,643 86,640 62,117 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 13,900 13,046 9,602 4,846 Shareholders' equity 84,750 79,697 73,652 75,307 Balance Sheets - Quarter-to-Date Averages Total assets $1,353,776 $1,320,845 $1,277,824 $1,169,811 Loans 895,981 825,395 762,761 730,688 Allowance for loan losses 9,985 8,596 8,423 7,840 Net loans 885,996 816,799 754,338 722,848 Securities available for sale and FHLB stock 385,715 436,712 441,916 340,598 Securities held to maturity 1,511 2,187 3,618 4,247 Federal funds sold and other short-term investments 23,082 2,420 7,627 38,227 Other assets 57,472 62,727 70,325 63,891 Deposits 1,000,914 946,534 921,884 874,406 Securities sold under agreement to repurchase and other short-term debt 83,949 96,736 89,785 94,785 Securities sold under agreement to repurchase, long-term 54,000 54,000 71,143 35,646 Other long-term debt 96,223 117,996 82,682 60,811 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 14,474 9,845 16,094 10,780 Shareholders' equity 83,597 75,115 75,617 72,764 Interest earning assets 1,306,289 1,266,714 1,215,922 1,113,760 Interest bearing liabilities 1,149,207 1,110,612 1,073,468 958,669 Ratios and Supplemental Information - Period End Book value per share $14.65 $13.89 $12.81 $13.05 Book value per share (1) $13.90 $13.15 $12.15 $12.35 Tier I leverage ratio 7.41% 7.42% 7.43% 8.14% Tangible capital ratio (2) 6.25% 5.94% 5.70% 6.42% Period end common shares outstanding (1) 6,098,608 6,061,182 6,061,570 6,096,737 Credit Quality - Period End Nonperforming loans ("NPLs") $13,650 $11,643 $5,335 $9,231 Nonperforming assets ("NPAs") $14,452 $12,445 $5,335 $9,706 NPLs as a percent of total loans 1.52% 1.37% 0.69% 1.26% NPAs as a percent of total assets 1.07% 0.93% 0.41% 0.83% ALL as a percent of NPLs 78% 76% 158% 87% ALL as a percent of total loans 1.18% 1.05% 1.09% 1.09% (1) This book value and period end common shares outstanding includes 314,520; 323,754; 311,638 and 325,789 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, 2009 2008 ---- ---- Balance Sheets - Year to-Date Averages Total assets $1,348,751 $1,240,145 Loans 881,054 750,187 Allowance for loan losses 9,613 8,275 Net loans 871,441 741,912 Securities available for sale and FHLB stock 404,312 408,193 Securities held to maturity 1,589 3,778 Federal funds sold and other short-term investments 14,127 17,131 Other assets 57,282 69,131 Deposits 974,844 900,365 Securities sold under agreement to repurchase and other short-term debt 98,654 88,995 Securities sold under agreement to repurchase, long-term 54,000 60,621 Other long-term debt 105,099 78,667 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 Other liabilities 13,650 14,665 Shareholders' equity 81,885 76,213 Interest earning assets 1,301,082 1,179,289 Interest bearing liabilities 1,144,919 1,034,444 For the Three Months For the Six Months Ended Ended June 30, June 30, 2009 2008 2009 2008 ---- ---- ---- ---- Operating Results Interest income Interest and fees on loans $11,944 $11,373 $23,712 $22,939 Interest and dividends on investments 4,769 5,569 10,036 10,452 Total interest and dividend income 16,713 16,942 33,748 33,391 Interest expense Deposits 2,680 4,378 5,516 8,894 Short-term borrowings 47 415 132 1,053 Long-term debt 1,611 1,659 3,384 3,316 Total interest expense 4,338 6,452 9,032 13,263 Net interest income 12,375 10,490 24,716 20,128 Provision for credit losses 2,000 50 2,900 350 Net interest income after provision for credit losses 10,375 10,440 21,816 19,778 Noninterest income Trust Company income 413 473 814 978 Service charges on deposits 1,489 1,356 2,727 2,647 (Loss) gain on investment securities -- -- (205) 82 Equity in losses of real estate limited partnerships, net (461) (461) (924) (924) Other noninterest income 965 937 1,923 1,765 Total noninterest income 2,406 2,305 4,335 4,548 Noninterest expense Salaries and wages 3,200 3,255 6,625 6,352 Employee benefits 1,334 936 2,594 1,868 Occupancy and equipment expenses 1,563 1,491 3,202 3,043 Legal and professional fees 657 696 1,346 1,279 Marketing expenses 438 592 779 996 State franchise taxes 302 278 600 550 FDIC Insurance 942 25 1,256 50 Other noninterest expense 1,899 1,677 3,475 2,936 Total noninterest expense 10,335 8,950 19,877 17,074 Income before provision for income taxes 2,446 3,795 6,274 7,252 Provision for income taxes 383 911 1,305 1,711 Net income $2,063 $2,884 $4,969 $5,541 Ratios and Supplemental Information Weighted average common shares outstanding 6,094,912 6,069,476 6,081,497 6,077,131 Weighted average diluted shares outstanding 6,097,571 6,081,387 6,084,156 6,089,041 Basic earnings per common share $0.34 $0.48 $0.82 $0.91 Diluted earnings per common share $0.34 $0.47 $0.82 $0.91 Return on average assets 0.61% 0.90% 0.74% 0.89% Return on average shareholders' equity 9.87% 15.26% 12.14% 14.54% Net interest rate spread 3.63% 3.19% 3.65% 3.12% Net interest margin 3.81% 3.48% 3.84% 3.44% Net (charge-offs) recoveries to Average Loans -0.07% 0.01% -0.11% 0.01% Net (charge-offs) recoveries ($631) $55 ($979) $65 Efficiency ratio (1) 65.14% 64.79% 63.43% 64.24% (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, 2009, the Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $4.27 million.
Merchants Bancshares, Inc.
CONTACT: Lisa Razo, Merchants Bank, +1-802-865-1838
Web Site: http://www.mbvt.com/
