SOUTH BURLINGTON, Vt., Oct. 29 /PRNewswire-FirstCall/ -- Merchants Bancshares, Inc. , the parent company of Merchants Bank, today announced net income of $3.71 million and $8.68 million, or diluted earnings per share of $0.61 and $1.42, for the quarter and nine months ended September 30, 2009, respectively. This compares with net income of $3.31 million and $8.85 million, or diluted earnings per share of $0.55 and $1.46, for the third quarter and first nine months of the previous year, respectively.
The return on average assets for the quarter and nine months ended September 30, 2009 was 1.07% and 0.85%, respectively, compared to 1.01% and 0.93% for the same periods in 2008. The return on average equity for the quarter and nine months ended September 30, 2009 was 17.37% and 13.93%, respectively, compared to 17.98% and 15.66% for the same periods in 2008. Merchants declared a dividend on October 15, 2009, of 28 cents per share payable November 12, 2009, to shareholders of record as of October 29, 2009. "We are very pleased with these results. While the economy continues to present a challenging environment we continue to experience good growth in both loans and deposits," commented Michael R. Tuttle, Merchants' President and Chief Executive Officer.
Merchants' taxable equivalent net interest income increased $1.34 million, or 11.7%, to $12.79 million for the third quarter of 2009 compared to 2008. Merchants' net interest margin increased 14 basis points to 3.77% over the same time frame. For the nine months ended September 30, 2009 Merchants' taxable equivalent net interest income increased $5.94 million, or 18.8%, to $37.55 million for 2009 compared to 2008; and Merchants' net interest margin increased by 30 basis points to 3.81%. These year-over-year increases in Merchants' taxable equivalent net interest income for both the three and nine months ended September 30, 2009 were driven by a combination of an increase in average interest earning assets, a shift in the composition of the balance sheet, and lower funding costs during 2009. "Net interest income is setting new records for our company. This has been, and will continue to be, the primary driver of our profitability," stated Mr. Tuttle.
Compared to the second quarter of this year, Merchants' taxable equivalent net interest income increased $382 thousand, while its margin compressed by four basis points. Merchants' cash position has more than doubled over the last quarter, a result of balance sheet changes discussed further below, creating a drag on the margin. Merchants is working to deploy this cash by purchasing high quality Agency investments, and by prepaying Federal Home Loan Bank debt.
Merchants' loan balances ended the third quarter of 2009 at $929.24 million, an increase of $82.11 million or 9.7%, over December 31, 2008 ending balances of $847.13 million and were $33.15 million, or 3.7% higher on a linked quarter basis. Loan growth has generally been strong during 2009. Merchants hired three experienced Government Banking officers beginning in December of 2008, and as a result experienced significant growth in its municipal loan portfolio. The municipal loan category has increased to $40.79 million at September 30, 2009 from $2.77 million at the end of 2008.
(In thousands) September 30, 2009 June 30, 2009 December 31, 2008 --------------- ------------------ ------------- ----------------- Commercial, financial and agricultural loans $122,104 $127,341 $126,266 Municipal loans 40,793 7,690 2,766 Real estate loans - residential 434,757 436,423 395,834 Real estate loans - commercial 294,318 291,321 273,526 Real estate loans - construction 28,886 24,555 40,357 Installment loans 7,572 7,834 7,670 All other loans 806 923 708 --------------- ------- ------- ------- Total loans $929,236 $896,087 $847,127 =========== ======== ======== ========
Merchants' investment portfolio totaled $355.15 million at September 30, 2009, a decrease of $76.46 million from fourth quarter 2008 balances and a decrease of $19.15 million from the second quarter of this year. Merchants has been working to decrease its credit exposure in the non-Agency sector of the investment portfolio. During the third quarter Merchants sold its entire portfolio of Commercial mortgage backed securities and several of its non-Agency CMOs; the book value of the bonds sold was $25.00 million. Merchants recognized a net gain of $261 thousand on the sale. Merchants has been reinvesting in the investment portfolio, but has found it challenging to find high quality Agency backed investments at an acceptable yield in the current environment.
Quarterly average deposits were $1.03 billion, an increase of $78.85 million, or 8.3%, over the same quarter of 2008. Ending balances at September 30, 2009 were $1.03 billion, an increase of $100.00 million, or 10.7% over 2008 ending balances of $930.80. Approximately $24.20 million of the new deposit growth is attributable to Merchants' government banking group. Merchants' time deposits grew $28.16 million to $413.28 million at September 30, 2009, compared to $385.12 million at December 31, 2008. Merchants' Savings, NOW and money market balances increased $65.82 million to $493.77 million, compared to $427.95 million at year-end 2008 while demand deposits increased $6.03 million.
The combination of growth in deposits discussed above along with previously mentioned decreases in the investment portfolio allowed Merchants to both reduce its short-term borrowed funds position to zero at September 30, 2009 from $28 million at December 31, 2008, and to pre-pay $27 million of long-term FHLB debt during 2009. Merchants' ending long-term debt position decreased to $68.70 million for the third quarter of 2009, compared to $118.64 million for the fourth quarter of last year, and $83.13 million for the second quarter of 2009. Merchants' ending cash management sweep balances increased to $121.30 million for the third quarter of this year from $92.41 million at year-end. Of the quarter-end cash management sweep balances, approximately $45.28 million are attributable to the government banking space. Additional excess funds that were not absorbed by the loan portfolio or redeployed into the investment portfolio were left on deposit with the Federal Reserve Bank where they earned interest at the Federal funds rate.
The Provision for credit losses was $600 thousand for the third quarter, compared to $575 thousand for the third quarter of 2008. Merchants had success in reducing the level of non-performing loans during the third quarter, and also booked a small net recovery for the quarter. The year to date provision expense was $3.50 million for 2009 compared to $925 thousand for 2008, reflecting year to date increases in net charge-offs, classified loans and continued general economic weakness during 2009. "Credit quality continues to hold up well despite economic conditions that have challenged many of our customers. During the third quarter we were able to reduce existing nonperforming loans faster than we added to this category. Although we are pleased with this trend, there are still significant challenges ahead for some of our customers," commented Mr. Tuttle.
Excluding securities gains, total noninterest income for the third quarter and first nine months of 2009 was essentially flat, compared to the same periods in 2008.
Total noninterest expense increased 11.6% to $9.80 million for the third quarter of 2009 from $8.78 million for the third quarter of 2008; and increased $3.82 million to $29.68 million for the first nine months of 2009, compared to the same period in 2008. There are several reasons for this increase:
-- Salaries and wages increased to $3.68 million, or 3.8%, for the third quarter of this year compared to $3.54 million for the same period last year, and increased to $10.30 million, or 4.1%, for the first nine months of 2009, compared to $9.89 million for the same period in 2008. Normal pay increases combined with additional staff hired in the corporate banking, government banking and trust areas contributed to the increase over the prior periods. -- Employee benefits increased $124 thousand, or 12.8%, to $1.09 million for the third quarter of 2009 compared to 2008, and increased $850 thousand, or 30.0%, to $3.69 million compared to $2.84 million for the first nine months of this year compared to last year. The largest year-over-year increases were in health insurance costs, which increased $346 thousand, or 25.5% for the first nine months of 2009, compared to 2008; and pension plan expenses, which increased $318 thousand, or 535.6% for the first nine months of 2009, compared to 2008. The increases in the remaining categories are directly related to increases in salaries. -- Merchants' total FDIC insurance expense for the third quarter of 2009 increased to $393 thousand from $111 thousand for the third quarter of 2008, and increased to $1.65 million for the first nine months of 2009 from $161 thousand for the first nine months of last year. Merchants recorded a $630 thousand expense related to the FDIC's special assessment during the second quarter of 2009. The balance of the increase was due to both an increase in the FDIC's assessment rates and an increase in deposits. -- Other noninterest expense increased $417 thousand, or 28.6%, to $1.88 million from $1.46 million for the third quarter of 2009 compared to 2008, and increased $956 thousand, or 21.8%, to $5.35 million from $4.39 million for the first nine months of 2009, compared to 2008. There were a number of reasons for this increase. Merchants prepaid $9 million in FHLB debt during the third quarter of 2009 resulting in a $280 thousand prepayment penalty. Year-to-date Merchants has prepaid a total of $27 million in FHLB debt and incurred a total of $584 thousand in prepayment penalties, which are included in other noninterest expenses. Merchants has incurred expenses during 2009 related to its portfolio of problem loans and OREO. Those expenses totaled $87 thousand for the third quarter and $305 thousand for the first nine months of 2009, compared to an expense recovery of $33 thousand for the third quarter of 2008, and an expense recovery of $19 thousand for the first nine months of 2008. Additionally, Merchants' correspondent bank service charges have increased to $103 thousand for the third quarter of 2009, compared to $71 thousand for the same period last year, and $325 thousand for the first nine months of 2009, compared to $166 thousand for the same period in 2008. The large increase is a result of a low earnings credit rate because of the current low interest rate environment, combined with increased fees being passed on to Merchants by its primary correspondent bank.
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 Friday, October 30, 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, November 6, 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 967739.
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 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 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 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) 09/30/09 12/31/08 09/30/08 12/31/07 -------- -------- -------- -------- Balance Sheets - Period End Total assets $1,405,994 $1,341,210 $1,317,312 $1,170,743 Loans 929,236 847,127 814,598 731,508 Allowance for loan losses ("ALL") 11,177 8,894 8,367 8,002 Net loans 918,059 838,233 806,231 723,506 Securities available for sale 353,842 429,872 436,021 361,512 Securities held to maturity 1,306 1,737 3,174 4,078 Federal Home Loan Bank ("FHLB") stock 8,630 8,523 8,403 5,114 Federal funds sold and other short- term investments 10,260 111 111 20,100 Other assets 113,897 62,734 63,372 56,433 Deposits 1,030,802 930,797 949,521 867,437 Securities sold under agreement to repurchase and other short-term debt 122,421 124,408 89,298 98,917 Securities sold under agreement to repurchase, long-term 54,000 54,000 54,000 41,500 Other long-term debt 68,698 118,643 117,758 62,117 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 19,069 13,046 9,295 4,846 Shareholders' equity 90,385 79,697 76,821 75,307 Balance Sheets - Quarter-to-Date Averages Total assets $1,394,457 $1,320,845 $1,307,023 $1,169,811 Loans 922,704 825,395 800,126 730,688 Allowance for loan losses 10,958 8,596 8,509 7,840 Net loans 911,746 816,799 791,617 722,848 Securities available for sale and FHLB stock 367,979 436,712 446,688 340,598 Securities held to maturity 1,374 2,187 2,909 4,247 Federal funds sold and other short- term investments 53,576 2,420 5,664 38,227 Other assets 59,782 62,727 60,145 63,891 Deposits 1,026,527 946,534 947,674 874,406 Securities sold under agreement to repurchase and other short-term debt 115,447 96,736 82,794 94,785 Securities sold under agreement to repurchase, long- term 54,000 54,000 72,913 35,646 Other long-term debt 79,107 117,996 99,355 60,811 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619 Other liabilities 13,209 9,845 9,979 10,780 Shareholders' equity 85,548 75,115 73,689 72,764 Interest earning assets 1,345,633 1,266,714 1,255,387 1,113,760 Interest bearing liabilities 1,179,117 1,110,612 1,100,447 958,669 Ratios and Supplemental Information - Period End Book value per share $15.55 $13.89 $13.40 $13.05 Book value per share (1) $14.74 $13.15 $12.70 $12.35 Tier I leverage ratio 7.41% 7.42% 7.50% 8.14% Tangible capital ratio (2) 6.43% 5.94% 5.83% 6.42% Period end common shares outstanding(1) 6,131,175 6,061,182 6,049,720 6,096,737 Credit Quality - Period End Nonperforming loans ("NPLs") $10,584 $11,643 $11,594 $9,231 Nonperforming assets ("NPAs") $11,386 $12,445 $11,594 $9,706 NPLs as a percent of total loans 1.14% 1.37% 1.42% 1.26% NPAs as a percent of total assets 0.81% 0.93% 0.88% 0.83% ALL as a percent of NPLs 106% 76% 72% 87% ALL as a percent of total loans 1.20% 1.05% 1.03% 1.09% (1) This book value and period end common shares outstanding includes 320,371; 323,754; 317,161 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. Merchants Bancshares, Inc. Financial Highlights (unaudited) (Dollars in thousands except share and per share data) For the Nine Months Ended September 30, 2009 2008 ---- ---- Balance Sheets - Year to-Date Averages Total assets $1,364,154 $1,262,601 Loans 895,090 766,955 Allowance for loan losses 10,066 8,354 Net loans 885,024 758,601 Securities available for sale and FHLB stock 392,069 421,855 Securities held to maturity 1,516 3,486 Federal funds sold and other short- term investments 27,421 13,281 Other assets 58,124 65,378 Deposits 992,261 916,251 Securities sold under agreement to repurchase and other short-term debt 104,313 86,912 Securities sold under agreement to repurchase, long-term 54,000 64,748 Other long-term debt 96,340 85,613 Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 Other liabilities 13,502 13,092 Shareholders' equity 83,119 75,366 Interest earning assets 1,316,096 1,204,840 Interest bearing liabilities 1,156,444 1,056,606 Merchants Bancshares, Inc. Financial Highlights (unaudited) (Dollars in thousands except share and per share data) For the Three Months For the Nine Months Ended Ended September 30, September 30, 2009 2008 2009 2008 ---- ---- ---- ---- Operating Results Interest income Interest and fees on loans $12,079 $11,875 $35,791 $34,814 Interest and dividends on investments 4,500 5,742 14,536 16,194 Total interest and dividend income 16,579 17,617 50,327 51,008 Interest expense Deposits 2,235 3,966 7,751 12,860 Short-term borrowings 201 356 333 1,409 Long-term debt 1,447 1,869 4,831 5,185 Total interest expense 3,883 6,191 12,915 19,454 Net interest income 12,696 11,426 37,412 31,554 Provision for credit losses 600 575 3,500 925 Net interest income after provision for credit losses 12,096 10,851 33,912 30,629 Noninterest income Trust Company income 441 457 1,255 1,435 Service charges on deposits 1,490 1,354 4,217 4,001 Gain on investment securities 261 -- 56 82 Equity in losses of real estate limited partnerships, net (542) (463) (1,466) (1,387) Other noninterest income 952 938 2,875 2,703 Total noninterest income 2,602 2,286 6,937 6,834 Noninterest expense Salaries and wages 3,675 3,541 10,300 9,893 Employee benefits 1,091 967 3,685 2,835 Occupancy and equipment expenses 1,587 1,482 4,789 4,525 Legal and professional fees 553 629 1,899 1,908 Marketing expenses 363 342 1,142 1,338 State franchise taxes 266 253 866 803 FDIC Insurance 393 111 1,649 161 Other noninterest expense 1,875 1,458 5,350 4,394 Total noninterest expense 9,803 8,783 29,680 25,857 Income before provision for income taxes 4,895 4,354 11,169 11,606 Provision for income taxes 1,181 1,042 2,486 2,753 Net income $3,714 $3,312 $8,683 $8,853 Ratios and Supplemental Information Weighted average common shares outstanding 6,120,199 6,065,705 6,094,398 6,073,322 Weighted average diluted shares outstanding 6,121,432 6,073,138 6,096,319 6,084,250 Basic earnings per common share $0.61 $0.55 $1.42 $1.46 Diluted earnings per common share $0.61 $0.55 $1.42 $1.46 Return on average assets 1.07% 1.01% 0.85% 0.93% Return on average shareholders' equity 17.37% 17.98% 13.93% 15.66% Net interest rate spread 3.61% 3.35% 3.63% 3.20% Net interest margin 3.77% 3.63% 3.81% 3.51% Net recoveries (charge-offs) to Average Loans 0.01% (0.08%) (0.10%) (0.08%) Net recoveries (charge-offs) $95 ($647) ($884) ($582) Efficiency ratio (1) 58.51% 60.31% 59.70% 62.83% (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, 2009, the Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $4.33 million.
Merchants Bancshares, Inc.
CONTACT: Lisa Razo, Merchants Bank, +1-802-865-1838
Web Site: http://www.mbvt.com/
