Merchants Bancshares, Inc (NASDAQ: MBVT), the parent company of Merchants Bank based in Burlington, Vermont, has 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 $49.79 million at September 30, 2009 from $2.77 million at the end of 2008.
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 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
Balance Sheets - Period End
Total assets
$ 1,405,994
$ 1,341,210
$ 1,317,312
Loans
929,236
847,127
814,598
Allowance for loan losses ("ALL")
11,177
8,894
8,367
Net loans
918,059
838,233
806,231
Securities available for sale
353,842
429,872
436,021
Securities held to maturity
1,306
1,737
3,174
Federal Home Loan Bank ("FHLB") stock
8,630
8,523
8,403
Federal funds sold and other short-term investments
10,260
111
111
Other assets
113,897
62,734
63,372
Deposits
1,030,802
930,797
949,521
Securities sold under agreement to repurchase and
other short-term debt
122,421
124,408
89,298
Securities sold under agreement to repurchase, long-term
54,000
54,000
54,000
Other long-term debt
68,698
118,643
117,758
Junior subordinated debentures issued to
unconsolidated subsidiary trust
20,619
20,619
20,619
Other liabilities
19,069
13,046
9,295
Shareholders' equity
90,385
79,697
76,821
Balance Sheets - Quarter-to-Date Averages
Total assets
$ 1,394,457
$ 1,320,845
$ 1,307,023
Loans
922,704
825,395
800,126
Allowance for loan losses
10,958
8,596
8,509
Net loans
911,746
816,799
791,617
Securities available for sale and FHLB stock
367,979
436,712
446,688
Securities held to maturity
1,374
2,187
2,909
Federal funds sold and other short-term investments
53,576
2,420
5,664
Other assets
59,782
62,727
60,145
Deposits
1,026,527
946,534
947,674
Securities sold under agreement to repurchase and
other short-term debt
115,447
96,736
82,794
Securities sold under agreement to repurchase, long-term
54,000
54,000
72,913
Other long-term debt
79,107
117,996
99,355
Junior subordinated debentures issued to
unconsolidated subsidiary trust
20,619
20,619
20,619
Other liabilities
13,209
9,845
9,979
Shareholders' equity
85,548
75,115
73,689
Interest earning assets
1,345,633
1,266,714
1,255,387
Interest bearing liabilities
1,179,117
1,110,612
1,100,447
Ratios and Supplemental Information - Period End
Book value per share
$ 15.55
$ 13.89
$ 13.40
Book value per share (1)
$ 14.74
$ 13.15
$ 12.70
Tier I leverage ratio
7.41%
7.42%
7.50%
Tangible capital ratio (2)
6.43%
5.94%
5.83%
Period end common shares outstanding (1)
6,131,175
6,061,182
6,049,720
Credit Quality - Period End
Nonperforming loans ("NPLs")
$ 10,584
$ 11,643
$ 11,594
Nonperforming assets ("NPAs")
$ 11,386
$ 12,445
$ 11,594
NPLs as a percent of total loans
1.14%
1.37%
1.42%
NPAs as a percent of total assets
0.81%
0.93%
0.88%
ALL as a percent of NPLs
106%
76%
72%
ALL as a percent of total loans
1.20%
1.05%
1.03%
(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.
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
For the Three Months Ended
For the Nine Months Ended
September 30,
September 30,
2009
2008
2009
Operating Results
Interest income
Interest and fees on loans
$ 12,079
$ 11,875
$ 35,791
Interest and dividends on investments
4,500
5,742
14,536
Total interest and dividend income
16,579
17,617
50,327
Interest expense
Deposits
2,235
3,966
7,751
Short-term borrowings
201
356
333
Long-term debt
1,447
1,869
4,831
Total interest expense
3,883
6,191
12,915
Net interest income
12,696
11,426
37,412
Provision for credit losses
600
575
3,500
Net interest income after provision for credit losses
12,096
10,851
33,912
Noninterest income
Trust Company income
441
457
1,255
Service charges on deposits
1,490
1,354
4,217
Gain on investment securities
261
--
56
Equity in losses of real estate limited partnerships, net
(542)
(463)
(1,466)
Other noninterest income
952
938
2,875
Total noninterest income
2,602
2,286
6,937
Noninterest expense
Salaries and wages
3,675
3,541
10,300
Employee benefits
1,091
967
3,685
Occupancy and equipment expenses
1,587
1,482
4,789
Legal and professional fees
553
629
1,899
Marketing expenses
363
342
1,142
State franchise taxes
266
253
866
FDIC Insurance
393
111
1,649
Other noninterest expense
1,875
1,458
5,350
Total noninterest expense
9,803
8,783
29,680
Income before provision for income taxes
4,895
4,354
11,169
Provision for income taxes
1,181
1,042
2,486
Net income
$ 3,714
$ 3,312
$ 8,683
Ratios and Supplemental Information
Weighted average common shares outstanding
6,120,199
6,065,705
6,094,398
Weighted average diluted shares outstanding
6,121,432
6,073,138
6,096,319
Basic earnings per common share
$ 0.61
$ 0.55
$ 1.42
Diluted earnings per common share
$ 0.61
$ 0.55
$ 1.42
Return on average assets
1.07%
1.01%
0.85%
Return on average shareholders' equity
17.37%
17.98%
13.93%
Net interest rate spread
3.61%
3.35%
3.63%
Net interest margin
3.77%
3.63%
3.81%
Net recoveries (charge-offs) to Average Loans
0.01%
(0.08%)
(0.10%)
Net recoveries (charge-offs)
$ 95
($647)
($884)
Efficiency ratio (1)
58.51%
60.31%
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, 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.
Source: Merchants Bancshares. 10.29.2009