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.
Source: Merchants Bancshares, Inc. SOUTH BURLINGTON, VT--(Marketwire - October 25, 2010) -