Merchants Bancshares, Inc. Announces Special Dividend and Trust
Preferred Securities Issuance
SOUTH BURLINGTON, VT - The Board of Directors of Merchants Bancshares, Inc.
(NASDAQ: MBVT), the parent company of Merchants Bank, today declared a special
cash dividend of $4.50 per share payable December 17, 2004 to shareholders of record as
of the close of business on December 10, 2004. The total amount of this special dividend
will be approximately $28.10 million. After looking at several alternatives, Merchants
Board of Directors has determined that the lower tax rates on dividends provide an
opportunity for Merchants to return capital to its shareholders in the form of a special
dividend in a simple, fair and transparent process. Merchants has decided to move
forward with a special dividend as the optimal capital management alternative. Merchants
will remain well capitalized under applicable regulatory guidelines after the special
dividend. Merchants hereby notifies participants in its dividend reinvestment plan that it
is temporarily suspending its dividend reinvestment plan, effective as of the date hereof
through December 18, 2004, in order to permit payment of the special dividend. All
dividend payments will be made in the form of a check.
Merchants also plans to participate in a private placement of $20 million of trust
preferred securities, through a newly formed Delaware statutory trust affiliate of
Merchants. The transaction will be part of a pooled trust preferred program. Keefe,
Bruyette & Woods, Inc. and FTN Financial Capital Markets, a division of First
Tennessee Bank, N.A., will serve as placement agents in the offering. These hybrid
securities are expected to qualify as regulatory capital for Merchants, up to certain
regulatory limits. At the same time they are considered debt for tax purposes, and as such,
interest payments are fully deductible. While trust preferred securities have been a
regulatory capital funding option for bank holding companies since 1996, there has been
no prior time period where an equivalent level of relative cost effectiveness has existed
versus alternative funding options. Upon issuance, the trust preferred securities will bear
interest at a fixed rate for five years, and after five years, the rate will adjust quarterly.
The trust preferred securities mature on December 31, 2034, and are redeemable at the
Companys option beginning after five years from issuance. The proceeds from the sale
of the trust preferred securities will be used for general corporate purposes, allowing
Merchants to pay the special dividend, and at the same time continuing to pursue
alternative growth opportunities.
Merchants estimates that the payment of the dividend and the issuance of the trust
preferred securities will reduce 2005 net interest income on an after tax basis by
approximately $1.06 million, or approximately 17 cents per share.
Mr. Joseph Boutin, President and Chief Executive Officer and Ms. Janet Spitler, Chief
Financial Officer, will host a conference call to discuss this special dividend payment and
debt issuance at 9:00 a.m. Eastern Time on Friday, December 3, 2004. Interested parties
may participate in the conference call by dialing (888) 428-4480, the title of the call is
Special Dividend Conference Call for Merchants Bancshares, Inc. Participants are asked
to call in a few minutes prior to the call in order to register. A replay will be available
through December 17, 2004. The U.S. replay dial-in number is (800) 475-6701. The
international replay dial-in number is (320) 365-3844. The replay access code, regardless
of dial-in location, is 759060.
The mission of Merchants Bank is to provide best-in-class community banking services
in the state of Vermont. This commitment is fulfilled through a community, branch-based,
system that includes 35 bank offices throughout Vermont, employees dedicated to
quality customer service, and innovative banking products such as Free Checking for
Life ®, MoneyLYNX ® money market accounts, and CommerceLYNX ® business banking
products. Merchants Bank also includes a trust and investment division, known as
Merchants Trust Company, serving individuals and institutions. For more information
about Merchants Bank visit our website at www.mbvt.com. Merchants stock is traded on
the NASDAQ National Market system under the symbol MBVT. Member FDIC.
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.