Merchants Bancshares, Inc (NASDAQ: MBVT), the parent company of Merchants Bank, has announced net income of $4.59 million and $8.42 million, or diluted earnings per share of $0.74 and $1.37 for the quarter and six months ended June 30, 2010, respectively. This compares with net income of $2.06 million and $4.97 million or diluted earnings per share of $0.34 and $0.82 for the same periods in 2009. Merchants previously announced the declaration of a dividend of $0.28 per share, payable August 12, 2010, to shareholders of record as of July 29, 2010. The return on average assets was 1.29% and 1.19% for the quarter and six months ended June 30, 2010, respectively, compared to 0.61% and 0.74% for the same periods in 2009. The return on average equity was 19.40% and 18.02% for the quarter and six months ended June 30, 2010, respectively, compared to 9.87% and 12.14% for the same periods in 2009.”This represents another record quarter for our company. Absent the net impact of securities gains and losses, net income is up 51% compared to the first six months of 2009,” commented Michael R. Tuttle, Merchants’ President and Chief Executive Officer.Merchants’ taxable equivalent net interest income was $12.90 million for the second quarter of 2010, and $25.32 million for the first half of 2010, compared to $12.41 million for the second quarter of 2009 and $24.77 million for the first half of 2009. Merchants’ taxable equivalent net interest margin was unchanged at 3.81% for the second quarter of 2010 compared to the same period in 2009, and decreased by seven basis points to 3.77% for the first half of 2010 from 3.84% for the same period in 2009. The margin for the first half of 2010 was negatively impacted by three basis points by the accelerated premium amortization related to the Fannie Mae and Freddie Mac delinquent loan buy back program discussed in our first quarter earnings release.Merchants’ earnings for the second quarter and first half of 2010 were positively impacted by security gains and improvements in asset quality. Merchants recognized $503 thousand and $1.13 million in pre-tax security gains during the second quarter of 2010, and during the first half of 2010, respectively. As a result of improved overall credit quality Merchants reduced its provision for loan losses to zero for the second quarter of 2010, and $600 thousand for the first half of 2010, compared to $2.00 million for the second quarter of 2009 and $2.90 million for the first half of 2009. Merchants’ quarterly average loans for the second quarter of 2010 were $911.21 million, an increase of $15.23 million over the second quarter of 2009, and ending balances at June 30, 2010 were $895.82 million, a decrease of $22.72 million from 2009 year-end balances. The majority of the decrease at June 30, 2010 was driven by the seasonal influence of municipal cash flows; municipal loan balances increased to $54.25 million on July 1, 2010.The following table summarizes the components of Merchants’ loan portfolio as of the periods indicated: June 30, March 31, December 31, (In thousands) 2010 2010 2009 ———— ———— ————–Commercial, financial and agricultural loans $ 109,805 $ 109,352 $ 113,980Municipal loans 31,940 48,862 44,753Real estate loans – residential 435,070 433,579 435,273Real estate loans – commercial 279,958 281,135 290,737Real estate loans – construction 30,864 27,864 25,146Installment loans 7,387 7,276 7,711All other loans 795 801 938 ———— ———— ————–Total loans $ 895,819 $ 908,869 $ 918,538 ———— ———— ————–“Loan demand remained soft during the first half of 2010; in addition, many of our existing customers are continuing to pay down debt. At the same time we have also chosen to reduce our exposure to certain credits. However, the new business pipeline is at the highest level we have seen for the past several quarters. We have added five experienced people to the commercial division this year. We expect this to produce added activity and increased loan balances in the second half of 2010,” commented Mr. Tuttle.Merchants’ investment portfolio totaled $421.43 million at June 30, 2010, an increase of $12.62 million from the December 31, 2009 ending balance of $408.81 million. Merchants has been working to redeploy excess cash into the investment portfolio, but has found it challenging to find high quality investments at an acceptable yield in the current environment. Merchants took advantage of very favorable pricing and sold two of its mortgage backed securities and one callable agency bond during the quarter with a total par value of $9.63 million for a pre-tax gain of $503 thousand.Both ending and quarterly average deposits were essentially flat at approximately $1.04 billion for the second quarter of 2010 compared to the fourth quarter of 2009. Since the end of 2009, there has been some migration from time deposit categories, which have decreased $20.77 million, into Savings, NOW and money market accounts, which have increased $15.42 million. Relationships continue to be added across all business lines, with notable growth within government and business banking. Average short-term repo balances were $13.50 million higher for the second quarter of 2010, compared to the fourth quarter of 2009.As mentioned previously, Merchants did not record a provision for credit losses during the second quarter of 2010 and recorded a $600 thousand provision for credit losses during the first quarter of 2010 compared to $2.00 million for the second quarter of 2009 and $2.90 million for the first half of 2009. Merchants recorded net recoveries during the second quarter of 2010 of $195 thousand. Additionally, Merchants’ non-performing loans decreased to $8.33 million at June 30, 2010 from $14.48 million at December 31, 2009, and Merchants’ classified loan totals have been steadily decreasing over the course of 2010.Total loans 30 to 89 days past due at June 30, 2010 were $2.29 million or 0.26% of total loans. Although this represents an increase over prior periods, Merchants’ delinquency levels remain very low.Quarter Ending: 30-89 Days————– ———-June 30, 2010 0.26%March 31, 2010 0.14%December 31, 2009 0.09%June 30, 2009 0.09%Merchants’ residential mortgage loan portfolio has continued to perform well throughout the recent and continuing economic turmoil. Residential loans 30 to 89 days past due at June 30, 2010 totaled 13 basis points as a percentage of residential mortgages, consistent with prior periods and total past due residential loans, including non-accruing mortgages, were 49 basis points as a percentage of residential mortgages.”The positive trend in asset quality continued during the second quarter. Total nonperforming assets have been reduced $6.36 million from December 31, 2009 with $920 thousand of the reduction in the second quarter of 2010. Current trends are very encouraging and our outlook on credit quality remains positive based on recent developments. We were also pleased to receive a $419 thousand recovery on a previously charged off loan shortly after the quarter closed, which will be recorded in the third quarter,” stated Mr. Tuttle.Total noninterest income increased to $3.16 million and $6.07 million for the second quarter and first six months of 2010, respectively, from $2.41 million and $4.34 million for the same periods in 2009. Excluding net gains (losses) on security sales and a first quarter other than temporary impairment loss, noninterest income increased to $2.65 million and $4.93 million for the quarter and six months ended June 30, 2010, respectively, compared to $2.41 million and $4.54 million for the same periods in 2009. Trust Company income increased to $1.05 million for the first half of 2010 compared to $814 thousand for the first half of 2009, and net debit card income increased to $1.42 million for the first half of 2010 compared to $1.09 million for the first half of 2009.Total noninterest expense decreased slightly to $9.62 million and $19.09 million for the second quarter and first half of 2010, respectively, compared to $10.34 million and $19.88 million for the same periods in 2009. There were a number of increases and decreases that contributed to this overall decrease. Salaries and wages increased to $3.91 million and $7.61 million for the second quarter and first half of 2010, respectively, compared to $3.20 million and $6.63 million for the same periods in 2009. Merchants’ strong results for the first half of 2010 have lead to a higher incentive accrual for 2010 compared to the accrual at June 30, 2009. Additionally, loan origination fees, an offset to salary expense, have been much lower in 2010 compared to 2009 as residential loan originations and refinancing activity have slowed. Merchants’ FDIC insurance expense for 2010 is less than 2009 as a result of the $625 thousand special assessment recorded during the second quarter of 2009. Additionally, Merchants booked expense recoveries and gains related to the sale of OREO property of $234 thousand for the second quarter of 2010, and $552 thousand year to date, leading to a net year to date expense recovery of $390 thousand. This compares to $84 thousand in OREO expense for the second quarter of 2009, and $218 thousand for the first six months of 2009. During 2009 expenses were negatively impacted by a $304 thousand prepayment penalty on Federal Home Loan Bank debt.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 10:00 a.m. Eastern Time on Thursday, July 29, 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, August 4, 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 143117.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(link is external) 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) 06/30/10 12/31/09 06/30/09 12/31/08 ———– ———– ———– ———–Balance Sheets – Period EndTotal assets $ 1,390,956 $ 1,435,248 $ 1,355,583 $ 1,341,210Loans 895,819 918,538 896,087 847,127Allowance for loan losses (“ALL”) 10,157 10,976 10,605 8,894Net loans 885,662 907,562 885,482 838,233Securities available for sale 420,475 407,652 372,876 429,872Securities held to maturity 955 1,159 1,425 1,737Federal Home Loan Bank (“FHLB”) stock 8,630 8,630 8,630 8,523Federal funds sold and other short-term investments 5,270 10,270 260 111Other assets 69,964 99,975 86,910 62,734Deposits 1,037,072 1,043,319 1,015,398 930,797Securities sold under agreement to repurchase and other short-term debt 136,461 179,718 83,787 124,408Securities sold under agreement to repurchase, long-term 54,000 54,000 54,000 54,000Other long-term debt 31,177 31,215 83,129 118,643Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619Other liabilities 13,682 15,365 13,900 13,046Shareholders’ equity 97,945 91,012 84,750 79,697Balance Sheets – Quarter-to-Date AveragesTotal assets $ 1,418,983 $ 1,412,900 $ 1,353,776 $ 1,320,845Loans 911,211 920,846 895,981 825,395Allowance for loan losses 10,132 11,510 9,985 8,596Net loans 901,079 909,336 885,996 816,799Securities available for sale and FHLB stock 422,988 371,059 385,715 436,712Securities held to maturity 1,005 1,224 1,511 2,187Federal funds sold and other short-term investments 22,188 63,553 23,082 2,420Other assets 71,723 67,728 57,472 62,727Deposits 1,043,813 1,037,955 1,000,914 946,534Securities sold under agreement to repurchase and other short-term debt 163,362 148,282 83,949 96,736Securities sold under agreement to repurchase, long-term 54,000 54,000 54,000 54,000Other long-term debt 31,203 46,097 96,223 117,996Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619 20,619 20,619Other liabilities 11,426 14,999 14,474 9,845Shareholders’ equity 94,560 90,948 83,597 75,115Interest earning assets 1,357,393 1,356,682 1,306,289 1,266,714Interest bearing liabilities 1,190,525 1,180,087 1,149,207 1,110,612Ratios and Supplemental Information – Period EndBook value per share $ 16.75 $ 15.65 $ 14.65 $ 13.89Book value per share (1) $ 15.89 $ 14.82 $ 13.90 $ 13.15Tier I leverage ratio 8.02% 7.67% 7.43% 7.42%Tangible capital ratio (2) 7.04% 6.34% 6.25% 5.94%Period end common shares outstanding (1) 6,164,006 6,141,823 6,098,608 6,061,182Credit Quality – Period EndNonperforming loans (“NPLs”) $ 8,334 $ 14,481 $ 13,650 $ 11,643Nonperforming assets (“NPAs”) $ 8,778 $ 15,136 $ 14,452 $ 12,445NPLs as a percent of total loans 0.93% 1.58% 1.52% 1.37%NPAs as a percent of total assets 0.63% 1.05% 1.07% 0.93%ALL as a percent of NPLs 122% 76% 78% 76%ALL as a percent of total loans 1.13% 1.19% 1.18% 1.05%(1) This book value and period end common shares outstanding includes 315,738; 326,453; 314,520 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. For the Six Months Ended June 30, 2010 2009 ————– ————–Balance Sheets – Year to-Date AveragesTotal assets $ 1,414,721 $ 1,348,751Loans 913,378 881,054Allowance for loan losses 10,650 9,613Net loans 902,728 871,441Securities available for sale and FHLB stock 418,418 404,312Securities held to maturity 1,055 1,589Federal funds sold and other short-term investments 21,134 14,127Other assets 71,386 57,282Deposits 1,036,538 974,844Securities sold under agreement to repurchase and other short-term debt 166,520 98,654Securities sold under agreement to repurchase, long-term 54,000 54,000Other long-term debt 31,203 105,099Junior subordinated debentures issued to unconsolidated subsidiary trust 20,619 20,619Other liabilities 12,448 13,650Shareholders’ equity 93,393 81,885Interest earning assets 1,353,985 1,301,082Interest bearing liabilities 1,188,447 1,144,919 For the Three Months For the Six Months Ended ended June 30, June 30, ———————- ———————- 2010 2009 2010 2009 ———- ———- ———- ———-Operating ResultsInterest incomeInterest and fees on loans $ 11,602 $ 11,944 $ 23,091 $ 23,712Interest and dividends on investments 3,855 4,769 7,598 10,036Total interest and dividend income 15,457 16,713 30,689 33,748Interest expenseDeposits 1,422 2,680 2,986 5,516Short-term borrowings 381 47 790 132Long-term debt 1,013 1,611 2,007 3,384Total interest expense 2,816 4,338 5,783 9,032Net interest income 12,641 12,375 24,906 24,716Provision for credit losses — 2,000 600 2,900Net interest income after provision for credit losses 12,641 10,375 24,306 21,816Noninterest incomeTrust Company income 533 413 1,051 814Service charges on deposits 1,395 1,489 2,634 2,727Gain (loss) on investment securities, net 503 — 1,212 (205)Other-than-temporary impairment losses on securities — — (80) –Equity in losses of real estate limited partnerships, net (421) (461) (855) (924)Other noninterest income 1,145 965 2,103 1,923Total noninterest income 3,155 2,406 6,065 4,335Noninterest expenseSalaries and wages 3,906 3,200 7,607 6,625Employee benefits 1,103 1,334 2,373 2,594Occupancy and equipment expenses 1,621 1,563 3,231 3,202Legal and professional fees 664 657 1,255 1,346Marketing expenses 366 438 681 779State franchise taxes 295 302 574 600FDIC Insurance 340 942 720 1,256Other real estate owned (196) 84 (390) 218Other noninterest expense 1,522 1,815 3,036 3,257Total noninterest expense 9,621 10,335 19,087 19,877Income before provision for income taxes 6,175 2,446 11,284 6,274Provision for income taxes 1,589 383 2,869 1,305Net income $ 4,586 $ 2,063 $ 8,415 $ 4,969Ratios and Supplemental InformationWeighted average common shares outstanding 6,161,934 6,094,912 6,156,798 6,081,497Weighted average diluted shares outstanding 6,162,437 6,097,571 6,157,300 6,084,156Basic earnings per common share $ 0.74 $ 0.34 $ 1.37 $ 0.82Diluted earnings per common share $ 0.74 $ 0.34 $ 1.37 $ 0.82Return on average assets 1.29% 0.61% 1.19% 0.74%Return on average shareholders’ equity 19.40% 9.87% 18.02% 12.14%Net interest rate spread 3.69% 3.63% 3.65% 3.65%Net interest margin 3.81% 3.81% 3.77% 3.84%Net recoveries (charge-offs) to Average Loans 0.02% (0.07%) (0.19%) (0.11%)Net recoveries (charge-offs) $ 195 ($ 631) ($ 1,697) ($ 979)Efficiency ratio (1) 59.63% 59.03% 60.39% 60.32%(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, 2010, the Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $4.02 million.Source: SOUTH BURLINGTON, VT–(Marketwire – July 26, 2010) – Merchants Bancshares, Inc. (NASDAQ: MBVT),
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