Exhibit 99.1
For Release: January 22, 2004
Contact: Rosemary Walker
802/865-1838
Merchants Bancshares, Inc. Announces 2003 Results
and Quarterly Dividend
SOUTH BURLINGTON, VT - Merchants Bancshares, Inc. (NASDAQ: MBVT), the parent company of Merchants Bank, today announced net income of $11.59 million, or diluted earnings of $1.86 per share, for the year ended December 31, 2003. This compares with net income of $12.62 million, or diluted earnings of $2.02 per share, for the previous year. For the quarter ended December 31, 2003, Merchants earned a net profit of $2.89 million, or diluted earnings of 46 cents per share, compared to net income of $3.12 million, or diluted earnings of 50 cents per share, for the same quarter of the previous year. The return on average assets was 1.28% for 2003 and was 1.20% for the fourth quarter, and the return on average equity was 13.75% for the year and 13.53% for the fourth quarter. Merchants declared a dividend on January 22, 2004, of 27 cents per share payable February 19, 2004, to shareholders of record as of February 5, 2004.
Average assets for the fourth quarter of 2003 were $965 million, a $120 million or 14% increase over average assets of $845 million for the fourth quarter of 2002. In the fourth quarter of 2003 the net interest margin was 4.23%, compared to 4.81% for the fourth quarter of 2002; the net interest margin for the year 2003 was 4.43% compared to 4.86% for 2002. "The margin stabilized somewhat during the fourth quarter decreasing only eight basis points from the third quarter, the lowest drop since the fourth quarter of 2002," said Merchants President and CEO, Joseph L. Boutin. "Net interest income for the fourth quarter of 2003 was $79 thousand higher than the fourth quarter of 2002 and $294 thousand for the full year, in spite of decreases in our net interest rate spread of 49 and 32 basis points, respectively. The increase in net interest income is a result of strong loan portfolio growth and further increases in the investment portfolio. We expect that maintaining the margin will continue to be a challenge for us in 2004."
Merchants' quarterly average loan portfolio grew $73 million or 15%, to $564 million for the fourth quarter of 2003 from $491 million for the fourth quarter of 2002; and average deposits grew to $805 million from $749 million, a $56 million, or 7%, increase. "We experienced strong growth in our loan portfolios during 2003," commented Boutin. "Residential real estate loans increased $57 million over the course of 2003 as borrowers took advantage of historic low rates." Merchants' investment portfolio increased $70 million to $340 million during the same time period and Merchants' short-term borrowing position increased $53 million to $57 million compared to year-end 2002. "We grew the investment portfolio over the course of 2003, which partially mitigated the impact of the margin decline on net interest income during the year. The growth in the investment portfolio was funded by short-term borrowings, while the increase in the loan portfolio was funded primarily by growth in deposit balances, as well as a reduction of short-term investments." commented Boutin. Compared to the third quarter of 2003 average loan balances increased $17 million during the fourth quarter and average deposit balances increased $4 million. "Deposit balances were virtually flat in the fourth quarter. Sales of new accounts were slightly ahead of last year's fourth quarter results, but were lower than we had anticipated. Residential loan originations declined from the third quarter to the fourth quarter, due in part to seasonal factors, but more importantly, to the sharp decline in refinancing activity.
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During 2004 it will be a challenge to replicate the organic deposit and loan growth achieved in 2003," continued Boutin.
Merchants' new branch in White River Junction, VT, which opened on September 8, 2003, has had strong initial sales results. Merchants opened its permanent office in St. Albans, VT, on January 12, 2004. Additionally, Merchants is in the process of negotiating a lease for a location in Middlebury, VT, and anticipates opening a branch later this year. "We will study the results over the next six months to determine whether further de novo expansion is justified," commented Boutin.
Nonperforming assets were $2.21 million, or 0.23% of total assets, at December 31, 2003. This is a decrease of $1.54 million compared to the December 31, 2002, balance of $3.76 million, and a decrease of $753 thousand from the third quarter 2003 balance of $2.97 million. The decrease in nonperforming assets during the fourth quarter can largely be attributed to a substantial pay down and reclassification of one relationship.
The allowance for loan losses is reviewed by management at least quarterly and continues to be deemed adequate under current market conditions. At December 31, 2003, the allowance stood at $7.95 million, 1.40% of total loans and 360% of nonperforming loans, compared to $8.50 million, 1.71% of total loans and 230% of nonperforming loans at December 31, 2002. Merchants recorded charge-offs of $1.08 million and recoveries of $539 thousand during 2003. From 1999 through 2002 Merchants recorded its recoveries on previously charged-off obligations as a negative loan loss provision. Merchants discontinued this practice during 2003 as a result of increased net loan losses during 2003. The amount of the negative provision during 2002 was $945 thousand. There was no provision for loan losses during 2003.
Total noninterest income decreased $275 thousand to $2.19 million for the fourth quarter of 2003, from $2.47 million for the fourth quarter of 2002, and increased $916 thousand to $9.57 million for the year 2003 from $8.65 million for the year 2002. Net gains on sales of investments totaled $7 thousand for the fourth quarter of 2003, and $1.42 million for the full year 2003; net gains on sales of investments were $437 thousand for the fourth quarter of 2002 and $610 thousand for the year 2002. During the third quarter of 2002 Merchants recognized a $272 thousand gain on the sale of a branch building and a $449 thousand insurance settlement. Excluding these items (see table below) total noninterest income increased $827 thousand to $8.15 million for the year 2003 from $7.32 million for the year 2002 and increased $155 thousand to $2.19 million for the fourth quarter of 2003 from $2.03 million for the fourth quarter of 2002.
| Three Months Ended | Twelve Months Ended |
| December 31, | December 31, |
| 2003 | 2002 | 2003 | 2002 |
|
Total Noninterest Income | $2,192 | $2,467 | $9,570 | $8,654 |
Gain on Sale of | | | | |
Investments, Net | 7 | 437 | 1,420 | 610 |
Gain on Sale of Branch | | | | |
Building | -- | -- | -- | 272 |
|
Insurance Settlement | -- | -- | -- | 449 |
Total Noninterest Income | | | | |
Excluding Above Items | $2,185 | $2,030 | $8,150 | $7,323 |
|
Percentage Increase | | | | |
Compared to 2002 | 8% | | 11% | |
The 11% increase in noninterest income for the full year is due in large part to the increased level of electronic transactions being processed, and to increases in overdraft activity. "The number of
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check based transactions continues to decline. The average number of checks written on our transaction accounts has decreased to 9.5 per month, a 27% decline since 1997. Our efforts to transition more of our customers' activity to electronic transactions have allowed us to maintain staffing levels in our Service Center below their 1995 levels. This operating leverage is key to the future development of our franchise. We believe opportunities to leverage our operating platform may present themselves in the form of branch or whole bank acquisitions at attractive prices, as consolidation in the industry continues," commented Boutin.
Total noninterest expense decreased $138 thousand to $7.85 million for the fourth quarter of 2003 from $7.98 million for the fourth quarter of 2002, and increased $1.74 million to $31.2 million for the year 2003 compared to $29.5 million for the year 2002. Total salaries and employee benefits expense decreased $418 thousand to $3.58 million from $4.00 million for the fourth quarter of 2003 compared to 2002. The decrease in expense for the fourth quarter is a result of changes in estimates for incentive compensation, and for health insurance expense. Total salaries and employee benefits expense for 2003 compared to 2002 has increased $460 thousand, or 3%. Several factors have contributed to this increase: the cost of employee benefits increased 7% during 2003; Merchants has fully staffed its new St. Albans and White River Junction locations; and average 2003 salaries increased by just under 6%.
Merchants' marketing expenses increased $109 thousand for the fourth quarter of 2003 compared to 2002, and $353 thousand for 2003 compared to 2002 as Merchants opened, or prepared to open, two new offices. Additionally, Merchants launched its RealLYNX-10Ò 10-year mortgage campaign, and continued to actively market its Free Checking for LifeÒ account during 2003.
Occupancy and Equipment expenses increased $86 thousand for the fourth quarter of 2003 compared to 2002, and $342 thousand for 2003 compared to 2002. This increase is due to increased software maintenance costs, new de novo branch rental contracts, and normal increases in building maintenance and rental expenses. Merchants' equity in losses of real estate limited partnerships increased $59 thousand for the fourth quarter of 2003 compared to 2002, and $298 thousand for 2003 compared to 2002, as Merchants continued to invest in community-based, affordable housing partnerships. Merchants recognized $1.35 million in tax credits from such partnerships during 2003, which directly reduced income tax expense.
Mr. Boutin, Mr. Mike Tuttle, Chief Operating Officer and Ms. Janet Spitler, Chief Financial Officer, will host a conference call to discuss these earnings results at 9:00 a.m. Eastern Time on Monday, January 26, 2004. Interested parties may participate in the conference call by dialing 800-230-1085; the title of the call isEarnings Release 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 February 2, 2004. The U.S. replay dial-in number is 800-475-6701 and the replay access code is 701813.
The mission of Merchants Bank is to provide best-in-class community banking services to Vermonters. This commitment is fulfilled through a community, branch-based, system that includes 35 bank offices throughout the state of Vermont, employees dedicated to quality customer service, and innovative banking products such as Free Checking for LifeÒ , MoneyLYNXÒ money market accounts, and CommerceLYNXÒ business banking products. Merchants Bank also includes a trust and investment division, known as Merchants Trust Company, serving individuals and institutions. Total assets of Merchants are $970 million. 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.
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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 our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. Forward-looking statements 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 institutio ns 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.
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Merchants Bancshares, Inc. |
Financial Highlights |
For the period ended December 31, 2003 |
(In thousands except share and per share data) |
| | | | |
| 12/31/03 | 09/30/03 | 12/31/02 | 09/30/02 |
Balance Sheets - Period End | | | | |
Total Assets | $969,902 | $974,294 | $854,495 | $840,711 |
Loans | 568,997 | 564,778 | 495,588 | 489,147 |
Allowance for Loan Losses ("ALL") | 7,954 | 7,937 | 8,497 | 8,679 |
Net Loans | 561,043 | 556,841 | 487,091 | 480,468 |
Investment Securities | 340,337 | 322,964 | 270,215 | 278,880 |
Fed Funds Sold and Securities Purchased | | | | |
Under Resale Agreements | -- | -- | 31,500 | 12,000 |
Other Real Estate Owned | -- | -- | 57 | 46 |
Other Assets | 68,522 | 94,489 | 65,632 | 69,317 |
Deposits | 808,083 | 807,046 | 755,274 | 744,248 |
Short-term Borrowings | 57,058 | 67,232 | 4,000 | 3,598 |
Long-term Debt | 6,618 | 5,956 | 2,377 | 2,211 |
Other Liabilities | 11,830 | 8,567 | 10,086 | 5,609 |
Stockholders' Equity | 86,313 | 85,493 | 82,758 | 85,045 |
Balance Sheets - Quarter-to-Date Averages | | | | |
Total Assets | $965,247 | $934,345 | $844,656 | $827,862 |
Loans | 564,421 | 547,414 | 491,494 | 480,743 |
Allowance for Loan Losses | 8,032 | 7,960 | 8,678 | 8,819 |
Net Loans | 556,389 | 539,454 | 482,816 | 471,924 |
Investment Securities | 338,042 | 326,012 | 278,842 | 278,404 |
Fed Funds Sold and Securities Purchased | | | | |
Under Resale Agreements | 1,398 | 1,008 | 17,762 | 17,815 |
Other Assets | 69,418 | 67,871 | 68,022 | 59,719 |
Deposits | 804,694 | 800,200 | 748,585 | 735,968 |
Short-term Borrowings | 57,962 | 30,572 | 2,682 | 1,794 |
Long-term Debt | 6,482 | 6,029 | 2,383 | 2,388 |
Other Liabilities | 10,571 | 13,433 | 6,432 | 5,758 |
Stockholders' Equity | 85,538 | 84,111 | 84,574 | 81,954 |
Interest Earning Assets | 903,861 | 874,434 | 788,098 | 776,962 |
Interest Bearing Liabilities | 760,812 | 732,948 | 655,914 | 645,795 |
Ratios and Supplemental Information | | | | |
Book Value Per Share | $13.93 | $13.82 | $13.39 | $13.78 |
Tier I Leverage Ratio | 8.70% | 8.77% | 9.17% | 9.55% |
Period End Common Shares Outstanding | 6,196,053 | 6,187,576 | 6,178,438 | 6,170,232 |
Credit Quality - Period End | | | | |
Nonperforming Loans ("NPLs") | $2,212 | $2,965 | $3,699 | $3,886 |
Nonperforming Assets ("NPAs") | 2,212 | 2,965 | 3,756 | 3,932 |
NPLs as a % of Total Loans | 0.39% | 0.52% | 0.75% | 0.79% |
NPAs as a % of Total Assets | 0.23% | 0.30% | 0.44% | 0.47% |
ALL as a % of NPLs | 360% | 268% | 230% | 223% |
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| For the Three | For the Twelve |
| Months | Months |
| Ended December 31, | Ended December 31, |
| 2003 | 2002 | 2003 | 2002 |
Operating Results | | | | |
Interest Income | | | | |
Interest and Fees on Loans | $8,027 | $8,450 | $32,540 | $34,131 |
Interest on Investments | 3,459 | 3,495 | 13,021 | 14,219 |
Total Interest Income | 11,486 | 11,945 | 45,561 | 48,350 |
Interest Expense | | | | |
Deposits | 1,656 | 2,356 | 7,518 | 10,900 |
Short-term Borrowings | 157 | 8 | 254 | 28 |
Long-term Debt | 42 | 29 | 161 | 88 |
Total Interest Expense | 1,855 | 2,393 | 7,933 | 11,016 |
Net Interest Income | 9,631 | 9,552 | 37,628 | 37,334 |
Provision for Loan Losses | -- | (241) | -- | (945) |
Net Interest Income After Provision for Loan Losses | 9,631 | 9,793 | 37,628 | 38,279 |
Noninterest Income | | | | |
Trust Company Income | 355 | 384 | 1,406 | 1,593 |
Service Charges on Deposits | 1,210 | 1,128 | 4,453 | 4,102 |
Gain on Sale of Investments, Net | 7 | 437 | 1,420 | 610 |
Other Noninterest Income | 620 | 518 | 2,291 | 2,349 |
Total Noninterest Income | 2,192 | 2,467 | 9,570 | 8,654 |
Noninterest Expense | | | | |
Salaries and Employee Benefits | 3,584 | 4,002 | 15,137 | 14,677 |
Occupancy and Equipment Expenses | 1,431 | 1,345 | 5,409 | 5,067 |
Legal and Professional Fees | 339 | 456 | 1,467 | 1,542 |
Marketing Expense | 506 | 397 | 1,534 | 1,181 |
Equity in Losses of Real Estate Limited Partnerships | 411 | 352 | 1,615 | 1,317 |
Expenses on Other Real Estate Owned | 16 | 34 | 105 | 115 |
Other Noninterest Expense | 1,558 | 1,397 | 5,967 | 5,600 |
Total Noninterest Expense | 7,845 | 7,983 | 31,234 | 29,499 |
Income Before Income Taxes | 3,978 | 4,277 | 15,964 | 17,434 |
Income Taxes | 1,085 | 1,156 | 4,372 | 4,817 |
Net Income | $2,893 | $3,121 | $11,592 | $12,617 |
Ratios and Supplemental Information | | | | |
Weighted Average Common Shares Outstanding | 6,194,013 | 6,174,932 | 6,183,919 | 6,163,546 |
Weighted Average Diluted Shares Outstanding | 6,269,367 | 6,220,052 | 6,247,444 | 6,231,316 |
Basic Earnings Per Common Share | $0.47 | $0.51 | $1.87 | $2.05 |
Diluted Earnings Per Common Share | 0.46 | 0.50 | 1.86 | 2.02 |
Return on Average Assets | 1.20% | 1.48% | 1.28% | 1.54% |
Return on Average Stockholders' Equity | 13.53% | 14.77% | 13.75% | 15.73% |
Net Interest Rate Spread | 4.08% | 4.57% | 4.25% | 4.57% |
Net Interest Margin | 4.23% | 4.81% | 4.43% | 4.86% |
Efficiency Ratio (1) | 60.26% | 60.44% | 62.05% | 59.43% |
(1) | The efficiency ratio excludes amortization of intangibles, OREO expenses, gain/loss on sale of securities, state franchise taxes, and any significant nonrecurring items. |
Note: | As of December 31, 2003, the Bank had off-balance sheet liabilities in the form of standby letters of credit to customers in the amount of $7.0 million. |
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