Exhibit 99.1
For Release: April 17, 2003
Contact: Tricia Post
802/863-2568
Merchants Bancshares, Inc. Announces 2003 First Quarter Results
SOUTH BURLINGTON, VT - Merchants Bancshares, Inc. (NASDAQ: MBVT), the
parent company of Merchants Bank, today announced net income of $2.73
million, or diluted earnings per share of 44 cents for the quarter ended
March 31, 2003, compared to net income of $3.01 million, or 48 cents per
diluted share for the first quarter of last year. The return on average
assets was 1.29% and the return on average equity was 13.16% for the first
quarter of 2003, compared to 1.48% and 15.75%, respectively, for the first
quarter of 2002. Merchants declared a dividend on April 17, 2003, of 25
cents per share payable May 15, 2003, to shareholders of record as of May
1, 2003.
"Our margin has continued to come under pressure," said Merchants
Bank President and CEO, Joseph L. Boutin. "In the first quarter of 2003
the net interest margin was 4.67%, compared to 4.82% for the first quarter
of 2002. However, net interest income was $129 thousand higher than the
first quarter of 2002, as a result of growth in average deposits and loans
over the first quarter of last year of 5.6% and 5.4% respectively. Our
annualized growth for the first quarter of this year over year-end was
16.1% in the loan portfolio and 6.7% in deposits," Boutin continued.
Average deposits for the first quarter of 2003 were $751 million, compared
to $711 million for the first quarter of last year. Quarter-end deposits
were $768 million, an increase of $12.7 million over year-end 2002. Average
loans for the first quarter of 2003 were $498 million, compared to $473
million for the first quarter of 2002. Quarter-end loan balances were $516
million, an increase of $20.0 million over year-end loan balances of $496
million. Further balance sheet growth should help to offset future margin
compression by generating higher levels of net interest income.
The decrease in Merchants' margin reflects the effect of the current
prolonged low interest rate environment, which, if it continues, is likely
to negatively impact the net interest margin for the remainder of 2003.
Although the average balances of the loan portfolio increased from the
first quarter of 2002 to the same period in 2003, the average interest rate
earned on the loan portfolio decreased from 7.29% in the first quarter of
2002 to 6.55% in the first quarter of 2003. This is a result of both lower
interest rates, and the continued shift in the makeup of Merchants' loan
portfolio from fixed rate to lower yielding variable rate as borrowers have
sought to refinance their current debt to take advantage of the favorable
interest rate environment. Although this shift has exacerbated the current
margin compression, it has had the effect of moving Merchants' balance
sheet to an almost neutral interest rate gap position.
During the first quarter Merchants introduced a 10-year fully-
amortizing mortgage product, which has produced record mortgage volume.
"This product has allowed us to deploy our increased core funding at a
reasonable spread; at the same time we have been able to shorten our
balance sheet, which will give us strong cash flow to reinvest at current
market levels going forward. This product has also afforded us the
opportunity to establish full service banking relationships with many new
customers; seven out of ten of the borrowers were customers of other
financial institutions," said Boutin.
Nonperforming assets at March 31, 2003, were $4.74 million, or 0.55%
of total assets. This is an increase of $986 thousand over the year-end
balance of $3.76 million. "Nonperforming assets have increased over the
past five quarters. This increase is clearly reflective of a weak local
and national economy, which, if it continues, may contribute to further
increases in levels of nonperforming assets. The individual components of
the nonperforming asset portfolio remain fluid with the total maintained at
a manageable and modest level," said Boutin. Cash and marketable equity
securities secure approximately $946 thousand of the nonperforming assets
portfolio. Since 1999, Merchants has recorded its recoveries on previously
charged off obligations as a negative loan loss provision. As a result of
declines in the unallocated portion of the reserve, Merchants has
discontinued its practice of recording these recoveries as negative loan
loss provisions Merchants recorded charge-offs of $49 thousand and
recoveries of $32 thousand during the first quarter of 2003. The amount of
the negative provision for the first quarter of 2002 was $433 thousand.
The allowance for loan losses is reviewed by management quarterly and
continues to be deemed adequate under current market conditions.
Noninterest income increased $338 thousand from the first quarter of
2002 to the first quarter of 2003. Excluding net gains on sales of
investments, noninterest income increased $121 thousand from the first
quarter of 2002 to the first quarter of 2003. The increase is due
primarily to continued increases in overdraft service charge revenue.
Merchants' net overdraft fee revenue increased $105 thousand from $560
thousand in the first quarter of 2002 to $665 thousand in the first quarter
of 2003. The increase in revenue is primarily a result of an overall
larger deposit base, and an increase in the overdraft fee from $18 to $20
during the second quarter of 2002. Merchants Trust Company income for the
first quarter of this year was $44 thousand less than the same quarter of
2002. This decrease was primarily due to continuing reductions in asset
market values, changes in the Trust Company's fee schedule and the
realignment of resources as a result of the decision made in 2002 to
discontinue brokerage advisory and discount brokerage services.
Total noninterest expense increased $466 thousand from $7.11 million
to $7.57 million for the first quarter of 2003 compared to 2002. Salaries
and employee benefits increased $256 thousand for the first quarter of this
year compared to last year. Merchants is continuing its salary
administration evaluation project, and related salary increases are being
phased in over the course of 2003. Merchants has also increased its
staffing levels in anticipation of the opening of its new branch in St.
Albans, Vermont during April 2003. Additionally, Merchants is continuing
to experience increases in its pension plan expense primarily due to
decreases in the market value of plan assets.
Merchants' marketing expenses increased by $51 thousand for the first
quarter of 2003 compared to 2002. Merchants has increased marketing
efforts in anticipation of its de novo branch expansion into the St. Albans
and White River Junction, Vermont markets during the second and third
quarters of this year. Additionally, Merchants' equity in losses of real
estate limited partnerships increased $84 thousand this quarter as
Merchants continued to invest in community-based affordable housing
partnerships. Merchants finds these investments attractive because they
provide an opportunity for us to invest in affordable housing in the
communities in which it does business, as well as providing federal tax
credits which can be used as an offset to the income tax provision.
Merchants will begin holding quarterly earnings conference calls,
with the initial call scheduled for Monday, April 21, 2003, at 9:00a.m. The
dial-in number is 888-422-7105. The access code is 894479. Participants are
asked to call in a few minutes prior to the call in order to register for
the event. A replay will be available through April 28, 2003. The replay
dial-in number is 877-471-6581. The replay access code is 413091.
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 33 bank offices throughout
the state of Vermont, employees dedicated to quality customer service, and
innovative banking products such as FreedomLYNX[R] checking, MoneyLYNX[R]
money market accounts, and CommerceLYNX[R] 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 $867 million. For more information about Merchants
Bank visit our website at www.mbvt.com. The 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 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 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 the
Merchants' borrowers. The forward-looking statements contained herein
represent Merchants' judgment as of the date of this report, and the
Company 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
For the period ended March 31, 2003
(In thousands except share and per share data)
03/31/03 12/31/02 03/31/02 12/31/01
<s> <c> <c> <c> <c>
Balance Sheets - Period End
Total Assets $ 867,372 $ 854,495 $ 814,408 $ 800,467
Loans 515,527 495,588 472,071 479,685
Allowance for Loan Losses (ALL) 8,480 8,497 8,812 8,815
Net Loans 507,047 487,091 463,259 470,870
Investment Securities 280,413 270,215 253,853 212,454
Fed Funds Sold and Securities Purchased
Under Resale Agreements 11,011 31,500 35,000 51,000
Other Real Estate Owned 57 57 225 225
Other Assets 68,844 65,632 62,071 65,918
Deposits 768,004 755,274 723,922 711,812
Short-term Borrowings 504 4,000 4,000 1,248
Long-term Debt 6,340 2,377 2,449 2,453
Other Liabilities 8,375 10,086 7,917 9,391
Stockholders' Equity 84,149 82,758 76,120 75,563
Balance Sheets - Quarter-to-Date Averages
Total Assets $ 848,963 $ 844,656 $ 800,838 $ 795,397
Loans 497,976 491,494 472,617 478,265
Allowance for Loan Losses 8,480 8,678 8,890 9,680
Net Loans 489,496 482,816 463,727 468,585
Investment Securities 278,413 276,056 239,371 206,529
Interest Earning Assets 798,028 788,098 750,201 744,193
Total Deposits 751,461 748,585 711,357 707,790
Borrowings 3,985 5,065 5,058 4,984
Interest Bearing Liabilities 662,405 655,914 625,215 619,543
Stockholders' Equity 83,111 84,574 76,639 74,986
Ratios and Supplemental Information
Book Value Per Share $ 13.61 $ 13.39 $ 12.41 $ 12.32
Tier I Leverage Ratio 9.28% 9.51% 9.31% 9.12%
Period End Common Shares Outstanding 6,180,996 6,178,438 6,151,889 6,132,533
Credit Quality - Period End
Nonperforming Loans (NPLs) $ 4,685 $ 3,699 $ 2,239 $ 2,610
Nonperforming Assets (NPAs) 4,742 3,756 2,464 2,835
NPLs as a % of Total Loans 0.91% 0.75% 0.47% 0.54%
NPAs as a % of Total Assets 0.55% 0.44% 0.30% 0.35%
ALL as a % of NPLs 181% 230% 394% 338%
For the Three Months Ended
Mar. 31, Mar. 31, Dec 31.
2003 2002 2002
<s> <c> <c> <c>
Interest Income
Interest and Fees on Loans $ 8,032 $ 8,656 $ 8,450
Interest on Investments 3,292 3,475 3,495
Total Interest Income 11,324 12,131 11,945
Interest Expense
Deposits 2,097 3,037 2,356
Short-term Borrowings 6 10 8
Long-term Debt 27 19 29
Total Interest Expense 2,130 3,066 2,393
Net Interest Income 9,194 9,065 9,552
Provision for Loan Losses -- (433) (241)
Net Interest Income After Provision for
Loan Losses 9,194 9,498 9,793
Noninterest Income
Trust Company Income 345 389 384
Service Charges on Deposits 1,050 922 1,128
Gain on sale of investments, Net 217 -- 437
Other 469 432 518
Total Noninterest Income 2,081 1,743 2,467
Noninterest Expense
Salaries and Employee Benefits 3,817 3,561 4,002
Occupancy and Equipment Expenses 1,292 1,229 1,345
Legal and Professional Fees 311 326 456
Marketing 301 250 397
Equity in Losses of Real Estate
Limited Partnerships 402 318 352
Expenses Other Real Estate Owned 24 31 34
Other 1,420 1,392 1,397
Total Noninterest Expense 7,567 7,107 7,983
Income Before Income Taxes 3,708 4,134 4,277
Income Taxes 974 1,128 1,156
Net Income $ 2,734 $ 3,006 $ 3,121
Ratios and Supplemental Information
Weighted Average Common Shares Outstanding 6,140,604 6,143,961 6,174,932
Weighted Average Diluted Shares Outstanding 6,194,462 6,217,258 6,220,052
Basic Earnings Per Common Share $ 0.44 $ 0.49 $ 0.51
Diluted Earnings Per Common Share 0.44 0.48 0.50
Return on Average Assets 1.29% 1.48% 1.48%
Return on Average Stockholders' Equity 13.16% 15.75% 14.77%
Net Interest Rate Spread 4.45% 4.48% 4.57%
Net Interest Margin 4.67% 4.82% 4.81%
Efficiency Ratio (1) 62.44% 59.77% 60.44%
<FN>
<F1> 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 Match 31, 2003, the Bank had off-balance sheet liabilities in
the form of standby letters of credit to customers in the amount of
$6.2 million.
</FN>