EXHIBIT 99.1
For Release: July 17, 2003
Contact: Rosemary Scorse
802/865-1838
Merchants Bancshares, Inc. Announces 2003 Second Quarter Results,
Increases Quarterly Dividend
SOUTH BURLINGTON, VT - Merchants Bancshares, Inc. (NASDAQ: MBVT), the
parent company of Merchants Bank, today announced net income of $3.04
million or diluted earnings per share of 49 cents for the quarter ended
June 30, 2003, compared to net income of $3.02 million, or 48 cents per
diluted share for the same quarter of the previous year. The return on
average assets was 1.39% and the return on average equity was 14.38% for
the second quarter of 2003, compared to 1.50% and 15.53%, respectively, for
the second quarter of 2002. Merchants declared a dividend on July 17, 2003,
of 27 cents per share payable August 14, 2003, to shareholders of record as
of July 31, 2003.
"We are experiencing continued pressure on our margin," said Merchants
President and CEO, Joseph L. Boutin. "We have seen quarterly yields on
earning assets decrease by 89 basis points since the second quarter of last
year, while the cost of our interest bearing liabilities has decreased by
59 basis points." In the second quarter of 2003 the net interest margin was
4.55%, compared to 4.95% for the second quarter of 2002; the margin was
4.61% year-to-date compared to 4.93% for the first six months of 2002.
However, net interest income was slightly higher for the second quarter of
2003 compared to 2002, and was $136 thousand higher for the first six
months of 2003 compared to the first six months of last year.
The increase in the margin dollars is a result of growth in average deposits
and loans over the second quarter of last year of 7.2% and 13.2% respectively.
"We have seen a significant increase in loan demand for the first six months of
this year. Residential mortgage volume, as a result of the introduction of
our ten-year fully amortizing mortgage, increased threefold over last year.
As a portfolio lender we are cognizant of the potential adverse impact 30-
year mortgages could have on future revenue streams. Our 30-year mortgage
volume has been modest. For the first six months the majority of our new
mortgages had maturities of 10 years or less," continued Boutin.
Quarter-end loan balances were $541 million, an increase of $45.1 million
over year-end loan balances, and an annualized growth rate of 18.2%.
Quarter-end deposits were $789 million, an increase of $34.2 million
over year-end deposit balances, and an annualized growth rate of 9.0%.
"Commercial loan activity has been strong as a result of our active calling
program. This, coupled with our ten-year mortgage product, has contributed to
our strong loan growth during the first half of the year. We continue to have
success with our deposit gathering activities, which have helped to fund this
dramatic increase in loan volume. At the same time we have redeployed our
short-term cash into our investment portfolio which, at June 30, 2003, was
$299 million," said Boutin. Although Merchants has experienced strong
balance sheet growth during the first half of 2003, it expects to
experience continued margin compression during the year as a result of the
current prolonged low interest rate environment.
Nonperforming assets at June 30, 2003, were $4.32 million, or 0.48% of
total assets. This is an increase of $562 thousand over the year-end
balance of $3.76 million, and a decrease of $424 thousand from first
quarter balance of $4.74 million. "Credit quality remains at acceptable
levels. The economic environment continues to present significant
challenges for a number of our customers, but for the most part they are
capably managing their way through this slowdown. We would expect the
make-up of the nonperforming group to be dynamic, with individual loans
that comprise this category changing from quarter to quarter," said
Boutin. Merchants is in the process of completing a loan sale, which is
expected to close during the third quarter of 2003. Of the $2.1 million in
total book balances to be sold, $900 thousand are classified as
nonperforming.
The allowance for loan losses is reviewed by management quarterly and
continues to be deemed adequate under current market conditions. At June
30, 2003, the allowance stood at $7.89 million, 1.46% of total loans and
183% of nonperforming loans. Merchants recorded charge-offs of $681
thousand and recoveries of $71 thousand during the first six months of
2003. 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 allowance, Merchants has
discontinued its practice of recording these recoveries as negative loan
loss provisions. The amount of the negative provision for the first six
months of last year was $614 thousand.
Total noninterest income increased $1.02 million from the second quarter of
2002 to the second quarter of 2003, and by $1.36 million for the first six
months of 2003 compared to 2002. Excluding net gains on sales of
investments, total noninterest income increased $392 thousand from the
second quarter of 2002 to the second quarter of 2003 and by $513 thousand
for the first six months of 2003 compared to 2002. The increase is due
primarily to increases in net ATM and debit card revenue and overdraft
service charge revenue. Merchants' ATM/debit card revenue, net of expenses,
increased $72 thousand for the second quarter of 2003 and $97 thousand for
the first six months of 2003 compared to the first six months of 2002.
Merchants' overdraft fee revenue increased $155 thousand from $1.21 million
for the first six months of 2002 to $1.37 million during the first six
months of 2003; and increased $50 thousand for the second quarter of 2003
compared to 2002. Merchants Trust Company income for the second quarter of
this year was $81 thousand less than the same quarter of 2002, and was $125
thousand less than 2002 for the first six months of the year. 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 $761 thousand from $7.05 million to
$7.82 million for the second quarter of 2003 compared to 2002, and by $1.23
million for the first six months of the year. Merchants has continued its
salary administration project, which began with branch staff in 2002 and is
continuing with back office staff this year. Related salary increases are
being phased in over the course of 2003. The salary administration project
has contributed to the increase in salaries and employee benefits of $380
thousand for the second quarter of this year and $636 thousand year to date
compared to last year. Additionally, Merchants is continuing to experience
increases in its pension plan expense primarily due to decreases in the
market value of plan assets.
Occupancy and Equipment expenses increased by $140 thousand for the second
quarter of 2003 compared to 2002, and by $203 thousand for the first six
months of 2003. This increase is due to increased software maintenance costs,
and normal increases in building maintenance and rental expenses. Merchants
anticipates that there may be additional expense increases related to its
network server infrastructure and desktop computer upgrade, which is expected
to be completed by the second quarter of 2004. Approximately $200 thousand
of the total estimated $2.07 million cost will be expensed during 2003 and
2004, the balance of the cost of the project will be capitalized and
depreciated over three to five years. Merchants' equity in losses of real
estate limited partnerships increased $72 thousand for the second quarter
and $156 thousand for the first six months of 2003 compared to 2002 as
Merchants continued to invest in community-based affordable housing
partnerships. Merchants finds these investments attractive because they
provide an opportunity for the Bank 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' marketing expenses increased by $96 thousand for the second
quarter of 2003 compared to 2002 and by $147 thousand for the first six
months of the year. Sales of its premier product, Free Checking for Life(R),
increased by 24% throughout its existing franchise over the same period as
last year and balances in Free Checking for Life(R) accounts increased 22%
over the same period one year ago. Merchants' St. Albans, VT, branch, opened
in a temporary location in April 2003, is one of the top five sales branches
based on average weekly sales. Merchants expects to occupy its permanent
St. Albans location during the fourth quarter of 2003 and plans to open its
new location in White River Junction, VT, during the third quarter of 2003.
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 Friday, July 18, 2003.
Interested parties may participate in the conference call by dialing 888-
273-9891, the title of the call is Earnings Release Conference Call for
Merchants Bank. Participants are asked to call in a few minutes prior to
the call in order to register. A replay will be available through July 25,
2003. The replay dial-in number is 800-475-6701 and the replay access code
is 689478.
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 34 bank offices throughout the state of
Vermont, employees dedicated to quality customer service, and innovative
banking products such as Free Checking for Life(R), 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 $898
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.
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 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 June 30, 2003
(In thousands except share and per share data)
06/30/03 12/31/02 06/30/02 12/31/01
<s> <c> <c> <c>
Balance Sheets - Period End
Total Assets $ 897,873 $ 854,495 $ 818,676 $ 800,467
Loans 540,670 495,588 474,322 479,685
Allowance for Loan Losses ("ALL") 7,887 8,497 8,795 8,815
Net Loans 532,783 487,091 465,527 470,870
Investment Securities 298,912 270,215 273,410 212,454
Fed Funds Sold and Securities Purchased
Under Resale Agreements 513 31,500 16,000 51,000
Other Real Estate Owned -- 57 353 225
Other Assets 65,665 65,632 63,386 65,918
Deposits 789,432 755,274 727,774 711,812
Short-term Borrowings 1,661 4,000 3,396 1,248
Long-term Debt 6,257 2,377 2,216 2,453
Other Liabilities 14,721 10,086 4,695 9,391
Stockholders' Equity 85,802 82,758 80,595 75,563
Balance Sheets - Quarter-to-Date Averages
Total Assets $ 871,836 $ 844,656 $ 806,187 $ 795,397
Loans 534,569 491,494 472,159 478,265
Allowance for Loan Losses 8,310 8,678 8,907 9,680
Net Loans 526,259 482,816 463,252 468,585
Investment Securities 270,693 276,056 262,305 206,529
Interest Earning Assets 820,914 788,098 755,520 744,193
Total Deposits 771,355 748,585 719,294 707,790
Borrowings 8,604 5,065 3,567 4,984
Interest Bearing Liabilities 686,874 655,914 632,907 619,543
Stockholders' Equity 84,570 84,574 77,711 74,986
Ratios and Supplemental Information
Book Value Per Share $ 13.89 $ 13.39 $ 13.06 $ 12.32
Tier I Leverage Ratio 9.21% 9.51% 9.51% 9.12%
Period End Common Shares Outstanding 6,178,896 6,178,438 6,169,173 6,132,533
Credit Quality - Period End
Nonperforming Loans ("NPLs") $ 4,318 $ 3,699 $ 2,390 $ 2,610
Nonperforming Assets ("NPAs") 4,318 3,756 2,743 2,835
NPLs as a % of Total Loans 0.80% 0.75% 0.50% 0.54%
NPAs as a % of Total Assets 0.48% 0.44% 0.34% 0.35%
ALL as a % of NPLs 183% 230% 368% 338%
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For the Three For the Six
Months Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
<s> <c> <c> <c>
Interest Income
Interest and Fees on Loans $ 8,304 $ 8,527 $ 16,336 $ 17,183
Interest on Investments 3,072 3,616 6,364 7,091
Total Interest Income 11,376 12,143 22,700 24,274
Interest Expense
Deposits 2,006 2,808 4,103 5,845
Short-term Borrowings 11 4 13 14
Long-term Debt 45 20 72 39
Total Interest Expense 2,062 2,832 4,188 5,898
Net Interest Income 9,314 9,311 18,512 18,376
Provision for Loan Losses -- (181) -- (614)
Net Interest Income After Provision for
Loan Losses 9,314 9,492 18,512 18,990
Noninterest Income
Trust Company Income 369 450 714 839
Service Charges on Deposits 1,097 1,031 2,147 1,953
Gain (Loss) on sale of investments, Net 626 -- 843 --
Other 657 250 1,126 682
Total Noninterest Income 2,749 1,731 4,830 3,474
Noninterest Expense
Salaries and Employee Benefits 3,813 3,433 7,630 6,994
Occupancy and Equipment Expenses 1,336 1,196 2,628 2,425
Legal and Professional Fees 385 423 696 749
Marketing 357 261 658 511
Equity in Losses of Real Estate
Limited Partnerships 401 329 803 647
Expenses Other Real Estate Owned 35 44 59 75
Other 1,488 1,368 2,912 2,760
Total Noninterest Expense 7,815 7,054 15,386 14,161
Income Before Income Taxes 4,248 4,169 7,956 8,303
Income Taxes 1,208 1,152 2,182 2,280
Net Income $ 3,040 $ 3,017 $ 5,774 $ 6,023
Ratios and Supplemental Information
Weighted Average Common Shares Outstanding 6,182,218 6,162,327 6,182,335 6,153,185
Weighted Average Diluted Shares Outstanding 6,237,085 6,246,939 6,237,202 6,237,797
Basic Earnings Per Common Share $ 0.49 $ 0.49 $ 0.93 $ 0.98
Diluted Earnings Per Common Share 0.49 0.48 0.93 0.97
Return on Average Assets 1.39% 1.50% 1.44% 1.50%
Return on Average Stockholders' Equity 14.38% 15.53% 14.75% 15.61%
Net Interest Rate Spread 4.36% 4.66% 4.41% 4.62%
Net Interest Margin 4.55% 4.95% 4.61% 4.93%
Efficiency Ratio (1) 62.02% 57.67% 62.25% 58.71%
<FN>
<F1> The efficiency ratio excludes amortization of intangibles, OREO
expenses, gain/loss on sale of securities, and state franchise taxes.
Note: As of June 30, 2003, the Bank had off-balance sheet liabilities in
the form of standby letters of credit to customers in the amount of
$6.4 million.