Exhibit 99.1
For Release: October 16, 2003
Contact: Rosemary Walker
802/865-1838
Merchants Bancshares, Inc. Announces 2003 Third Quarter Results
and Quarterly Dividend
SOUTH BURLINGTON, VT - Merchants Bancshares, Inc. (NASDAQ: MBVT), the
parent company of Merchants Bank, today announced net income of $2.93
million or diluted earnings per share of 47 cents for the quarter ended
September 30, 2003, compared to net income of $3.47 million, or 56 cents
per diluted share for the same quarter of the previous year. The earnings
for the third quarter of 2002 were impacted by several events which are
discussed below. The return on average assets was 1.25% and the return on
average equity was 13.91% for the third quarter of 2003, compared to 1.68%
and 16.95%, respectively, for the third quarter of 2002. Merchants declared
a dividend on October 16, 2003, of 27 cents per share payable November 13,
2003, to shareholders of record as of October 30, 2003.
Average assets for the third quarter of 2003 were $934 million, a $106
million or 13% increase over average assets of $828 million for the third
quarter of 2002. In the third quarter of 2003 the net interest margin was
4.31%, compared to 4.81% for the third quarter of 2002; the net interest
margin was 4.51% year-to-date compared to 4.86% for the first nine months
of 2002. "Managing our margin continues to be a challenge for us," said
Merchants President and CEO, Joseph L. Boutin. "We have lost 39 basis
points on our net interest rate spread since the third quarter of 2002, but
our third quarter net interest income is $79 thousand higher. For the first
nine months of 2003 compared to 2002 the net interest margin decreased by
35 basis points, but due to growth in earning assets, our net interest
income increased by $215 thousand."
Merchants' quarterly average investment portfolio increased 17% year over
year. The quarter-end balance was $323 million, a $53 million increase over
year-end investment balances of $270 million. "We have been working closely
with our investment manager, and have grown our average investment
portfolio by $45 million over the last two quarters. At the same time we
have increased our average short-term borrowing by $30 million. We realized
some gains on sales of securities over the course of the quarter as we sold
several securities with short maturities and reinvested the proceeds in
medium term bonds. We have been able to maintain an average duration in the
portfolio of 2.5 years, which will help to limit our exposure to rising
rates. We expect that the pace of growth in both the loan and investment
portfolios will decrease over the rest of the year, and excess deposits
will be used to pay off a portion of Merchants' short-term borrowings,"
commented Boutin.
Quarterly average loans increased 14% year over year; the quarter end
balance was $565 million, a $69 million increase over year-end loan
balances of $496 million. Much of the growth in the loan portfolio can be
attributed to the success of our 10-year residential mortgage product,
RealLYNX(R). "We currently have $84 million in the product category at an
average rate of 4.86%. The average loan size is less than $80 thousand and
all loans are fully amortizing. The rapid amortization of this product
provides us with the opportunity to reinvest these funds at prevailing
rates as interest rates change," continued Boutin.
Quarterly average deposits increased 9% year over year; quarter end deposit
balances were $807 million, a $52 million increase over year-end deposit
balances of $755 million. "Sales of our premier checking account product,
Free Checking for Life(R), were up by 29% year-to-date resulting in an
annualized average deposit increase of 26% in this product. Fee income
generation from transaction accounts increased 11% year-to-date," commented
Boutin.
Merchants opened its new branch in White River Junction, VT, in September
of 2003. "The cost to build the branch was higher than projected, but we
were able to complete it in the 90 day time frame we had set for ourselves.
This is a free-standing, 2,500 square foot, full- service banking facility
and is the model we will use to implement our retail banking expansion
strategy. Construction of our permanent location in St. Albans, VT began in
the latter part of September; we anticipate occupancy before the end of
this year. We are currently looking at three new markets and hope to open
two more branches in 2004," said Boutin.
Nonperforming assets at September 30, 2003, were $2.97 million, or 0.30% of
total assets. This is a decrease of $791 thousand over the year-end balance
of $3.76 million, and a decrease of $1.35 million from the second quarter
balance of $4.32 million. "The improvement in nonperforming assets can
largely be attributed to a $2.1 million loan sale that closed in July. The
sale reduced nonperforming loans by approximately $850 thousand. This,
coupled with the fact that there were no significant additions to
nonperforming assets during the quarter, generated the overall decrease,"
commented Boutin.
The allowance for loan losses is reviewed by management at least quarterly
and continues to be deemed adequate under current market conditions. At
September 30, 2003, the allowance stood at $7.94 million, 1.41% of total
loans and 268% of nonperforming loans. Merchants recorded charge-offs of
$841 thousand and recoveries of $281 thousand during the first nine months
of 2003. From 1999 through 2002, Merchants recorded its recoveries on
previously charged off obligations as a negative loan loss provision.
During 2003, 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 nine months of 2002 was $704 thousand. There has
been no provision for loan losses during 2003.
Total noninterest income decreased $165 thousand from $2.71 million for the
third quarter of 2002 to $2.55 million for the third quarter of 2003, and
increased by $1.19 million from $6.19 million to $7.38 million for the
first nine months of 2003 compared to 2002. Gains on sales of investments
totaled $570 thousand for the third quarter of 2003, and $1.41 million year
to date; gains on sales of investments were $173 thousand for the third
quarter and nine months ended September 30, 2002. Additionally, during the
third quarter of last year Merchants recognized a $272 thousand gain on the
sale of a branch building and a $449 thousand insurance settlement.
Excluding these items total noninterest income increased $159 thousand from
the third quarter of 2002 to the third quarter of 2003 and increased by
$672 thousand for the first nine 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 $44 thousand for the third quarter of 2003 and
$141 thousand for the first nine months of 2003 compared to the same
periods in 2002. Overdraft service charge revenue increased $40 thousand
and $196 thousand for the quarter and nine months ended September 30, 2003
compared to the same periods in 2002.
Total noninterest expense increased $648 thousand from $7.36 million to
$8.00 million for the third quarter of 2003 compared to 2002, and by $1.87
million for the first nine months of the year. The largest dollar increase
in this category is total compensation expense which increased $242
thousand for the third quarter of this year compared to last year, and $878
thousand year to date. Three factors have contributed to this increase:
health insurance and other employee benefits have increased by 15% during
2003, Merchants has fully staffed its new St. Albans and White River
Junction locations, and an average 2003 salary increase for bank employees
of just under 10%.
Merchants' marketing expenses increased by $97 thousand for the third
quarter of 2003 compared to 2002 and by $244 thousand for the first nine
months of the year as Merchants continued to actively market its Free
Checking for Life(R) account. The strong deposit growth experienced during
2003 is evidence of the success of our marketing efforts.
Occupancy and Equipment expenses increased by $53 thousand for the third
quarter of 2003 compared to 2002, and by $256 thousand for the first nine
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 third quarter of 2004. The total
estimated cost of the project is $2.09 million; $1.86 million of these
costs will be capitalized and depreciated over three to five years. The
remaining $230 thousand of the total costs are being directly expensed as
incurred. Merchants recorded $27 thousand in direct expenses for this
project during the third quarter of 2003, and expects to expense $203
thousand during the remainder of 2003 through 2004. Merchants' equity
in losses of real estate limited partnerships increased $83 thousand for
the third quarter and $239 thousand for the first nine 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 Merchants 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.
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, October 20, 2003.
Interested parties may participate in the conference call by dialing 800-
230-1085; the title of the call is Earnings 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
October 27, 2003. The U.S. replay dial-in number is 800-475-6701 and the
replay access code is 701812.
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 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 $974 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 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
For the period ended September 30, 2003
(In thousands except share and per share data)
09/30/03 12/31/02 09/30/02 12/31/01
<s> <c> <c> <c> <c>
Balance Sheets - Period End
Total Assets $ 974,294 $ 854,495 $ 840,711 $ 800,467
Loans 564,778 495,588 489,147 479,685
Allowance for Loan Losses ("ALL") 7,937 8,497 8,679 8,815
Net Loans 556,841 487,091 480,468 470,870
Investment Securities 322,964 270,215 278,880 212,454
Fed Funds Sold and Securities Purchased
Under Resale Agreements -- 31,500 12,000 51,000
Other Real Estate Owned -- 57 46 225
Other Assets 94,489 65,632 69,317 65,918
Deposits 807,046 755,274 744,248 711,812
Short-term Borrowings 67,232 4,000 3,598 1,248
Long-term Debt 5,956 2,377 2,211 2,453
Other Liabilities 8,567 10,086 5,609 9,391
Stockholders' Equity 85,493 82,758 85,045 75,563
Balance Sheets - Quarter-to-Date Averages
Total Assets $ 934,345 $ 844,656 $ 827,862 $ 795,397
Loans 547,414 491,494 480,743 478,265
Allowance for Loan Losses 7,960 8,678 8,819 9,680
Net Loans 539,454 482,816 471,924 468,585
Investment Securities 326,012 276,056 278,404 206,529
Fed Funds Sold and Securities Purchased
Under Resale Agreements 1,008 17,762 17,815 59,399
Other Assets 67,871 68,022 59,719 60,884
Deposits 800,200 748,585 735,968 707,790
Short-term Borrowings 30,572 2,682 1,794 2,525
Long-term Debt 6,029 2,383 2,388 2,459
Other Liabilities 13,433 6,432 5,758 7,637
Stockholders' Equity 84,111 84,574 81,954 74,986
Interest Earning Assets 874,434 788,098 770,382 744,193
Interest Bearing Liabilities 732,948 655,914 645,795 619,543
Ratios and Supplemental Information
Book Value Per Share $ 13.82 $ 13.39 $ 13.78 $ 12.32
Tier I Leverage Ratio 8.77% 9.17% 9.55% 9.12%
Period End Common Shares Outstanding 6,187,576 6,178,438 6,170,232 6,132,533
Credit Quality - Period End
Nonperforming Loans ("NPLs") $ 2,965 $ 3,699 $ 3,886 $ 2,610
Nonperforming Assets ("NPAs") 2,965 3,756 3,932 2,835
NPLs as a % of Total Loans 0.52% 0.75% 0.79% 0.54%
NPAs as a % of Total Assets 0.30% 0.44% 0.47% 0.35%
ALL as a % of NPLs 268% 230% 223% 338%
- ---------------------------------------------------------------------------
For the Three For the Nine
Months Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
<s> <c> <c> <c> <c>
Interest Income
Interest and Fees on Loans $ 8,177 $ 8,498 $ 24,513 $ 25,681
Interest on Investments 3,198 3,633 9,562 10,724
Total Interest Income 11,375 12,131 34,075 36,405
Interest Expense
Deposits 1,759 2,699 5,862 8,544
Short-term Borrowings 84 6 97 20
Long-term Debt 47 20 119 59
Total Interest Expense 1,890 2,725 6,078 8,623
Net Interest Income 9,485 9,406 27,997 27,782
Provision for Loan Losses -- (90) -- (704)
Net Interest Income After Provision for
Loan Losses 9,485 9,496 27,997 28,486
Noninterest Income
Trust Company Income 337 370 1,051 1,209
Service Charges on Deposits 1,096 1,021 3,243 2,974
Gain (Loss) on Sale of Investments, Net 570 173 1,413 173
Other Noninterest Income 545 1,149 1,671 1,831
Total Noninterest Income 2,548 2,713 7,378 6,187
Noninterest Expense
Salaries and Employee Benefits 3,923 3,681 11,553 10,675
Occupancy and Equipment Expenses 1,350 1,297 3,978 3,722
Legal and Professional Fees 432 337 1,128 1,086
Marketing Expense 370 273 1,028 784
Equity in Losses of Real Estate
Limited Partnerships 401 318 1,204 965
Expenses Other Real Estate Owned 30 6 89 81
Other Noninterest Expense 1,497 1,443 4,409 4,203
Total Noninterest Expense 8,003 7,355 23,389 21,516
Income Before Income Taxes 4,030 4,854 11,986 13,157
Income Taxes 1,105 1,381 3,287 3,661
Net Income $ 2,925 $ 3,473 $ 8,699 $ 9,496
Ratios and Supplemental Information
Weighted Average Common Shares Outstanding 6,185,433 6,172,672 6,183,356 6,159,731
Weighted Average Diluted Shares Outstanding 6,255,452 6,240,722 6,242,938 6,227,781
Basic Earnings Per Common Share $ 0.47 $ 0.56 $ 1.41 $ 1.54
Diluted Earnings Per Common Share 0.47 0.56 1.39 1.52
Return on Average Assets 1.25% 1.68% 1.31% 1.56%
Return on Average Stockholders' Equity 13.91% 16.95% 13.82% 16.07%
Net Interest Rate Spread 4.14% 4.53% 4.31% 4.56%
Net Interest Margin 4.31% 4.81% 4.51% 4.86%
Efficiency Ratio (1) 63.48% 59.75% 62.67% 59.06%
<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 September 30, 2003, the Bank had off-balance sheet liabilities
in the form of standby letters of credit to customers in the amount
of $6.5 million.
</FN>