Merchants Bancshares Inc. is a bank holding company for Merchants Bank. Merchants Bancshares Inc. has a market cap of $144.6 million; its shares were traded at around $23.74 with a P/E ratio of 12.5 and P/S ratio of 1.8. The dividend yield of Merchants Bancshares Inc. stocks is 4.7%. Merchants Bancshares Inc. had an annual average earning growth of 9.5% over the past 5 years. Highlight of Business Operations: In response to the financial crises affecting the banking system and financial markets, there have been several recent announcements of Federal programs designed to purchase or insure assets from, provide equity capital to, and guarantee the liquidity of, the industry. On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the EESA) was signed into law. Pursuant to the EESA, the U.S. Treasury was given the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. EESA also immediately increased the FDIC deposit insurance limit from $100,000 to $250,000 through December 31, 2009. On May 19, 2009, Congress extended the $250,000 deposit insurance limit through December 31, 2013.
Merchants recorded a $2.00 million provision for credit losses during the second quarter of 2009 and a $2.90 million provision year to date compared to a $50 thousand loan loss provision for the second quarter of 2008, and $350 thousand for the first six months of last year. The increase in the provision was primarily a result of increased levels of non-performing and classified loans, combined with increased net charge-offs, continued economic uncertainty and strong loan growth over the first six months of 2009.
Merchants quarterly average loans were $895.98 million, an increase of $133.22 million, or 17.46% over the second quarter of 2008, and were $30.02 million, or 3.47% higher on a linked quarter basis. Loans ended the second quarter of 2009 at $896.09 million, an increase of $48.96 million over December 31, 2008 ending balances of $847.13 million.
Quarterly average deposits were $1.00 billion, an increase of $79.03 million, or 8.6%, over the same quarter of 2008. Deposits ended the quarter at $1.02 billion, an increase of $84.60 million over year-end 2008 balances of $930.80 million.
Total non-interest income increased to $2.41 million for the second quarter of 2009 from $2.31 million for the second quarter of 2008, and decreased to $4.34 million for the first six months of this year from $4.55 million for the same period last year. Non-interest income excluding gains/losses on investment securities increased to $4.54 million for the first half of 2009, from $4.47 million for the first half of last year. Total noninterest expense increased $1.39 million to $10.34 million for the second quarter of 2009 from $8.95 million for the second quarter of 2008; and increased $2.80 million to $19.88 million for the first six months of 2009, compared to the same period in 2008.
Merchants net interest income increased $1.89 million, or 18.0%, to $12.38 million for the second quarter of 2009 compared to 2008, and increased $4.59 million, or 22.8%, to $24.72 million for the first half of 2009 compared to 2008. This increase was a result of strong growth in both loans and deposits, and a result of funding costs falling more rapidly than asset repricing over the last year. Average interest earning assets for the quarter were $1.31 billion, compared to $1.22 billion for the second quarter of 2008; and were $1.30 billion for the first half of 2009 compared to $1.18 billion for the same period in 2008. Merchants net interest margin for the second quarter of 2009 was 3.81%, 33 basis points higher than the second quarter of 2008, and was 3.84% for the first half of 2009, a 40 basis point increase over the same period in 2008. Merchants net interest margin for the second quarter of 2009 decreased by four basis points from the first quarter of this year. Merchants average earning assets were essentially flat from the first quarter of 2009 to the second as loan growth was primarily funded through run off from the investment portfolio. At the same time Merchants experienced very strong deposit growth, this was invested short term, contributing to the decrease in the rate earned on average interest earning assets to 5.14% from 5.32% for the first quarter of this year. Additionally, Merchants has experienced increases in its non-performing asset portfolio during the quarter (see the credit quality discussion beginning on page 24 for further information on non-performing assets) further straining the net interest margin.
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