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Merchants Bancshares Inc. Reports Operating Results (10-Q)

November 09, 2009 | About:
10qk

10qk

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Merchants Bancshares Inc. (MBVT) filed Quarterly Report for the period ended 2009-09-30.

Merchants Bancshares, Inc. is a bank holding company for Merchants Bank. Merchants Bancshares Inc. has a market cap of $132.29 million; its shares were traded at around $21.68 with a P/E ratio of 11.18 and P/S ratio of 1.71. The dividend yield of Merchants Bancshares Inc. stocks is 5.17%. 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 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.

Net income was $3.71 million and $8.68 million for the third quarter and first nine months of 2009, respectively, compared to net income of $3.31 million and $8.85 million for the third quarter and first nine months of 2008, respectively. The return on average assets for the quarter and nine months ended September 30, 2009 was 1.07% and 0.85%, respectively, compared to 1.01% and 0.93% for the quarter and nine months ended September 30, 2008, respectively. The return on average equity for the quarter and nine months ended September 30, 2009 was 17.37% and 13.93%, respectively, compared to 17.98% and 15.66% for the same periods in 2008. The following were the major factors contributing to the results for the quarter ended September 30, 2009, compared to the same period in 2008:

Net interest income is setting new records for Merchants. Taxable equivalent net interest income for the third quarter of 2009 was $12.79 million, an increase of $1.34 million, or 11.7% over the same period in 2008. For the nine months ended September 30, 2009 taxable equivalent net interest income was $37.55 million, an increase of $5.94 million, or 18.8% over the same period in 2008.

Merchants prepaid $9 million in FHLB debt during the third quarter of this year resulting in a $280 thousand prepayment penalty; year to date Merchants has prepaid a total of $27 million in FHLB debt and incurred a total of $584 thousand in prepayment penalties.

Merchants taxable equivalent net interest income increased $1.34 million, or 11.68%, to $12.79 million for the third quarter of 2009, compared to 2008. Merchants net interest margin increased 14 basis points to 3.77% over the same time frame. These increases were driven by a combination of an increase in average interest earning assets, a shift in the make-up of the balance sheet, and lower funding costs during 2009. Merchants average interest earning assets increased $90.25 million, or 7.19%, to $1.35 billion for the third quarter of 2009, compared to $1.26 billion for the third quarter of 2008. The yield on average earning assets has decreased to 4.92% for the third quarter of 2009 from 5.59% for the third quarter of 2008. The make-up of those assets has changed over the last year as Merchants has shifted the asset side of the balance sheet away from investments and toward the loan portfolio. Merchants average investments for the third quarter of this year decreased by 17.8% to $369.35 million, at an average yield of 4.79%, from $449.60 million, at an average yield of 5.05%, for the third quarter of 2008. At the same time, Merchants average loans for the third quarter of this year increased by 15.3% to $922.70 million, at an average yield of 5.23%, from $800.13 million, at an average yield of 5.92%, for the third quarter of 2008. This shift to a higher yielding asset class helped to mitigate the effect of the overall lower interest rate environment, and the large cash position Merchants has accumulated over the last few months. Merchants has worked to shift the funding side of the balance sheet away from wholesale borrowed funds to less expensive deposits and customer repurchase agreements. Merchants average interest bearing deposits for the third quarter of this year increased 10.3% to $909.94 million, at an average cost of 0.97%, compared to $824.77 million, at an average cost of 1.91%, for the third quarter of last year. Merchants offers its customers a cash management sweep arrangement that is secured by its investment portfolio by way of an overnight repurchase agreement. These funds are classified as borrowings on Merchants balance sheet. Average balances in this funding source increased $36.43 million, or 46.7%, to $114.47 million for the third quarter of 2009, compared to the third quarter of 2008. At the same time Merchants long-term debt and long-term repurchase agreements decreased 22.7% to $133.11 million, at an average cost of 3.43%, for the third quarter of 2009 from $172.23 million, at an average cost of 3.63%, for the third quarter of 2008. This decrease is a result of normal monthly amortization, combined with $27 million in prepayments of FHLB long term debt during 2009.

For the nine months ended September 30, 2009 Merchants taxable equivalent net interest income increased $5.94 million, or 18.78%, to $37.55 million compared to the first nine months of 2008; and Merchants net interest margin increased by 30 basis points to 3.81%. These increases were driven by the same changes that impacted the third quarter of 2009 discussed previously. Merchants average earning assets increased $111.26 million, or 9.23% to $1.32 billion for the first nine months of 2009, compared to $1.20 billion for the same period in 2008. The yield on average earning assets has decreased 53 basis points to 5.13% for 2009, compared to 5.66% for 2008. The make-up of the earning asset base has shifted here as well. Average loans were $128.14 million, or 16.7%, higher for the first nine months of 2009, compared to the first nine months of 2008; and average investments for the same period in 2009 were $31.02 million, or 7.3%, lower than for the same time period in 2008. Merchants funding base has also changed on a year-to-date basis. Average interest bearing liabilities have increased $99.84 million, or 9.4%, for the first nine months of 2009, compared to the first nine months of 2008. $82.46 million of this increase was in interest bearing deposits, which increased to $881.17 million, at an average cost of 1.18%, from $798.71 million, at an average cost of 2.15%, a 10.3% increase. The balance of the increase was in short-term customer repurchase agreements, which increased 15.1% to $95.19 million, at an average cost of 0.44% for the first nine months of 2009, compared to $82.68 million at an average cost of 2.17% for the first nine months of last year.

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