Merchants Bancshares, Inc. Announces First Quarter 2009 Results

SOUTH BURLINGTON, Vt., April 29 /PRNewswire-FirstCall/ -- Merchants
Bancshares, Inc. (Nasdaq: MBVT), the parent company of Merchants Bank, today
announced net income of $2.91 million or diluted earnings per share of $0.48
for the quarter ended March 31, 2009. This compares with net income of $2.66
million or diluted earnings per share of $0.44 for the first quarter of 2008.
Merchants previously announced the declaration of a dividend of 28 cents per
share, payable May 14, 2009, to shareholders of record as of April 30, 2009.

The return on average assets was 0.87% for the first quarter of 2009, compared
to 0.88% for the first quarter of 2008. The return on average equity was
14.50% for the first quarter of this year, compared to 13.83% for the same
period in 2008.

"We were able to continue our strong performance into the first quarter of
2009, with earnings per share up 9%, compared to the same period in 2008, in
spite of the continued challenging economic climate," said Michael R. Tuttle,
Merchants' President and CEO. "We experienced solid growth in both loans and
deposits during the quarter. Asset quality remained strong and capital levels
continue to be well in excess of regulatory requirements."

Merchants' net interest income increased $2.70 million, or 28.0%, for the
first quarter of 2009, compared to the same period in 2008. This increase was
a result of strong growth in both loans and deposits, in addition to lowered
funding costs during the quarter. Average interest earning assets for the
quarter were $1.30 billion, compared to $1.14 billion for the first quarter of
2008. Merchants' net interest margin for the first quarter of 2009 was 3.85%,
compared to 3.40% for the first quarter of 2008.

Merchants' quarterly average loans were $865.96 million, an increase of
$128.35 million, or 17% over the first quarter of 2008, and were $40.57
million, or 5% higher on a linked quarter basis. Loans ended the first
quarter of 2009 at $892.58 million, an increase of $45.45 million over
December 31, 2008 ending balances of $847.13 million. The increase since
December 31, 2008, is comprised of residential and commercial mortgages, and
commercial loans. Merchants has hired additional lenders in its corporate
banking group, which has led to increased loan production. Tuttle commented,
"Our status as the last independent, statewide bank continues to have appeal
to business owners and has helped us attract new commercial customers. The
combination of lower interest rates and reduced competition in the residential
area, coupled with the fact that we do not originate loans for sale, has
provided us with a substantial pipeline of new retail customers."

Quarter end loan balances were as follows:

(In thousands) March 31, 2009 December 31, 2008
Commercial, financial
and agricultural $ 140,866 $ 129,032
Real estate loans -
residential 423,161 395,834
Real estate loans -
commercial 279,041 273,526
Real estate loans -
construction 40,478 40,357
Installment loans 7,545 7,670
All other loans 1,488 708
Total loans $ 892,579 $ 847,127

Merchants' investment portfolio totaled $399.06 million at March 31, 2009, a
decrease of $32.55 million from December 31, 2008 ending balances of $431.61
million. Merchants sold three bonds with a book value of $12.68 million during
the first quarter of 2009. One of the bonds was a non-agency CMO that was
downgraded below single A during the quarter. After careful review and
analysis, Merchants determined that the potential loss severities in this bond
outweighed the upside potential, and decided to sell the bond. The bond was
sold at a loss of $542 thousand. The other two bonds sold were an agency CMO
and an agency MBS, both with a 6% coupon. Both of the bonds had very short
average lives, and prepayments at this interest rate level were expected to be
quite high in light of current market conditions. Merchants decided to sell
these two bonds to lock in the embedded gain. These bonds were sold at a
combined gain of $337 thousand.

Quarterly average deposits were $948.48 million, an increase of $69.64
million, or 8%, over the same quarter of 2008. Deposits ended the quarter at
$976.89 million, an increase of $46.09 million over year end balances of
$930.80 million. The majority of this increase, $25.15 million, was in time
deposits. As of March 31, 2009, $33.11 million in deposits have moved off
balance sheet into the Certificate of Deposit Account Registry Service
("CDARS") which has attracted some larger dollar relationships looking for
full insurance coverage.

Merchants recorded a $900 thousand provision for credit losses during the
first quarter of 2009, compared to $300 thousand for the first quarter of
2008. The increase in the provision is primarily a result of overall loan
growth combined with increased net charge-offs and continued economic
uncertainty. "We will continue," Tuttle commented, "to assess the adequacy of
the reserve and related provision expense in light of changes in credit risk
and the economic environment." The allowance for loan losses was $9.45
million; 1.06% of total loans and 82% of nonperforming loans at March 31,
2009, compared to $8.89 million, 1.05% of total loans and 76% of nonperforming
loans at December 31, 2008; and $8.31 million, 1.10% of total loans and 116%
of nonperforming loans at March 31, 2008. Nonperforming loans decreased
slightly to $11.52 million at March 31, 2009, from $11.64 million at December
31, 2008. Additions to nonperforming loans during the quarter were offset by
principal paydowns, scheduled amortization and charge-downs. More than 60% of
the loans in nonaccrual status are either government guaranteed, or were
current on all scheduled payments as of March 31, 2009. Tuttle commented, "As
with last quarter, we continue to make good progress on reducing existing
non-accrual loans, but most of this was offset by additions. We have plans in
place to reduce existing non-performing balances, but it will take time in
some instances to make significant progress." Nonperforming assets as a
percentage of total assets were 0.91% as of March 31, 2009, compared to 0.93%
at December 31, 2008 and 0.56% at March 31, 2008.

Total noninterest income decreased to $1.93 million for the first quarter of
2009 from $2.24 million for the first quarter of 2008. Merchants closed its
branch in Windsor, VT on December 31, 2008. The building was sold during the
first quarter of 2009 for a gain of $180 thousand. As mentioned previously,
Merchants sold three securities during the first quarter of 2009 at a combined
net loss of $205 thousand. Excluding both the gain on the sale of the building
for 2009 and gains/losses on investment securities for both 2008 and 2009,
noninterest income decreased $207 thousand to $1.95 million for the first
quarter of 2009, compared to $2.16 million for the first quarter of 2008.
Trust Company income decreased to $401 thousand from $505 thousand for the
first quarter of 2009, compared to 2008. Although Merchants has experienced
increases in overall trust relationships, these increases have not generated
enough additional revenue to offset lost revenue due to market value declines
in the current volatile environment. Additionally, Merchants has experienced
slight decreases in overdraft income and net ATM/debit card income for the
first quarter of this year, compared to last year's first quarter as customers
react to the current economic uncertainty by spending less and by managing
overdraft activity more closely.

Total noninterest expense increased $1.42 million to $9.54 million for the
first quarter of 2009 from $8.12 million for the first quarter of 2008.
Salaries and Wages increased $328 thousand to $3.43 million for the first
quarter of 2009, compared to the same period in 2008. This increase is a
result of normal pay increases combined with additional staff that Merchants
hired in the corporate banking, executive and trust areas during the course of
2008. Employee benefits increased $328 thousand to $1.26 million for the
first quarter of 2009, compared to 2008. This increase is a result of
additional employees and substantial increases in health insurance costs and
pension plan expenses for 2009 over 2008. Legal and professional fees were
$689 thousand for the first quarter, a $106 thousand increase over last year.
These increases are a result of a combination of overall increased third party
provider fees and professional fees related to specific projects. Other
noninterest expenses increased $606 thousand to $1.89 million for the first
quarter of 2009, compared to the first quarter of 2008. Merchants FDIC
insurance expense increased by $289 thousand for the first quarter of this
year, compared to last year. Expenses related to OREO and problem loans
increased to $134 thousand for the first quarter of 2009, compared to a credit
balance of $10 thousand for 2008 as Merchants has more loans in various stages
of workout this year compared to last year. Additionally, most categories of
operating expenses have increased for 2009, compared to 2008.

Mr. Michael Tuttle, Merchants' President and Chief Executive Officer; and Ms.
Janet Spitler, Merchants' Chief Financial Officer, will host a conference call
to discuss these earnings results at 9:30 a.m. Eastern Time on Friday, May 1,
2009. Interested parties may participate in the conference call by dialing
(888) 423-3273; the title of the call is Earnings Release Conference Call for
Merchants Bancshares, Inc. Participants are asked to call a few minutes prior
to register. A replay will be available until noon on Friday, May 8, 2009. The
U.S. replay dial-in telephone number is (800) 475-6701. The international
replay telephone number is (320) 365-3844. The replay access code for both
replay telephone numbers is 967737.

The continuing mission of Merchants Bank is to provide Vermonters with a
statewide community bank that blends a strong technology platform with a
genuine appreciation for local markets. Merchants Bank fulfills this
commitment through a branch-based system that includes 34 community bank
offices and 42 ATMs throughout Vermont, Personal Bankers dedicated to
top-quality customer service and streamlined solutions, including: Personal
Checking and Savings with Free Checking for Life(R), Cash Rewards Checking, a
low-cost Money Market Account, Free Online Banking and Bill Pay, Overdraft
Coverage, Direct Deposit, Free Debit Card, and Free Automated Phone Banking;
Business Banking with Rewards Checking for Business, Business Online Banking
and Bill Pay, Business Lines of Credit and Merchant Card Processing; Small
Business Loans; customized Government Banking solutions; Health Savings
Accounts; Credit Cards; Flexible Certificates of Deposit; Vehicle Loans; Home
Equity Credit; and Home Mortgages. Visit mbvt.com for more information.
Merchants' stock is traded on the NASDAQ National Market system under the
symbol MBVT. Member FDIC. Equal Housing Lender.

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 Merchants' current
views about future events and are subject to risks, uncertainties, assumptions
and changes in circumstances that may cause Merchants' 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 (unaudited)
(In thousands except share and per share data)

03/31/09 12/31/08 03/31/08 12/31/07
-------- -------- -------- --------
Balance Sheets -
Period End
Total assets $1,350,280 $1,341,210 $1,271,259 $1,170,743
Loans 892,579 847,127 752,624 731,508
Allowance for loan
losses ("ALL") 9,446 8,894 8,312 8,002
Net loans 883,133 838,233 744,312 723,506
Securities available
for sale 397,473 429,872 428,196 361,512
Securities held to
maturity 1,586 1,737 3,759 4,078
Federal Home Loan Bank
("FHLB") stock 8,630 8,523 5,842 5,114
Federal funds sold and
other short-term
investments 260 111 22,100 20,100
Other assets 59,198 62,734 67,050 56,433
Deposits 976,886 930,797 904,866 867,437
Securities sold under
agreement to repurchase
and other short-term debt 92,705 124,408 84,083 98,917
Securities sold under
agreement to
repurchase, long-term 54,000 54,000 54,000 41,500
Other long-term debt 107,540 118,643 67,655 62,117
Junior subordinated
debentures issued to
unconsolidated subsidiary
trust 20,619 20,619 20,619 20,619
Other liabilities 14,046 13,046 62,794 4,846
Shareholders' equity 84,484 79,697 77,242 75,307
Balance Sheets -
Quarter-to-Date
Averages
Total assets $1,343,670 $1,320,845 $1,202,467 $1,169,811
Loans 865,962 825,395 737,614 730,688
Allowance for loan
losses 9,238 8,596 8,128 7,840
Net loans 856,724 816,799 729,486 722,848
Securities available
for sale and FHLB
stock 427,661 436,712 374,471 340,598
Securities held to
maturity 1,668 2,187 3,938 4,247
Federal funds sold and
other short-term
investments 5,073 2,420 26,634 38,227
Other assets 52,544 62,727 67,938 63,891
Deposits 948,484 946,534 878,847 874,406
Securities sold under
agreement to repurchase
and other short-term
debt 113,521 96,736 88,204 94,785
Securities sold under
agreement to
repurchase, long-term 54,000 54,000 50,099 35,646
Other long-term debt 114,073 117,996 74,651 60,811
Junior subordinated
debentures issued to
unconsolidated
subsidiary trust 20,619 20,619 20,619 20,619
Other liabilities 12,819 9,845 13,238 10,780
Shareholders' equity 80,154 75,115 76,809 72,764
Interest earning assets 1,300,364 1,266,714 1,142,657 1,113,760
Interest bearing
liabilities 1,140,582 1,110,612 995,419 958,669
Ratios and Supplemental
Information - Period End
Book value per share $14.62 $13.89 $13.41 $13.05
Book value per share (1) $13.88 $13.15 $12.73 $12.35
Tier I leverage ratio 7.42% 7.42% 7.95% 8.14%
Tangible capital ratio 6.26% 5.94% 6.07% 6.42%
Period end common
shares outstanding (1) 6,084,600 6,061,182 6,066,367 6,096,737
Credit Quality -
Period End
Nonperforming loans
("NPLs") $11,519 $11,643 $7,169 $9,231
Nonperforming assets
("NPAs") $12,322 $12,446 $7,169 $9,706
NPLs as a percent of
total loans 1.29% 1.37% 0.95% 1.26%
NPAs as a percent of
total assets 0.91% 0.93% 0.56% 0.83%
ALL as a percent of
NPLs 82% 76% 116% 87%
ALL as a percent of
total loans 1.06% 1.05% 1.10% 1.09%

(1) This book value and period end common shares outstanding includes
307,809; 323,754; 307,965 and 325,789 Rabbi Trust shares for
the periods noted above, respectively.

For the Three Months Ended
March 31, December 31,
2009 2008 2008
---- ---- ----
Operating Results
Interest income
Interest and fees on
loans $11,768 $11,566 $11,797
Interest and dividends
on investments 5,267 4,883 5,777
Total interest and
dividend income 17,035 16,449 17,574
Interest expense
Deposits 2,836 4,516 3,386
Short-term borrowings 85 638 277
Long-term debt 1,773 1,657 1,812
Total interest expense 4,694 6,811 5,475
Net interest income 12,341 9,638 12,099
Provision for credit
losses 900 300 600
Net interest income
after provision for
credit losses 11,441 9,338 11,499
Noninterest income
Trust Company income 401 505 396
Service charges on
deposits 1,238 1,291 1,436
(Loss) gain on
investment securities (205) 82 (369)
Equity in losses of
real estate limited
partnerships, net (463) (463) (462)
Other noninterest
income 958 828 823
Total noninterest
income 1,929 2,243 1,824
Noninterest expense
Salaries, wages and
employee benefits 4,685 4,029 4,875
Occupancy and
equipment expenses 1,639 1,552 1,557
Legal and professional
fees 689 583 541
Marketing expenses 341 404 314
State franchise taxes 298 272 263
Other noninterest
expense 1,890 1,284 1,694
Total noninterest
expense 9,542 8,124 9,244
Income before
provision for income
taxes 3,828 3,457 4,079
Provision for income
taxes 922 800 1,015
Net income $2,906 $2,657 $3,064
Ratios and Supplemental
Information
Weighted average
common shares
outstanding 6,068,082 6,084,785 6,058,922
Weighted average
diluted shares
outstanding 6,069,955 6,099,037 6,063,815
Basic earnings per
common share $0.48 $0.44 $0.51
Diluted earnings per
common share 0.48 0.44 0.51
Return on average
assets 0.87% 0.88% 0.93%
Return on average
shareholders' equity 14.50% 13.83% 16.32%
Net interest rate
spread 3.65% 3.04% 3.56%
Net interest margin 3.85% 3.40% 3.81%
Efficiency ratio (1) 62.12% 63.64% 60.75%

(1) The efficiency ratio excludes amortization of intangibles, equity in
losses of real estate limited partnerships, OREO expenses, gain/loss
on sales of securities, state franchise taxes, and any significant
nonrecurring items.
Note: As of March 31, 2009, the Bank had off-balance sheet liabilities in
the form of standby letters of credit to customers in the amount of $4.24
million.

SOURCE Merchants Bancshares, Inc.

Lisa Razo of Merchants Bank, +1-802-865-1838