<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
- ----- Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1996
------------------
OR
_____ Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from _______ to ________
Commission File Number 0-11033
-------
MERCHANTS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0045946
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5005 WOODWAY, SUITE 300,
HOUSTON, TEXAS 77056
(Address of principal executive offices) (zip code)
(713) 622-0042
(Registrant's telephone number, including area code)
4200 WESTHEIMER, SUITE 210, HOUSTON TEXAS 77027
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of November 1, 1996, Registrant had outstanding 1,944,970 shares of its $1.00
par value per share common stock.
1
<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
The following financial statements are provided in response to item 1:
2
<PAGE>
PRESENTATION OF FINANCIAL INFORMATION
The consolidated balance sheet as of September 30, 1996 and the consolidated
statements of income for the three and nine months ended September 30, 1996 and
1995 and the consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995, have been prepared by the Company without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows of the Company as of September 30, 1996,
and for all periods presented have been made.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The results of operations for the period ended
September 30, 1996 are not necessarily indicative of the operating results for
the full year.
Effective May 1, 1995, the Company consummated its' acquisition of Texas Gulf
Coast Bancorp, Inc. Such acquisition has been accounted for as a purchase.
3
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Cash and due from banks $ 27,738 $ 29,848
Interest bearing deposits with banks 0 23,529
Time deposits in banks 1,500 898
Federal funds sold 18,650 28,175
Investment securities:
Held-to-Maturity 20,599 21,382
Available-for-Sale 121,007 130,651
Loans, net of allowance for
loan losses 274,028 235,154
Bank premises and equipment 13,637 8,692
Accrued interest receivable 3,945 3,930
Other assets 4,358 4,390
-------- --------
Total Assets $485,462 $486,649
======== ========
</TABLE>
4
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
(Dollars in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
Deposits:
Non-interest bearing $125,079 $120,058
Interest bearing 306,634 311,323
-------- --------
431,713 431,381
Accrued interest, taxes and
other liabilities 2,153 2,576
Borrowings 0 3,083
Minority Interest 0 287
-------- --------
Total Liabilities 433,866 437,327
-------- --------
Stockholders' Equity:
Common stock 1,978 1,978
Paid-in capital 25,767 25,767
Retained earnings 24,577 21,167
Unrealized securities
gains (losses) (307) 859
-------- --------
52,015 49,771
-------- --------
Less cost of stock held in treasury:
Common Stock (419) (449)
-------- --------
Total Stockholders' Equity 51,596 49,322
-------- --------
Total Liabilities and
Stockholders' Equity $485,462 $486,649
======== ========
</TABLE>
5
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1995
--------- --------
<S> <C> <C>
Interest Income:
Interest and fees on loans $6,423 $5,542
Investment securities:
Taxable 1,961 1,975
Non-taxable 237 247
Interest bearing deposits with banks 7 303
Time deposits with banks 35 16
Federal funds sold 209 471
------ ------
Total Interest Income 8,872 8,554
------ ------
Interest Expense:
Interest bearing deposits 2,787 2,875
Borrowed funds 0 73
------ ------
Total Interest Expense 2,787 2,948
------ ------
Net interest income 6,085 5,606
Provision for possible loan losses 178 59
------ ------
Net interest income after provision
for loan losses 5,907 5,547
------ ------
Non-Interest Income:
Service charges and fees 1,206 1,114
Other operating income 241 253
Securities gains (losses) 0 0
------ ------
Total Non-Interest Income 1,447 1,367
------ ------
</TABLE>
6
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
---------- ---------
<S> <C> <C>
Non-Interest Expense:
Salaries and employee benefits 2,832 2,337
Furniture, equipment and
occupancy expense 879 755
Other operating expenses 1,344 1,509
--------- ---------
Total Non-Interest Expense 5,055 4,601
--------- ---------
Income before income taxes 2,299 2,313
Income taxes 715 764
--------- ---------
Net Income $ 1,584 $ 1,549
========= =========
Per Share:
Net Income $ .81 $ .80
========= =========
Dividends - Common Stock $ .20 $ .10
========= =========
Average Number of Shares Outstanding 1,944,970 1,945,838
========= =========
</TABLE>
7
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
Interest Income:
Interest and fees on loans $18,080 $13,837
Investment securities:
Taxable 6,016 4,252
Non-taxable 698 518
Interest bearing deposits with banks 210 417
Time deposits with banks 86 59
Federal funds sold 1,006 1,285
------- -------
Total Interest Income 26,096 20,368
------- -------
Interest Expense:
Interest bearing deposits 8,293 6,430
Borrowed funds 9 151
------- -------
Total Interest Expense 8,302 6,581
------- -------
Net interest income 17,794 13,787
Provision for possible loan losses 340 99
------- -------
Net interest income after provision
for loan losses 17,454 13,688
------- -------
Non-Interest Income:
Service charges and fees 3,509 2,700
Other operating income 690 648
Securities gains (losses) 0 0
------- -------
Total Non-Interest Income 4,199 3,348
------- -------
</TABLE>
8
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (CONTINUED)
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Non-Interest Expense:
Salaries and employee benefits 8,614 5,653
Furniture, equipment and
occupancy expense 2,448 1,891
Other operating expenses 4,057 3,720
--------- ---------
Total Non-Interest Expense 15,119 11,264
--------- ---------
Income before income taxes 6,534 5,772
Income taxes 2,015 1,795
--------- ---------
Net Income $ 4,519 $ 3,977
========= =========
Per Share:
Net Income $ 2.32 $ 2.42
========= =========
Dividends - Common Stock $ .57 $ .26
========= =========
Average Number of Shares Outstanding 1,944,137 1,642,415
========= =========
</TABLE>
9
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
------- -------
<S> <C> <C>
Increase (Decrease) in Cash and
Cash Equivalents:
Operating Activities:
Net Income $ 4,519 $ 3,977
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Provision for loan losses 340 99
Origination of mortgage loans for sale (8,270) (7,609)
Proceeds of mortgage loans sold 8,462 7,064
Depreciation and amortization,
net of accretions 1,286 1,024
Provision for losses on real
estate and other assets 125 110
Loss (gain) on sale of real estate
and other assets (45) 5
(Increase) decrease in interest
receivable (15) (112)
(Decrease) increase in accrued
interest and other liabilities,
taxes and other (122) 568
------- -------
Net Cash Flows From Operating Activities 6,280 5,126
------- -------
</TABLE>
10
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------- -------
<S> <C> <C>
Investing Activities:
Net (increase) decrease in time deposits
in banks (602) (1,904)
Proceeds from the maturities of held-to-
maturity investment securities 2,125 14,576
Proceeds from the maturities of available-
for-sale investment securities 28,752 9,850
Proceeds from the sale of available-
for-sale investment securities 2,003 0
Purchase of held-to-maturity
investment securities (1,368) (20,458)
Purchase of available-for-sale
investment securities (23,383) (13,664)
Net decrease (increase) in loans (38,323) (8,976)
Rebates paid to customers (1,150) (816)
Recoveries of loans charged-off 132 181
Proceeds from sale of premises
and equipment 118 18
Capital expenditures (5,718) (441)
Proceeds from sale of real estate
and other loan related assets 276 194
Other (189) 0
------- -------
Net Cash From Investing Activities (37,327) (21,440)
------- -------
</TABLE>
11
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------- -------
<S> <C> <C>
Financing Activities:
Net increase (decrease) in deposits 332 24,118
Dividends paid (1,109) (257)
Purchase of Treasury stock 0 (123)
Sale of Treasury stock 30 0
Repayment of borrowings (3,083) (364)
Purchase minority interest (287) 0
-------- -------
Net Cash Flows from Financing Activities (4,117) 23,374
-------- -------
Net Increase (decrease) in Cash
and Cash Equivalents (35,164) 7,060
Cash and Cash Equivalents at
Beginning of Period 81,552 41,912
Net cash received in acquisition of banks 0 29,730
-------- -------
Cash and Cash Equivalents at
End of Period $ 46,388 $78,702
======== =======
For the nine months ended September 30:
Interest paid $ 8,429 $ 6,571
======== =======
Income taxes paid $ 1,835 $ 1,147
======== =======
</TABLE>
12
<PAGE>
MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
----- -------
<S> <C> <C>
Non-Cash Transactions:
Foreclosed properties transferred
to other real estate and loan
related assets $ 681 $ 481
===== =======
Bank loans for other real estate
and loan related assets sold $ 746 $ 302
===== =======
Issuance of 696,205 shares of
common stock for the issued
and outstanding common stock
of Texas Gulf Coast Bancorp, Inc. $ 0 $17,833
===== =======
</TABLE>
13
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ANALYSIS OF STATEMENT OF INCOME
-------------------------------
The following analysis discusses material changes in the results of operations
for the third quarter of 1996 compared to the third quarter of 1995 and the
first nine months of 1996 as compared to the first nine months of 1995. The
Company recorded earnings of $1,584,000 in the third quarter of 1996 and
$4,519,000 in the first nine months of 1996 compared to $1,549,000 in the third
quarter of 1995 and $3,977,000 in the first nine months of 1995.
NET INTEREST INCOME
- -------------------
Net interest income increased 8.5% in the third quarter of 1996 when compared to
the same period of 1995 and increased by 29.1% during the first nine months of
1996 as compared to the first nine months of 1995. Higher volumes of interest
earning assets and interest bearing liabilities attributable to the acquisition
of Texas Gulf Coast Bancorp, Inc. were the primary reasons for the increases.
The Company's subsidiary bank (the "Subsidiary Bank") attempts to adjust the
rates paid or earned on interest bearing liabilities and interest earning assets
to maintain a consistent net interest margin to the extent possible.
PROVISION FOR POSSIBLE LOAN LOSSES
- ----------------------------------
The provision for possible loan losses increased by $119,000 for the third
quarter of 1996 compared to the third quarter of 1995 and increased by $241,000
for the first nine months of 1996 as compared to same period in 1995. The
increase in the third quarter provision was primarily attributable to the
acquisition of Texas Gulf Coast Bancorp. The provision for possible loan losses
for the first nine months of 1996 was offset by $188,000 in net losses charged
to the allowance as compared with net losses of $102,000 for the same period in
1995. The ratio of the allowance for possible loan losses to outstanding loans
was .93% on September 30, 1996, as compared to 1.20% on September 30, 1995.
It is the policy of the Subsidiary Bank to maintain a level in the allowance for
possible loan losses that is adequate to cover the loan losses sustained plus
provide for any future possible losses on problem loans. The adequacy of the
allowance is continually monitored and management considers the current level to
be appropriate based on an evaluation of the Subsidiary Bank's loan portfolio.
The transactions in the allowance for possible loan losses were as follows:
14
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES (CONTINUED)
- ----------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1996 1995
---------- ------------
<S> <C> <C>
Loans outstanding at period end $276,591,000 $233,274,000
============ ============
Allowance at beginning of period $ 2,411,000 $ 2,063,000
------------ ------------
Allowance of acquired banks 0 738,000
------------ ------------
Provision charged to expense 340,000 99,000
------------ ------------
Loans charged off:
Commercial and industrial (114,000) (129,000)
Real estate (15,000) (14,000)
Installment (190,000) (140,000)
------------ ------------
Total (319,000) (283,000)
------------ ------------
Loans recovered:
Commercial and industrial 69,000 83,000
Real estate 17,000 55,000
Installment 45,000 43,000
------------ ------------
Total 131,000 181,000
------------ ------------
Net Loans recovered (charged off) (188,000) (102,000)
------------ ------------
Allowance at end of period $ 2,563,000 $ 2,798,000
============ ============
Ratios:
Allowance as a percent of
loans outstanding .93% 1.20%
============ ============
Allowance as a percent of
nonperforming loans 77.6% 79.1%
============ ============
</TABLE>
Non-Accrual loans and past due loans (90 days or more) totaled $2,185,000 and
$1,119,000 respectively, at September 30, 1996, as compared to $3,150,000 and
$389,000, respectively, at September 30, 1995.
NON-PERFORMING ASSETS
- ---------------------
All loans which cause management to have doubt as to the borrower's ability to
substantially comply with present loan repayment terms are included in the
schedule of non-performing loans.
Non-performing loans consist of loans on which interest is not being accrued and
loans which are 90 days or more past due as to principal and/or interest payment
and not yet in a non-accruing status. The policy of the Subsidiary Bank is to
continue to accrue interest on loans
15
<PAGE>
which are 90 days or more past due if periodic payments are being made on the
loans. If a loan is classified as past due and payments then resume on the loan,
it continues to be classified as past due until all past due amounts are paid.
The following table discloses information regarding non-performing assets as of
the indicated dates:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Non-accrual loans $2,185,000 $3,150,000
Past due 90 days or more 1,119,000 389,000
---------- ----------
Total 3,304,000 3,539,000
Other real estate owned 1,430,000 2,081,000
---------- ----------
Total non-performing assets $4,734,000 $5,620,000
========== ==========
</TABLE>
NON-INTEREST INCOME
- -------------------
Total non-interest income increased by 5.9% for the third quarter of 1996 as
compared to the third quarter of 1995 and increased 25.4% for the first nine
months of 1996 as compared to 1995. The components included in non-interest
income for the indicated periods are as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Service charges and fees $1,206,000 $1,114,000
Other operating income 241,000 253,000
Securities transactions 0 0
---------- ----------
Total non-interest income $1,447,000 $1,367,000
========== ==========
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Service charges and fees $3,509,000 $2,700,000
Other operating income 690,000 648,000
Securities transactions 0 0
---------- ----------
Total non-interest income $4,199,000 $3,348,000
========== ==========
</TABLE>
The total of the various service charges and fees earned by the Company and
Subsidiary Bank for the third quarter and the first nine months of 1996
increased by 5.9% and 25.4%, respectively, as compared to the comparable periods
of 1995. Other operating income decreased by 4.7% for the third quarter of 1996
as compared to the third quarter of 1995 and increased by 6.5% for the first
nine months of 1996 as compared to 1995.
16
<PAGE>
NON-INTEREST INCOME (CONTINUED)
- -------------------------------
The increases are primarily due to the acquisition of Texas Gulf Coast Bancorp,
Inc.
The Company maintains a policy of constantly monitoring and evaluating service
charges and fees to ensure that the fees charged reflect the cost of service
provided and remain competitive with other financial institutions located in the
Subsidiary Bank's market area.
NON-INTEREST EXPENSE
- --------------------
Non-interest expenses increased by 9.9% for the third quarter of 1996 over the
third quarter of 1995 and increased 34.2% for the first nine months of 1996
compared to the first nine months of 1995. The totals were as follows:
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Salaries and employee benefits $2,832,000 $ 2,337,000
Furniture, equipment and occupancy
expense 879,000 755,000
Other operating expenses 1,344,000 1,509,000
---------- -----------
Total non-interest expenses $5,055,000 $ 4,601,000
========== ===========
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Salaries and employee benefits $8,614,000 $ 5,653,000
Furniture, equipment and occupancy
expense 2,448,000 1,891,000
Other operating expenses 4,057,000 3,720,000
---------- -----------
Total non-interest expenses $15,119,000 $11,264,000
=========== ===========
</TABLE>
Salaries and benefits are the most significant operating expenses of the
Company. Of the 21.2% and the 52.4% increases for the third quarter and the
first nine months of 1996, respectively, over the comparable periods of 1995,
the acquisition of Texas Gulf Coast Bancorp, accounted for the majority of such
increases.
Furniture, equipment and occupancy expenses increased by 16.4% for the third
quarter of 1996 over the same quarter of 1995 and increased by 29.5% for the
first nine months of 1996 as compared to the first nine months of 1995. Other
operating expenses decreased by 10.9% for the third quarter of 1996 and
increased by 9.1% for the first nine months of 1996 as compared to the same
periods in 1995. The major components of other operating expenses are legal and
accounting fees, data processing, supplies and advertising expenses.
17
<PAGE>
ANALYSIS OF BALANCE SHEET
-------------------------
EARNING ASSETS
- --------------
When comparing the total of earning assets at September 30,1996 to the total at
December 31,1995, earning assets decreased 1.0%. The decrease was due to
decreases of $23,529,000, $9,525,000 and $10,427,000 in interest bearing
deposits with banks, federal funds sold and investment securities, respectively.
These decreases were partially offset by an increase of $38,639,000 in loans and
an increase of $602,000 in time deposits in banks.
Included in the total of earning assets at September 30, 1996 are loans totaling
$2,185,000 which are on a non-accrual status. This compares to non-accrual
loans totaling $3,150,000 and $3,125,000 at September 30, 1995 and December 31,
1995, respectively.
DEPOSITS
- --------
The most important funding source for earning asset growth is deposits. Total
deposits increased $332,000 from December 31,1995 to September 30, 1996. With
the acquisition of Texas Gulf Coast during 1995, deposits increased $205,144,000
from December 31, 1994 to September 30, 1995. The September 30,1996 increase
was attributable to a 4.2% increase in non-interest bearing deposits partially
offset by a 1.5% decrease in interest bearing deposits.
CAPITAL
- -------
Shareholders' equity increased $2,274,000, or 4.6%, for the nine months ended
September 30, 1996, as compared to an increase of $21,378,000 for the comparable
period in 1995. The 1995 increase is primarily attributable to the acquisition
of Texas Gulf Coast Bancorp, Inc. The ratio of shareholders' equity to total
assets was 10.6% on September 30,1996, as compared to 10.1% on December 31, 1995
and 9.7% on September 30, 1995.
Bank holding companies and their bank subsidiaries are required to maintain
certain capital ratios. The Federal Reserve Board's guidelines classify capital
into two tiers, referred to as Tier 1 and Tier 2. Tier 1 capital consists of
common and qualifying preferred shareholders' equity less goodwill. Tier 2
capital consists of mandatory convertible debt, preferred stock not qualifying
as Tier 1, qualifying subordinated debt and the allowance for loan losses up to
1.25% of risk-weighted assets. The minimum ratio for the sum of Tier 1 and Tier
2 to risk weighted assets is 8.0%, at least one-half of which should be in the
form of Tier 1 capital. At September 30, 1996, core capital (Tier 1) and total
capital (Tier 1 and Tier 2) as a percentage of risk-weighted assets was 17.41%
and 18.30%, respectively. The Subsidiary Bank at September 30, 1996 had core
capital of 16.18% and total capital of 17.06% as a percentage of risk weighted
assets.
In addition to the foregoing ratios, bank holding companies are required to
maintain a minimum ratio of core capital to total assets (hereinafter referred
to as the "Leverage Ratio") of at least 3.0%. At September 30, 1996, the
Company's Leverage Ratio was 10.41%. A similar leverage ratio applicable to the
Subsidiary Bank has been adopted by the FDIC. At September 30, 1996, the
Subsidiary Bank's ratio was 9.71%.
18
<PAGE>
LIQUIDITY AND CAPITAL COMMITMENTS
- ---------------------------------
Liquidity is the ability of the Company and its Subsidiary Bank to meet their
short-term needs for cash arising from demands such as operating expenses,
withdrawal of deposits and demand for loans. The liquidity of the Company is
primarily provided by dividends from the Subsidiary Bank and interest on time
deposits in financial institutions.
The Subsidiary Bank's liquidity is primarily provided by maturing loans,
deposits, cash, short-term investments, time deposits in other banks, federal
funds sold and profits. With bank regulators critically reviewing liquidity,
the Company has adopted a policy of maintaining a minimum liquidity level of 20%
as measured by the FDIC formula, at the Subsidiary Bank. As of September 30,
1996, the liquidity level of the Subsidiary Bank was 37.24%.
The Company believes that both it and the Subsidiary Bank have sufficient
capital and financial resources to meet its current and anticipated capital
commitments.
19
<PAGE>
PART 2 - OTHER INFORMATION
Item 1. Legal proceedings.
-----------------
Not applicable
Item 2. Changes in securities.
---------------------
Not applicable
Item 3. Defaults upon senior securities.
-------------------------------
Not applicable
Item 4. Submission of matters to a vote of security holders.
----------------------------------------------------
Not applicable
Item 5. Other information.
-----------------
Not applicable
Item 6. Exhibits and reports on Form 8-K.
--------------------------------
20
<PAGE>
EXHIBIT INDEX
(a)
Exhibit number and description
------------------------------
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession. *)
(3) (i) Articles of Incorporation
(ii) By Laws
(4) Instruments defining the rights of security holders, including
indentures. *)
(10) Material contracts. *)
(11) Statement re computation of per share earnings. *)
(15) Letter re unaudited interim financial information. *)
(18) Letter re change in accounting principles. *)
(19) Report furnished to security holders. *)
(22) Published report regarding matters submitted to vote of security holders.
*)
(23) Consent of experts and counsel. *)
(24) Power of attorney. *)
(27) Financial data schedule.
. Exhibit 27.1. Financial Data Schedule
(99) Additional exhibits. *)
*) Not applicable.
(b)
Exhibits and reports on Form 8-K.
---------------------------------
No reports on Form 8-K were filed by the Company with the Securities and
Exchange Commission during the fiscal quarter ended September 30, 1996.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERCHANTS BANCSHARES, INC.
Date: November 13, 1996 BY: /S/ J. W. Lander, Jr.
__________________________________
J. W. Lander, Jr., Chairman
Date: November 13, 1996 BY: /S/ J. W. Lander, III
__________________________________
J. W. Lander, III, President
(principal financial and chief
accounting officer)
22
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<PAGE>
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