SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1993. COMMISSION FILE NUMBER 0-11595
MERCHANTS BANCSHARES, INC.
(A DELAWARE CORPORATION)
EMPLOYER IDENTIFICATION NO. 03-0287342
123 Church Street, Burlington, VT 05401
Telephone: (802) 658-3400
Indicate by check mark whether the registrant has filed all reports required to
be filed by Section 13 or 15(D) of the Securities Exchange Act of 1934 during
the preceeding 12 months (or for such shorter period that the registrant was
required to file such reports), and has been subject to such filing requirement
for the past 90 days.
YES X NO
--- ---
4,242,927 Shares Common Stock, $.01 Par Outstanding March 31, 1993.
<PAGE>
MERCHANTS BANCSHARES, INC. FORM 10-Q
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1993
IS HEREBY RESTATED AS FOLLOWS:
PART 1
ITEM 1 FINANCIAL STATEMENTS
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
<PAGE>
MERCHANTS BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET
(Dollar Amounts in Thousands)
RESTATED
March 31 March 31 DECEMBER 31
1993 1992 1992
ASSETS ---------- ---------- ---------
Cash and Due From Banks 25,841 27,161 36,744
Federal Funds Sold 0 0 10,500
Debt Securities Held for Sale 109,248 83,505 103,197
Marketable Equity Securities 5,343 3,759 4,333
--------- --------- ---------
Total Investments 114,591 87,264 107,530
Loans 425,120 447,753 429,535
Less: Reserve for Possible Loan Losses (11,598) (6,835) (7,412)
---------------------------------
Net Loans 413,522 440,918 422,123
Bank Premises and Equipment 14,299 15,492 14,636
OREO and Insubstance Foreclosure 12,333 7,102 12,661
Other Assets 19,612 14,854 18,646
---------------------------------
Total Assets 600,198 592,791 622,840
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand 60,879 62,410 82,272
Savings, NOW and Money Market Accounts 281,379 267,336 289,670
Time CDs $100,000 and Over 510 1,912 6,647
Other Time 123,002 151,199 125,464
---------------------------------
Total Deposits 465,770 482,857 504,053
Federal Funds Purchased 14,600 3,900 0
Securities Sold U/A to Repurchase 6,338 3,571 3,595
Demand Note Due U/S Treasury 3,921 4,074 4,870
Other Liabilities 9,563 8,834 9,082
---------------------------------
Total Liabilities 500,192 503,236 521,600
Long-Term Debt 49,036 38,745 49,037
Stockholders' Equity
Common Stock, $.01 Par Value 42 41 42
Shares Authorized 4,700,000
Outstanding, Current Year 4,242,927
Previous Year 4,119,347
December 31, 1992 4,242,927
Treasury Stock (at Cost) (353) (358) (424)
Surplus 30,644 28,645 30,636
Undivided Profits 20,637 22,482 21,949
---------------------------------
Total Stockholders' Equity 50,970 50,810 52,203
---------- ---------- ----------
Total Liabilities and Stockholders' Equity 600,198 592,791 622,840
=================================
Book Value per Share (Note 1) $12.08 $12.05 $12.39
Note 1: Book Values per share have been adjusted to reflect the 3% stock
dividend issued December 1992.
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MERCHANTS BANCSHARES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
(Dollar Amounts in Thousands, Except for Per Share Data)
RESTATED
Quarter Ended March 31,
1993 1992
Interest Income:
Interest on Loans $ 9,002 $ 10,664
Investment Income:
Obligations of U.S. Government 1,005 888
Other 107 54
Federal Funds Sold 13 53
---------- ----------
$ 10,127 $ 11,659
---------- ----------
Interest Expense:
Interest on Deposits $ 3,590 $ 5,457
Interest on Capital Notes
and Other Borrowings 1,189 1,074
---------- ----------
$ 4,779 $ 6,531
---------- ----------
Net Interest Income $ 5,348 $ 5,128
Provision for Possible Loan Losses 5,008 1,400
---------- ----------
Net Interest Income after
Provision for Possible Loan Losses $ 340 $ 3,728
Other Income: ---------- ----------
Fees on Loans $ 933 $ 954
Service Charges on Deposits 747 594
Other 2,475 2,019
---------- ----------
$ 4,155 $ 3,567
Other Expenses: ---------- ----------
Salaries and Wages $ 1,947 $ 1,965
Employee Benefits 619 598
Occupancy Expense, Net 448 423
Equipment Expense 404 460
Low Income Housing Losses 232 232
Expenses Other Real Estate Owned 620 92
Other 1,487 1,480
---------- ----------
$ 5,757 $ 5,250
---------- ----------
Income (Loss) Before Income Taxes $ (1,262) $ 2,045
Provision (Benefit) for Income Taxes (792) 278
---------- ----------
Net Income (Loss) $ (470) $ 1,767
========== ==========
Per Common Share Net Income (Loss) $ (0.11) $ 0.42
========== ==========
Dividends Paid Per Share $ 0.20 $ 0.19
========== ==========
Weighted Average Common Shares Outstanding
Adjusted for All Stock Dividends Paid 4,174,914 4,209,240
2
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MERCHANTS BANCSHARES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1992 AND
THE THREE MONTHS ENDED MARCH 31, 1993 AND 1992
UNAUDITED
(Thousands of Dollars)
RESTATED Total
Common Undivided Treasury Equity
Stock Surplus Profits Stock Capital
------- -------- --------- -------- ---------
Balance - December 31, 1991 $ 41 $ 28,650 $ 21,531 $ (631)$ 49,591
Net Income 1,767 1,767
Treasury Stock Transactions (5) 8 273 276
Cash Dividend ($.19 per sh)* (824) (824)
------- ------ ------ ------- -------
Balance - March 31, 1992 $ 41 $ 28,645 $ 22,482 $ (358)$ 50,810
Net Income 3,910 3,910
Treasury Stock Transactions 27 18 (66) (21)
Cash Dividends ($.57 per sh)* (2,496) (2,496)
Stock Dividend (123,580
shares declared) 1 1,964 (1,965) 0
------- ------ ------- ------- -------
Balance - December 31, 1992 $ 42 $ 30,636 $ 21,949 $ (424)$ 52,203
Net Loss (470) (470)
Treasury Stock Transactions 8 7 71 86
Cash Dividends ($.20 per sh) (849) (849)
------- ------- ------- ------- -------
Balance - March 31, 1993 $ 42 $ 30,644 $ 20,637 $ (353)$ 50,970
======= ======= ======= ======= =======
*Per share amounts have been adjusted to reflect all stock dividends.
3
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MERCHANTS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Dollar Amounts in Thousands)
RESTATED
For the Three Months Ended March 31, 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES: ------- -------
Net Income (Loss) $ (470) $ 1,767
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Possible Loan Losses 5,008 1,400
Provision for Depreciation and Amortization 407 447
Prepaid income taxes (1,375) (428)
Imputed Gain on Sale of Loans (84) (142)
Net Gains on Sales of Investment Securities 1,275 1,262
Net Gains on Sales of Loans and Leases (14) (21)
Equity in Losses Real Estate Ltd Partnerships 232 231
(Increase) Decrease in Interest Receivable 1,186 962
Increase in Interest Payable 547 631
(Increase) Decrease in Other Assets 813 (1,274)
Increase (Decrease) in Other Liabilities 2,210 (1,279)
(Increase) Decrease in Net Investment - Leases 214 196
------- -------
Net Cash Provided by Operating Activities $ 9,949 $ 3,752
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Investment Securities $ 144,509 $ 67,626
Proceeds from Sales of Loans and Leases 17,295 25,369
Purchases of Investment Securities (147,890) (83,719)
Loans Originated, Net of Principal Repayments (12,075) (6,299)
Purchases of Premises and Equipment (38) (52)
------- -------
Net Cash Provided by Investing Activities $ 1,801 $ 2,925
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Decrease in Deposits $ (38,283) $ (7,780)
Net Decrease in Short-term Borrowing 16,394 (3,811)
Principal (Payments) Borrowings on Long-Term Debt (1) 63
Acquisition of Treasury Stock (132) (22)
Cash Dividends Paid (843) (816)
Sale of Treasury Stock 212 291
------- -------
Net Cash Used in Financing Activities $ (22,653) $ (12,075)
------- -------
Decrease in Cash and Cash Equivalents (10,903) (5,398)
Cash and Cash Equivalents at January 1 36,744 32,559
------- -------
Cash and Cash Equivalents at March 31 $ 25,841 $ 27,161
======= =======
Total Interest Payments $ 4,233 $ 5,600
Total Income Tax Payments $ 0 $ 0
4
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MERCHANTS BANCSHARES, INC.
NOTES TO FINANCIAL STATEMENTS:
The Investment portfolio is comprised of the following as of March 31:
-----1993------ -----1992------
Book Market Book Market
(In Thousands) Value Value Value Value
------- ------- ------- -------
U.S. Government 109,248 109,300 83,505 82,512
State & Political 10 10 10 10
Other 5,333 5,421 3,749 4,084
------- ------- ------- -------
114,591 114,731 87,264 86,606
======= ======= ======= =======
PROVISION AND RESERVE FOR POSSIBLE LOAN LOSSES
During the month of May, 1993, a joint field examination was performed
on the Bank by the FDIC and the Vermont Department of Banking, Insurance and
Securities. As a result of this examination, the Bank was directed to
increase its loan loss reserve by approximately $12 million and write off
certain loans and restate call reports, where deemed necessary by management.
Management performed an extensive review of the classified assets and
determined that $3 million of the additional provision should appropriately
be recognized in the first quarter of 1993.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All adjustments necessary for a fair statement of the three months ended
March 31, 1993 and 1992 have been included in the financial statements.
The information was prepared from the books of Merchants Bancshares, Inc.
and its subsidiaries, The Merchants Bank and Merchants Properties, Inc.,
without audit.
In the ordinary course of business, The Merchants Bank, a wholly-owned
subsidiary, makes commitments for possible future extensions of credit. On
March 31, 1993, the Bank was obligated for $14,410,008 of standby letters
of credit. No losses are anticipated in connection with these commitments.
Per share data has been restated to reflect a 3% stock dividend paid
December 11, 1992, where necessary.
RESULTS OF OPERATIONS - ANALYSIS OF QUARTERLY INCOME STATEMENTS:
Due to the increase in the loan loss provision discussed in the
footnotes, above, the Bank recognized a net loss of $469,510 for the first
quarter of 1993 compared to net income of $1,767,046 for the first quarter
of 1992. Per share earnings for the quarter were $(.11) compared to $.42
for the year earlier quarter. During the previous quarter (December 31,
1992) the Company earned $705,990.
The restated provision for possible loan losses of $5,008,000 was
$2,758,000 higher than the previous quarter and $3,608,000 higher than the
same quarter a year earlier. Gains from the sale of US Treasury and equity
securities are included in other non-interest income in the amount of
$1,274,972 and $1,047,974 for the quarters ended March 31, 1993 and 1992
respectively.
Additionally, the Company recognized $240,000 and $150,000 in low
income housing tax credits representing the amount earned during the first
quarters of 1993 and 1992, respectively.
The table on the following page analyzes interest and overhead
management in relation to total average assets for the quarters ended
March 31, 1993, December 31, 1992, and March 31, 1992.
5
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MERCHANTS BANCSHARES, INC.
INTEREST MANAGEMENT AND OPERATING EXPENSE ANALYSIS
(IN THOUSANDS - TAXABLE EQUIVALENT BASIS)
RESTATED
QUARTER ENDED QUARTER ENDED QUARTER ENDED
03/31/93 12/31/92 03/31/92
Total Average Assets $612,887 $617,684 $596,991
------------------------ ----------------- ----------------- -----------------
AMOUNT % OF AMOUNT % OF AMOUNT % OF
ASSETS ASSETS ASSETS
INTEREST MANAGEMENT
Interest Income (T.E.) $10,257 6.69% $10,773 6.98% $11,834 7.93%
------------------------- ----------------- ----------------- -----------------
Interest Expense 4,779 3.12% 5,236 3.39% 6,531 4.38%
------------------------- ----------------- ----------------- -----------------
Net Int before Prov (T.E.) $5,478 3.58% $5,537 3.59% $5,303 3.55%
------------------------- ----------------- ----------------- -----------------
Prov for Loan Losses 5,008 3.27% 2,250 1.46% 1,400 0.94%
------------------------- ----------------- ----------------- -----------------
Net Int. Income (T.E.) $470 0.31% $3,287 2.13% $3,903 2.62%
------------------------- ----------------- ----------------- -----------------
NET OPERATING EXPENSE
Non-Interest Expense:
Personnel $2,566 1.67% $2,535 1.64% $2,563 1.72%
------------------------- ----------------- ----------------- -----------------
Occupancy 448 0.29% 335 0.22% 423 0.28%
------------------------- ----------------- ----------------- -----------------
Equipment 404 0.26% 434 0.28% 460 0.31%
------------------------- ----------------- ----------------- -----------------
Other 2,338 1.53% 1,930 1.25% 1,805 1.21%
------------------------- ----------------- ----------------- -----------------
Total $5,756 3.76% $5,234 3.39% $5,251 3.52%
------------------------- ----------------- ----------------- -----------------
Less Non-Interest Income:
Fees on Loans $933 0.61% $1,291 0.84% $954 0.64%
------------------------- ----------------- ----------------- -----------------
Service Charges on Dep 747 0.49% 711 0.46% 594 0.40%
------------------------- ----------------- ----------------- -----------------
Other 2,475 1.62% 191 0.12% 2,019 1.35%
------------------------- ----------------- ----------------- -----------------
Total $4,155 2.71% $2,193 1.42% $3,567 2.39%
------------------------- ----------------- ----------------- -----------------
Net Operating Expense $1,601 1.04% $3,041 1.97% $1,684 1.13%
------------------------- ----------------- ----------------- -----------------
SUMMARY
Net Interest Income $470 0.31% $3,287 2.13% $3,903 2.62%
------------------------- ----------------- ----------------- -----------------
Less Net Operating Exp. $1,601 1.04% $3,041 1.97% $1,684 1.13%
------------------------- ----------------- ----------------- -----------------
Profit Before Taxes ($1,131) -0.74% $246 0.16% $2,219 1.49%
------------------------- ----------------- ----------------- -----------------
NET PROFIT (LOSS) ($470) -0.31% $707 0.46% $1,767 1.18%
------------------------- ----------------- ----------------- -----------------
6
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MERCHANTS BANCSHARES, INC
YIELD ANALYSIS
(UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31, 1993 MARCH 31, 1992
Fully Taxable Equivalent AVERAGE AVERAGE AVERAGE AVERAGE
Includes Fees on Loans BALANCE RATE BALANCE RATE
--------- ------- ---------- ------
INTEREST EARNING ASSETS
Taxable Investments $ 109,178 4.11% $ 71,177 5.35%
Non-Taxable Investments 10 10.56% 10 10.56%
Loans 412,634 9.75% 440,919 9.91%
Federal Funds Sold 1,769 2.83% 5,268 4.00%
---------- ------- ---------- ------
Total Interest Earning Assets $ 523,591 8.55% $ 517,374 9.22%
========== ======= ========== ======
INTEREST BEARING LIABILITIES
Savings, NOW and Money Market Deposits $ 279,022 2.83% $ 257,259 4.48%
Time Deposits 125,147 4.94% 156,974 6.42%
---------- ------- ---------- ------
Total Savings and Time Deposits 404,169 3.48% 414,233 5.22%
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 7,517 3.29% 5,636 4.24%
Other Borrowed Funds 66,648 7.21% 51,894 8.24%
---------- ------- ---------- ------
Total Interest Bearing Liabilities 478,334 4.00% 471,763 5.54%
Other Liabilities and Stockholders' Equity
(Net of Non-Interest Earning Assets) 45,257 45,611
---------- ----------
Total Liabilities and Stockholders' Equity
(Net of Non-Interest Earning Assets) $ 523,591 $ 517,374
========== ==========
Rate Spread 4.55% 3.68%
======= ======
Net Yield on Interest Earning Assets 4.90% 4.17%
======= ======
7
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MERCHANTS BANCSHARES, INC
BALANCE SHEET:
Average assets dropped about $5 million during the quarter
ended March 31, 1993 from the December 31, 1992 level and
increased $16 million from the same date a year earlier. Period-
end investment balances increased nearly $6 million (5%) from
December 31, 1992 and $27 million (31%) from March 31, 1992 as
the Bank invests money previously invested in the loan portfolio.
This increase is in U.S. Treasury securities and Federal Home
Loan Bank stock. Gross loans declined approximately $4 million
(1%) during the quarter and $22.6 million (5.1%) over the year.
Average short-term borrowings grew from approximately $9.7
million to $11.4 million during the periods reported. Deposit
account averages, which traditionally decrease during the first
two quarters of the calendar year and increase during the last
two quarters have declined approximately $27 million (5.5%) from
December 31, 1992 and $10 million (2.4%) from the same date a
year ago, as customers leave the banking industry for higher
returns.
DETERMINATION OF RESERVE FOR POSSIBLE LOAN LOSSES (RPLL)
The Company reviews the adequacy of the RPLL at least
quarterly. The method used is not based upon maintaining a
specific percentage of RPLL to total loans or total non-
performing assets but rather a comprehensive analytical process
of assessing the credit risk inherent in the loan portfolio.
This assessment incorporates a broad range of factors which are
indicative of both general and specific credit risk, as well as a
consistent methodology for quantifying probable credit losses.
As part of the Company's analysis of specific credit risk, a
detailed and extensive review is done on larger credits and
problematic credits identified on the watched asset list, non-
performing asset listings, and credit rating reports.
The more significant factors considered in the evaluation of
the adequacy of the RPLL include:
- Status of non-performing loans
- Status of adversely-classified credits
- Historic charge-off experience by major loan category
- Size and composition of the loan portfolio
- Concentrations of credit risk
- Renewals and extensions
- Current local and general economic conditions
and trends
- Loan growth trends in the portfolio
- Off balance sheet credit risk relative to
commitments to lend
8
<PAGE>
The RPLL is comprised of both specific and general
components. The specific allocation portion of the RPLL is based
on evaluations of larger loans and an analysis of problematic,
watched asset list loans and credit rated loans. The general or
non-specific allocation portion of the RPLL is based upon the
factors above. The inherent risks of specific loan categories
based upon current and projected economic conditions are used to
produce an appropriate non-specific allocation. Overall,
management maintains the RPLL at a level deemed to be adequate,
in light of historical, current and prospective factors, to
reflect the level of risk in the loan portfolio.
As part of management's continuing analysis of the adequacy of
the RPLL, a quarterly comparison is prepared of various
quantitative measurements relative to five other major banks in
Vermont. The focus of this comparison is the level of loan loss
reserves in relation to non-performing assets in total, as well
as certain non-performing loans. This quantitative comparison is
evaluated in light of significant qualitative differences among
the peer banks, such as geographic lending concentrations, loan
portfolio composition, historical lending practices, loan workout
skills and other indicators of relative overall credit risk. A
summary of the key ratios management considers are summarized
below:
March 31, 1993
Peer Group
Merchants Average
Reserves/NPA 32.68% 46.22%
Reserves/Non-Accruing 172.61% 99.27%
Reserves/90 - Day Overdue 85.62% 81.30%
& Non-Accruing
Reserves/Troubled Debt 53.85% 69.61%
Restructurings, Non-Accruing
& 90 - Day Overdue
Although the Company's ratio of RPLL to NPA's is somewhat
lower than the peer group average, other significant ratios
are near or above the peer group averages for March 31, 1993.
Management believes that these other ratios are also indicative
of the Company's relative loan loss reserve position because of
the varying degree of credit risk associated with the different
categories of non-performing assets. For example, the Company's
policies and practices regarding restructured loans are such that
we believe that the Company's restructured loan category
presents significantly less credit risk than non-accruing loans.
Further, as a result of the detailed credit assessments
performed related to the over 90-days overdue and still accruing
category, we believe that such loans also have less risk than
non-accruing loans.
9
<PAGE>
Evaluating the Company's loan loss reserve position using
these other measurements of relative risk suggests that the
Company's loan loss reserves are appropriate in comparison to
the peer group. This quantitative conclusion is further supported
by several qualitative factors. The Merchants has a more
diversified loan portfolio than many of its Vermont competitors.
In addition, the Company's primary trade area is located in
Chittenden County in Vermont. This area of Vermont has weathered
the recent recession better than other sections of the State.
The area's primary employer, IBM, recently announced that 300 -
500 jobs would be moved to their Essex Junction, Vermont plant.
The unemployment rate for the 4th Quarter of 1992 was
significantly lower for Chittenden County at 4.3% than the State
of Vermont as a whole at 5.9%.
The Company's Commercial and Real Estate portfolios primarily
consist of traditional, non-speculative businesses and proper-
ties. While the Company does lend significantly to commercial
real estate enterprises, our borrowers in this area are well-
known, local businessmen of substance. Also, our commercial real
estate projects are usually pre-leased by high quality tenants.
In addition, as a matter of policy and practice, senior
management decided that the Company should avoid speculative,
seasonal and vacation real estate projects. Many of our peers
have realized extensive loan losses as a result of such lending.
The Company also has maintained excellent underwriting practices
and is aggressive with respect to managing troubled assets.
Non-performing assets during the First Quarter of 1993
increased to $35,488,000 from $33,898,000 on December 31, 1992.
The individual categories are shown below:
3-31-93 12-31-92
Non-Accrual Loans 6,719 3,793
Restructured Loans 7,992 10,193
Other Real Estate Owned 5,245 3,874
In-Substance Foreclosure 8,705 8,787
Loans Past Due 90 Days or More
and Still Accruing 6,827 7,251
Total 35,488 33,898
Significant changes in the individual components of non-
performing assets occurred in Non-Accrual Loans and Restructured
Loans. Some Migration to Non-Accrual Status from Loans Past Due
90 Days or More and Still Accruing occurred. One commercial real
estate loan with a balance of $2,254,000 was transferred from
Restructured to Non-Accrual. Rental prospects which had
previously appeared promising declined, prompting the change in
the non-performing classification of this loan.
10
<PAGE>
The Other Real Estate Owned balance of $5,245,000 included
$1,282,000 in loans that did not meet the minimum initial
investment requirement of Statement of Financial Accounting
Standards Number 66. Restructured Loans included nine loans
totalling $6,126,000 whose interest rates were at zero percent.
Principal payments were required in all cases. All of the loans
are scheduled for review at a specified time in the future to
return them to market rates and terms.
The increase in the reserve for possible loan losses from
$7,412,000 at December 31, 1992, to $11,598,000 at March 31,
1993, reflects management's efforts to maintain the reserve at a
level adequate to provide for potential loan losses based on an
evaluation of known and inherent risks in the loan portfolio.
Given the continued downturn in the economy which affected many
of the Company's borrowers and the result of the FDIC regulatory
examination of May 3, 1993, management has increased the levels
in the reserve. Based upon the result of the Company's
assessment of the factors affecting the RPLL, management believes
that the balance of the RPLL at March 31, 1993, is adequate.
OTHER REAL ESTATE OWNED AND IN-SUBSTANCE FORECLOSURE
Other Real Estate Owned (OREO) includes specific assets to
which legal title has been taken as the result of transactions
related to real estate loans. The criteria for designation of
loans as in-substance foreclosure are that the debtor has little
or no equity in the collateral, proceeds for repayment of the
loan will come only from the operation or sale of the collateral,
and the debtor has formally or effectively abandoned control of
the asset or is not expected to rebuild equity in the collateral.
The collateral underlying these loans is recorded as OREO at the
lower of cost or market value.
The total amount of Other Real Estate Owned and In-Substance
Foreclosure at March 31, 1993 and December 31, 1992, follows:
(Dollar Amount in Thousands)
3-31-93 12-31-92
Other Real Estate Owned 5,245 3,874
In-Substance Foreclosure 8,705 8,787
Total 13,950 12,661
Shareholders' equity grew to 8.8% of total assets as of March
31, 1993, from 8.6% at March 31, 1992 and 8.4% at December 31,
1992.
11
<PAGE>
RESULTS OF OPERATIONS
Net interest income on a taxable equivalent basis before the
provision for loan losses remained level at about 3.58% of total
average assets for the first quarter of 1993 and the quarters
ended December 31, 1992 and March 31, 1992, signifying a stable
interest rate environment.
Total non-interest expenses increased to 3.76% of average
total assets from 3.39% in the December quarter and 3.52% a year
ago. Much of this increase is due to higher costs in the Bank's
Other Real Estate Owned portfolio.
Total non-interest income was slightly higher than the same
period a year ago and significantly higher than the quarter ended
December 31, 1992, reflecting strong loan origination activity
late last year. Additionally, gains on the sale of U.S. Treasury
and equity securities held for sale are included in other non-
interest in the amounts of $1,274,972 and $1,047,974 during the
quarters ended March 31, 1993, and 1992. In December, the Bank
recognized a $1,026,000 write down to market on U.S. Securities
held for sale.
The annualized return (loss) on average assets was (3.64%),
1.18% and .46% while the annualized return (loss) on average
stockholders' equity was (3.1%), 14.1% and 5.4% for the quarters
ended March 31, 1993, 1992 and December 31, 1992, respectively.
12
<PAGE>
MERCHANTS BANCSHARES, INC.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Merchants Bank, a wholly-owned subsidiary, is involved in various
legal proceedings arising in the normal course of business. Management
believes that the resolution of these matters will not have a materially
adverse effect on the consolidated financial statements.
Item 2 - Changes in Securities - NONE
Item 3 - Defaults upon Senior Securities - NONE
Item 4 - Submission of Matters to a Vote of Security Holders - NONE
Item 5 - Other Issues - NONE
Item 6 - Exhibits and Reports on Form 8-K - NONE
<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 Banchshares, Inc.
/s/ Dudley H. Davis
--------------------------
Dudley H. Davis, President
/s/ Edward W. Haase
--------------------------
Edward W. Haase, Treasurer
13
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