Merchants Bancshares, Inc. Announces Dividend and First Quarter 2016 Results

The return on average assets was 0.71% for the three months ended March 31, 2016, compared to 0.78% for the same period in 2015. The return on average equity was 9.32% for the three months ended March 31, 2016, compared to 10.56% for the same period in 2015.  The Company's Board of Directors approved a dividend of $0.28 per share, payable May 26, 2016, to stockholders of record as of May 12, 2016.

Geoffrey Hesslink, Merchants Bancshares, Inc.'s President and Chief Executive Officer commented, "This quarter we completed the integration of NUVO Bank into Merchants with a very successful systems conversion. Further we are seeing benefits of the roll out of Merchants deposit pricing to customers in the Springfield market. Our material merger related expenses and activities are behind us and we are focused on serving our new customers and growing our business in western Massachusetts." Mr. Hesslink also noted, "Competitive loan markets and the current interest rate environment present industry challenges. We remain disciplined with our credit and return standards.  We are confident this discipline will benefit our stockholders over the long term."

First Quarter 2016 Financial Highlights

Balance Sheet:

• The investment portfolio ended the first quarter of 2016 at $413.3 million, an increase of $6.4 million from the fourth quarter of 2015 and an increase of $25.7 million from the first quarter of 2015.
• Loans at March 31, 2016 totaled $1.4 billion, an increase of $7.3 million on a linked quarter basis. Total commercial loans, defined as commercial, commercial real estate and construction, increased $15.9 million, while residential real estate and installment loans decreased $7.4 million and $1.1 million, respectively. Loan balances increased $221.4 million from the first quarter of 2015, which reflects organic growth and the acquired NUVO loan portfolio which totaled $146.7 million at March 31, 2016.
• The allowance for loan losses ("ALL") as of March 31, 2016 was $12.2 million, or 0.86% of gross loans, compared to $12.0 million, or 0.85% of gross loans, on a linked quarter basis and $12.0 million, or 1.00% of gross loans, as of March 31, 2015. ALL as a percentage of gross loans remained flat on a linked quarter basis. The decrease in ALL as a percentage of gross loans from the first quarter in 2015 was due to the increase in loan balances acquired from NUVO Bank & Trust Company ("NUVO"). These loans were acquired at fair value on the acquisition date.
• Total deposits were $1.5 billion for the first quarter of 2016, a decrease of $24.7 million on a linked quarter basis and an increase of $197.0 million from the first quarter of 2015. The decrease on a linked quarter basis was primarily attributable to maturing NUVO time deposits. The increase from the first quarter of 2015 was due to higher retail and trust account deposits as well as the acquired NUVO deposits.
• Total stockholders' equity ended the quarter at $152.6 million. The tangible book value per share at March 31, 2016 was $21.06 per share, an increase of $0.68 from $20.38 at December 31, 2015. The major components of the linked quarter increase were $0.51 of earnings and $0.41 mark to market securities gains, offset by $0.28 of dividends paid.

Income Statement:

• Net interest income on a fully-taxable basis was $14.27 million for the three months ended March 31, 2016, compared to $13.25 million for the quarter ending December 31, 2015, and $12.06 million for the same period in 2015. The increases in net interest income reflect higher loan balances.
• The Company recorded a $205 thousand provision for credit losses during the first quarter of 2016 reflecting a modest decline in credit quality. The full year 2015 provision for credit losses was $250 thousand.
• Noninterest income for the first quarter of 2016 was $2.9 million, a decrease of $163.0 thousand on a linked quarter basis and an increase of $254 thousand from the first quarter of 2015. The decrease on a linked quarter basis was attributable to lower debit card and other fee income. The increase from the first quarter of 2015 was due to higher service charges on deposit accounts.
• Excluding merger, severance and retirement costs, noninterest expense was $11.5 million for the first quarter of 2016, an increase of $644 thousand on a linked quarter basis which is primarily attributable to a full quarter of operating as a combined entity with NUVO.
• The effective tax rate was 23% for the three months ended March 31, 2016, compared to 20% for three months ended December 31, 2015, and 21% for the first quarter of 2015. The increase in the effective tax rate on a linked quarter basis and from the first quarter of 2015 reflects reduced Low Income Housing Partnership tax credits.

Other Items:

• The taxable equivalent net interest margin for the three months ended March 31, 2016 was 3.02%, an increase of 13 basis points on a linked quarter basis. This increase reflects the impact of a full quarter of NUVO loans which were accretive to loan yield and a more favorable asset mix, partially offset by a full quarter impact of NUVO deposits.
• Nonperforming loans were $4.85 million, or 0.34% of total loans, at March 31, 2016, compared to 0.30% of total loans at December 31, 2015 and 0.11% of total loans at March 31, 2015. Total nonperforming loans increased $652 thousand on a linked quarter basis. This increase is attributed to the loan portfolio acquired with NUVO.
• Regulatory Capital Ratios at March 31, 2016:
  • Common Equity Tier 1 – 12.95%
  • Tier 1 Leverage – 8.53%
  • Total Risk-Based Capital – 15.85%
  • Tangible Capital – 7.39%

Geoffrey R. Hesslink, President and Chief Executive Officer, Eric A. Segal, Interim PFO, PAO and Treasurer, and Marie Thresher, Executive Vice President and Chief Operating Officer, will host a conference call to discuss these earnings results, business and outlook at 10:00 a.m. Eastern Time on Friday, April 29, 2016. Interested parties may participate in the conference call by dialing U.S. number (866) 218-2405, Canada number (855) 669-9657, or international number (412) 902-4124. The title of the call is Merchants Bancshares, Inc. Q1 2016 Earnings Call. Participants are asked to call a few minutes prior to register. A replay will be available until 12:01 a.m. Eastern Time on Friday, May 13, 2016. The U.S. replay dial-in telephone number is (877) 344-7529. The Canada replay telephone number is (855) 669-9658, the international replay telephone number is (412) 317-0088. The replay access code for all replay telephone numbers is 10068680. Additionally, a recording of the call will be available on Merchants website at www.mbvt.com

Non-GAAP Financial Measure. In addition to results presented in accordance with generally accepted accounting principles ("GAAP"), this press release contains certain non-GAAP financial measures, such as core net income, tangible capital ratio and fully taxable equivalent net interest income. Net interest income is presented on a fully taxable equivalent basis, specifically included in interest income was tax-exempt interest income from certain tax-exempt loans. An amount equal to the tax benefit derived from this tax exempt income is added back to the interest income total, to produce net interest income on a fully taxable equivalent basis. Merchants Bancshares believes that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a company's financial condition and therefore such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. Additionally, capital ratios as presented are preliminary and will not be finalized until the Bank completes and files its regulatory reporting.

Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this press release that are not historical facts may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks and uncertainties. These statements, which are based on certain assumptions and describe Merchants Bancshares' future plans, strategies and expectations, can generally be identified by the use of the words "may," "will," "should," "could," "would," "plan," "potential," "estimate," "project," "believe," "intend," "anticipate," "expect," "target" and similar expressions. Forward-looking statements are based on the current assumptions and beliefs of management and are only expectations of future results. Actual results could differ materially from those projected in the forward-looking statements as a result of, among others; costs or difficulties related to the integration of NUVO; weakness in general, national, regional or local economic conditions, the performance of the investment portfolio, quality of credits or the overall demand for services; changes in loan default and charge-off rates which could affect the allowance for credit losses; declines in the equity and financial markets; reductions in deposit levels which could necessitate increased and/or higher cost borrowing to fund loans and investments; declines in mortgage loan refinancing, equity loan and line of credit activity which could reduce net interest and non-interest income; changes in the domestic interest rate environment and inflation; changes in the carrying value of investment securities and other assets; misalignment of interest-bearing assets and liabilities; increases in loan repayment rates affecting interest income and the value of mortgage servicing rights; changing business, banking, or regulatory conditions or policies, or new legislation affecting the financial services industry that could lead to changes in the competitive balance among financial institutions, restrictions on bank activities, changes in costs (including deposit insurance premiums), increased regulatory scrutiny, declines in consumer confidence in depository institutions, or changes in the secondary market for bank loan and other products; and changes in accounting rules, federal and state laws, IRS regulations, and other regulations and policies governing financial holding companies and their subsidiaries which may impact Merchants Bancshares' ability to take appropriate action to protect financial interests in certain loan situations.

You should not place undue reliance on forward-looking statements, and are cautioned that forward- looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, which are included in more detail in the Annual Report on Form 10-K, as updated by Quarterly Reports on Form 10-Q and other filings submitted to the Securities and Exchange Commission. Merchants Bancshares' does not undertake any obligation to update any forward-looking statement to reflect circumstances or events that occur after the date the forward-looking statements are made.

Contact: Jamie Oberle, Merchants Bank, at (802) 865-1603

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SOURCE Merchants Bancshares, Inc.

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