You Can Take This To The Bank: Merchants Bancshares (MBVT)

Merchants is well managed. American Banker Magazine’s list of “best performers” (May 2013 issue) ranked Merchants #10 out of 851 peer banks across the country (and #2 in New England). The rankings were based on profitability (average return on shareholders’ equity) over the past three years.

Not only is the bank managed profitably, it is managed prudently. Problem (“nonperforming”) loans are currently only 0.23% of total loans, which is extraordinarily low among its peers. Though profits declined in the third quarter of this year, management expects them to improve when interest rates begin to rise to a more normal level. (Variable-rate loans, which pay less interest than fixed-rate loans, now comprise a higher share of total loans compared to a year ago.)

Merchants stock has been a steady income producer. While the biggest, most reckless banks were slashing dividends as their profits plunged during the financial crisis of 2008, Merchants remained profitable and maintained its dividend at the same level throughout.

Sustainability Profile

Through its lending to households and businesses, Merchants provides important support to the communities in which it operates.  It also has four women among the six members of senior management. Regrettably, Merchants’ website provides virtually no information about the bank’s broader social or environmental footprint.

In sum, we like the community support that Merchants Bancshares provides, as well as the stock’s reliable and above-average dividend yield.

Revenues:  $67 million

Earnings Per Share (EPS):
2013E   $2.38
2014E   $2.48

Projected Annual EPS Growth Rate:  5%
Dividend Yield:  3.7%
52-Week Low – High:  $25.80 – $33.65

Risk:  Low