ITEM 1 - BUSINESS
Merchants Bancshares, Inc. (the "Company") is a bank holding company originally organized under Vermont law in 1983 (but reincorporated in Delaware) for the purposes of owning all of the outstanding capital stock of Merchants Bank (the "Bank") and providing greater flexibility in helping the Bank achieve its business objectives. The Bank, which is the Company's primary subsidiary, is a Vermont commercial bank with 34 full-service offices.
The Bank was organized in 1849 and assumed a national bank charter in 1865, becoming The Merchants National Bank of Burlington, Vermont. On September 6, 1974, the Bank converted its national charter to a Vermont state commercial bank charter, adopting its current name, Merchants Bank. Since 1971 the Bank has acquired by merger seven Vermont banking institutions, and acquired the deposits of two other Vermont banks. As of December 31, 2000, the Bank operated one of the largest commercial banking operations in Vermont, with deposits totaling $663 million, loans of $478 million, and total assets of $746 million, on a consolidated basis. The Bank is the largest independent banking company with offices exclusively in the state of Vermont. The Bank is well positioned to build market share as a result of the rapid consolidation of other banking companies currently taking place.
The Bank designs its products to provide customers a clear alternative to other local, regional and national financial service providers. The Bank's simplified LYNX product line was developed using the image of the lynx feline to connote speed and agility. Lynx also implies that customers' accounts can be linked and accessed via modern technology and a multi- channel delivery system. The Bank's products have all been designed to be simple for the customer to understand and for the Bank's staff to deliver.
On October 29, 1999, the Bank purchased two branches, located in Bellows Falls, Vermont, and Rutland, Vermont, from Chittenden Corporation. The purchase was made in connection with the branch divestiture required by federal regulators with respect to Chittenden Corporation's completed merger with Vermont Financial Services Corporation, the parent company of Vermont National Bank. The transaction included two branches, one remote ATM site, approximately $38.7 million in deposits, $21.1 million in commercial loans, $13.6 million in residential and consumer loans, and certain fixed assets associated with the branches. The Bank paid a deposit premium of 3.2 percent and the assets were purchased at book value. A core deposit intangible asset of $1.6 million was created in connection with the transaction, which is being amortized over seven years on an accelerated basis. In connection with this transaction, the Bank has also expanded the remote ATM site located on Woodstock Avenue in Rutland to a drive-through facility staffed by a Bank employee.
Merchants Trust Company (the "Trust Company"), a wholly owned subsidiary of the Bank, is a Vermont corporation chartered in 1870 for the purpose of offering fiduciary services including estate settlement, testamentary trust, guardianship, agency, intervivos trust, and employee benefit plan services. The Trust Company also operates a discount brokerage office through Allegheny Investments, LTD, enabling investors to purchase or sell stocks and bonds on a discounted commission schedule. As of December 31, 2000, the Trust Company had fiduciary responsibilities for assets having a market value in excess of $364 million, of which more than $216 million constituted managed assets. Total revenue of the Trust Company for 2000 was $1.8 million; total expenses were $1.3 million; resulting in pretax net income of $660 thousand for the year. The Trust Company's net income is included in the consolidated tax return of its parent company, Merchants Bank.
Merchants Properties, Inc., a wholly owned subsidiary of the Company, was organized for the purpose of developing and owning affordable rental housing units throughout the state of Vermont. As of December 31, 2000, Merchants Properties, Inc. owned one development located in Enosburg, Vermont, consisting of a 24-unit low-income family rental housing project. Total assets of this Merchants Properties, Inc. at December 31, 2000, were $1.2 million.
RETAIL SERVICES
The Bank offers a variety of consumer financial products and services designed to satisfy the deposit and loan needs of its retail customers. The Bank's retail products include interest bearing and non interest-bearing checking accounts, money market accounts, club accounts, and short-term and long-term certificates of deposit. The Bank also offers customary check collection services, wire transfers, safe deposit box rentals, and automated teller machine (ATM) cards and services. Credit programs include secured and unsecured installment lending, credit cards, home equity lines of credit, and home mortgages.
Using the BankLYNX(SM) Check Card, in addition to standard ATM transactions, customers can pay for purchases at locations that accept VISA(r) and can also use the card for standard ATM transactions. With expanded automated overdraft protection, customers can use a savings account and/or a home equity line of credit as overdraft protection for a checking account. The customer may choose either or both accounts to cover overdrafts.
During 1998 the Bank converted all of its passbook savings accounts to statement savings accounts and introduced its MoneyLYNX(TM) Money Market Account as its primary savings vehicle. MoneyLYNX(TM) pays interest at tiered levels beginning with the first dollar in the account, and charges fees only under limited circumstances. Passbook savings accounts and statement savings accounts are no longer offered as new accounts.
FreedomLYNX(R) checking is available to all applicants of "good standing", and is free of monthly service charges for the life of the account. The only requirement is that the customer accept check truncation as a condition to holding the account. The account pays interest on higher balances with a tiered rate structure. No minimum balance is required. The Bank continues to offer Bottom Line Checking, an account that provides for a flat service charge up to a maximum number of checks.
A new, flexible certificate of deposit instrument, branded TimeLYNX(SM) was introduced to the market in 2000. The product allows for penalty free withdrawals and multiple deposits within regulatory guidelines.
The Bank continues to offer ATM cards, debit cards, ATF (automatic transfer of funds) to cover overdrafts, EFT (electronic funds transfer) to automate transfers between accounts, and the PhoneLYNX(SM) telephone banking system. In 1999 the Bank introduced eLYNX(TM), an online banking service delivered via the Internet. It has proven to be a popular channel addition. Presently, the service is available only to retail customers. A commercial version is in the test phase and is expected to be available in the second half of 2001.
The Bank continues to provide strong customer service. Each of the Bank's 34 full-service branch offices is led by a branch president who has consumer lending authority for the full range of retail credit services. Additionally, the Bank operates 38 ATMs throughout Vermont, and maintains a customer call center with expanded hours of operation.
COMMERCIAL SERVICES
Branch presidents are being trained for small business loan origination. The 11 corporate banking officers and 11 corporate banking administrators provide commercial credit services throughout the state of Vermont to customers requiring business credit above the prescribed authorities of the branch presidents.
During 2000 the Bank continued to develop its capacity to service the small business market in Vermont. The retail branch network services approximately 75 percent of the commercial customers of the Bank. The Bank's corporate sales staff services the balance, primarily larger enterprises. Small business customers are being introduced to the Bank's new CommerceLYNX(R) program. CommerceLYNX(R) is a package of business banking services, including low cost electronic checking, investment accounts and a streamlined credit application. The Bank's philosophy of simplifying product offerings and minimizing fees has been applied to this program. Branch presidents are trained to offer this service, leading with the introduction of small business financing options and the value of utilizing the efficient transaction accounts. CommerceLYNX(R) was rolled- out bankwide in 2000, with 299 applications processed using a streamlined approval process.
The Bank offers a variety of commercial checking accounts. Commercial checking uses an earnings credit rate to help offset service charges. Small business checking is designed for the smaller business carrying lower balances and reduced account activity. Investment opportunities are available to businesses in the form of savings accounts and money market accounts. The Bank's cash management services provide additional investment opportunities through the Cash Sweep Program. Other cash management services include funds concentration. The Bank offers on-line banking services through PCLYNX(R) Corporate and PCLYNX(R) Small Business. These products allow businesses to view their account histories, order stop payments, transfer between accounts, transmit ACH batches and order both domestic and foreign wire transfers. An Internet-based online banking solution is targeted for integration during 2001.
Other miscellaneous commercial banking services include night depository, coin and currency handling, and balance reporting services. Employee benefits management and related fiduciary services are available through the Trust Company.
TYPES OF CREDIT OFFERINGS
Consumer Loans: - ---------------
Financing is provided for new or used automobiles, boats, airplanes, recreational vehicles and new mobile homes. Home improvement and home equity lines of credit, Visa(R) and MasterCard(R) credit cards, and various collateral loans and personal loans are also available.
Real Estate Loans: - ------------------
Financing is available for one-to-four-family residential mortgages, multifamily mortgages, residential construction, mortgages for seasonal dwellings, and commercial real estate mortgages. The Bank offers both fixed rate and adjustable rate mortgages for residential properties. The residential mortgage process and the products are streamlined to make the product easier to use and simpler for our 34 branch presidents to deliver.
Commercial Loans: - -----------------
Financing for business inventory, accounts receivable, fixed assets, lines of credit for working capital, community development, irrevocable letters of credit, business credit cards and U.S. Small Business Administration loans are available. In 2000 increased emphasis was placed on small business loans originated in our 34 branches. During the year our branches originated 170 small business loan requests, totaling $5.5 million.
COMPETITION
The Bank competes for deposit and loan business with numerous other commercial and savings banks, savings and loan associations, credit unions, and other non-bank financial providers. As of December 31, 2000, there were more than 25 state and national banking institutions operating in Vermont. In addition, the number of other non-bank financial service providers competing in Vermont has increased dramatically. As a bank holding company and state-chartered bank, respectively, the Company and the Bank are subject to extensive regulation and supervision, including, in many cases, regulation that limits the type and scope of their activities. These non- financial institutions which compete with the Company and the Bank are not subject to such extensive regulation and supervision. Competition from nationwide banks, as well as local institutions continues to be aggressive
The Bank is the largest independent banking company with offices exclusively in the state of Vermont. Consolidation within the overall banking industry nationally continues to change the competitive environment in which we operate. The Bank is well positioned to build market share as a result of the rapid consolidation of other banking companies currently taking place.
No material part of the Bank's business is dependent upon one, or a few, customers, or upon a particular market segment, the loss of which would have a materially adverse impact on the operations of the Bank.
NUMBER OF EMPLOYEES
As of December 31, 2000, the Company had three officers: Joseph L. Boutin, President and Chief Executive Officer; Janet P. Spitler, Treasurer; and Jennifer L. Varin, Secretary. No officer of the Company is on a salary basis.
As of December 31, 2000, the Bank employed 240 full-time and 46 part-time employees and the Trust Company employed 15 full-time employees and 2 part time employees, representing a combined full time equivalent complement of 289 employees. The Bank and the Trust Company maintain comprehensive employee benefits programs which provide major medical insurance, hospitalization, dental insurance, long-term and short-term disability insurance, life insurance and a 401(k) Employee Stock Ownership Plan.
REGULATION AND SUPERVISION
General
As a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHCA"), the Company is subject to substantial regulation and supervision by the Board of Governors of the Federal Reserve System. As a state-chartered bank, the Bank is subject to substantial regulation and supervision by the Federal Deposit Insurance Corporation (the "FDIC") and by applicable state regulatory agencies. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to those particular statutory provisions. Any change in applicable law or regulation may have a material effect on the business and prospects of the Company and the Bank.
Financial Services Modernization
The Graham-Leach-Bliley Act ("Gramm-Leach"), which significantly altered banking lows in the United States, was signed into law in 1999. Gramm-Leach enables combinations among banks, securities firms and insurance companies beginning in 2000. As a result of Gramm-Leach, many of the depression-era laws which restricted these affiliations and other activities which may be engaged in by banks and bank holding companies, were repealed. Under Gramm- Leach bank holding companies are permitted to offer their customers virtually any type of financial service that is financial in nature or incidental thereto, including banking, securities underwriting, insurance (both underwriting and agency), and merchant banking.
In order to engage in these new financial activities a bank holding company must qualify and register with the Federal Reserve Board as a "financial holding company" by demonstrating that each of its bank subsidiaries is "well capitalized," "well managed," and has at least a "satisfactory" rating under the Community Reinvestment Act of 1977 ("CRA").
These new financial activities authorized by Gramm-Leach may also be engaged in by a "financial subsidiary" of a national or state bank, except for insurance or annuity underwriting, insurance company portfolio investments, real estate investment and development and merchant banking, which must be conducted in a financial holding company. In order for the new financial activities to be engaged in by a financial subsidiary of a national or state bank, Gramm-Leach requires the parent bank (and its sister-bank affiliates) to be well capitalized and well managed; the aggregate consolidated assets of all of that bank's financial subsidiaries may not exceed the lesser of 45% of its consolidated total assets or $50 billion; the bank must have at least a satisfactory CRA rating; and, if that bank is one of the 100 largest national banks, it must meet certain financial rating or other comparable requirements. Gramm-Leach establishes a system of functional regulation, under which the federal banking agencies will regulate the banking activities of financial holding companies and banks' financial subsidiaries, the U.S. Securities and Exchange Commission will regulate their securities activities and state insurance regulators will regulate their insurance activities. Gramm-Leach also provides new protections against the transfer and use by financial institutions of consumers' nonpublic, personal information.
Bank Holding Company Regulation
Although the Company meets the qualifications to become a financial holding company under Gramm-Leach, the Company has elected to retain its pre-Gramm- Leach status for the present time under the BHCA. The Company is required by the BHCA to file with the Federal Reserve Board an annual report and such additional reports as the Federal Reserve Board may require. The Federal Reserve Board also makes periodic inspections of the Company and its subsidiaries. The BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve Board before it may acquire substantially all of the assets of any bank, or ownership or control of any voting shares of a bank, if, after such acquisition, it would own or control, directly or indirectly, more than 5 percent of the voting shares of such bank. Additionally, as a bank holding company, the Company is prohibited from acquiring ownership or control of 5 percent or more of any company not a bank or from engaging in activities other than banking or controlling banks except where the Federal Reserve Board has determined that such activities are so closely related to banking as to be a "proper incident thereto."
Dividends
General. The Company is a legal entity separate and distinct from the Bank and its other non-bank subsidiaries. The revenue of the Company (on a parent company only basis) is derived primarily from interest and dividends paid to the corporation by its subsidiaries. The right of the Company, and consequently the right of stockholders of the Company, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors of the subsidiary (including depositors, in the case of banking subsidiaries), except to the extent that certain claims of the Company in a creditor capacity may be recognized.
The payment of dividends by the Company is determined by its Board of Directors based on the consolidated Company's liquidity, asset quality profile, capital adequacy, and recent earnings history, as well as economic conditions and other factors, including applicable government regulations and policies and the amount of dividends payable to the Company by its subsidiaries.
It is the policy of the Federal Reserve Board that banks and bank holding companies, respectively, should pay dividends only out of current earnings and only if after paying such dividends the bank or bank holding company would remain adequately capitalized. Federal banking regulators also have authority to prohibit banks and bank holding companies from paying dividends if they deem such payment to be unsafe or unsound practice. In addition, it is the position of the Federal Reserve Board that a bank holding company is expected to act as a source of financial strength to its subsidiary banks.
State law requires the approval of state bank regulatory authorities if the dividends declared by state banks exceed prescribed limits. The payment of any dividends by the Company's subsidiaries will be determined based on a number of factors, including the subsidiary's liquidity, asset quality profile, capital adequacy and recent earnings history.
Capital Adequacy and Safety and Soundness
Capital Guidelines. Under the uniform capital guidelines adopted by the federal banking agencies, a well-capitalized institution must have a minimum ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as standby letters of credit) of ten percent, a minimum Tier-1 (comprised of common equity, retained earnings, minority interests in the equity accounts of consolidated subsidiaries and a limited amount of noncumulative perpetual preferred stock, less deductible intangibles) capital-to-total risk based assets of six percent and a minimum leverage ratio (Tier-1 capital to average quarterly assets, net of goodwill), of five percent.
Under federal banking laws, failure to meet the minimum regulatory capital requirements could subject a banking institution to a variety of enforcement remedies available to federal regulatory authorities, including the termination of deposit insurance by the FDIC and seizure of the institution.
Prompt Corrective Action. The FDICIA provides the federal banking agencies with broad powers to take prompt corrective action to resolve problems of insured depository institutions, depending upon a particular institution's level of capital. The FDICIA establishes five tiers of capital measurement for regulatory purposes ranging from "well-capitalized" to "critically undercapitalized." A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position under certain circumstances. As of December 31, 2000, the Bank was classified as "well-capitalized" under the applicable prompt corrective action regulations.
Under the FDICIA, a depository institution that is well-capitalized may accept brokered deposits. A depository institution that is adequately capitalized may accept brokered deposits only if it obtains the approval of the FDIC, and may not offer interest rates on deposits "significantly higher" than the prevailing rate in its market. An undercapitalized depository institution may not accept brokered deposits.
Safety and Soundness Standards. The FDICIA, as amended, directs each federal banking agency to prescribe safety and soundness standards for depository institutions relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, asset-quality, earnings and stock valuation. The Community Development and Regulatory Improvement Act of 1994 amended FDICIA by allowing federal banking activities to publish guidelines rather than regulations concerning safety and soundness.
The Federal Reserve Board has finalized these safety and soundness guidelines. These guidelines relate to the management policies of financial institutions and are designed, in large part, to implement the safety and soundness criteria outlined in FDICIA. These guidelines will be published after the other federal bank regulatory agencies have developed their guidelines. At this time, it is not known what effect the applicable guidelines will have on the current practices of the Company or the Bank.
FDICIA also contains a variety of other provisions that may affect the Company's and the Bank's operations, including reporting requirements, regulatory guidelines for real estate lending, "truth in savings" provisions, and the requirement that a depository institution give 90 days' prior notice to customers and regulatory authorities before closing any branch. Certain of the provisions in FDICIA have recently been or will be implemented through the adoption of regulations by the various federal banking agencies and, therefore, their precise impact cannot be assessed at this time.
Community Reinvestment Act
Pursuant to the Community Reinvestment Act ("CRA") and similar provisions of Vermont law, regulatory authorities review the performance of the Company and the Bank in meeting the credit needs of the communities served by the Bank. The applicable regulatory authorities consider compliance with this law in connection with the applications for, among other things, approval of branches, branch relocations and acquisitions of banks and bank holding companies. The Bank received a "satisfactory" rating at its most recent CRA examination.
Interstate Banking Act
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended (the "Interstate Banking Act"), generally permits bank holding companies to acquire banks in any state, and preempts all state laws restricting the ownership by a bank holding company of banks in more than one state. The Interstate Banking Act also permits a bank to merge with an out-of-state bank and convert any offices into branches of the resulting bank if both states have not opted out of interstate branching; permits a bank to acquire branches from an out-of-state bank if the law of the state where the branches are located permits the interstate branch acquisition; and permits banks to establish and operate de novo interstate branches whenever the host state opts-in to de novo branching. Bank holding companies and banks seeking to engage in transactions authorized by the Interstate Banking Act must be adequately capitalized and managed.
Other Proposals
Other legislative and regulatory proposals regarding changes in banking, and the regulation of banks and other financial institutions, are regularly considered by the executive branch of the federal government, Congress and various state governments, including Vermont, and state and federal regulatory authorities. It cannot be predicted what additional legislative and/or regulatory proposals, if any, will be considered in the future, whether any such proposals will be adopted or, if adopted, how any such proposals would affect the Company or the Bank.
ITEM 2
ITEM 2 - PROPERTIES
A. SCHEDULE OF BANKING OFFICES BY LOCATION
As of December 31, 2000, Merchants Bank operated 34 full service banking offices, and 38 ATMs throughout the state of Vermont. The Company's headquarters are located at 164 College Street, Burlington, Vermont. The Company's administrative offices and the operations data processing center are located at 275 Kennedy Drive, South Burlington, Vermont.
The Bank leases certain premises from third parties under terms and conditions considered by management to be favorable to the Company. Additional information relating to the Company's properties is set forth in Note 5 of the financial statements contained in the Company's annual report and incorporated herein by reference.
ITEM 3
ITEM 3 - LEGAL PROCEEDINGS
The Bank is a counterclaim defendant in a litigation entitled "Pasquale and Vatsala Vescio, Counterclaim Plaintiffs v. The Merchants Bank, Counterclaim Defendant", now pending in the United States Bankruptcy Court for the District of Vermont.
In this litigation, the Vescios have made a number of "lender liability" claims dealing with a commercial development known as Brattleboro West in Brattleboro, Vermont. The pending litigation arose out of a suit to foreclose on several real estate mortgages and personal property delivered to the Bank as collateral by the Vescios in connection with the financing of a supermarket in the Brattleboro West project and various other projects.
Among other things, the Vescios have alleged that the Bank or its representatives violated supposed oral promises in connection with the origination and funding of the project, and have claimed that the Bank is liable to them for damages based on the Bank's supposed "control" of the project and its alleged breach of covenants of "good faith" which the plaintiffs believe are to be implied from the loan documents. In addition, the plaintiffs have contended that the Bank breached a duty of care they believe it owed to them, and have claimed that the Bank should not have exercised its contract rights when the loan went into default, but should have resolved the default in a way that was more favorable to the borrowers. Trial concluded in United States Bankruptcy Court in November 1998. In June 1999 before entry of any findings or a decision on the merits, the trial judge recused himself from all cases involving the Bank. He completed his term as bankruptcy judge on July 31, 1999. On September 30, 1999, United States District Court Judge William Sessions withdrew the reference of the case to the Bankruptcy Court and ruled that he would decide the case himself on the basis of a combination of the Bankruptcy Court trial record and rehearing certain testimony of certain witnesses. The parties subsequently stipulated to waive any rehearing of testimony and submission of further evidence and to submit the case to the District Court for a decision on the merits based on the existing trial record. The timing of a decision on the merits of the case at the trial level cannot be predicted at this time. Although it is not possible at this stage to predict the outcome of this litigation, the Bank believes that it has meritorious defenses to the plaintiffs' allegations. The Bank intends to vigorously defend itself against these claims.
On March 25, 1999, Merchants Trust Company received, as trustee, a recovery of $4.8 million on account of settlement of a 1994 class action suit filed in the United States District Court for the District of Minnesota relating to investments made by the Trust Company and others in the so-called Piper Jaffray Institutional Government Income Portfolio ("Piper Jaffray"). In the first quarter of 1999, the Company realized $1.3 million as the result of that payment. During the third quarter of 1999, the Trust Company disbursed the amount received, partly to itself and the balance in accordance with instructions provided by the Company's insurance carrier pursuant to an agreement made with the carrier in December, 1994, in each case in partial reimbursement of payments made by the Trust Company and the carrier in 1994, totaling an aggregate of approximately $9.2 million, on account of losses suffered by Trust Company customers on Piper Jaffray investments.
On March 22, 2000, lawyers representing the beneficiaries of two Trust Company accounts filed an action in Chittenden, Vermont Superior Court against Merchants Bancshares and others, asserting that their clients and others similarly situated were not fully reimbursed for damages allegedly suffered in connection with certain investments made by Merchants Trust Company in Piper Jaffray during 1993 and 1994, and complaining, among other matters, that the disbursement described in the immediately-preceding paragraph was improper. The Complaint asserts, among other matters, that the Trust Company and others violated the Vermont Consumer Fraud Act, were negligent and made negligent misrepresentations, and breached duties of trust. The Complaint seeks certification of the action as a class action, unspecified damages, and other relief. By Decision and Order the Superior Court granted class certification. The Company's counsel believe the Superior Court's decision was improper and the Company is seeking reconsideration and, if necessary, expects to seek interlocutory review and reversal, or other appropriate relief, from the Vermont Supreme Court. The litigation is at an early stage. While it is not possible to predict its outcome, the Company believes full reimbursement of any Piper Jaffray losses was provided, that such disbursement was proper, that class certification is inappropriate, and that the claims for relief lack merit.
The Company and certain of its subsidiaries have been named as defendants in various other legal proceedings arising from their normal business activities. Although the amount of any ultimate liability with respect to such proceedings cannot be determined, in the opinion of management, based upon the opinion of counsel on the outcome of such proceedings, any such liability will not have a material effect on the consolidated financial position of the Company and its subsidiaries.
ITEM 4
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of calendar year 2000 no matters were submitted to a vote of security holders through a solicitation of proxies or otherwise.
PART II
ITEM 5
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the over-the-counter market and the price is quoted on the Nasdaq National Market Stock Exchange under the trading symbol MBVT. Quarterly stock prices during the last eight quarters are as indicated below based upon quotations as provided by the National Association of Securities Dealers, Inc. Prices of transactions between private parties may vary from the ranges quoted below.
As of February 1, 2001, the Company had 1,189 registered shareholders. The Company declared and distributed dividends totaling $0.98 per share during 2000. In January 2001 the Company declared a dividend of $0.33 per share. Future dividends will depend upon the financial condition and earnings of the Company and its subsidiaries, their need for funds and other factors, including applicable government regulations.
State Street Bank & Trust Company provides transfer agent services for the Company. Inquires may be directed to: State Street Bank & Trust Company, C/O EquiServe, P.O. Box 8200, Boston, MA, 02266-8200, tel. 1-800-426-5523, or http://www.equiserve.com.
ITEM 6
ITEM 6 - SELECTED FINANCIAL DATA
The supplementary financial data presented in the following table contains information highlighting certain significant trends in the Company's financial condition and results of operations over an extended period of time.
The following information should be analyzed in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and with the year-end audited consolidated financial statements as contained in the 2000 Annual Report to Shareholders, a copy of which is attached as an addendum to this Form 10-K.
Merchants Bancshares, Inc. Five Year Summary of Operations (Not Covered by Report of Independent Public Accountants)
ITEM 7
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Please refer to pages 33-48 for Management's Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 8
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of Merchants Bancshares, Inc. as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000, together with the related notes and the opinion of Arthur Andersen LLP, independent public accountants, all as contained on pages 3 through 32 of the Company's 2000 Annual Report to Shareholders on Form 10-K, are incorporated herein by reference.
ITEM 9
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11
ITEM 11 - EXECUTIVE COMPENSATION
ITEM 12
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Reference is hereby made to pages 3-6, pages 8-9, page 15, and page 13 of the Company's Proxy Statement to Shareholders dated March 27, 2001, wherein pursuant to Regulation 14 A information concerning the above subjects (Items 10 through 13) is incorporated by reference.
Pursuant to Rule 12b-23, definitive copies of the Proxy Statement will be filed within 120 days subsequent to the end of the Company's fiscal year covered by Form 10-K.
PART IV
ITEM 14
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(1) The following consolidated financial statements, as included in the 2000 Annual Report to Shareholders, are incorporated herein by reference:
Consolidated Balance Sheets, December 31, 2000, and December 31, 1999.
Consolidated Statements of Operations for years ended December 31, 2000, 1999, and 1998.
Consolidated Statements of Changes in Stockholders' Equity for years ended December 31, 2000, 1999, and 1998.
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998.
Notes to Consolidated Financial Statements, December 31, 2000.
(2) The following exhibits are either filed or attached as part of this report, or are incorporated herein by reference.
Exhibit Description - ---------------------------------------
3.1 Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit B to Pre-Effective Amendment No. 1 to Company's Definitive Proxy Statement for the Annual Meeting of the Stockholders of the Company, filed on April 25, 1987).
3.2 Amended By-Laws of the Company (Incorporated by reference to Exhibit C to Company's Definitive Proxy Statement for the Annual Meeting of the Stockholders of the Company, filed on April 25, 1987).
4 Instruments defining the rights of security holders, including indentures:
4.1 Specimen of the Company's Common Stock Certificate (Incorporated by Reference to Exhibit 7 to the Company's Registration Statement on Form S-14 (Registration Number 2-86108) filed on August 22, 1983).
4.2 Description of the rights of holders of the Company's Common Stock (appearing on page 9 of the Company's Registration Statement on Form S-14 (Registration No. 2-86108) filed on August 22, 1983).
10.1 Merchants Bancshares, Inc. Dividend Reinvestment and Stock Purchase Plan (Incorporated by reference to Exhibit 4.1 to Company's Registration Statement on Form S-3 (Registration No. 333-20375) filed on January 22, 1997).
10.2 401(k) Employee Stock Ownership Plan of the Company, dated January 1, 1990, as amended (Incorporated by reference to Company's Registration Statement on Form S-8 (Registration Number 33-3274) filed on November 16, 1989).
10.3 Amended and Restated Merchants Bank Pension Plan dated as of January 1, 1994 (Incorporated by Reference to Exhibit 10.6 to Post-Effective Amendment Number 1 to Company's Registration Statement on Form S-8 (Registration Number 333-18845) filed on December 26, 1996).
10.4 Form of Employment Agreement dated as of January 1, 2001, by and between the Company and its subsidiaries and certain of its executive officers.
10.14 The Merchants Bank Amended and Restated Deferred Compensation Plan for Directors (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1997).
10.14.1 Trust Under the Merchants Bank Amended and Restated Deferred Compensation Plan for Directors (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1997).
10.15 Agreement among the Merchants Bank and Kathryn T. Boardman, Thomas R. Havers and Susan D. Struble dated as of December 20, 1995 (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1996).
10.15.1 Trust Under the Agreement among the Merchants Bank and Kathryn T. Boardman, Thomas R. Havers and Susan D. Struble dated as of December 20, 1995 (Incorporated by reference to the Registrant's Annual Report on Form 10- K for the Year Ended December 31, 1996).
10.16 Agreement between the Merchants Bank and Dudley H. Davis dated December 20, 1995 (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1996).
10.16.1 Fixed Trust under Agreement between the Merchants Bank and Dudley H. Davis dated December 20, 1995 (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1996).
10.16.2 Variable Trust under Agreement between the Merchants Bank and Dudley H. Davis dated December 21, 1995 (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1996).
11 Statement re: computation of per share earnings. See 2000 Annual Report to Shareholders Note 12.
13 2000 Annual Report to Shareholders.
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
(3) Reports on Form 8-K: NONE
SIGNATURES
Pursuant to the requirement of Section 13 or 15 (d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on it's behalf by the undersigned, thereunto duly authorized.
Merchants Bancshares, Inc.
Date February 22, 2000 By /s/ JOSEPH L. BOUTIN ----------------------- ---------------------------------- Joseph L. Boutin, President & CEO
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of MERCHANTS BANCSHARES, INC., and in the capacities and on the date as indicated.
By /s/ JOSEPH L. BOUTIN By /s/ RAYMOND C. PECOR, JR. -------------------------- ---------------------------------- Joseph L. Boutin, Director, Raymond C. Pecor, Jr. Director President & CEO of the Company Chairman of the Board of Directors and the Bank
By /s/ PETER A. BOUYEA By /s/ CHARLES A. DAVIS -------------------------- ---------------------------------- Peter A. Bouyea, Director Charles A. Davis, Director
By /s/ JEFFREY L. DAVIS By /s/ MICHAEL G. FURLONG -------------------------- ---------------------------------- Jeffrey L. Davis, Director Michael G. Furlong, Director
By /s/ LEO O'BRIEN, JR. By /s/ PATRICK S. ROBINS -------------------------- ---------------------------------- Leo O'Brien, Jr., Director Patrick S. Robins, Director
By /s/ ROBERT A. SKIFF By /s/ JANET P. SPITLER -------------------------- ---------------------------------- Robert A. Skiff, Director Janet P. Spitler, Treasurer of the Company, Vice President, CFO, and Treasurer of the Bank