8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

______________________________

Date of report (Date of earliest event reported): October 19, 2006

Merrill Merchants Bancshares, Inc.

(Exact name of registrant as specified in its charter)

Maine
(State or other jurisdiction of
incorporation) 000-24715
(Commission File Number) 01-0471507
(IRS Employer Identification No.)

201 Main Street, Bangor, Maine 04401

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (207) 942-4800

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) 

Item 2.02 Results of Operations and Financial Condition

On October 19, 2006, the Company issued a press release announcing its results of operations for the quarter ended September 30, 2006. A copy of the press release is furnished as Exhibit 99.1 and is incorporated herein by reference.

Item 3.01. Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard; Transfer of Listing.

(a) Nasdaq Notice of Technical Listing Violation Received; Violation Has Been Fully Corrected.

On October 16, 2006, Merrill Merchants Bancshares, Inc. (the “Company”) issued a press release announcing that the Company received written notice from Nasdaq indicating that between September 23, 2005 and May 4, 2006, the Company had been out of compliance with Nasdaq’s audit committee composition requirement as set forth in Marketplace Rule 4350(d)(2).

On October 19, 2006, the Company revised and reissued the press release to clarify that that the Company had received a letter of reprimand from Nasdaq.

The revised press release is set forth in Exhibit 99.2 hereto.

Item 9.01 Financial Statements and Exhibits.

(a) Not Applicable

(b) Not Applicable

(c) The following exhibit is furnished as part of this report:

Exhibit No.  Description 

99.1 Press release dated October 19, 2006

99.2 Press release dated October 19, 2006

This information, including the press release filed as Exhibit 99.1, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 nor shall it be deemed to be incorporated by reference in any filing under the Securities Act of 1933.

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SIGNATURE

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 hereunto duly authorized.

MERRILL MERCHANTS BANCSHARES, INC.
By:	/s/ Deborah A. Jordan
	Chief Financial Officer

Dated: October 19, 2006

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EX-99.1

EXHIBIT 99.1

Merrill Merchants Bancshares, Inc. Reports Record Third Quarter 2006 Earnings of $1.6 million, a 13% increase.

Bangor, Maine, October 19, 2006: Edwin N. Clift, Chairman and Chief Executive Officer of Merrill Merchants Bancshares, Inc. (the “Company”) (Nasdaq: MERB), the parent company of Merrill Merchants Bank, reported net income of $1.6 million for the three months ended September 30, 2006, a 13% increase over the same period last year. The Company reported diluted earnings per share of $0.46 for the third quarter of 2006, a 12% increase over 2006’s third quarter earnings per share of $0.41.

The Company reported net income of $4.5 million or earnings per share of $1.26 on a fully diluted basis for the nine months ended September 30, 2006, compared to $4.1 million or earnings per share of $1.14 for the same period last year.

Balance Sheet. The Company’s consolidated assets were $445.0 million at September 30, 2006, an increase of $36.9 million or 9% from the same date a year ago. Comparing September 30, 2006 and 2005, total loans grew $19.0 million or 6%. Loans to businesses increased 11% and consumer loans grew 26% from a year ago. Real estate loan activity has slowed compared to 2005; however, growth was steady with the commercial real estate portfolio increasing 4%, home equity balances growing 11% and residential mortgages up 4%. Construction balances decreased $4.0 million from a year ago.

Total deposits were $358.3 million at September 30, 2006 compared to $325.0 million a year ago, representing growth of $33.3 million or 10%. Short-term interest rate increases and stock market volatility have spurred a migration of funds from core deposits as well as an influx of new funds to higher yielding certificates of deposit (CDs). CDs grew $34.9 million or 30% from a year ago. Comparing September 30, 2006 and 2005, money market balances increased $3.0 million while savings account balances decreased $4.4 million and checking accounts declined $114,000.

Net Income. The Company’s net income for the nine months ended September 30, 2006 amounted to $4.5 million compared to $4.1 million for the same period in 2005, an increase of 11%. Return on assets and return on equity were 1.40% and 16.87%, respectively, for the nine months of 2006 compared to return on assets of 1.42% and return on equity of 16.95% for the same period in 2005.

Net income for the third quarter of 2006 was $1.6 million compared to $1.5 million for the same period in 2005, an increase of 13%. Return on assets and return on equity were 1.48% and 17.89%, respectively, for the third quarter of 2006 compared to return on assets of 1.45% and return on equity of 17.60% for the same period in 2005.

Net Interest Income. Net interest income increased $1.1 million, or 10%, for the nine months ended September 30, 2006 to $12.7 million. The increase was driven by $44.4 million of growth in average earning assets for the first nine months of 2006 compared to the same period in 2005. The Company’s net interest margin decreased to 4.12% for the nine months ended September 30, 2006, compared to 4.22% for the same period in 2005 as the cost of funds increased by 93 basis points while the yield on earning assets increased 71 basis points.

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Net interest income increased $341,000, or 8%, for the third quarter of 2006 to $4.4 million. The increase was driven by $40.8 million of growth in average earning assets for the third quarter of 2006 compared to the same period in 2005. The Company’s net interest margin for the third quarter of 2006 and 2005, was 4.21% and 4.29%, respectively.

Non-Interest Income. Non-interest income was $4.1 million for the nine months ended September 30, 2006, an increase of $271,000 compared to the same period in 2005. The 7% increase in non-interest income was due to an increase in trust fees of $157,000, increases in service charges on deposit accounts of $69,000 and an increase in investment security gains of $49,000.

Non-interest income was $1.3 million for the third quarter of 2006, an increase of 11% from the same period in 2005. The $134,000 increase in non-interest income was due to growth in trust fees of 14% and an increase in mortgage banking income of 74%.

Non-Interest Expense. Non-interest expense totaled $9.5 million for the nine months ended September 30, 2006 compared to $8.9 million for the same period last year. The increase in non-interest expense of $672,000, or 8%, was due to an increase in personnel costs of 8%, increases in occupancy, equipment and data processing expenses of 5% and an increase in other expenses of 8%. Personnel costs increased $430,000 due to normal salary increases and additional staffing required as a result of asset growth, and other expenses increased $165,000 due to increases in professional fees, ATM/debit card processing expense and postage costs.

Non-interest expense totaled $3.2 million for the third quarter of 2006 compared to $3.0 million for the same period last year. The increase in non-interest expense of $219,000, or 7%, was due to increases in personnel costs of $135,000 and increases in other expenses of $42,000.

Shareholders’ Equity. At September 30, 2006, shareholders’ equity totaled $37.2 million. The net increase of $3.7 million for the nine months of 2006 was attributable to net income of $4.5 million and proceeds from stock option exercises of $176,000 less cash dividends of $1.9 million and common stock repurchases of $89,000. In the third quarter of 2006, the Company declared a cash dividend of $.18 per share on the Company’s common stock. This was an increase of 16% over last year’s third quarter dividend.

On June 17, 2004, the Board of Directors approved a fourth stock repurchase program authorizing the Company to repurchase up to 169,995, or 5%, of its outstanding shares of common stock. As of September 30, 2006, 25,894 shares had been repurchased under the program. During the third quarter of 2006, the Company repurchased 3,757 shares at an average price of $23.58 per share. Repurchases will be made from time to time at the discretion of Company management.

The Company’s subsidiary, Merrill Merchants Bank, is headquartered in Bangor, Maine. Merrill Merchants Bank provides consumer, commercial, and trust and investment services through its eleven locations in Central and Eastern Maine. The Bank is a “Preferred Lender” of the Small Business Administration (SBA) and was a leading SBA lender in the State of Maine in 2006.

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MERRILL MERCHANTS BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands except per share data)		2006		2005		2006		2005
Interest income	$	7,349	$	5,951	$	20,679	$	16,513
Interest expense		2,947		1,890		8,027		4,962
Net interest income		4,402		4,061		12,652		11,551
Provision for loan losses		87		106		346		300
Non-interest income		1,336		1,202		4,051		3,780
Non-interest expense		3,169		2,950		9,533		8,861
Income before income taxes		2,482		2,207		6,824		6,170
Income taxes		835		745		2,311		2,086
Net income	$	1,647	$	1,462	$	4,513	$	4,084
Per share data
Basic earnings per common share (1)	$	0.46	$	0.41	$	1.27	$	1.15
Diluted earnings per common share (1)	$	0.46	$	0.41	$	1.26	$	1.14

(1) Adjusted to reflect the 3% stock dividend in March 2006.

SELECTED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,						December 31,
(In thousands)		2006			2005			2005
Total assets	$	444,952		$	408,031		$	417,073
Loans receivable		330,045			311,064			318,965
Allowance for loan losses		(4,214	)		(4,083	)		(4,086	)
Loans held for sale		859			1,393			925
Investment securities		79,098			70,168			72,489
Deposits		358,281			324,995			331,414
Borrowings		44,351			44,900			47,008
Shareholders' equity		37,229			33,522			34,352
Off-Balance Sheet
Trust assets under management		381,222			358,359			365,950
Mortgage servicing portfolio		152,974			132,806			141,125

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SELECTED CONSOLIDATED AVERAGE BALANCES

(Unaudited)

	Three Month Period September 30,				Nine Month Period September 30,
(In thousands)		2006		2005		2006		2005
Total assets	$	441,724	$	401,259	$	429,807	$	383,964
Loans and loans held for sale		332,009		304,249		327,231		293,960
Investment securities		80,376		66,605		78,524		65,924
Deposits		354,393		321,817		339,260		305,692
Borrowings		45,432		42,293		50,088		42,118
Shareholders' equity		36,541		32,947		35,768		32,216

OTHER SELECTED CONSOLIDATED DATA

(Unaudited)

	At or for the Three Months Ended September 30,						At or for the Nine Months Ended September 30,
		2006			2005			2006			2005
Return on average assets (1)		1.48	%		1.45	%		1.40	%		1.42	%
Return on average equity (1)		17.89	%		17.60	%		16.87	%		16.95	%
Leverage ratio		8.32	%		8.22	%		8.32	%		8.22	%
Net interest margin (1)		4.21	%		4.29	%		4.12	%		4.22	%
Non-performing assets to total assets		0.22	%		0.21	%		0.22	%		0.21	%
Net loan charge-offs to average net loans (1)		0.07	%		0.08	%		0.04	%		0.04	%
Allowance for loan losses to total loans		1.28	%		1.31	%		1.28	%		1.31	%
Number of shares outstanding (2)		3,550,010			3,538,702			3,550,010			3,538,702
Weighted-average shares outstanding-diluted (2)		3,572,795			3,570,894			3,570,070			3,568,953
Book value per share (2)	$	10.49		$	9.47		$	10.49		$	9.47

(1) Computed on an annualized basis.

(2) Adjusted to reflect the 3% stock dividend in March 2006.

This press release and the documents incorporated by reference herein contain certain forward-looking statements. These forward-looking statements may be contained in this press release, quarterly and annual filings with the Securities and Exchange Commission (the “SEC”), the Annual Report to Shareholders, other filings with the SEC, and in other communications by Merrill Merchants Bancshares, Inc. (the “Company”) and its wholly-owned subsidiary, Merrill Merchants Bank (the “Bank”), which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. In preparing these disclosures, management must make assumptions, including, but not limited to, the level of future interest rates, prepayments on loans and investment securities, required levels of capital, needs for liquidity, and the adequacy of the allowance for loan losses. These forward-looking statements may be subject to significant known and unknown risks, uncertainties, and other factors, including, but not limited to, those matters referred to in the preceding sentence.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. You are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the facts which affect the Company's business.

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For further information contact:

Edwin N. Clift, Chairman and Chief Executive Officer (eclift@merrillmerchants.com)

Deborah A. Jordan, Chief Financial Officer (djordan@merrillmerchants.com)

Merrill Merchants Bancshares, Inc.

www.merrillmerchants.com

(207) 942-4800

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EX-99.2

EXHIBIT 99.2

Merrill Merchants Bancshares, Inc. Announces Receipt of Nasdaq Letter of Reprimand

Bangor, Maine, October 19, 2006: Merrill Merchants Bancshares, Inc. (the “Company”) (Nasdaq: MERB) today announced that it received a letter of reprimand from Nasdaq’s Listing Qualifications Department on October 12, 2006. The Company was not in compliance with Marketplace Rule 4350(d)(2) during the period between September 23, 2005 and May 4, 2006.

Michael T. Shea, an existing member of the Company’s board of directors, was appointed to the Company’s audit committee, effective May 4, 2006. Mr. Shea’s appointment filled the vacancy on the audit committee created by Susan Singer, who resigned from the Company’s board of directors on September 23, 2005. Prior to Mr. Shea’s appointment, the Company’s audit committee consisted of two independent directors rather than the three independent directors required under Nasdaq Marketplace Rule 4350(d)(2) as a result of Ms. Singer’s resignation.

Nasdaq acknowledged in the same letter that, as a result of Mr. Shea’s appointment, the Company had regained compliance and the matter is now closed.

For further information contact:

Edwin N. Clift, Chairman and Chief Executive Officer (eclift@merrillmerchants.com)

Deborah A. Jordan, Chief Financial Officer (djordan@merrillmerchants.com)

Merrill Merchants Bancshares, Inc.

www.merrillmerchants.com

(207) 942-4800