For Merchants Bancshares, last March was the darkest hour. Nonperforming assets had topped 10%, and several million in souring real estate loans were threatening to mortally wound the $700 million-asset bank in Burlington, Vt. Merchants was overloaded with costs, and the situation looked dire.

"We had serious doubts whether we could pull this thing off," said Joseph L. Boutin, president and chief executive.

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