LOS ANGELES, May 2, 2006 (PRIMEZONE) -- National Mercantile Bancorp (Nasdaq:MBLA), the holding company for Mercantile National Bank and South Bay Bank, N.A., today reported excellent first quarter profits with an expanded margin, improving efficiencies and strong balance sheet performance. First quarter earnings increased 40% compared to the first quarter a year ago and were almost level with the record results posted in the fourth quarter of 2005. Fueled by improving efficiencies and growth in loans and deposits, first quarter net income was $1.3 million, or $0.22 per diluted share, compared to $941,000, or $0.16 per diluted share in the first quarter of 2005 and $1.4 million, or $0.24 per diluted share, in the fourth quarter of 2005. The financial results are unaudited for the first quarters ended March 31, 2006 and 2005. All per share results reflect the 5-for-4 stock split effective April 14, 2006, as well as the conversion of the Series A Preferred Shares in June 2005.
"We began this year with excellent first quarter performance, generating strong growth in loans and deposits," said Scott A. Montgomery, President and CEO. "We continue to see solid demand for business loans in our niche markets, particularly in construction and commercial business related loans. Los Angeles County continues to be an attractive business environment with a large, diverse workforce, well-established infrastructure and a dynamic market. While best known for its entertainment and tourist industries, Los Angeles County is the largest manufacturing center in the nation, with more the 470,000 workers employed in manufacturing. Both South Bay and the San Fernando Valley have strong manufacturing sectors, particularly in the middle market where we specialize.
"For the first time in our operating history, Mercantile National Bank received the 'Super Premier Performing Bank' designation by the Findley Reports. In addition, South Bay Bank received the Premier Performing Bank designation for the eighth time," Montgomery continued. "These designations have become highly regarded and recipients are recognized throughout the Western United States as financial institutions achieving exceptional performance."
FINANCIAL HIGHLIGHTS
(at or periods ended March 31, 2006, compared to March 31, 2005)
-- Mercantile Bank was named a "Super Premier Performing Bank"
by the Findley Reports, the highest designation awarded by
this prestigious organization.
-- South Bay Bank was named a "Premier Performing Bank" by
Findley Reports.
-- Revenues grew 17% to $6.1 million.
-- Net interest income after provision for loan losses grew 20%.
-- Net interest margin expanded 4 basis points (bp) to 5.49%
-- Efficiency ratio improved to 61.4% from 67.3% a year earlier
-- The loan portfolio grew 15% to $354 million.
-- Asset quality was excellent with nonperforming loans to
total loans only 0.08%
-- Expensing for stock options reduced 1Q06 net earnings
by $85,000.
The adoption of SFA S 123R in the first quarter of this year added $85,000 to compensation expense and reduced after-tax net income by essentially the same amount. "In 2005, that cost was not included in expenses, but rather footnoted in our financial statements. This after-tax option calculation was disclosed at $36,000 in the first quarter and $76,000 in the fourth quarter of 2005," commented David Brown, Chief Financial Officer.
REVIEW OF OPERATIONS
Revenue (net interest income plus non-interest income) grew 17% to $6.1 million in the first quarter of 2006 compared to $5.2 million in the first quarter of 2005. Net interest income before provision for loan losses grew 18% to $5.8 million in the first quarter from $4.9 million in the same period a year ago. Net interest income, after provision for loan losses of $32,000 during the first quarter, increased 20% to $5.7 million as compared to $4.8 million a year ago. Non-interest income totaled $323,000 in the first quarter, including a $48,000 gain on sale of other real estate owned, compared to $322,000 a year ago.
Net interest margin was 5.49% compared to 5.45% in the first quarter a year ago. Rising short-term interest rates contributed to earnings growth during the first quarter with the yield on interest earning assets up 112 bp to 7.67% from 6.55% a year ago. "In addition, the earnings from securities purchased in 2005 and the first quarter of 2006 added to profitability, but slowed growth in the net interest margin," Brown noted. "We continue to employ hedging strategies to protect net interest income should short-term interest rates decline."
Operating expenses rose 7.0% in the first quarter of 2006 with stock options expense accounting for more than one-third of the increase. Non-interest expense in the first quarter of 2006 was $3.7 million compared to $3.5 million in 1Q05. "The Company's operating efficiencies continued to improve during the quarter with top-line growth and cost control contributing to better performance," said Montgomery. The efficiency ratio during the first quarter improved dramatically to 61.37% from 67.26% a year ago and has averaged 60.3% for the last two quarters. The efficiency ratio, calculated by dividing non-interest expense by net interest income and non-interest income, measures overhead costs as a percentage of total revenues.
BALANCE SHEET PERFORMANCE
Total assets continued to grow, reaching $480 million at March 31, 2006, as compared to $388 million the prior year, with net loans up 14% and total deposits up 24%. Total assets were $449 million at December 31, 2005.
The loan portfolio grew 15% to $354 million at March 31, 2006, from $310 million at March 31, 2005. The growth was fueled by strong loan demand in construction loans, reflecting the very strong demand for housing, industrial, manufacturing and retail space in the region.
LOAN PORTFOLIO COMPOSITION:
March 31,
--------------------------------
2006 2005
------------- -------------
Amount % Amount %
------- ---- ------- ----
Real estate secured loans:
One to four family residential $ 9,279 3% $9,527 3%
Multifamily residential 18,828 5% 17,594 6%
Commercial 132,542 37% 129,695 42%
Construction and land development 94,629 27% 50,019 16%
Commercial loans:
Other - secured and unsecured 91,928 26% 99,176 32%
Consumer installment, home
equity and unsecured loans. 7,289 2% 3,545 1%
------- ---- -------- ----
Total loans outstanding $ 354,495 100% $ 309,556 100%
======= ========
Total deposits increased 24% to $405 million at March 31, 2006, compared to $326 million a year earlier. Strong growth in money market balances and certificate of deposits contributed to solid growth in overall deposits. Time deposits increased with the addition of $52 million in brokered CDs, increasing the cost of interest-bearing liabilities 133 basis points in the past 12 months. "We continue to utilize wholesale funding sources, among other strategies, to protect net interest income from interest rate movements," Brown noted.
Shareholders' equity increased 13% to $39 million, or $6.89 per share, at March 31, 2006, compared to $35 million, or $ 6.17 per share, at March 31, 2005. Tangible book value per share at quarter-end was $6.16 compared to $5.39 a year earlier. All per share calculations reflect the 5-for-4 stock split effective April 14, 2006 and assume full conversion of non-cumulative preferred stock and dilutive stock options.
"Asset quality continued to improve during the quarter as we sold the only property categorized as Other Real Estate Owned (OREO) at a slight gain to its carrying value. Loan loss reserves increased in relationship to the growth in the loan portfolio," said Bob Bartlett, Chief Credit Officer. At the end of the first quarter, non-performing assets totaled $300,000 or only 0.08% of gross loans, compared to $2.9 million, or 0.92% of gross loans at March 31, 2005. Delinquencies in the 30-89 day category were $237,000, or 0.07%. Net charge offs in the first quarter were negligible at $1,000. The allowance for loan losses increased to $4.6 million, or 1.29% of gross loans, at quarter end as compared to $3.6 million, or 1.17% of gross loans, at March 31, 2005.
LOOKING AHEAD
"In the past twelve months, we made great progress in improving profitability, achieving efficiencies and building a stellar team of banking professionals. We have applied for regulatory approval to convert our Costa Mesa loan production office into a full service branch, and hope to do so in the second quarter of 2006. When we opened that office initially, we made all the necessary improvements for a full service branch, so the costs associated with the expansion will be limited to new staff members. Orange County is a fast-growing and dynamic market, and we are looking forward to building on our success in this area," Montgomery concluded.
National Mercantile Bancorp will hold its annual meeting on May 18 at 6:00 p.m. at the Peninsula Hotel in Beverly Hills. Shareholders, customers and interested investors are welcome to attend. For more information visit the company's website at www.nationalmercbancorp.com.
ABOUT NATIONAL MERCANTILE BANCORP
National Mercantile Bancorp is the holding company for Mercantile National Bank and South Bay Bank, with offices located in Century City, Encino, Torrance, El Segundo, Costa Mesa and Beverly Hills, all among California's highest value markets. The banks focus in business banking with specialty lending expertise in the entertainment, healthcare, professional services, real estate escrow, business and residential construction, property management industries and community-based non-profit organizations. The company is building a premier business banking franchise with experienced loan officers providing highly personalized service.
This press release contains forward-looking statements about the Company. Forward-looking statements consist of descriptions of plans or objectives for future operations, products or services, forecasts of revenues, earnings or other measures of economic performance and assumptions underlying or relating to any of the foregoing. Because forward-looking statements discuss future events or conditions and not historical facts, they often include words such as "believe," "potential," "confident," "encourage or encouraging," "will be," "anticipate," "estimate" or similar expressions. Do not rely unduly on forward-looking statements. They give the Company's expectations about the future and are not guarantees or predictions of future events, conditions or results. Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update them to reflect changes that occur after that date. Many factors, most beyond the Company's control, could cause actual results to differ significantly from the Company's expectations. These factors include, among other things, changes in interest rates, which affect margins, impact funding sources or alter loan demand; increased competitive pressures; changes in national and local economic conditions; fluctuations in the California real estate markets; changes in fiscal policy, monetary policy, legislative or regulatory environments; changes in the credit quality of the Company's loan portfolio; and the Company's abilities to realize further efficiencies and achieve growth targets. These and other factors are discussed in greater detail in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2005.
Income Statement
(Unaudited)
(In thousands,
except share March 31, December 31, March 31, Annual %
data) 2006 2005 2005 Change
--------- ----------- ---------- ---------
Interest income $8,050 $7,585 $5,837 37.9%
Interest expense 2,293 1,846 976 134.9%
--------- ----------- ----------
Net interest
income before
Provision for
credit losses 5,757 5,739 4,861 18.4%
Provision for
credit losses 32 40 89 -64.0%
--------- ----------- ----------
Net interest
income after
provision for
credit losses 5,725 5,699 4,772 20.0%
Other operating
income:
Deposit-related
and other
customer
services 232 242 297 -21.9%
Other operating
income 91 25 25 264.0%
Other operating
expenses 3,731 3,561 3,486 7.0%
--------- ----------- ----------
Income before
provision for
income taxes 2,317 2,405 1,608 44.1%
Provision for
income taxes 999 999 667 49.8%
--------- ----------- ----------
Net income $1,318 $1,406 $ 941 40.1%
--------- ----------- ----------
Revenue 6,080 6,006 5,183 17.3%
Earnings per
share:
Basic $ 0.24 $ 0.26 $ 0.25 -4.0%
Diluted $ 0.22 $ 0.24 $ 0.16 37.5%
Weighted average shares outstanding:
Basic 5,518,383 5,459,528 3,716,154
Diluted 6,002,461 5,962,200 5,813,785
RATIOS
Return on quarterly
average assets 1.16% 1.27% 0.96%
Return on quarterly
average equity 13.22% 14.66% 10.80%
Net interest
margin - average
earning assets 5.49% 5.57% 5.45%
Operating expense
ratio 3.30% 3.22% 3.56%
Efficiency
ratio (a) 61.37% 59.29% 67.26%
(a) Other operating expense divided by net interest income and other
operating income.
Credit Quality
and Other Data March 31, December 31, March 31,
(Unaudited) 2006 2005 2005
--------- ----------- --------
(In thousands,
except ratios and shares)
Average quarterly
assets $ 458,881 $ 438,715 $ 397,055
Nonperforming
assets
Nonaccrual loans 300 319 --
Loans 90 days
past due and
still accruing -- -- 1,804
Other real
estate owned -- 1,056 1,056
--------- ----------- --------
Total nonperforming
assets 300 1,375 2,860
Loan to deposit
ratio 87.45% 0.94% 95.02%
Allowance for
credit losses
to total loans 1.29% 1.32% 1.17%
Allowance for
credit losses
to nonperforming
assets 1520.67% 342.95% 125.80%
Nonperforming
loans to total
loans 0.08% 0.40% 0.92%
Balance Sheet
(Unaudited)
(In thousands,
except
share data) March 31, December 31, March 31, Annual
2006 2005 2005 Change
------------------------------------------------
ASSETS
Cash and due from
banks-demand $ 15,211 $ 13,507 $ 16,562 -8.2%
Due from
banks-interest
bearing 2,000 2,000 2,728 -26.7%
Federal funds
sold and securitites
purchased under
agreements to
resell 2,790 685 -- NM
Investment
securities 88,263 74,370 39,125 125.6%
Loans
Commercial 91,928 89,474 99,176 -7.3%
Real estate 160,649 150,802 156,816 2.4%
Construction
and land
development 94,629 92,077 50,019 89.2%
Consumer and
other loans 7,289 7,239 3,545 105.6%
-------- -------- --------
Total loans
outstanding 354,495 339,592 309,556 14.5%
Deferred net
loan fees (995) (1,034) (1,056) -5.8%
-------- -------- --------
Loans receivable,
net 353,500 338,558 308,500 14.6%
Allowance for
loan and
lease losses (4,562) (4,468) (3,598) 26.8%
-------- -------- --------
Net loans
receivable 348,938 334,090 304,902 14.4%
Goodwill and
intangible
assets 4,576 4,632 4,799 -4.6%
Accrued interest
receivable and
other assets 18,152 19,512 19,306 -6.0%
-------- -------- --------
Total assets $479,930 $448,796 $387,422 23.9%
======== ======== ========
LIABILITIES & CAPITAL
Deposits:
Noninterest-
bearing
demand $122,638 $115,924 $121,793 0.7%
Interest-bearing
demand
deposits 31,716 36,018 30,050 5.5%
Money market
accounts 91,885 76,334 72,615 26.5%
Savings 26,336 28,208 32,762 -19.6%
Time certificates
of deposit:
$100,000 or
more 114,296 87,468 47,430 141.0%
Under
$100,000 18,481 19,256 21,125 -12.5%
-------- -------- --------
Total
deposits 405,352 363,208 325,775 24.4%
Other borrowings 16,400 28,337 9,900 65.7%
Junior subordinated
deferrable
interest
debentures 15,464 15,464 15,464
Accrued interest
and other
liabilities 3,414 3,288 1,482 130.4%
-------- -------- --------
Total
liabilities 440,630 410,297 352,621 25.0%
Total
shareholders'
equity 39,300 38,499 34,801 12.9%
-------- -------- --------
Total liabilities &
shareholders'
equity $479,930 $448,796 $387,422 23.9%
======== ======== ========
Book value per
common share $6.89 $6.77 $6.17 11.7%
Tangible book
value per
common share (b) $6.17 $6.04 $5.39 14.3%
(b) Total common equity, less goodwill and other intangible assets;
divided by fully-diluted shares outstanding.