GRAND RAPIDS, Mich., July 11, 2007 (PRIME NEWSWIRE) -- Mercantile Bank Corporation (Nasdaq:MBWM) reported earnings for the second quarter of 2007 of $2.2 million, or $0.26 per diluted share, a decrease of 56.5 percent from the $5.1 million, or $0.60 per diluted share, reported for the second quarter of 2006. For the first six months of 2007, Mercantile reported net income of $6.5 million, or $0.77 per diluted share, a decrease of 35.2 percent and 34.7 percent, respectively, from the $10.0 million, or $1.18 per diluted share, reported in the prior-year period. The decline in 2007 earnings is primarily the result of increased non-performing assets, which have negatively impacted all major areas of Mercantile's performance. Also, earnings were lowered by a one-time expense associated with the retirement of Mercantile's former chairman and CEO, Gerald Johnson, Jr.
Michael Price, Mercantile's newly-appointed chairman and CEO, commented, "Mercantile achieved an impressive track record over the first ten years of its existence by adhering to a disciplined strategy based on strong loan growth, superb asset quality, and low overhead. We are currently in the midst of a difficult economic period in Michigan, which has depressed our real estate market to levels beyond our expectation. This has affected not only asset quality, but also loan growth. We believe we are taking every step possible to identify problem loans and proactively address the issues involved. As a result, non-performing assets nearly doubled this quarter. We believe we are approaching a peak in non-performing assets and should see improvement going forward. On a more positive note, loan originations have picked up, reflecting the success of our restructured lending teams.
"It is our goal to return to the quality results which have defined our organization. We are hopeful that the days of major provisioning are over. While our margin is still on the low side, much of the impact is derived from the higher level of nonaccrual loans on our books."
Operating Results
Total revenue, consisting of net interest income and non-interest income, was $15.4 million for the second quarter of 2007, a decrease of 9.2 percent from the $16.9 million reported for the prior-year second quarter. Net interest income for the current quarter was $13.9 million, a decrease of $1.7 million, or 10.9 percent, from the 2006 second quarter level due to a 56 basis point decline in the net interest margin, partially offset by a 6.7 percent increase in average earning assets. Compared with the first quarter of 2007, the decline in net interest income was $536,000, or 3.7 percent; the impact to net interest income was primarily due to a 16 basis point decline in the margin from the previous quarter, since earning assets remained stable. Mr. Price commented, "The competition for quality loans is still intense, so loan pricing has been under pressure. However, we are seeing a leveling in the cost of funds; for the current quarter, the increase was only six basis points compared to first quarter of 2007. The more significant contributor to the margin decline was an 11 basis point drop in asset yield that was largely attributable to the rise in non-performing assets during the quarter." Non-interest income for the second quarter of 2007 was $1.4 million, an increase of $146,000, or 11.5 percent over the second quarter of 2006.
The provision for loan and lease losses increased 56.7 percent year over year, from $1.5 million in the second quarter of 2006 to $2.35 million for the current quarter, primarily due to an increase in net loan charge-offs and non-performing loans this quarter compared with last year.
Mr. Price continued, "Efficient operations have been a key component to our business strategy since inception, and we maintain this discipline throughout our Company." Non-interest expense for the second quarter of 2007 was $10.0 million, an increase of $2.0 million, or 25.0 percent, over the prior-year period, and an increase of $1.3 million, or 14.9 percent, from the first quarter of 2007. Exclusive of the $1.2 million one-time charge associated with Mr. Johnson's retirement, operating expenses rose 10.1% from last year, primarily related to the addition of 28 FTE employees since June 30, 2006. The efficiency ratio was 65.3 percent for the second quarter of 2007, compared with 47.5 percent for the year-ago quarter. For the six-month 2007 period, the ratio was 60.1 percent, compared with 48.2 percent for the prior-year period. Excluding the impact of Mr. Johnson's retirement package, the efficiency ratio for the current quarter would be 57.5 percent.
Asset Quality
According to Mr. Price, "We have been extremely diligent in reviewing our loan portfolio. The large addition to non-performing loans this quarter accounts for what we believe to be most of the recent credit weakness we have experienced; we are hopeful that this quarter represents a high point in non-performing assets against which improvement in asset quality can be measured." Non-performing assets were $24.0 million, or 1.14 percent of total assets at June 30, 2007, compared with $12.6 million, or 0.60 percent of total assets at March 31, 2007, and $8.7 million, or 0.44 percent of total assets at June 30, 2006. Mr. Price explained that the majority of the recent increase can be attributed to two loans totaling $8.0 million that Mercantile placed on non-accrual status this quarter. Mr. Price added, "Over 90 percent of non-performing loans are collateralized by real estate; although resolution of real estate loans is a lengthy process, we believe we are adequately reserved as present market conditions stand."
Net loan charge-offs for the second quarter of 2007 were $1.2 million, equivalent to 0.28 percent of average loans on an annualized basis, compared with $0.8 million or 0.18 percent of average loans in the first quarter of 2007, and $1.0 million or 0.24 percent for the second quarter of 2006. Loan and lease loss reserves were $22.8 million, or 1.28 percent of total loans and leases at June 30, 2007, up from the 1.24 percent level reported at March 31, 2007.
Balance Sheet
Total assets were $2.10 billion at June 30, 2007, an increase of $134.1 million, or 6.8 percent, from June 30, 2006. Over the last twelve months, loans grew by $105.6 million, or 6.3 percent; year to date 2007 loan growth was $30.5 million, with the second quarter contributing $27.2 million. Most of the growth since year-end 2006 was in commercial real estate loans, including multi-family properties, which increased by $44.4 million, or 5.3 percent, to $883.7 million; commercial real estate accounts for 49.8 percent of total loan outstandings. Otherwise, Mercantile's portfolio composition remained relatively unchanged, with commercial and industrial loans, the second largest component of Mercantile's loan portfolio, holding a 26.1 percent share, followed by construction and land development loans, which are also primarily commercial in nature, holding a 16.7 percent share.
Shareholders' equity at June 30, 2007 was $174.5 million, a twelve-month increase of $12.9 million, or 8.0 percent. Total shares outstanding at quarter-end were 8,476,673. Mercantile's total risk-based capital ratio was 11.4 percent at quarter-end, well in excess of well-capitalized requirements. Mr. Price concluded, "We have strengthened our credit underwriting and loan review processes, completed an extensive review and analysis of our loan portfolio, and believe we have identified most of our problem assets. Our restructured lending teams are proving their effectiveness in the marketplace, and we are hopeful that our performance will shortly begin to reflect the progress we've made in these areas."
About Mercantile Bank Corporation
Mercantile Bank Corporation is the bank holding company for Mercantile Bank of Michigan. Headquartered in Grand Rapids, the Bank provides a wide variety of commercial banking services through its five full-service banking offices in greater Grand Rapids, and its full-service banking offices in Holland, Lansing, and Ann Arbor, Michigan. Mercantile Bank Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol "MBWM."
Forward-Looking Statements
This news release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in the national and local economy; and other factors, including risk factors, disclosed from time to time in filings made by Mercantile with the Securities and Exchange Commission. Mercantile undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
Mercantile Bank Corporation
Second Quarter 2007 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
(dollars in thousands except per share data)
Quarterly
------------------------------------------------------
2007 2007 2006 2006 2006
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
---------- ---------- ---------- ---------- ----------
EARNINGS
Net interest
income $ 13,948 14,484 15,295 15,547 15,646
Provision
for loan
and lease
losses $ 2,350 1,020 1,700 1,350 1,500
Noninterest
income $ 1,421 1,408 1,381 1,362 1,275
Noninterest
expense $ 10,039 8,739 8,197 8,028 8,031
Net income $ 2,221 4,283 4,605 5,202 5,111
Basic
earnings
per share $ 0.26 0.51 0.55 0.62 0.61
Diluted
earnings
per share $ 0.26 0.50 0.54 0.61 0.60
Average
basic
shares
out-
standing * 8,455,891 8,436,933 8,421,318 8,416,816 8,401,047
Average
diluted
shares
out-
standing * 8,503,138 8,518,791 8,523,314 8,524,116 8,525,811
PERFORMANCE
RATIOS
Return on
average
assets 0.43% 0.84% 0.89% 1.04% 1.06%
Return on
average
common
equity 5.08% 10.04% 10.78% 12.54% 12.81%
Net interest
margin
(fully
tax-
equivalent) 2.91% 3.07% 3.19% 3.34% 3.47%
Efficiency
ratio 65.32% 54.99% 49.15% 47.48% 47.46%
Full-time
equivalent
employees 305 295 291 284 277
CAPITAL
Period-ending
equity to
assets 8.30% 8.40% 8.32% 8.27% 8.21%
Tier 1
leverage
capital
ratio 10.10% 10.12% 10.04% 10.14% 10.15%
Tier 1
risk-based
capital
ratio 10.26% 10.44% 10.37% 10.47% 10.52%
Total risk-
based
capital
ratio 11.37% 11.52% 11.45% 11.61% 11.66%
Book value
per share $ 20.64 20.70 20.36 19.90 19.21
Cash
dividend
per share $ 0.14 0.14 0.13 0.13 0.13
ASSET QUALITY
Gross loan
charge-offs $ 1,358 1,134 2,276 1,250 1,083
Net loan
charge-offs $ 1,204 777 2,227 920 988
Net loan
charge-offs
to average
loans 0.28% 0.18% 0.51% 0.22% 0.24%
Allowance
for loan
and lease
losses $ 22,800 21,654 21,411 21,938 21,507
Allowance
for losses
to total
loans 1.28% 1.24% 1.23% 1.28% 1.29%
Nonperforming
loans $ 20,595 10,018 8,571 9,017 8,530
Other real
estate and
repossessed
assets $ 3,369 2,540 986 421 150
Nonperforming
assets to
total
assets 1.14% 0.60% 0.46% 0.47% 0.44%
END OF PERIOD
BALANCES
Loans and
leases $1,776,026 1,748,838 1,745,478 1,710,268 1,670,471
Total
earning
assets
(before
allowance) $1,980,722 1,967,733 1,948,179 1,922,051 1,859,411
Total assets $2,103,520 2,089,577 2,067,268 2,026,834 1,969,429
Deposits $1,639,010 1,686,157 1,646,903 1,614,703 1,547,912
Shareholders'
equity $ 174,531 175,477 171,915 167,548 161,660
AVERAGE
BALANCES
Loans and
leases $1,755,033 1,741,531 1,729,899 1,684,700 1,643,022
Total
earning
assets
(before
allowance) $1,965,345 1,953,416 1,938,499 1,881,873 1,841,666
Total assets $2,075,217 2,058,718 2,042,037 1,984,199 1,939,413
Deposits $1,643,522 1,647,000 1,628,233 1,569,614 1,521,037
Shareholders'
equity $ 175,434 173,028 169,452 164,560 160,039
Year-To-Date
------------------------
2007 2006
----------- -----------
EARNINGS
Net interest income $ 28,432 30,745
Provision for loan and lease losses $ 3,370 2,725
Noninterest income $ 2,829 2,518
Noninterest expense $ 18,778 16,037
Net income $ 6,504 10,040
Basic earnings per share $ 0.77 1.20
Diluted earnings per share $ 0.77 1.18
Average basic shares outstanding * 8,446,419 8,386,996
Average diluted shares outstanding * 8,494,276 8,517,021
PERFORMANCE RATIOS
Return on average assets 0.63% 1.06%
Return on average common equity 7.53% 12.77%
Net interest margin (fully
tax-equivalent) 2.99% 3.49%
Efficiency ratio 60.07% 48.21%
Full-time equivalent employees 305 277
CAPITAL
Period-ending equity to assets 8.30% 8.21%
Tier 1 leverage capital ratio 10.10% 10.15%
Tier 1 risk-based capital ratio 10.26% 10.52%
Total risk-based capital ratio 11.37% 11.66%
Book value per share $ 20.64 19.21
Cash dividend per share $ 0.28 0.25
ASSET QUALITY
Gross loan charge-offs $ 2,492 1,863
Net loan charge-offs $ 1,981 1,744
Net loan charge-offs to average loans 0.23% 0.22%
Allowance for loan and lease losses $ 22,800 21,507
Allowance for losses to total loans 1.28% 1.29%
Nonperforming loans $ 20,595 8,530
Other real estate and repossessed assets $ 3,369 150
Nonperforming assets to total assets 1.14% 0.44%
END OF PERIOD BALANCES
Loans and leases $ 1,776,026 1,670,471
Total earning assets (before allowance) $ 1,980,722 1,859,411
Total assets $ 2,103,520 1,969,429
Deposits $ 1,639,010 1,547,912
Shareholders' equity $ 174,531 161,660
AVERAGE BALANCES
Loans and leases $ 1,748,320 1,612,489
Total earning assets (before allowance) $ 1,959,414 1,810,354
Total assets $ 2,067,013 1,905,865
Deposits $ 1,645,252 1,490,322
Shareholders' equity $ 174,236 158,487
* - Adjusted for 5% stock dividend paid on May 4, 2007
Mercantile Bank Corporation
Second Quarter 2007 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
THREE THREE SIX SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME
Loans and leases,
including fees $33,513,000 $31,304,000 $66,935,000 $60,031,000
Investment
securities 2,485,000 2,299,000 4,991,000 4,536,000
Federal funds
sold 82,000 139,000 175,000 271,000
Short-term
investments 4,000 4,000 8,000 7,000
----------- ----------- ----------- -----------
Total interest
income 36,084,000 33,746,000 72,109,000 64,845,000
INTEREST EXPENSE
Deposits 19,179,000 15,358,000 38,004,000 28,843,000
Short-term
borrowings 866,000 720,000 1,698,000 1,321,000
Federal Home
Loan Bank
advances 1,390,000 1,369,000 2,584,000 2,684,000
Long-term
borrowings 701,000 653,000 1,391,000 1,252,000
----------- ----------- ----------- -----------
Total interest
expense 22,136,000 18,100,000 43,677,000 34,100,000
----------- ----------- ----------- -----------
Net interest
income 13,948,000 15,646,000 28,432,000 30,745,000
Provision for
loan and lease
losses 2,350,000 1,500,000 3,370,000 2,725,000
----------- ----------- ----------- -----------
Net interest
income after
provision for
loan and lease
losses 11,598,000 14,146,000 25,062,000 28,020,000
NONINTEREST INCOME
Service charges
on accounts 393,000 329,000 782,000 645,000
Net gain on
sales of
commercial loans 0 0 0 29,000
Other income 1,028,000 946,000 2,047,000 1,844,000
----------- ----------- ----------- -----------
Total
noninterest
income 1,421,000 1,275,000 2,829,000 2,518,000
NONINTEREST EXPENSE
Salaries and
benefits 6,521,000 4,683,000 11,905,000 9,448,000
Occupancy 814,000 772,000 1,581,000 1,602,000
Furniture and
equipment 501,000 515,000 994,000 1,037,000
Other expense 2,203,000 2,061,000 4,298,000 3,950,000
----------- ----------- ----------- -----------
Total
noninterest
expense 10,039,000 8,031,000 18,778,000 16,037,000
----------- ----------- ----------- -----------
Income before
federal income
tax expense 2,980,000 7,390,000 9,113,000 14,501,000
Federal income
tax expense 759,000 2,279,000 2,609,000 4,461,000
----------- ----------- ----------- -----------
Net income $ 2,221,000 $ 5,111,000 $ 6,504,000 $10,040,000
=========== =========== =========== ===========
Basic earnings
per share $ 0.26 $ 0.61 $ 0.77 $ 1.20
Diluted earnings
per share $ 0.26 $ 0.60 $ 0.77 $ 1.18
Average basic
shares
outstanding * 8,455,891 8,401,047 8,446,419 8,386,996
Average diluted
shares
outstanding * 8,503,138 8,525,811 8,494,276 8,517,021
* - Adjusted for 5% stock dividend paid on May 4, 2007
Mercantile Bank Corporation
Second Quarter 2007 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, JUNE 30,
2007 2006 2006
---- ---- ----
(Unaudited) (Audited) (Unaudited)
ASSETS
Cash and due from
banks $ 48,190,000 $ 51,098,000 $ 47,142,000
Short-term
investments 251,000 282,000 271,000
-------------- -------------- --------------
Total cash and
cash equivalents 48,441,000 51,380,000 47,413,000
Securities available
for sale 133,247,000 130,967,000 119,023,000
Securities held to
maturity 63,664,000 63,943,000 61,759,000
Federal Home Loan
Bank stock 7,534,000 7,509,000 7,887,000
Total loans and
leases 1,776,026,000 1,745,478,000 1,670,471,000
Allowance for loan
and lease losses (22,800,000) (21,411,000) (21,507,000)
-------------- -------------- --------------
Total loans and
leases, net 1,753,226,000 1,724,067,000 1,648,964,000
Premises and
equipment, net 34,797,000 33,539,000 30,824,000
Bank owned life
insurance policies 32,330,000 30,858,000 29,852,000
Accrued interest
receivable 9,971,000 10,287,000 9,047,000
Other assets 20,310,000 14,718,000 14,660,000
-------------- -------------- --------------
Total assets $2,103,520,000 $2,067,268,000 $1,969,429,000
============== ============== ==============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 124,977,000 $ 133,197,000 $ 129,483,000
Interest-bearing 1,514,033,000 1,513,706,000 1,418,429,000
-------------- -------------- --------------
Total deposits 1,639,010,000 1,646,903,000 1,547,912,000
Securities sold under
agreements to
repurchase 84,987,000 85,472,000 64,431,000
Federal funds
purchased 9,100,000 9,800,000 11,400,000
Federal Home Loan
Bank advances 135,000,000 95,000,000 130,000,000
Subordinated
debentures 32,990,000 32,990,000 32,990,000
Other borrowed money 3,653,000 3,316,000 2,957,000
Accrued expenses and
other liabilities 24,249,000 21,872,000 18,079,000
-------------- -------------- --------------
Total liabilities 1,928,989,000 1,895,353,000 1,807,769,000
SHAREHOLDERS' EQUITY
Common stock 176,461,000 161,223,000 160,872,000
Retained earnings 1,038,000 11,794,000 4,070,000
Accumulated other
comprehensive
income (loss) (2,968,000) (1,102,000) (3,282,000)
-------------- -------------- --------------
Total shareholders'
equity 174,531,000 171,915,000 161,660,000
-------------- -------------- --------------
Total liabilities
and shareholders'
equity $2,103,520,000 $2,067,268,000 $1,969,429,000
============== ============== ==============