GRAND RAPIDS, Mich., Oct. 14, 2008 (GLOBE NEWSWIRE) -- Mercantile Bank Corporation (Nasdaq:MBWM) reported net income of $1.1 million, or $0.13 per diluted share, for the third quarter of 2008 compared with net income of $2.4 million, or $0.28 per diluted share, for the third quarter of 2007. For the nine-month 2008 period, a net loss of $5.3 million, or $0.62 per diluted share, was recorded, compared with net income of $8.9 million, or $1.05 per diluted share, for the prior-year nine months.
Mercantile returned to profitability during the third quarter of 2008 after reporting net losses for the first two quarters of 2008, primarily reflecting a significantly lower provision for loan and lease losses. Mercantile's year-to-date 2008 performance has been impacted by several factors: net interest margin compression resulting from the rapid interest rate decline that began during the third quarter of last year; sizable provisions for loan and lease losses taken in response to deteriorating asset quality; and write-downs on foreclosed properties to reflect lower estimated market values.
Chairman and CEO Michael Price commented, "While we continue to face some very strong headwinds with the economy and within the banking industry, it is gratifying to see that our aggressive approach to identifying and administering problem credits may be starting to yield results. Over a year ago, we became concerned with the deteriorating financial condition of certain borrowers and the status of underlying projects in our commercial real estate portfolio, especially within the residential real estate development segment. The early identification of problem loans has provided us the opportunity to closely work with our distressed borrowers, and during the third quarter we saw notable improvement in a number of larger relationships. Nonperforming and other delinquent loans remain at elevated levels, and further hard work remains. However, we are pleased with our progress thus far. We are cautiously optimistic that we are near the peak in asset quality challenges, but we remain appropriately reserved and vigilant."
Mr. Price continued, "A second priority has been to improve our net interest margin, which has been impacted by the series of aggressive interest rate cuts implemented by the Federal Reserve beginning in September 2007 and continuing through April 2008, as well as by an elevated level of nonperforming assets and price competition for loans and deposits. This quarter, we began to reverse the decline with a 15 basis point improvement in the net interest margin over the second quarter. A steady prime rate and the initial benefits of several loan-pricing initiatives have stabilized our loan yield, while our cost of funds continues to decline.
"Although we were hopeful the improved trend would continue, last week's 50 basis point prime rate reduction will once again negatively impact our net interest margin over the near term. Further anticipated declines in our cost of funds are expected to largely offset the impact of the prime rate cut, and a relatively steady rather than improving net interest margin is the likely fourth quarter outcome. We expect the loan pricing initiatives that were initiated during the third quarter to increase in scope and value in future periods. However, the extreme volatility in financial markets makes it difficult to forecast net interest income and the net interest margin with any precision.
"The outstanding performance of our employees throughout this critical period has made a huge difference in the results we've been able to achieve. Our employees continue to provide our customers with an exceptional banking experience, and the difficult banking environment has provided us the opportunity to strengthen our position within our markets. We continue to see much more rational commercial loan pricing and terms, which should positively impact our earnings performance in future periods."
Operating Results
Third quarter 2008 total revenue, consisting of net interest income plus noninterest income, was $13.5 million, down 12.9 percent from the $15.6 million reported for the prior-year third quarter. Net interest income totaled $11.7 million, a decline of $2.3 million, or 16.5 percent, from the $14.1 million generated in the year-ago quarter. The net interest margin declined from 2.86 percent in the prior-year third quarter to 2.30 percent in the current-year third quarter, a decrease of 56 basis points, or 19.6 percent. The negative impact of the lower net interest margin on net interest income was partially offset by an $81.7 million increase in average earning assets. Noninterest income was $1.8 million in the third quarter of 2008, up $0.3 million, or 20.6 percent, from the $1.5 million reported in last year's third quarter, primarily due to increased service charge and bank-owned life insurance policy income.
The provision for loan and lease losses totaled $17.2 million for the first nine months of 2008, including $1.9 million expensed during the third quarter. In comparison, the provision expense equaled $6.2 million during the first nine months of 2007, including $2.8 million recorded in the third quarter. The larger provision expense recognized during the first nine months of 2008 reflects a higher level of net loan and lease charge-offs and loan and lease growth in 2008. In addition, higher reserve levels relative to the prior year were necessary to provide for possible future losses in the existing loan and lease portfolio. The allowance for loan and lease losses equaled 1.58 percent of total loans and leases as of September 30, 2008, compared to 1.73 percent at June 30, 2008, and 1.38 percent at September 30, 2007.
Noninterest expense for the third quarter of 2008 was $10.5 million, an increase of $0.9 million, or 9.9 percent, over the prior-year third quarter. Compared with the second quarter of 2008, third quarter noninterest expense declined $0.3 million, or 2.4 percent. For the first nine months of 2008, noninterest expense was $31.6 million, up $3.3 million, or 11.5 percent, from $28.3 million for the same time period in 2007. A majority of the 2008 noninterest expense growth relates to costs associated with the administration and resolution of problem assets, including legal expenses, property tax payments, appraisal costs, and write-downs on foreclosed properties. These costs totaled $2.3 million during the first nine months of 2008, including $0.8 million expensed during the third quarter of 2008. By comparison, costs related to problem assets totaled $0.6 million for the first nine months of 2007, with $0.3 million of costs incurred in the third quarter. Write-downs on foreclosed properties accounted for $0.9 million of the $2.3 million in costs related to problem assets incurred during the first nine months of 2008.
Asset Quality
"While we saw a small increase in the level of nonperforming assets in the third quarter, the rate of increase was considerably lower than over the past several quarters," noted Mr. Price. "The marked slowdown in borrowing relationships that deteriorated to nonperforming status had a positive impact on our provision expense for the third quarter. However, the majority of our nonperforming loans are real estate-related, secured by collateral that has illiquid characteristics in the current market. Updated appraisals often reflect significant declines from the original estimated values, requiring additional reserves for potential future loan and lease losses."
At September 30, 2008, nonperforming assets totaled $47.8 million, or 2.17 percent of total assets, up from $46.6 million (2.16 percent of total assets) at June 30, 2008 and $25.9 million (1.23 percent of total assets) at September 30, 2007. Approximately 36 percent of nonperforming loans were contractually current on payments as of September 30, 2008. The net increase in nonperforming assets during the third quarter of 2008 was $1.2 million, reflecting the addition of $11.5 million of new nonperforming loans, less the return of loans to accruing status, loan paydowns, sales of foreclosed real estate and write-downs of foreclosed properties totaling $6.6 million and net loan and lease charge-offs of $3.7 million.
Commercial-related nonperforming assets were $26.7 million as of September 30, 2008, compared to $28.7 million as of June 30, 2008. Nonperforming loans and foreclosed properties associated with the development and construction of residential real estate totaled $15.9 million, with an additional $5.2 million in nonperforming loans secured by, and foreclosed properties consisting of, residential properties at September 30, 2008. At June 30, 2008, the levels were $14.7 million and $3.2 million, respectively.
Net loan and lease charge-offs in the third quarter of 2008 were $4.3 million, or an annualized 0.91 percent of average total loans and leases, compared to $4.3 million (0.95 percent) and $5.0 million (1.11 percent) during the second and first quarters of 2008, respectively. Net loan and lease charge-offs associated with commercial-related loans and residential-related loans totaled $3.6 million and $0.7 million during the third quarter, and $10.0 million and $3.6 million during the first nine months of 2008, respectively. Of the $4.5 million in gross loan and lease charge-offs during the third quarter, approximately $3.0 million, or 66 percent, reflect the charge-off of specific reserves that were created through provisions for loan and lease losses in prior quarters.
Balance Sheet
Total assets were $2.21 billion as of September 30, 2008, an increase of $100.9 million, or 4.8 percent, since September 30, 2007. Total loans and leases increased $73.8 million, or 4.1 percent, over the past twelve months, with $30.0 million of the growth occurring in the third quarter of 2008. Approximately 72 percent of Mercantile's loan portfolio is secured by real estate, with construction and land development loans accounting for $277.4 million, or 14.8 percent of total loans and leases. Deposits totaled $1.58 billion as of September 30, 2008, a decline of $65.3 million since September 30, 2007, in part reflecting the shifting of a portion of brokered deposits into lower-rate Federal Home Loan Bank advances, which increased $150.0 million over the past twelve months.
Shareholders' equity totaled $171.3 million at September 30, 2008, a decline of $6.8 million, or 3.8 percent, from the level of equity at December 31, 2007. Total shares outstanding at the end of the third quarter of 2008 were 8,532,535. The Bank remains "well-capitalized" under regulatory capital requirements, with a total risk-based capital ratio of 10.9 percent as of September 30, 2008. The Bank's total regulatory capital equaled $226.1 million at September 30, 2008, approximately $15.3 million in excess of the amount required to provide for the minimum "well-capitalized".
In conclusion, Mr. Price commented, "Our third quarter results represent a significant improvement over the previous three quarters. While we expect the third quarter is the beginning of a trend, the future is difficult to predict due to the unprecedented challenges facing the banking industry. Our focus on asset quality remains unwavering, and we believe we are well-positioned to weather this difficult period."
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, Ann Arbor and Oakland County, 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 nontraditional 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 local real estate values; changes in the national and local economies; 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
Third Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
Quarterly
----------------------------------------------------
2008 2008 2008 2007 2007
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
---------- --------- --------- --------- ---------
(dollars in thousands except per share data)
EARNINGS
Net interest
income $ 11,728 10,592 11,383 13,074 14,051
Provision for
loan and
lease losses $ 1,900 6,200 9,100 4,900 2,800
Noninterest
income $ 1,817 1,758 1,890 1,534 1,507
Noninterest
expense $ 10,513 10,777 10,329 10,008 9,570
Net income
(loss) $ 1,079 (2,612) (3,738) 95 2,367
Basic earnings
(loss) per
share $ 0.13 (0.31) (0.44) 0.01 0.28
Diluted
earnings
(loss) per
share $ 0.13 (0.31) (0.44) 0.01 0.28
Average
basic shares
outstanding 8,472,569 8,469,097 8,465,148 8,462,260 8,458,601
Average diluted
shares
outstanding 8,530,347 8,469,097 8,465,148 8,485,035 8,491,612
PERFORMANCE RATIOS
Return on
average assets 0.20% (0.49%) (0.71%) 0.02% 0.45%
Return on average
common equity 2.53% (6.09%) (8.44%) 0.21% 5.32%
Net interest
margin (fully
tax-equivalent) 2.30% 2.15% 2.33% 2.64% 2.86%
Efficiency ratio 77.62% 87.26% 77.82% 68.51% 61.51%
Full-time
equivalent
employees 307 318 317 306 302
CAPITAL
Period-ending
equity to
assets 7.76% 7.75% 8.24% 8.40% 8.44%
Tier 1 leverage
capital ratio 9.34% 9.50% 9.69% 9.97% 10.06%
Tier 1 risk-
based capital
ratio 9.61% 9.71% 10.05% 10.14% 10.19%
Total risk-based
capital ratio 10.86% 10.96% 11.33% 11.39% 11.40%
Book value per
share $ 20.08 19.66 20.43 20.89 20.96
Cash dividend
per share $ 0.04 0.08 0.15 0.14 0.14
ASSET QUALITY
Gross loan
charge-offs $ 4,462 4,431 5,137 3,988 795
Net loan
charge-offs $ 4,271 4,275 4,957 3,943 743
Net loan
charge-offs to
average loans 0.91% 0.95% 1.11% 0.87% 0.17%
Allowance for
loan and
lease losses $ 29,511 31,881 29,957 25,814 24,857
Allowance for
losses to
total loans 1.58% 1.73% 1.67% 1.43% 1.38%
Nonperforming
loans $ 42,047 43,297 35,259 29,809 23,070
Other real
estate and
repossessed
assets $ 5,743 3,322 5,371 5,895 2,820
Nonperforming
assets to
total assets 2.17% 2.16% 1.92% 1.68% 1.23%
END OF PERIOD
BALANCES
Loans and
leases $1,870,799 1,840,793 1,794,310 1,799,880 1,796,962
Total earning
assets
(before
allowance) $2,099,408 2,048,703 2,006,373 2,011,908 2,005,136
Total assets $2,207,359 2,163,354 2,115,948 2,121,403 2,106,427
Deposits $1,575,713 1,544,704 1,554,750 1,591,181 1,640,984
Shareholders'
equity $ 171,348 167,713 174,295 178,155 177,724
AVERAGE BALANCES
Loans and
leases $1,852,848 1,812,898 1,793,726 1,791,510 1,773,151
Total earning
assets (before
allowance) $2,073,787 2,029,494 2,015,210 2,006,940 1,992,075
Total assets $2,172,859 2,125,731 2,115,468 2,104,212 2,096,597
Deposits $1,550,544 1,531,853 1,578,545 1,618,825 1,632,153
Shareholders'
equity $ 169,241 171,902 177,632 178,583 176,482
Year-To-Date
----------------------
(dollars in thousands except per share data) 2008 2007
----------- ---------
EARNINGS
Net interest income $ 33,703 42,483
Provision for loan and lease losses $ 17,200 6,170
Noninterest income $ 5,465 4,336
Noninterest expense $ 31,619 28,348
Net income (loss) $ (5,271) 8,871
Basic earnings (loss) per share $ (0.62) 1.05
Diluted earnings (loss) per share $ (0.62) 1.05
Average basic shares outstanding 8,468,951 8,450,524
Average diluted shares outstanding 8,468,951 8,488,226
PERFORMANCE RATIOS
Return on average assets (0.33%) 0.57%
Return on average common equity (4.06%) 6.78%
Net interest margin (fully tax-equivalent) 2.26% 2.94%
Efficiency ratio 80.73% 60.55%
Full-time equivalent employees 307 302
CAPITAL
Period-ending equity to assets 7.76% 8.44%
Tier 1 leverage capital ratio 9.34% 10.06%
Tier 1 risk-based capital ratio 9.61% 10.19%
Total risk-based capital ratio 10.86% 11.40%
Book value per share $ 20.08 21.00
Cash dividend per share $ 0.27 0.41
ASSET QUALITY
Gross loan charge-offs $ 14,030 3,287
Net loan charge-offs $ 13,503 2,724
Net loan charge-offs to average loans 0.99% 0.21%
Allowance for loan and lease losses $ 29,511 24,857
Allowance for losses to total loans 1.58% 1.38%
Nonperforming loans $ 42,047 23,070
Other real estate and repossessed assets $ 5,743 2,820
Nonperforming assets to total assets 2.17% 1.23%
END OF PERIOD BALANCES
Loans and leases $ 1,870,799 1,796,962
Total earning assets (before allowance) $ 2,099,408 2,005,136
Total assets $ 2,207,359 2,106,427
Deposits $ 1,575,713 1,640,984
Shareholders' equity $ 171,348 177,724
AVERAGE BALANCES
Loans and leases $ 1,819,944 1,756,688
Total earning assets (before allowance) $ 2,039,622 1,970,420
Total assets $ 2,138,152 2,076,983
Deposits $ 1,553,636 1,640,838
Shareholders' equity $ 172,912 174,993
Mercantile Bank Corporation
Third Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME
Loans and leases,
including fees $ 27,161,000 $ 34,077,000 $ 82,707,000 $101,012,000
Investment
securities 2,641,000 2,530,000 8,067,000 7,521,000
Federal funds
sold 40,000 168,000 157,000 343,000
Short-term
investments 1,000 5,000 6,000 13,000
------------ ------------ ------------ ------------
Total
interest
income 29,843,000 36,780,000 90,937,000 108,889,000
INTEREST EXPENSE
Deposits 14,180,000 19,357,000 46,144,000 57,361,000
Short term
borrowings 483,000 900,000 1,506,000 2,598,000
Federal Home
Loan Bank
advances 2,839,000 1,759,000 7,834,000 4,343,000
Long term
borrowings 613,000 713,000 1,750,000 2,104,000
------------ ------------ ------------ ------------
Total interest
expense 18,115,000 22,729,000 57,234,000 66,406,000
------------ ------------ ------------ ------------
Net interest
income 11,728,000 14,051,000 33,703,000 42,483,000
Provision for
loan and lease
losses 1,900,000 2,800,000 17,200,000 6,170,000
------------ ------------ ------------ ------------
Net interest
income after
provision for
loan and lease
losses 9,828,000 11,251,000 16,503,000 36,313,000
NONINTEREST INCOME
Service charges
on accounts 488,000 402,000 1,472,000 1,184,000
Other income 1,329,000 1,105,000 3,993,000 3,152,000
------------ ------------ ------------ ------------
Total
noninterest
income 1,817,000 1,507,000 5,465,000 4,336,000
NONINTEREST EXPENSE
Salaries and
benefits 5,584,000 5,425,000 17,031,000 17,330,000
Occupancy 967,000 881,000 2,899,000 2,462,000
Furniture and
equipment 482,000 530,000 1,502,000 1,524,000
Other expense 3,480,000 2,734,000 10,187,000 7,032,000
------------ ------------ ------------ ------------
Total
noninterest
expense 10,513,000 9,570,000 31,619,000 28,348,000
------------ ------------ ------------ ------------
Income (loss)
before federal
income tax
expense (benefit) 1,132,000 3,188,000 (9,651,000) 12,301,000
Federal income tax
expense
(benefit) 53,000 821,000 (4,380,000) 3,430,000
------------ ------------ ------------ ------------
Net income
(loss) $ 1,079,000 $ 2,367,000 $ (5,271,000)$ 8,871,000
============ ============ ============ ============
Basic earnings
(loss) per
share $0.13 $0.28 ($0.62) $1.05
Diluted earnings
(loss) per share $0.13 $0.28 ($0.62) $1.05
Average basic
shares
outstanding 8,472,569 8,458,601 8,468,951 8,450,524
Average diluted
shares
outstanding 8,530,347 8,491,612 8,468,951 8,488,226
Mercantile Bank Corporation
Third Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2008 2007 2007
---- ---- ----
(Unaudited) (Audited) (Unaudited)
ASSETS
Cash and due from
banks $ 25,694,000 $ 29,138,000 $ 28,764,000
Short-term investments 87,000 292,000 534,000
Federal funds sold 4,820,000 0 0
-------------- -------------- --------------
Total cash and cash
equivalents 30,601,000 29,430,000 29,298,000
Securities available
for sale 144,019,000 136,673,000 135,243,000
Securities held to
maturity 64,002,000 65,330,000 64,863,000
Federal Home Loan
Bank stock 15,681,000 9,733,000 7,534,000
Loans and leases 1,870,799,000 1,799,880,000 1,796,962,000
Allowance for loan and
lease losses (29,511,000) (25,814,000) (24,857,000)
-------------- -------------- --------------
Loans and leases,
net 1,841,288,000 1,774,066,000 1,772,105,000
Premises and equipment,
net 32,958,000 34,351,000 34,492,000
Bank owned life
insurance policies 41,459,000 39,118,000 32,962,000
Accrued interest
receivable 9,044,000 9,957,000 11,143,000
Other assets 28,307,000 22,745,000 18,787,000
-------------- -------------- --------------
Total assets $2,207,359,000 $2,121,403,000 $2,106,427,000
============== ============== ==============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 109,154,000 $ 133,056,000 $ 121,336,000
Interest-bearing 1,466,559,000 1,458,125,000 1,519,648,000
-------------- -------------- --------------
Total deposits 1,575,713,000 1,591,181,000 1,640,984,000
Securities sold under
agreements to repurchase 105,986,000 97,465,000 88,683,000
Federal funds purchased 0 13,800,000 3,300,000
Federal Home Loan Bank
advances 285,000,000 180,000,000 135,000,000
Subordinated debentures 32,990,000 32,990,000 32,990,000
Other borrowed money 19,393,000 4,013,000 3,839,000
Accrued interest and
other liabilities 16,929,000 23,799,000 23,907,000
-------------- -------------- --------------
Total liabilities 2,036,011,000 1,943,248,000 1,928,703,000
SHAREHOLDERS' EQUITY
Common stock 172,480,000 172,938,000 172,793,000
Retained earnings
(deficit) (1,593,000) 4,948,000 6,037,000
Accumulated other
comprehensive income
(loss) 461,000 269,000 (1,106,000)
-------------- -------------- --------------
Total shareholders'
equity 171,348,000 178,155,000 177,724,000
-------------- -------------- --------------
Total liabilities
and shareholders'
equity $2,207,359,000 $2,121,403,000 $2,106,427,000
============== ============== ==============