GRAND RAPIDS, Mich., April 9, 2008 (PRIME NEWSWIRE) -- Mercantile Bank Corporation (Nasdaq:MBWM) reported a net loss of $3.7 million, or $0.44 per diluted share, for the first quarter of 2008 compared with net income of $4.3 million, or $0.50 per diluted share, for the first quarter of 2007. Mercantile's first quarter 2008 performance was impacted by the steep decline in interest rates that began late in the third quarter of 2007, and the sizeable provision for loan and lease losses taken in response to the deteriorating quality of certain of its commercial loan relationships.
Chairman and CEO Michael Price commented, "Last quarter, we identified weaknesses in parts of our loan portfolio as a result of the continuing decline in the Michigan economy, and specifically, the condition of our residential real estate markets, and we increased our loan loss provision accordingly. We are now witnessing the impact of Michigan's declining economy on other sectors, including local businesses and commercial real estate. Our real estate collateral values, both residential and commercial, have deteriorated and the cash flow of some of our borrowers is increasingly strained. In light of current market conditions, we announced earlier this quarter that we were again increasing our loan loss provision to maintain a prudent level of reserves until we see signs of improvement."
Operating Results
First quarter 2008 total revenue, consisting of net interest income plus noninterest income, was $13.3 million, a 16.5 percent decrease from the $15.9 million reported for the prior year first quarter. Net interest income was $11.4 million, down 21.4 percent from $14.5 million for the year-ago quarter; the 74 basis point, or 24.1 percent, decline in the net interest margin, from 3.07 percent to 2.33 percent, was partially offset by a 3.2 percent increase in average earning assets. Noninterest income for the first quarter was $1.9 million, up 34.2 percent from the $1.4 million reported for last year's first quarter.
Mr. Price added, "As has most of the banking industry, we have experienced price competition for both deposits and loans. This has been a factor contributing to our net interest margin compression over the past year, and has been significantly exacerbated by the Federal Reserve's 300 basis point rate cut over a period of six-months. In the near-term, Mercantile is an asset-sensitive bank, and the aggressive series of rate cuts has outpaced our ability to reduce our funding costs as rapidly.
"In view of the current state of the economy," Mr. Price continued, "we anticipate that there could be further rate cuts ahead. However, when interest rates finally stabilize, we should see improvement in our net interest margin. Meanwhile, we continue to reprice our funding sources at significantly lower rates."
The provision for loan and lease losses was $9.1 million for first quarter 2008 compared with $4.9 million for the fourth quarter of 2007, and $1.0 million for the year-ago quarter. Mr. Price stated that, "As long as our economy remains challenged, it is our intention to maintain a strong loan and lease loss reserve so we can respond aggressively to changing conditions." The reserve for loans and leases was 1.67 percent of total loans and leases as of March 31, 2008, compared with 1.43 percent at December 31, 2007 and 1.24 percent as of March 31, 2007.
Noninterest expense for the first quarter of 2008 was $10.3 million, up $1.6 million, or 18.2 percent, over the prior-year first quarter, and $0.3 million, or 3.2 percent, over the linked quarter. Salaries and benefits were $5.8 million for the current quarter, up $0.4 million, or 7.2 percent, from first quarter 2007 and $0.2 million, or 4.1 percent, from the previous quarter, primarily reflecting annual salary increases as well as eleven additional full-time equivalent employees. Other expense increased by $0.9 million quarter over quarter, in large part from increased expenses associated with the administration and resolution of problem assets and increased FDIC insurance premium assessments.
Balance Sheet
"Asset growth is still curtailed by competitive pricing pressures and the weakened state of our economy. Since traditionally, the majority of our loans have been collateralized by local real estate, this has provided a further drag on our growth," added Mr. Price. Total assets were $2.12 billion at March 31, 2008, an increase of $26.4 million, or 1.3 percent, since March 31, 2007. Loans grew $45.5 million, or 2.6 percent, year over year to $1.8 billion. Mercantile's loan portfolio is approximately 73 percent secured by real property, with construction and development loans accounting for $269 million, equivalent to 14.9 percent of total loans and leases. Deposits totaled $1.6 billion at March 31, 2008, a decline of 7.8 percent, or $131.4 million, from March 31, 2007. Mercantile continues to shift a portion of its brokered deposits into lower-rate FLHB advances, which increased $140 million above the year-ago quarter, to $230 million.
Asset Quality
"While problem assets have increased over the last several quarters, this past quarter we experienced a sudden and rapid deterioration in a number of our commercial loan relationships, which previously had been performing fairly well. Analysis of certain commercial borrowers revealed a reduced capability on part of these borrowers to make required payments as indicated by factors such as delinquent loan payments, diminished operating cash flow, deteriorating financial performance, or past due property taxes, and in the case of commercial and residential development projects slow absorption or sales trends. In addition, commercial real estate is the primary collateral source for many of these borrowing relationships and recently completed evaluations and appraisals in many cases reflect significant declines from the original estimated values. In this context, we felt it to be prudent to take the $9.1 million provision," added Mr. Price.
At March 31, 2008, Mercantile reported nonperforming assets of $40.6 million, or 1.92 percent of total assets, up from $35.7 million (1.68 percent of total assets) at December 31, 2007, and $12.6 million (0.60 percent of total assets) for the year-ago quarter. "While Mercantile has had a history of strong asset quality," Mr. Price continued, "our current performance should be viewed in the context of Michigan's weak economy. According to the fourth quarter 2007 FDIC Michigan state profile, the median value for nonperforming loans was 3.58 percent of loans; this median includes all 164 banks in the state of Michigan."
Nonperforming loans and foreclosed properties associated with the development and construction of residential real estate totaled $13.1 million, plus another $4.3 million in nonperforming loans secured by, and foreclosed properties consisting of, residential properties at March 31, 2008; this compares with nonperforming loans of $11.1 million and foreclosed properties of $3.2 million at December 31, 2007. Commercial nonperforming assets were $23.2 million as of March 31, 2008 compared with $21.4 million as of December 31, 2007.
Net loan charge-offs for first quarter 2008 were $5.0 million, or an annualized 1.1 percent of average loans, compared with $3.9 million, or an annualized 0.87 percent of average loans during the fourth quarter of 2007. Net loan charge-offs associated with residential-related loans and commercial-related loans were $1.7 million and $3.3 million, respectively.
Shareholders' equity at March 31, 2008 was $174.3 million, a decline of $3.9 million, or 2.2 percent, from December 31, 2007. Total shares outstanding at first quarter-end 2008 were 8,530,082. The Bank is still "well-capitalized" under regulatory capital requirements, with a total risk-based capital ratio of 11.3 percent at March 31, 2008, compared to 11.4 percent as of December 31, 2007.
In conclusion, Mr. Price added, "Despite a disappointing first quarter, we have a healthy loan loss reserve and a well-capitalized balance sheet. Mercantile has grown into an important banking force in the West Michigan market, and our expansion initiatives have been met with strong customer acceptance. We have built a solid company, able to withstand the vagaries of the Michigan economy. With our well-trained, experienced and highly motivated team of commercial lenders, we believe we are well positioned to take advantage of Michigan's eventual economic recovery."
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 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
First Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
(dollars in Quarterly
thousands -----------------------------------------------------
except per 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
share data) 2008 2007 2007 2007 2007
--------- --------- --------- --------- ---------
EARNINGS
Net interest
income $ 11,383 13,074 14,051 13,948 14,484
Provision for
loan and
lease losses $ 9,100 4,900 2,800 2,350 1,020
Noninterest
income $ 1,890 1,534 1,507 1,421 1,408
Noninterest
expense $ 10,329 10,008 9,570 10,039 8,739
Net income
(loss) $ (3,738) 95 2,367 2,221 4,283
Basic
earnings
(loss) per
share $ (0.44) 0.01 0.28 0.26 0.51
Diluted
earnings
(loss) per
share $ (0.44) 0.01 0.28 0.26 0.50
Average shares
outstanding 8,465,148 8,462,260 8,458,601 8,455,891 8,436,842
Average
diluted
shares
outstanding 8,465,148 8,485,035 8,491,612 8,503,138 8,518,666
PERFORMANCE
RATIOS
Return on
average
assets (0.71%) 0.02% 0.45% 0.43% 0.84%
Return on
average
common equity (8.44%) 0.21% 5.32% 5.08% 10.04%
Net interest
margin (fully
tax-
equivalent) 2.33% 2.64% 2.86% 2.91% 3.07%
Efficiency
ratio 77.82% 68.51% 61.51% 65.32% 54.99%
Full-time
equivalent
employees 317 306 302 305 295
CAPITAL
Period-ending
equity to
assets 8.24% 8.40% 8.44% 8.30% 8.40%
Tier 1
leverage
capital ratio 9.69% 9.97% 10.06% 10.10% 10.12%
Tier 1 risk-
based capital
ratio 10.05% 10.14% 10.19% 10.26% 10.44%
Total risk-
based capital
ratio 11.33% 11.39% 11.40% 11.37% 11.52%
Book value
per share $ 20.43 20.89 20.96 20.59 20.70
Cash dividend
per share $ 0.15 0.14 0.14 0.14 0.13
ASSET QUALITY
Gross loan
charge-offs $ 5,137 3,988 795 1,358 1,134
Net loan
charge-offs $ 4,957 3,943 743 1,204 777
Net loan
charge-offs
to average
loans 1.11% 0.87% 0.17% 0.28% 0.18%
Allowance for
loan and
lease losses $ 29,957 25,814 24,857 22,800 21,654
Allowance for
loan losses
to total
loans 1.67% 1.43% 1.38% 1.28% 1.24%
Nonperforming
loans $ 35,259 29,809 23,070 20,595 10,018
Other real
estate and
repossessed
assets $ 5,371 5,895 2,820 3,369 2,540
Nonperforming
assets to
total assets 1.92% 1.68% 1.23% 1.14% 0.60%
END OF PERIOD
BALANCES
Loans and
leases $1,794,310 1,799,880 1,796,962 1,776,026 1,748,838
Total
earning
assets
(before
allowance) $2,006,373 2,011,908 2,005,136 1,980,722 1,967,733
Total assets $2,115,948 2,121,403 2,106,427 2,103,520 2,089,577
Deposits $1,554,750 1,591,181 1,640,984 1,639,010 1,686,157
Shareholders'
equity $ 174,295 178,155 177,724 174,531 175,477
AVERAGE
BALANCES
Loans and
leases $1,793,726 1,791,510 1,773,151 1,755,033 1,741,531
Total earning
assets
(before
allowance) $2,015,210 2,006,940 1,992,075 1,965,345 1,953,416
Total assets $2,115,468 2,104,212 2,096,597 2,075,217 2,058,718
Deposits $1,578,545 1,618,825 1,632,153 1,643,522 1,647,000
Shareholders'
equity $ 177,632 178,583 176,482 175,434 173,028
Mercantile Bank Corporation
First Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
THREE THREE
MONTHS ENDED MONTHS ENDED
March 31, 2008 March 31, 2007
-------------- --------------
(Unaudited) (Unaudited)
INTEREST INCOME
Loans and leases, including fees $ 29,063,000 $ 33,422,000
Investment securities 2,802,000 2,506,000
Federal funds sold 86,000 93,000
Short term investments 4,000 4,000
-------------- --------------
Total interest income 31,955,000 36,025,000
INTEREST EXPENSE
Deposits 17,103,000 18,825,000
Short term borrowings 551,000 832,000
Federal Home Loan Bank advances 2,329,000 1,194,000
Long term borrowings 589,000 690,000
-------------- --------------
Total interest expense 20,572,000 21,541,000
-------------- --------------
Net interest income 11,383,000 14,484,000
Provision for loan and lease losses 9,100,000 1,020,000
-------------- --------------
Net interest income after provision
for loan and lease losses 2,283,000 13,464,000
NONINTEREST INCOME
Service charges on accounts 504,000 389,000
Other income 1,386,000 1,019,000
-------------- --------------
Total noninterest income 1,890,000 1,408,000
NONINTEREST EXPENSE
Salaries and benefits 5,774,000 5,384,000
Occupancy 974,000 767,000
Furniture and equipment 540,000 493,000
Other expense 3,041,000 2,095,000
-------------- --------------
Total noninterest expense 10,329,000 8,739,000
-------------- --------------
Income (loss) before federal income
tax expense (benefit) (6,156,000) 6,133,000
Federal income tax expense (benefit) (2,418,000) 1,850,000
-------------- --------------
Net income (loss) $ (3,738,000) $ 4,283,000
============== ==============
Basic earnings (loss) per share ($0.44) $0.51
Diluted earnings (loss) per share ($0.44) $0.50
Average basic shares outstanding 8,465,148 8,436,842
Average diluted shares outstanding 8,465,148 8,518,666
Mercantile Bank Corporation
First Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, MARCH 31,
2008 2007 2007
---- ---- ----
(Unaudited) (Audited) (Unaudited)
ASSETS
Cash and due from
banks $ 31,903,000 $ 29,138,000 $ 52,098,000
Short term
investments 537,000 292,000 268,000
Federal funds sold 0 0 13,400,000
-------------- -------------- --------------
Total cash and cash
equivalents 32,440,000 29,430,000 65,766,000
Securities available
for sale 133,978,000 136,673,000 133,346,000
Securities held to
maturity 65,318,000 65,330,000 64,372,000
Federal Home Loan
Bank stock 12,230,000 9,733,000 7,509,000
Loans and leases 1,794,310,000 1,799,880,000 1,748,838,000
Allowance for loan and
lease losses (29,957,000) (25,814,000) (21,654,000)
-------------- -------------- --------------
Loans and leases,
net 1,764,353,000 1,774,066,000 1,727,184,000
Premises and
equipment, net 34,178,000 34,351,000 34,294,000
Bank owned life
insurance policies 39,553,000 39,118,000 31,155,000
Accrued interest
receivable 9,132,000 9,957,000 10,997,000
Other assets 24,766,000 22,745,000 14,954,000
-------------- -------------- --------------
Total assets $2,115,948,000 $2,121,403,000 $2,089,577,000
============== ============== ==============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 121,755,000 $ 133,056,000 $ 130,857,000
Interest-bearing 1,432,995,000 1,458,125,000 1,555,300,000
-------------- -------------- --------------
Total deposits 1,554,750,000 1,591,181,000 1,686,157,000
Securities sold under
agreements to
repurchase 83,184,000 97,465,000 78,045,000
Federal funds
purchased 15,800,000 13,800,000 0
Federal Home Loan
Bank advances 230,000,000 180,000,000 90,000,000
Subordinated
debentures 32,990,000 32,990,000 32,990,000
Other borrowed money 4,086,000 4,013,000 3,480,000
Accrued expenses and
other liabilities 20,843,000 23,799,000 23,428,000
-------------- -------------- --------------
Total liabilities 1,941,653,000 1,943,248,000 1,914,100,000
SHAREHOLDERS' EQUITY
Common stock 173,134,000 172,938,000 172,515,000
Retained earnings
(deficit) (60,000) 4,948,000 3,817,000
Accumulated other
comprehensive income
(loss) 1,221,000 269,000 (855,000)
-------------- -------------- --------------
Total shareholders'
equity 174,295,000 178,155,000 175,477,000
-------------- -------------- --------------
Total liabilities
and shareholders'
equity $2,115,948,000 $2,121,403,000 $2,089,577,000
============== ============== ==============