GRAND RAPIDS, Mich., July 16, 2008 (PRIME NEWSWIRE) -- Mercantile Bank Corporation (Nasdaq:MBWM) reported a net loss of $2.6 million, or $0.31 per diluted share, for the second quarter of 2008 compared with net income of $2.2 million, or $0.26 per diluted share, for the second quarter of 2007. For the six-month 2008 period, the net loss was $6.4 million, or $0.75 per diluted share, compared with net income of $6.5 million, or $0.77 per diluted share, for the prior-year six months. Mercantile's 2008 profit performance continues to be impacted by net interest margin compression resulting from the decline in interest rates that began late in the third quarter of 2007, sizeable provisions for loan and lease losses taken in response to deteriorating collateral values underlying nonperforming loans, and write-downs on foreclosed properties reflecting lower estimated values.
Chairman and CEO Michael Price commented, "We are disappointed with our recent financial results, but continue to operate under the premise that there is no easy or fast solution to the current ills that have befallen the Michigan economy and its real estate markets. We continue to proactively address weaknesses within our loan portfolio, with approximately 40 percent of our nonperforming loans contractually current on payments. Although our nonperforming assets increased $6.0 million during the second quarter, loans 30 to 89 days delinquent are now at their lowest level in several years and the total balance of our internal watch list has remained relatively unchanged over the past several months, which are positive signs that we may be nearing the peak in asset quality challenges.
"We have also been diligently addressing our deteriorating net interest margin. As an asset sensitive bank, the Federal Reserve's aggressive interest rate reductions since September 2007 have been the primary contributor to our compressed net interest margin, combined with the elevated level of nonperforming assets and continued price competition for loans and deposits. Now that interest rates appear to have stabilized, our balance sheet is positioned so that we can begin to reverse the margin compression that has impacted profitability. Recent monthly trends in our net interest margin have been positive, and under the current interest rate environment, we expect to see improvement for the remainder of 2008 and into 2009.
"Despite the many challenges of the past several quarters, we are proceeding with our business plan: underwriting, monitoring and servicing our existing customer base and marketing to the new opportunities we see locally as some financial institutions retreat from our markets. The difficult banking environment has brought some positive aspects, as we are experiencing much more rationality in commercial loan pricing and deal structuring."
Operating Results
Second quarter 2008 total revenue, consisting of net interest income plus noninterest income, was $12.4 million, a 19.6 percent decrease from the $15.4 million reported for the prior-year second quarter. Net interest income was $10.6 million, down from the $13.9 million for the year-ago quarter. The net interest margin declined 76 basis points, or 26.1 percent, from 2.91 percent to 2.15 percent, which was partially offset by a $64.1 million increase in average earning assets. Noninterest income for the second quarter was $1.8 million, up 23.7 percent from the $1.4 million reported for last year's second quarter, primarily from improved service charge income and higher levels of mortgage banking activity and bank owned life insurance policy income.
The provision for loan and lease losses was $15.3 million during the first six months of 2008, including $6.2 million expensed during the second quarter. This compares with the $3.4 million provision expensed during the first six months of 2007, of which $2.4 million was recognized in the second quarter. The larger 2008 provision reflects a higher level of net loan and lease charge-offs and loan and lease growth during 2008, as well as higher levels of reserves to provide for future losses inherent in the current portfolio. The allowance for loan and lease losses equaled 1.73 percent of total loans and leases as of June 30, 2008, compared with 1.67 percent at March 31, 2008 and 1.28 percent at June 30, 2007.
Noninterest expense for the second quarter of 2008 was $10.8 million, up $0.7 million, or 7.4 percent, over the prior-year second quarter. Excluding the $1.2 million one-time charge taken in the second quarter of 2007 relating to the former chairman's retirement package, operating expense grew 21.9 percent. Compared with the first quarter of 2008, operating expenses were up $0.4 million, or 4.3 percent. A majority of the noninterest expense growth during the first six months of 2008 when compared to the same time period in 2007 relates to costs associated with the administration and resolution of problem assets, including legal expenses, property tax payments, appraisals and write-downs on foreclosed properties. These costs totaled $1.5 million during the first six months of 2008, including $1.1 million expensed during the second quarter of 2008; these amounts include write-downs on foreclosed properties totaling $0.7 million and $0.2 million during the second and first quarters, respectively.
Asset Quality
"Nonperforming assets increased in the second quarter, continuing a trend that began in 2007," noted Mr. Price. "The financial condition of some of our borrowers has become increasingly strained as real estate remains unsold and liquid sources of debt repayment are exhausted. Recent appraisals often reflect significant declines from the original estimated values. In this context, we took the prudent step to record an additional large loan loss provision this quarter and raise reserves against our loan portfolio to 1.73 percent of total loans."
At June 30, 2008, nonperforming assets totaled $46.6 million, or 2.16 percent of total assets, up from $40.6 million (1.92 percent of total assets) at March 31, 2008, and $24.0 million (1.14 percent of total assets) at June 30, 2007. The net increase in nonperforming assets during the second quarter of 2008 was $6.0 million, reflecting the addition of $15.5 million of new nonperforming loans, less loan paydowns, sales of foreclosed real estate and write-downs of foreclosed properties totaling $5.2 million and net loan and lease charge-offs of $4.3 million.
Nonperforming loans and foreclosed properties associated with the development and construction of residential real estate totaled $14.7 million, plus an additional $3.2 million in nonperforming loans secured by, and foreclosed properties consisting of, residential properties at June 30, 2008. At March 31, 2008, the levels were $13.1 million and $4.3 million, respectively. Commercial nonperforming assets were $28.7 million as of June 30, 2008, compared with $23.2 million as of March 31, 2008.
Net loan and lease charge-offs for second quarter 2008 were $4.3 million, or an annualized 0.95 percent of average total loans and leases, compared with $5.0 million, or an annualized 1.11 percent, during the first quarter of 2008. Net loan and lease charge-offs associated with residential-related loans and commercial-related loans totaled $1.2 million and $3.1 million, respectively, during the second quarter of 2008.
Balance Sheet
Total assets were $2.16 billion at June 30, 2008, an increase of $59.8 million, or 2.8 percent, since June 30, 2007. Mr. Price commented, "We were able to generate a modest increase in loans in the second quarter, although asset growth is still constrained by the weak economy and competitive pressures." Total loans and leases grew $64.8 million, or 3.6 percent, during the past twelve months, with $46.5 million of the growth occurring during the second quarter of 2008. Mercantile's loan portfolio is approximately 72 percent secured by real property, with construction and land development loans accounting for $266.0 million, or 14.5 percent of total loans and leases. Deposits totaled $1.54 billion as of June 30, 2008, a decline of $94.3 million from June 30, 2007, in part reflecting a shift of a portion of brokered deposits into lower-rate FHLB advances, which have increased $150.0 million over the past twelve months.
Shareholders' equity at June 30, 2008 was $167.7 million, a decline of $10.4 million, or 5.9 percent, from December 31, 2007. Total shares outstanding at second quarter-end 2008 were 8,530,512. The Bank is still "well-capitalized" under regulatory capital requirements, with a total risk-based capital ratio of 10.8% at June 30, 2008. The Bank's total regulatory capital equaled $224.7 million as of June 30, 2008, approximately $17.0 million in excess of the amount needed to provide for the 10.0% minimum "well-capitalized" total risk-based capital ratio.
In conclusion, Mr. Price commented, "Community banking has always been a reflection of a bank's local economic environment, and Mercantile's performance reflects the ongoing challenges of the Michigan marketplace. We continue to manage our business with the expectation that our economy will eventually recover, but under present circumstances, our approach is to be cautious, selective and overall, prudent. Mercantile has a solid capital base and strong commercial lending expertise. We plan to leverage these strengths and serve our local communities as we have in the past, assisting our business clients with their financial needs throughout the economic cycle."
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
Second Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, JUNE 30,
2008 2007 2007
---- ---- ----
(Unaudited) (Audited) (Unaudited)
ASSETS
Cash and due from
banks $ 37,632,000 $ 29,138,000 $ 48,190,000
Short-term
investments 137,000 292,000 251,000
-------------- -------------- --------------
Total cash and
cash equivalents 37,769,000 29,430,000 48,441,000
Securities
available for sale 129,013,000 136,673,000 133,247,000
Securities held to
maturity 63,787,000 65,330,000 63,664,000
Federal Home Loan
Bank stock 14,973,000 9,733,000 7,534,000
Loans and leases 1,840,793,000 1,799,880,000 1,776,026,000
Allowance for loan
and lease losses (31,881,000) (25,814,000) (22,800,000)
-------------- -------------- --------------
Loans and leases,
net 1,808,912,000 1,774,066,000 1,753,226,000
Premises and
equipment, net 33,557,000 34,351,000 34,797,000
Bank owned life
insurance policies 41,004,000 39,118,000 32,330,000
Accrued interest
receivable 8,317,000 9,957,000 9,971,000
Other assets 26,022,000 22,745,000 20,310,000
-------------- -------------- --------------
Total assets $2,163,354,000 $2,121,403,000 $2,103,520,000
-------------- -------------- --------------
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Deposits:
Noninterest-
bearing $ 131,107,000 $ 133,056,000 $ 124,977,000
Interest-bearing 1,413,597,000 1,458,125,000 1,514,033,000
-------------- -------------- --------------
Total deposits 1,544,704,000 1,591,181,000 1,639,010,000
Securities sold
under agreements
to repurchase 82,300,000 97,465,000 84,987,000
Federal funds
purchased 16,000,000 13,800,000 9,100,000
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 14,245,000 4,013,000 3,653,000
Accrued interest
and other
liabilities 20,402,000 23,799,000 24,249,000
-------------- -------------- --------------
Total
liabilities 1,995,641,000 1,943,248,000 1,928,989,000
SHAREHOLDERS' EQUITY
Common stock 172,640,000 172,938,000 172,644,000
Retained earnings
(deficit) (2,672,000) 4,948,000 4,855,000
Accumulated other
comprehensive
income (loss) (2,255,000) 269,000 (2,968,000)
-------------- -------------- --------------
Total
shareholders'
equity 167,713,000 178,155,000 174,531,000
-------------- -------------- --------------
Total
liabilities and
shareholders'
equity $2,163,354,000 $2,121,403,000 $2,103,520,000
-------------- -------------- --------------
Mercantile Bank Corporation
Second Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST
INCOME
Loans and
leases,
including
fees $ 26,483,000 $ 33,513,000 $ 55,546,000 $ 66,935,000
Investment
securities 2,624,000 2,485,000 5,426,000 4,991,000
Federal
funds sold 31,000 82,000 117,000 175,000
Short-term
investments 1,000 4,000 5,000 8,000
------------ ------------ ------------ ------------
Total
interest
income 29,139,000 36,084,000 61,094,000 72,109,000
INTEREST
EXPENSE
Deposits 14,861,000 19,179,000 31,964,000 38,004,000
Short term
borrowings 472,000 866,000 1,023,000 1,698,000
Federal Home
Loan Bank
advances 2,666,000 1,390,000 4,995,000 2,584,000
Long term
borrowings 548,000 701,000 1,137,000 1,391,000
------------ ------------ ------------ ------------
Total
interest
expense 18,547,000 22,136,000 39,119,000 43,677,000
------------ ------------ ------------ ------------
Net
interest
income 10,592,000 13,948,000 21,975,000 28,432,000
Provision
for loan
and lease
losses 6,200,000 2,350,000 15,300,000 3,370,000
------------ ------------ ------------ ------------
Net
interest
income
after
provision
for loan
and lease
losses 4,392,000 11,598,000 6,675,000 25,062,000
NONINTEREST
INCOME
Service
charges on
accounts 480,000 393,000 984,000 782,000
Other income 1,278,000 1,028,000 2,664,000 2,047,000
------------ ------------ ------------ ------------
Total
noninterest
income 1,758,000 1,421,000 3,648,000 2,829,000
NONINTEREST
EXPENSE
Salaries and
benefits 5,673,000 6,521,000 11,447,000 11,905,000
Occupancy 958,000 814,000 1,932,000 1,581,000
Furniture and
equipment 480,000 501,000 1,020,000 994,000
Other
expense 3,666,000 2,203,000 6,707,000 4,298,000
------------ ------------ ------------ ------------
Total
non-
interest
expense 10,777,000 10,039,000 21,106,000 18,778,000
------------ ------------ ------------ ------------
Income
(loss)
before
federal
income tax
expense
(benefit) (4,627,000) 2,980,000 (10,783,000) 9,113,000
Federal
income
tax expense
(benefit) (2,015,000) 759,000 (4,433,000) 2,609,000
------------ ------------ ------------ ------------
Net income
(loss) $ (2,612,000) $ 2,221,000 $ (6,350,000) $ 6,504,000
------------ ------------ ------------ ------------
Basic
earnings
(loss) per
share ($0.31) $0.26 ($0.75) $0.77
Diluted
earnings
(loss) per
share ($0.31) $ 0.26 ($0.75) $0.77
Average basic
shares
outstanding 8,469,097 8,455,891 8,467,122 8,446,419
Average
diluted
shares
outstanding 8,469,097 8,503,138 8,467,122 8,494,276
Mercantile Bank Corporation
Second Quarter 2008 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
Quarterly
------------------------------------------------------
(dollars in
thousands
except per 2008 2008 2007 2007 2007
share data) 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr
---------- ---------- ---------- ---------- ----------
EARNINGS
Net
interest
income $ 10,592 11,383 13,074 14,051 13,948
Provision
for loan
and lease
losses $ 6,200 9,100 4,900 2,800 2,350
Noninterest
income $ 1,758 1,890 1,534 1,507 1,421
Noninterest
expense $ 10,777 10,329 10,008 9,570 10,039
Net income
(loss) $ (2,612) (3,738) 95 2,367 2,221
Basic
earnings
(loss) per
share $ (0.31) (0.44) 0.01 0.28 0.26
Diluted
earnings
(loss) per
share $ (0.31) (0.44) 0.01 0.28 0.26
Average
basic
shares
out-
standing 8,469,097 8,465,148 8,462,260 8,458,601 8,455,891
Average
diluted
shares
outstand-
ing 8,469,097 8,465,148 8,485,035 8,491,612 8,503,138
PERFORMANCE
RATIOS
Return on
average
assets (0.49%) (0.71%) 0.02% 0.45% 0.43%
Return on
average
common
equity (6.09%) (8.44%) 0.21% 5.32% 5.08%
Net interest
margin (fully
tax-
equivalent) 2.15% 2.33% 2.64% 2.86% 2.91%
Efficiency
ratio 87.26% 77.82% 68.51% 61.51% 65.32%
Full-time
equivalent
employees 318 317 306 302 305
CAPITAL
Period-ending
equity to
assets 7.75% 8.24% 8.40% 8.44% 8.30%
Tier 1 leverage
capital ratio 9.50% 9.69% 9.97% 10.06% 10.10%
Tier 1 risk-
based capital
ratio 9.71% 10.05% 10.14% 10.19% 10.26%
Total risk-
based
capital
ratio 10.96% 11.33% 11.39% 11.40% 11.37%
Book value
per
share $ 19.66 20.43 20.89 20.96 20.59
Cash
dividend
per share $ 0.08 0.15 0.14 0.14 0.14
ASSET QUALITY
Gross loan
charge-
offs $ 4,431 5,137 3,988 795 1,358
Net loan
charge-
offs $ 4,275 4,957 3,943 743 1,204
Net loan
charge-
offs to
average
loans 0.95% 1.11% 0.87% 0.17% 0.28%
Allowance
for loan
and lease
losses $ 31,881 29,957 25,814 24,857 22,800
Allowance
for losses
to total
loans 1.73% 1.67% 1.43% 1.38% 1.28%
Nonper-
forming
loans $ 43,297 35,259 29,809 23,070 20,595
Other real
estate
and
repossessed
assets $ 3,322 5,371 5,895 2,820 3,369
Nonperforming
assets to
total assets 2.16% 1.92% 1.68% 1.23% 1.14%
END OF PERIOD
BALANCES
Loans and
leases $1,840,793 1,794,310 1,799,880 1,796,962 1,776,026
Total
earning
assets
(before
allow-
ance) $2,048,703 2,006,373 2,011,908 2,005,136 1,980,722
Total
assets $2,163,354 2,115,948 2,121,403 2,106,427 2,103,520
Deposits $1,544,704 1,554,750 1,591,181 1,640,984 1,639,010
Share-
holders'
equity $ 167,713 174,295 178,155 177,724 174,531
AVERAGE
BALANCES
Loans and
leases $1,812,898 1,793,726 1,791,510 1,773,151 1,755,033
Total
earning
assets
(before
allowance) $2,029,494 2,015,210 2,006,940 1,992,075 1,965,345
Total
assets $2,125,731 2,115,468 2,104,212 2,096,597 2,075,217
Deposits $1,531,853 1,578,545 1,618,825 1,632,153 1,643,522
Share-
holders'
equity $ 171,902 177,632 178,583 176,482 175,434
Year-To-Date
-----------------------
2008 2007
---------- ----------
EARNINGS
Net interest income $ 21,975 28,432
Provision for loan and lease losses $ 15,300 3,370
Noninterest income $ 3,648 2,829
Noninterest expense $ 21,106 18,778
Net income (loss) $ (6,350) 6,504
Basic earnings (loss) per share $ (0.75) 0.77
Diluted earnings (loss) per share $ (0.75) 0.77
Average basic shares outstanding 8,467,122 8,446,419
Average diluted shares outstanding 8,467,122 8,494,276
PERFORMANCE RATIOS
Return on average assets (0.60%) 0.63%
Return on average common equity (7.29%) 7.53%
Net interest margin (fully tax-
equivalent) 2.24% 2.99%
Efficiency ratio 82.37% 60.07%
Full-time equivalent employees 318 305
CAPITAL
Period-ending equity to assets 7.75% 8.30%
Tier 1 leverage capital ratio 9.50% 10.10%
Tier 1 risk-based capital ratio 9.71% 10.26%
Total risk-based capital ratio 10.96% 11.37%
Book value per share $ 19.66 20.59
Cash dividend per share $ 0.23 0.27
ASSET QUALITY
Gross loan charge-offs $ 9,568 2,492
Net loan charge-offs $ 9,232 1,981
Net loan charge-offs to average loans 1.03% 0.23%
Allowance for loan and lease losses $ 31,881 22,800
Allowance for losses to total loans 1.73% 1.28%
Nonperforming loans $ 43,297 20,595
Other real estate and repossessed assets $ 3,322 3,369
Nonperforming assets to total assets 2.16% 1.14%
END OF PERIOD BALANCES
Loans and leases $ 1,840,793 1,776,026
Total earning assets (before allowance) $ 2,048,703 1,980,722
Total assets $ 2,163,354 2,103,520
Deposits $ 1,544,704 1,639,010
Shareholders' equity $ 167,713 174,531
AVERAGE BALANCES
Loans and leases $ 1,803,312 1,748,320
Total earning assets (before allowance) $ 2,022,352 1,959,414
Total assets $ 2,120,600 2,067,013
Deposits $ 1,555,199 1,645,252
Shareholders' equity $ 174,767 174,236