Mercantile Bancorp, Inc. (NYSE Amex: MBR)
-- Net Income of $984,000
-- Net Interest Margins Rise Year-Over-Year
-- Loan, Asset Quality Stable
-- Strong Expense Controls Continue at Banks
Mercantile Bancorp, Inc. (NYSE Amex: MBR) today reported
unaudited net income from both continuing and discontinued
operations of $984,000 or $0.11 per share for the quarter ended
March 31, 2010 compared with a net loss of $876,000 or $(0.10) per
share for the same period in 2009. The Company's 2009 financial
statements have been restated to reflect discontinued operations
due to the sale or exchange for debt of three of its subsidiary
banks in December 2009 and February 2010.
Net income in first quarter 2010 included a $4.2 million pre-tax
gain on the sale of two banks, which was announced in 2009 and
closed in February 2010. The results reflect continuing solid
operating performance for the Company's largest subsidiary,
Mercantile Bank, and its continuing efforts to reserve aggressively
for potential loan losses at Heartland Bank in Leawood, Kansas and
Royal Palm Bank, based in Naples, Florida.
The Company reported net interest income from continuing
operations of $6.1 million in first quarter 2010, an increase of
27.2% compared with $4.8 million the previous year's first quarter.
This was the second consecutive quarter-over-quarter growth in net
interest income, reflecting both improved cost of funds management
at its banks and reduced debt at the Company.
"We are encouraged that our strong focus on generating core
checking, savings and money market deposits and strategic
re-pricing of higher-cost time deposits had an impressive positive
impact on net interest income, with net interest margin improving
to 2.46% for the first quarter of 2010 compared with 1.81% a year
ago," said Ted T. Awerkamp, President and CEO.
Provision for loan loss expense increased to $4.0 million in
first quarter 2010 compared with $2.8 million in the same period in
2009. "We maintained our aggressive approach in building loan loss
reserves in the first quarter of 2010, and we have achieved
transparency in the loan portfolios of all three subsidiary banks
as they have worked through asset quality issues over the past two
years," said Awerkamp. "We continue to receive reductions in
valuations of properties that collateralize loans due to the
depressed real estate markets, especially in Florida. However, our
troubled loans have been identified and we are benefitting from
sales on foreclosed properties held for sale at reasonable levels
to our marking, so we are beginning to see traction."
Non-performing loans of $46.1 million at March 31, 2010 were
essentially stable compared with first quarter 2009, decreasing
from $50.8 million at December 31, 2009.
Awerkamp continued, "The exchange of one bank in late 2009 and
sale of two banks in early 2010 served to bolster the Company's
capital position, reduce debt and maintain or exceed capitalization
requirements at each of the remaining subsidiary banks. Core
deposits at our banks have been stable, and in some markets
growing, providing access to attractively priced funding for loans.
Combined with ongoing expense management, we are well-positioned to
maintain lending opportunities to good customers, and react to
attractive opportunities."
The Company reduced noninterest expense from continuing
operations to $8.26 million in first quarter 2010 compared with
$8.54 million the prior year's first quarter. Total noninterest
income from continuing operations was $1.8 million in first quarter
2010, compared with $2.0 million in first quarter 2009. The decline
primarily reflected fewer gains on loan sales year-over-year, due
to the slow-down in residential mortgage refinancing. Awerkamp
noted the Company leveraged slightly improving economic and
investing conditions to increase revenue from both fiduciary
activities and brokerage services.
"Our fiduciary and brokerage services are being well-received as
investors seek expert advice and investment management
capabilities," said Awerkamp. "As markets continue to be
unpredictable and with an uncertain long-term economic outlook, we
believe investors and advisors are seeking the additional stability
of sound professional advice provided through our unique trust
offerings and bankers they know and respect."
Total assets at March 31, 2010 decreased to $1.0 billion
compared with $1.4 billion at December 31, 2009, primarily
reflecting the sale of two subsidiary banks in February 2010. Total
loans from continuing operations at March 31, 2010 declined to
$756.3 million from $776.7 million at December 31, 2009 as the
Company continued to eliminate troubled loans and specific lending
relationships that were not able to meet stronger credit standards.
Total deposits from continuing operations at March 31, 2010 dropped
to $885.2 million compared with $954.5 million at year-end 2009,
primarily due to the decreased funding required for the loan
portfolio and a reduction in higher-cost brokered time
deposits.
"We have purposely let certain loans and deposits go at all
three banks as part of our strategy to concentrate on optimizing
returns," explained Awerkamp. "We are creating a sound foundation
of the highest quality from which to grow during the coming
months."
Subsidiary Bank Operating Highlights
Mercantile Bank continues to generate solid performance despite
relatively flat loan demand, noted Awerkamp. The Bank's served
markets, including Quincy, Illinois, St. Joseph, Missouri and
Carmel, Indiana did not suffer dramatic economic declines that were
seen in other areas of the country, but he said they have not shown
any meaningful signs of growth. Mercantile Bank was able to improve
net interest income nearly $900,000 year-over-year, in large part
due to margin improvement that led to a $1.4 million reduction in
interest expense in first quarter 2010 compared to the same period
in 2009.
Mercantile Bank continues concentrating on small to mid-size
business and agriculture lending in concert with a range of
relationship opportunities that generate service revenue and core
deposits. "A combination of exceptional customer service and a full
range of business banking capabilities enables us to win new
business and market share," explained Awerkamp.
"Heartland Bank's performance in the first quarter of 2010
showed improvement," said Awerkamp, reflecting a stabilizing loan
portfolio, a reduction in non-accrual loans and continuing
operational controls. "Recently identified opportunities to trim
overhead costs have put Heartland on an accelerated timetable to
reach monthly operational profitability," he added.
Royal Palm Bank has made significant progress in working through
its asset quality issues over the past two years, and while loan
losses continued in first quarter 2010, Awerkamp noted there were
no unexpected difficulties. The Southwest Florida economy remains
severely depressed, with weakness in commercial real estate and
declining property values. There have been numerous bank failures
in the market, while Royal Palm has maintained a well-capitalized
status according to regulatory standards. Core deposits at the Bank
have remained stable as its management team focuses on building
relationships with small businesses.
"Although we don't welcome the fact that Southwest Florida banks
are failing at unprecedented levels, we do believe this presents a
long-term market share opportunity for the surviving banks," said
Awerkamp. "Our new management team has improved control and
transparency related to problem loans and the Bank's basic
operations. The improvements made have been overshadowed by a
relatively small number of large troubled loans. We have reserved
aggressively for these and have maintained a healthy capital
position. The ability to work through these loans in unison with
capturing quality business opportunities is the key to creating a
positive long-term scenario for Royal Palm."
Outlook
In the coming months, Mercantile Bancorp will maintain its focus
on retaining customers, identifying and winning high-quality
service and lending relationships, and operational expense
controls.
"In first quarter 2010, we were particularly pleased with our
success in building net interest margin, and we believe the
positive impact of forthcoming expense reductions will generate
further benefits as the economy improves and we are able to win new
loans and deposits," said Awerkamp. "Over the past several years,
we have built a strong back office with the latest technology,
which will provide a significant competitive advantage as Royal
Palm and Heartland complete their migration to our systems. As a $1
billion asset holding company, we provide our subsidiary banks with
significant advantages over smaller institutions in a highly
competitive banking environment."
About Mercantile Bancorp
Mercantile Bancorp, Inc. is a Quincy, Illinois-based bank
holding company with majority-owned subsidiaries consisting of one
bank in Illinois and one each in Kansas and Florida, where the
Company conducts full-service commercial and consumer banking
business, engages in mortgage banking, trust services and asset
management, and provides other financial services and products. The
Company also operates Mercantile Bank branch offices in Missouri
and Indiana. In addition, the Company has minority investments in
seven community banks in Missouri, Georgia, Florida, Colorado,
California and Tennessee. Further information is available on the
company's website at www.mercbanx.com.
Forward-Looking Statements
This press release may contain "forward-looking statements"
which reflect the Company's current views with respect to future
events and financial performance. The Private Securities Litigation
Reform Act of 1995 ("the Act") provides a safe harbor for
forward-looking statements that are identified as such and are
accompanied by the identification of important factors that could
cause actual results to differ materially from the forward-looking
statements. For these statements, the Company, together with its
subsidiaries, claims the protection afforded by the safe harbor in
the Act. Forward-looking statements are not based on historical
information, but rather are related to future operations,
strategies, financial results or other developments.
Forward-looking statements are based on management's expectations
as well as certain assumptions and estimates made by, and
information available to, management at the time the statements are
made. Those statements are based on general assumptions and are
subject to various risks, uncertainties and other factors that may
cause actual results to differ materially from the views, beliefs
and projections expressed in such statements. These risks,
uncertainties and other factors that may cause actual results to
differ from expectations, are set forth in our Annual Report on
Form 10-K for the year ended December 31, 2009, as on file with the
Securities and Exchange Commission, and include, among other
factors, the following: general business and economic conditions on
both a regional and national level; fluctuations in real estate
values; the level and volatility of the capital markets, interest
rates, and other market indices; changes in consumer and investor
confidence in, and the related impact on, financial markets and
institutions; estimates of fair value of certain Company assets and
liabilities; federal and state legislative and regulatory actions;
various monetary and fiscal policies and governmental regulations;
changes in accounting standards, rules and interpretations and
their impact on the Company's financial statements. The words
"believe," "expect," "anticipate," "project," and similar
expressions often signify forward-looking statements. You should
not place undue reliance on any forward-looking statements. Any
forward-looking statements in this release speak only as of the
date of the release, and we do not assume any obligation to update
the forward-looking statements or to update the reasons why actual
results could differ from those contained in the forward-looking
statements.
Mercantile Bancorp, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2010 2009
------------- --------------
(In Thousands)
(Unaudited)
ASSETS
Cash and cash equivalents $ 88,205 $ 121,267
Securities 126,950 130,484
Loans held for sale 788 681
Loans, net of allowance for loan losses 736,559 757,138
Premises and equipment 25,221 25,670
Interest receivable 3,703 3,962
Cash surrender value of life insurance 15,149 15,011
Goodwill - -
Other 46,430 50,277
Discontinued operations, assets held for
sale - 285,992
------------- --------------
Total assets $ 1,043,005 $ 1,390,482
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 885,230 $ 954,524
Short-term borrowings 25,899 30,740
Long-term debt 76,858 87,030
Interest payable 4,542 4,114
Other 4,918 4,827
Discontinued operations, liabilities held
for sale - 264,044
------------- --------------
Total liabilities 997,447 1,345,279
------------- --------------
Total Mercantile Bancorp, Inc.
stockholders' equity 42,590 41,302
------------- --------------
Noncontrolling Interest 2,968 3,901
------------- --------------
Total equity 45,558 45,203
------------- --------------
Total liabilities and equity $ 1,043,005 $ 1,390,482
============= ==============
Mercantile Bancorp, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
------------------------
March 31, March 31,
2010 2009
----------- -----------
(In Thousands)
(Unaudited)
Interest Income:
Loans and fees on loans $ 10,238 $ 11,404
Securities:
Taxable 970 1,182
Tax exempt 210 244
Other 90 83
----------- -----------
Total interest income 11,508 12,913
----------- -----------
Interest Expense:
Deposits 4,171 6,331
Short-term borrowings 187 550
Long-term debt 1,013 1,206
----------- -----------
Total interest expense 5,371 8,087
----------- -----------
Net Interest Income 6,137 4,826
Provision for Loan Losses 3,990 2,785
----------- -----------
Net Interest Income After Provision
for Loan Losses 2,147 2,041
----------- -----------
Noninterest Income:
Fiduciary activities 581 568
Brokerage fees 299 193
Customer service fees 365 365
Other service charges and fees 139 107
Net gains (losses) on sales of assets 8 (10)
Net gains on loan sales 92 517
Net gains on sales of available-for-sale
securities - -
Other 293 243
----------- -----------
Total noninterest income 1,777 1,983
----------- -----------
Noninterest Expense:
Salaries and employee benefits 4,405 4,464
Net occupancy expense 598 600
Equipment expense 563 585
Deposit insurance premium 471 611
Professional fees 491 559
Postage and supplies 148 176
Losses on foreclosed assets 212 102
Other than temporary losses on
available-for-sale and cost method
investments - -
Goodwill Impairment Loss - -
Other 1,372 1,441
----------- -----------
Total noninterest expense 8,260 8,538
----------- -----------
Income (Loss) from Continuing Operations
Before Income Taxes (4,336) (4,514)
Income Tax Expense (Benefit) (1,190) (1,561)
----------- -----------
Income (Loss) from Continuing
Operations (3,146) (2,953)
Income (Loss) from Discontinued Operations 3,197 1,788
Less: Net Income (Loss) attributable to
Noncontrolling Interest (933) (289)
----------- -----------
Net Income (Loss) attributable to Mercantile
Bancorp, Inc. $ 984 $ (876)
=========== ===========
Mercantile Bancorp, Inc.
SELECTED FINANCIAL HIGHLIGHTS
Three Months Ended
------------------------
March 31, March 31,
2010 2009
----------- -----------
(Dollars In Thousands
except share data)
(Unaudited)
EARNINGS AND PER SHARE DATA
Basic Earnings Per Share $ 0.11 $ (0.10)
Weighted average shares outstanding 8,703,330 8,703,330
Cash dividends paid per share N/A N/A
Book value per share $ 4.89 $ 11.26
Tangible book value per share (1) (3) $ 4.78 $ 7.62
Ending number of common shares
outstanding 8,703,330 8,703,330
AVERAGE BALANCES
Assets $ 1,082,957 $ 1,810,526
Securities (3) $ 128,577 $ 129,628
Loans (2) (3) $ 772,837 $ 850,252
Earning assets (3) $ 996,280 $ 1,067,907
Deposits (3) $ 922,610 $ 968,326
Interest bearing liabilities (3) $ 927,654 $ 1,053,326
Stockholders' equity $ 43,280 $ 98,781
END OF PERIOD FINANCIAL DATA
Net interest income (3) $ 6,137 $ 4,826
Loans (2) (3) $ 756,264 $ 843,442
Allowance for loan losses (3) $ 18,917 $ 17,201
PERFORMANCE RATIOS
Return on average assets 0.37% (0.20%)
Return on average equity 9.22% (3.60%)
Net interest margin (3) 2.46% 1.81%
Interest spread (3) 2.30% 1.77%
Efficiency ratio (3) 104% 125%
Allowance for loan losses to loans (2)
(3) 2.50% 2.01%
Allowance as a percentage of
non-performing loans (3) 41% 37%
Average loan to deposit ratio (3) 84% 88%
Dividend payout ratio N/A N/A
ASSET QUALITY
Net charge-offs (3) $ 3,924 $ 4,623
Non-performing loans (3) $ 46,060 $ 46,569
Other non-performing assets (3) $ 18,181 $ 9,668
(1) Net of goodwill and core deposit intangibles
(2) Loans include loans held for sale and nonaccrual loans
(3) 2009 column restated for discontinued operations and
assets/liabilities transferred to Held-for-Sale
FOR FURTHER INFORMATION Ted T. Awerkamp President & CEO
(217) 223-7300 ted.awerkamp@mercbanx.com
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