Mercantile Bancorp Announces First
Quarter 2008 Results
- Loss Due to Increased Loan Loss Provision
- Assets Increase 19%; Deposits Up 18%
- Noninterest Income Rises Significantly
- Carmel, Indiana Loan Production Office Opens
- $1.1 Million Gain Anticipated from Investment Sale in 2Q
QUINCY, Ill., May 5 /PRNewswire-FirstCall/ -- Mercantile Bancorp, Inc.
(
AMEX:MBR
) today reported an unaudited net loss of $1.7 million or 19 cents per
share for the quarter ended March 31, 2008 compared with net income of
$1.8 million or 21 cents per share (adjusted for a 3-for-2 split in
December 2007) for the same period in the prior year. First quarter 2008
earnings were negatively impacted by an increase in the company's loan
loss provision to $4.8 million from $755 thousand in the first quarter of
2007. Increasing the loan loss provision was done to provide for
determined weakness in specific real estate loans on its books in various
parts of the country, and the company deemed prudent to address
aggressively. Additionally, a one-time $300,000 charge was taken in first
quarter 2008 due to the company's banks calling in certain Certificates of
Deposit as allowed contractually, which it anticipates will result in
long-term savings in its cost of funds.
Net interest income for the first quarter, led by
increased real estate lending but offset by a greater cost of funds, was
$10.2 million compared with $10.4 million in the same quarter a year ago.
Noninterest income increased to $3.8 million in the first quarter of 2008
from $2.4 million in the same period last year. It was driven primarily by
increases in fees from trust and brokerage services as well as a $300,000
gain on the sale of a vacant lot acquired in the September 2007 purchase
of HNB Financial Services, Inc.
"Most facets of our business performed well and met
expectations. While overall earnings were negatively impacted by soft
economic conditions and our underperforming Royal Palm subsidiary, we have
implemented dynamic new leadership in Florida and are keenly focused on
improving its performance in a timely manner. We have also implemented
important initiatives to position Mercantile for growth and increase
efficiency. These include moving our Quincy bank into a new facility,
merging two Farmers State Bank of Northern Missouri locations into
Mercantile Bank, investing in new technology, and opening a loan
production office in Carmel, Indiana. We invested in new lenders and sales
associates at several of our affiliates to provide the high quality
service our customers expect, and to drive growth. As difficult as the
current environment is, we are in an excellent position to capitalize on
opportunities now and in the future", said Ted T. Awerkamp, President
and CEO of Mercantile Bancorp.
Total loans rose to $1.2 billion at March 31, 2008
compared with $1 billion a year ago. This reflects the addition of $119
million of loans from HNB and also organic growth. The chief executive
said the company has closely monitored loan quality and worked with
customers to avert potential payment problems and bring loan payments more
than 90 days outstanding into line whenever possible. Lending secured by
farmland continues to be a highlight for Mercantile, as an escalating
agricultural market has driven farmland prices and demand upward, he
noted. Home mortgage lending has slowed, but there are no material
financial issues related to home loans, stated Awerkamp. "The company
has never participated in a sub-prime lending program," he added.
Deposits rose to $1.4 billion from $1.1 billion, primarily
reflecting the addition of $130 million from HNB with the remainder due to
organic growth at the company's other affiliates.
The performance of the company's asset management business
continued to exceed expectations, said Awerkamp. Noninterest income from
trust services was up 20% to $690,000 for the first quarter of 2008 from
$573,000 in the same quarter last year, while income from brokerage fees
rose 35% to $416,000 from $308,000 for the same periods. "We added
established commissioned sales personnel to our equity brokerage business,
and they are having an immediate positive impact on new business and
service fees," explained Awerkamp.
"Interest and noninterest income increased, while
deposits, loans and assets were up, reflecting organic growth and the
acquisition of HNB in 2007. Our capital position is excellent and overall
asset quality is strong. Soft economic conditions, net interest margin
compression, and expenses related to revamping operations, personnel
additions in expanding markets, and the growth initiatives put in place
all impacted results," he added.
Salaries and employee benefits, primarily reflecting the
addition of HNB personnel but also selective new hires in service and
income-generating positions, increased to $6.9 million in the first
quarter of 2008 compared with $5.6 million at the same time a year ago.
The company also experienced increases in occupancy, equipment and other
operating expense, reflecting the acquisition of HNB as well as
investments in technology and the new full-service Mercantile Bank
location, which also houses the holding company's executive offices.
Mercantile recorded a $300,000 charge to interest expense
related to calls on brokered certificates of deposit. The company had the
option to call these CDs if interest rates declined, which it did.
However, accounting rules required Mercantile to immediately expense the
brokerage fees related to these certificates. Re-deploying the proceeds
from these called certificates into other funding sources at lower rates
will result in a long-term reduction in cost of funds that will more than
offset the expense recognized in the quarter.
Awerkamp said the overall quality of Mercantile's loan
portfolio has remained high, despite nonperforming loan totals at a level
greater than the company's historical average. A significant portion of
the increased provision for loan losses, as well as total nonperforming
loans, reflects several commercial real estate loans to developers in the
Midwest and Florida who experienced cash flow problems due to a slowing
economy and oversupply of commercial properties. The company has been
working with these borrowers in re-valuing properties and adjusting prices
to reflect market conditions. Although they are secured by real estate,
the company anticipates a portion of these loans will eventually be
charged off, but believes they have adequately reserved for this
eventuality. No part of the loan loss provision involves sub-prime
lending, and the company has few credit issues in its mortgage or consumer
lending businesses, added Awerkamp. Net charge-offs in the first quarter
of 2008 amounted to $436,000, compared with $196,000 a year ago and $1.9
million in fourth quarter 2007.
Outlook
Mercantile said it expects a pre-tax gain in the second
quarter 2008 of approximately $1.1 million at closing of Fifth Third
Bancorp's acquisition of Charlotte-based First Charter Corporation (FCTR),
of which Mercantile Bancorp owns 164,012 shares. Scheduled to close by
June 30, Fifth Third will pay $31 a share for First Charter, a premium of
more than 50 percent based on First Charter's stock price of $20.25 before
the deal was disclosed.
"In addition, concerning operations, we anticipate
seeing the benefits of our focus on efficiency, new personnel, the
addition of HNB, a new loan production office in the Indianapolis market,
the consolidation of Farmers into Mercantile Bank, and changes in our
Florida affiliate. These moves should have a positive impact in the coming
quarters," said Awerkamp. "Tempering the positives, of course,
is the state of the economy and uncertainty about the full impact of real
estate-related issues. However, we believe we are doing a very good job
identifying potential problem loans and reserving for them.
"This is a difficult period, but we continue to be
disciplined in our loan review processes, balancing prudence and care with
a willingness to continue to make loans to qualifying individuals and
businesses," said Awerkamp. "We are seeking high quality lending
opportunities, and are aggressively marketing our brand to win new
customers. Until the economic picture clears, we are focused more on
organic growth rather than acquisitions or equity investments, and on
maximizing the value of our existing network of banks."
FINANCIAL TABLES FOLLOW
MERCANTILE BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
2008 2007
(In Thousands)
(Unaudited)
ASSETS
Cash and cash equivalents $80,212 $76,059
Securities 222,313 216,257
Loans held for sale 4,155 3,338
Loans, net of allowance for loan losses 1,192,321 1,188,757
Premises and equipment 41,724 42,003
Interest receivable 10,884 11,343
Cash surrender value of life insurance 24,516 24,248
Goodwill 43,934 43,934
Other 35,060 33,206
Total assets $1,655,119 $1,639,145
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,352,168 $1,319,459
Short-term borrowings 27,769 45,589
Long-term debt 146,358 143,358
Interest payable 5,957 6,040
Other 6,022 6,971
Total liabilities 1,538,274 1,521,417
Minority Interest 9,179 9,446
Total stockholders' equity 107,666 108,282
Total liabilities and stockholders' equity $1,655,119 $1,639,145
MERCANTILE BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31 March 31
2008 2007
(In Thousands)
(Unaudited)
Interest Income:
Loans and fees on loans $21,710 $19,793
Securities:
Taxable 1,969 1,888
Tax exempt 540 431
Other 345 796
Total interest income 24,564 22,908
Interest Expense:
Deposits 11,813 10,579
Short-term borrowings 348 368
Long-term debt 2,204 1,560
Total interest expense 14,365 12,507
Net Interest Income 10,199 10,401
Provision for Loan Losses 4,769 755
Net Interest Income After Provision
for Loan Losses 5,430 9,646
Noninterest Income:
Fiduciary activities 690 573
Brokerage fees 416 308
Customer service fees 1,100 871
Other service charges and fees 200 182
Net gains (losses) on sales of fixed assets 391 (2)
Net gains on loan sales 363 108
Other 593 320
Total noninterest income 3,753 2,360
Noninterest Expense:
Salaries and employee benefits 6,901 5,628
Net occupancy expense 885 635
Equipment expense 774 612
Professional fees 575 495
Postage and supplies 301 263
Net losses on foreclosed assets 504 15
Other 2,151 1,563
Total noninterest expense 12,091 9,211
Minority Interest (287) 175
Income Before Income Taxes (2,621) 2,620
Income Taxes (944) 776
Net Income (Loss) $(1,677) $1,844
MERCANTILE BANCORP, INC.
SELECTED FINANCIAL HIGHLIGHTS
Three Months Ended
March 31 March 31
2008 2007
(In Thousands Except Share Data)
(Unaudited)
EARNINGS AND PER SHARE DATA (1)
Basic Earnings Per Share $(.19) $.21
Weighted average shares outstanding 8,709,655 8,747,618
Cash dividends paid per share $.06 $.06
Book value per share $12.36 $11.61
Tangible book value per share (2) $6.81 $7.70
Ending number of common shares outstanding 8,709,655 8,747,618
AVERAGE BALANCES
Assets $ 1,642,703 $ 1,401,926
Securities $207,106 $190,544
Loans (3) $ 1,209,462 $ 1,029,444
Earning assets $ 1,461,841 $ 1,279,958
Deposits $ 1,323,634 $ 1,143,134
Interest bearing liabilities $ 1,386,461 $ 1,173,433
Stockholders' equity $109,252 $101,439
END OF PERIOD FINANCIAL DATA
Net interest income $10,199 $10,401
Loans (3) $1,213,603 $1,032,298
Allowance for loan losses $17,127 $11,172
PERFORMANCE RATIOS
Return on average assets (.41%) .53%
Return on average equity (6.16%) 7.37%
Net interest margin 2.79% 3.25%
Interest spread 2.58% 2.90%
Efficiency ratio 86% 72%
Allowance for loan losses to loans (3) 1.41% 1.08%
Allowance as a percentage of
non-performing loans 72% 146%
Average loan to deposit ratio 91% 90%
Dividend payout ratio N/A 28.57%
ASSET QUALITY
Net charge-offs $436 $196
Non-performing loans $23,860 $7,642
Other non-performing assets $5,123 $227
(1) Reflects 3-for-2 stock-split in December 2007
(2) Net of goodwill and core deposit intangibles
(3) Loans include loans held for sale and nonaccrual loans
Source: Mercantile Bancorp, Inc.
|
