Business & Finance
Business and Finance
Business and Finance 
Tue, May 11, 2010
Mercantile Bancorp Announces First Quarter 2010 Financial Results
QUINCY, IL--(Marketwire - May 11, 2010) - Mercantile Bancorp, Inc. (
-- 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. (
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