LOS ANGELES, Feb. 10, 2005 (PRIMEZONE) -- National Mercantile Bancorp (Nasdaq:MBLA), the holding company for Mercantile National Bank and South Bay Bank, N.A., today reported strong growth in loans and deposits and an expanding margin contributed to solid profitability in 2004. Net income totaled $2.2 million, or $0.48 per diluted share, in 2004 compared to $207,000, or $0.05 per diluted share, in 2003. Fourth quarter profits more than doubled to $678,000, or $0.15 per diluted share, compared to $337,000, or $0.07 per diluted share, in the fourth quarter of 2003. The financial results are unaudited for the fourth quarter and year ended December 31, 2004.
"Over the past three years, we have invested time and resources into building a solid platform for producing sustainable, profitable growth. These efforts are now beginning to be reflected in our 2004 financial performance, with significant improvement in profitability, efficiency and loan growth," said Scott A. Montgomery, President and CEO. "We believe the past two quarters indicate the potential for earnings power in our operations, and that we are well-positioned to benefit from further improvements in the Southern California economy and any additional rise in interest rates."
FINANCIAL HIGHLIGHTS
(at or periods ended December 31, 2004, compared to December 31, 2003)
-- Revenues grew 18% to $18.0 million in 2004 and rose 41% to $5.1
million in 4Q04.
-- Net interest income after provision for loan losses grew 28% in
2004 and 38% in 4Q04.
-- Net interest margin expanded 54 basis points to 4.83% in 2004.
-- Loans grew 21% to $314 million fueled by strong growth in almost
every loan category.
-- Efficiencies improved as a result of a comprehensive ongoing
study of all operations.
-- Deposits grew 5% to $314 million.
-- The company finished the year in a net recovery position, after
having significant loan charge-offs in previous years that were
primarily the result of the acquisition of South Bay Bank.
"With more than 70% of our loan portfolio in adjustable rate loans, few of which are at or below minimums, and more than 36% of our deposits in non-interest-bearing demand accounts, our balance sheet is currently configured to benefit from rising short-term interest rates," said Montgomery. "The strong improvement in the net interest margin, which rose 54 basis points during 2004, reflects the benefit of the change in short-term rates this year. In addition, the interest rate swap activities we initiated in the second half of the year, contributed 17 basis points to our interest rate margin."
REVIEW OF OPERATIONS
Revenue (net interest income plus non-interest income) grew 18% in 2004 to $18.0 million compared to $15.3 million in 2003. Fourth quarter revenue was up 41% to $5.1 million compared to $3.6 million in the fourth quarter a year ago. Net interest income before provision for loan losses grew 18% to $16.5 million in 2004 with a 14% increase in interest income and a 6% decline in interest expense. In the fourth quarter, net interest income grew 41% to $4.7 million with interest income rising 35% and interest expense growing 12% compared to the fourth quarter 2003. Net interest margin on a tax equivalent basis was 4.83% for the entire year and 5.26% for the fourth quarter of 2004, compared to 4.29% and 4.07% in the respective periods of 2003.The provision for loan losses declined reflecting the overall improvement in the performance of the loan portfolio. The provision totaled $220,000 in 2004 compared to $1.3 million in 2003. Net interest income after provision for loan losses increased to $16.2 million in 2004 and $4.6 million in 4Q04 compared to $12.7 million and $3.3 million in the respective periods of 2003. Non-interest income totaled $1.6 million in 2004 compared to $1.4 million in 2003. Fourth quarter non-interest income increased to $383,000 from $260,000, largely due to the increase in fees from deposit-related and other client services.
"Overhead expenses grew more slowly than revenue in 2004, reflecting lower occupancy costs from the consolidation and relocation of our main offices. In addition, our employees identified over $500,000 in cost reductions during the second half of the year as a result of our new Savings Incentive Program, which pays 10% of savings to staffers who identify the expense reduction," said David R. Brown, Chief Financial Officer. "These savings were offset by costs associated with regulatory compliance, higher salaries and benefits, and a non-recurring fourth quarter charge for a proposed legal settlement of $250,000 related to a single commercial loan." Non-interest expense in 2004 was $14.0 million up 6% from $13.3 million in 2003. During the fourth quarter of 2004, non-interest expense was $3.8 million, up 19% from $3.2 million in the fourth quarter of 2003.
"Operating efficiencies improved this year, reflecting top-line growth and cost control efforts," said Montgomery. The efficiency ratio in 2004 improved 816 basis points to 77.86% compared to 86.02% in 2003. In the fourth quarter of 2004, the efficiency ratio continued to improve to 74.78% from 88.67% in the fourth quarter of 2003. "While we still see room for productivity improvement, we are confident our efficiency ratio will continue to drop as we achieve growth targets." he continued. The efficiency ratio, calculated by dividing non-interest expense by net interest income and non-interest income, measures overhead costs as a percentage of total revenues.
BALANCE SHEET PERFORMANCE
The loan portfolio grew 21% to $313.8 million at December 31, 2004, compared to $260.2 million at December 31, 2003. "The Southern California economy continues to improve, particularly in the high-value markets we serve. Loan growth was healthy during 2004, and we are seeing broad-based demand for commercial loans from the businesses we serve," said Robert W. Bartlett, Chief Credit Officer. Total assets grew 10% to $391.1 million at December 31, 2004, compared to $355.2 million a year earlier.
LOAN PORTFOLIO COMPOSITION:
(Dollars in thousands)
December 31,
--------------------------------------
2004 2003
------------------ -----------------
Amount % Amount %
-------- ------ -------- ------
Real estate secured loans:
One to four family
residential $ 9,405 3% $ 8,167 3%
Multifamily residential 18,330 6% 13,071 5%
Commercial 135,944 43% 132,320 51%
Construction and land
development 50,289 16% 27,210 10%
Commercial loans:
Other - secured and
unsecured 98,429 31% 76,699 29%
Consumer installment,
home equity and
unsecured loans 2,516 1% 3,510 1%
-------- ------ -------- ------
Total loans outstanding $314,913 100% $260,977 100%
======== ====== ======== ======
Total deposits increased 5% to $313.5 million at December 31, 2004, compared to $298.7 million a year earlier. Demand deposits, NOW, money market and savings deposits in total increased 3% to $250.4 million, accounting for 80% of total deposits, compared to $243.7 million, or 82% of total deposits, at the end of 2003. Although time deposits increased, the interest rate expense on interest-bearing liabilities increased only 5 basis points in the fourth quarter and decreased 20 basis points during the year.
Shareholders' equity increased 9% to $34.5 million, or $7.68 per share, at December 31, 2004, compared to $31.7 million, or $7.17 per share, at December 31, 2003. Tangible book value per share at year-end was $6.70 compared to $6.13 a year earlier. All per share calculations assume full conversion of non-cumulative preferred stock and dilutive stock options.
"Asset quality has been one of the primary focuses of our efforts over the past few years, and we've made excellent progress in improving loan quality, reducing net charge-offs and tightening underwriting processes," said Montgomery.
At year-end, non-performing loans (NPLs) totaled $1.8 million, or 0.58% of gross loans. Non-performing assets (NPA) (NPL plus OREO) include a single piece of real property with a book value of $1.1 million and two commercial loans. At year-end a $1.8 million loan was included in the 90-day past due and still accruing category. "This particular loan is well secured and in the process of collection, with our loan-to-value ratio less than 50% and another major lender holding a strong second position. We are confident the situation will be resolved in due time, and poses little risk going forward." Bartlett explained. Asset quality at the end of 2004 as measured by NPA totaled $2.9 million, or 0.74% of total assets, which continues to be in line with peers based on third quarter FDIC reports for all commercial banks of similar size.
Another measure of asset quality is net-charge-offs (NCOs), which declined substantially in 2003 and contributed net recoveries in 2004. In 2004, net recoveries totaled $73,000 compared to NCOs of $2.5 million, or 0.95% of gross loans, a year ago. The allowance for loan loss increased 8% to $3.9 million, or 1.25% of gross loans, at year-end as compared to $3.6 million, or 1.40% of gross loans, at December 31, 2003.
LOOKING AHEAD
"We are encouraged by our progress in 2004 and continue to see excellent opportunities for growth in our markets. With improving loan quality, expanding margin, good control of operating expenses and strong demand for business loans, our profit outlook is encouraging. We are committed to building a strong and profitable franchise and look forward to a fast-paced year in 2005," Montgomery said.
ABOUT NATIONAL MERCANTILE BANCORP
National Mercantile Bancorp is the holding company for Mercantile National Bank and South Bay Bank, with offices located in Century City, Encino, Torrance, El Segundo, Costa Mesa and Beverly Hills, all among California's highest value markets. The banks focus in business banking with specialty lending expertise in the entertainment, healthcare, professional services, real estate escrow, business and residential construction, property management industries and community-based non-profit organizations. The company is building a premier business banking franchise with experienced loan officers providing highly personalized service.
This press release contains forward-looking statements about the Company. Forward-looking statements consist of descriptions of plans or objectives for future operations, products or services, forecasts of revenues, earnings or other measures of economic performance and assumptions underlying or relating to any of the foregoing. Because forward-looking statements discuss future events or conditions and not historical facts, they often include words such as "believe," "potential," "confident," "encourage or encouraging," "will be," "anticipate," "estimate" or similar expressions. Do not rely unduly on forward-looking statements. They give the Company's expectations about the future and are not guarantees or predictions of future events, conditions or results. Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update them to reflect changes that occur after that date. Many factors, most beyond the company's control, could cause actual results to differ significantly from the Company's expectations. These factors include, among other things, changes in interest rates, which affect margins, impact funding sources or alter loan demand; increased competitive pressures; changes in national and local economic conditions; fluctuations in the California real estate markets; changes in fiscal policy, monetary policy, legislative or regulatory environments; changes in the credit quality of the Company's loan portfolio, the Company's abilities to realize further efficiencies and achieve growth targets, and finalization of year-end audit results. These and other factors are discussed in greater detail in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003.
SELECTED STATEMENT OF OPERATIONS DATA AND RATIOS:
(Unaudited)
($ in 000s, except share data)
Quarter Ended
Dec. 31, Sept. 30 Dec. 31, Annual %
2004 2004 2003 Change
---------- ---------- ---------- ------
Interest Income $ 5,510 $ 5,487 $ 4,070 35.4%
Interest Expense 828 792 739 12.0%
---------- ---------- ----------
Net Interest Income
before Provision for
Loan Losses 4,682 4,695 3,331 40.6%
Provision for
Loan Losses 100 120 -- NM
---------- ---------- ----------
Net Interest Income
after Provision for
Loan Losses 4,582 4,575 3,331 37.6%
Net Gain (Loss) on
Sale of Securities
Available-for-Sale (121) (95) (49) 146.9%
Loss on Write-down
of OREO -- -- (75) NM
Other Operating
Income 504 412 384 31.3%
Other Operating
Expense 3,788 3,378 3,184 19.0%
---------- ---------- ----------
Net Income before
Provision for
Income Taxes 1,177 1,514 407 189.3%
Provision for
Income Taxes 499 642 70 612.9%
---------- ---------- ----------
Net Income $ 678 $ 872 $ 337 101.3%
========== ========== ==========
Basic Earnings
Per Share $ 0.23 $ 0.30 $ 0.12 91.7%
Diluted Earnings
Per Share $ 0.15 $ 0.19 $ 0.07 114.3%
Weighted Average
Basic Common
Shares O/S (b) 2,945,088 2,918,583 2,741,074
Weighted Average
Diluted Common
Shares O/S 4,634,365 4,565,380 4,520,510
Return on Quarterly
Average Assets 0.68% 0.88% 0.36%
Return on Quarterly
Average Equity 7.76% 10.47% 4.15%
Net Interest Margin
- Avg Earning Assets 5.26% 5.26% 4.07%
Operating Expense
Ratio 3.81% 3.39% 3.41%
Efficiency Ratio 74.78% 67.40% 88.67%
Quarterly operating ratios are annualized.
SELECTED STATEMENT OF OPERATIONS DATA AND RATIOS:
(Unaudited)
($ in 000s, except share data)
Year Ended December 31, Annual %
2004 2003 Change
---------- ---------- ------
Interest Income $ 19,454 $ 17,124 13.6%
Interest Expense 3,004 3,180 -5.5%
---------- ----------
Net Interest Income before
Provision for Loan Losses 16,450 13,944 18.0%
Provision for Loan Losses 220 1,265 -82.6%
---------- ----------
Net Interest Income after
Provision for Loan Losses 16,230 12,679 28.0%
Net Gain (Loss) on Sale of
Securities Available-for-Sale (197) 51 NM
Loss on OREO/Fixed Assets -- (136) -100.0%
Other Operating Income 1,764 1,461 20.7%
Other Operating Expense 14,028 13,296 5.5%
---------- ----------
Net Income Before
Minority Interest and
Provision for Income Taxes 3,769 759 396.6%
Minority Interest in the
Company's Income of Junior
Subordinated Deferrable
Interest Debentures -- 456 -100.0%
Net Income Before
Provision for Income Taxes 3,769 303 1144.0%
Provision for Income Taxes 1,583 96 1549.0%
---------- ----------
Net Income 2,186 207 956.2%
========== ==========
Basic Earnings Per Share $ 0.75 $ 0.08 837.5%
Diluted Earnings Per Share (a) $ 0.48 $ 0.05 860.0%
Weighted Average Basic
Common Shares O/S (b) 2,895,309 2,707,931
Weighted Average Diluted
Common Shares O/S 4,555,622 4,410,394
Return on Average Assets 0.57% 0.06%
Return on Average Equity 6.61% 0.66%
Net Interest Margin
- Avg Earning Assets 4.83% 4.20%
Operating Expense Ratio 3.68% 4.09%
Efficiency Ratio 77.86% 86.02%
(a) The diluted loss per share includes only common shares as
common share equivalents are anti-dilutive.
(b) Shares used to compute Basic Earnings per share.
SELECTED FINANCIALCONDITION DATA
(Unaudited)
($ in 000s, except share data)
December 31, September 30, December 31,
2004 2004 2003
--------- --------- ---------
Cash and Due from Banks $ 14,187 $ 25,855 $ 24,556
Due from banks-interest
bearing 2,728 2,728 4,728
Federal Funds Sold and
Securities Purchased
under Agreements to Resell -- 4,000 10,000
Investment Securities 40,461 44,797 35,474
Loans
Commercial 98,429 88,802 76,699
Real Estate 163,679 166,123 153,558
Real Estate Construction
and Land 50,289 47,784 27,210
Consumer and Others 2,516 2,033 3,510
Deferred Loan Fees, Net (1,066) (930) (728)
--------- --------- ---------
Total 313,847 303,812 260,249
Allowance for Credit Losses (3,928) (3,850) (3,635)
--------- --------- ---------
Net Loans 309,919 299,962 256,614
Intangible Assets and Goodwill 4,855 4,911 5,079
Other Assets 18,972 23,205 18,755
--------- --------- ---------
Total Other Assets 23,827 28,116 23,834
--------- --------- ---------
Total Assets $ 391,122 $ 405,458 $ 355,206
========= ========= =========
Deposits
Demand, Non-interest Bearing $ 113,852 $ 121,503 $ 119,998
NOW 34,961 30,832 29,349
MMDA 69,431 72,702 55,422
Savings 32,199 34,744 38,925
Time Certificates
$100,000 and over 41,111 40,833 27,308
Time Certificates
under $100,000 21,988 21,935 27,715
--------- --------- ---------
Total Deposits 313,542 322,549 298,717
Securities Sold under
Agreements to Repurchase and
Other Borrowed Funds 25,900 31,900 7,899
Guaranteed Preferred Beneficial
Interests in Company's Junior
Subordinated Debt 15,464 15,464 15,464
Other Liabilities 1,734 1,607 1,405
Shareholders' Equity 34,207 33,322 31,650
Accumulated Other Comprehensive
Gain 275 616 71
--------- --------- ---------
Total Liabilities and
Stockholders' Equity $ 391,122 $ 405,458 $ 355,206
========= ========= =========
SELECTED FINANCIAL CONDITION RATIOS:
December 31, September 30, December 31,
2004 2004 2003
---------- ---------- ----------
Average Quarterly Assets $ 394,388 $ 395,115 $ 370,093
Non-Performing Assets
Non-Accrual Loans $ 18 $ 238 $ 438
Loans 90 Days P/D & Accruing 1,804 5 --
OREO and Other Non-perfoming
Assets 1,056 1,043 925
Total Non-Performing Assets $ 2,878 $ 1,286 $ 1,363
Loans to Deposits Ratio 100.10% 94.19% 87.12%
Ratio of Allowance for Loan
Losses to:
Total Loans 1.25% 1.27% 1.40%
Total Non-Performing Assets 136.48% 299.38% 266.69%
Earning Assets to Total Assets 91.29% 87.64% 87.40%
Earning Assets to Interest-
Bearing Liabilities 148.11% 143.04% 166.36%
Risk Weighted Assets $ 278,085
Book Value per Share (a)(b) $ 7.68 $ 7.60 $ 7.17
Total Shares Outstanding (b) 4,286,674 4,256,624 4,231,449
(a) Includes the effect of dilutive options and warrants.
(b) Includes assumed conversion of currently convertible Series A
preferred stock into common stock