LOS ANGELES, Feb. 15, 2006 (PRIMEZONE) -- National Mercantile Bancorp (Nasdaq:MBLA), the holding company for Mercantile National Bank and South Bay Bank, N.A., today reported record profits in 2005 with earnings up 107%, in the fourth quarter and 114% for the year. Solid loan growth and strong operating performance fueled the earnings growth during the year.
For the year ended December 31, 2005, National Mercantile posted record net income of $4.7 million, or $0.99 per diluted share, compared to $2.2 million, or $0.48 per diluted share in 2004. Fourth quarter earnings more than doubled to $1.4 million, or $0.29 per diluted share, compared to $678,000, or $0.15 per diluted share, in the fourth quarter of 2004. All financial results are audited.
"Economic activity in Southern California during 2005 was strong particularly in aerospace, tourism, construction and entertainment. According to the Los Angeles County Economic Development Corporation 2005-2006 Forecast, the value of the major construction projects in the county reached $25 billion, including major projects at the Ports of Los Angeles and Long Beach, replacement of the UCLA and USC medical facilities, large hotel and convention center projects and a light rail project. Tourism benefited from the King Tut Exhibit and Disneyland's 50th anniversary celebration, while local motion picture and television production had a strong year in 2005, " said Scott A. Montgomery, President and CEO.
"The strong economic activity translated into an increased appetite for commercial business loans from our clients. With four record quarters and ten consecutive profitable quarters behind us, we believe we have established a solid platform to continue building profitability and generate increasing returns for shareholders," Montgomery noted.
Financial Highlights
(at or for the year ended Dec. 31, 2005, compared to Dec. 31, 2004)
-- Revenue grew 24% to $22.3 million from $18.0 million.
-- Net interest income before provision for loan losses grew 28%
to $21.1 million.
-- Net interest margin expanded 84 basis points (bp) to 5.67%.
-- Loans grew 8% to $334 million including growth in commercial
business and real estate constructions loans.
-- The efficiency ratio improved to 64.48% from 77.86%.
-- Deposits grew 16% to $363 million.
-- Non-interest bearing demand deposits account for 32% of total
deposits.
-- Net recoveries from prior loan charge offs totaled $1.2
million.
Results of Operations
Revenue (net interest income before provision for credit losses plus non-interest income) rose 19% in 4Q05 to $6.0 million and rose 5% compared to the immediate prior quarter. Revenue in 2005 was up 24% to $22.3 million compared to $18.0 million in 2004. Fourth quarter net interest income before provision for credit losses grew 23% to $5.7 million with interest income up 38% and interest expense up 123%. In 2005, net interest income grew 28% to $21.1 million with interest income rising 35% and interest expense up 71%.
National Mercantile's net interest margin was 5.57% for the fourth quarter of 2005 and 5.67% for the year, compared to 5.26% and 4.83% in the respective periods of 2004. "The rising interest rate environment has boosted yields on our interest earning assets and generated solid margin expansion this year, although fourth quarter margin was down from 5.77% generated in the third quarter of 2005. We continue to employ hedging strategies to protect the margin should short-term interest rates decline," said David R. Brown, Chief Financial Officer. "Interest rate swaps and floors along with incremental securities in the portfolio provide some protection against a decline in rates. The addition of the securities contributed to profitability in this year, but also reduced net interest margin slightly."
The reverse provision for credit losses during the year added $84,000 to net interest income after provision, following the third quarter recovery of $1.1 million from a loan charged-off in 2003. "Our loan portfolio continues to perform very well with a substantial reduction in nonperforming assets during the year. Last week, we completed the sale of the only property in our Real Estate Owned classification, for $1.1 million at a slight gain to its carrying value," said Robert Bartlett, EVP and Chief Credit Officer. The allowance for credit losses improved to 1.32% of gross loans at the end 2005 from 1.12% at December 31, 2004.
Fourth quarter non-interest income totaled $267,000 compared to $504,000 in the fourth quarter a year ago, reflecting lower fees from deposit-related products and other client services. In 2005, non-interest income totaled $1.2 million compared to $1.8 million a year ago, reflecting a change in the deposit fee structure. "The new bundled service products introduced over the past year are generating growth in deposits, while lowering our cost of funds, as well as producing a reduction in fee income," said Montgomery.
Operating expenses were up less than 3% for the year and declined 6% in the fourth quarter, reflecting continuing efforts company wide to reduce costs and improve operating efficiency. Non-interest expense totaled $14. 4 million in 2005 compared to $14.0 million in 2004. In the fourth quarter non-interest expense was $3.6 million compared to$3.7 million in the immediate prior quarter and $3.8 million in the fourth quarter a year ago. Lower occupancy and data processing costs helped offset growth in salaries and professional service costs.
Cost control efforts and strong revenue growth generated solid operating efficiencies during the quarter and year. The efficiency ratio in 4Q05 improved to 59.29%, the first sub 60% ratio for the company, compared to 65.05% in 3Q05 and 74.78% in 4Q04. The annual efficiency ratio improved to 64.48% in 2005 from 77.86% in 2004. 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
Net loans grew 8% to $334.1 million at December 31, 2005, compared to $309.9 million at December 31, 2004.
Loan Portfolio Composition
31-Dec-05 30-Sep-05 31-Dec-04
--------------- -------------- --------------
% of % of % of
Amount Total Amount Total Amount Total
-------- ----- ------ ----- ------ -----
Commercial loans -
secured and
unsecured $ 89,474 26% $ 88,281 27% $ 98,429 31%
Real estate loans:
Secured by
commercial real
properties 121,641 36% 128,555 39% 135,944 43%
Secured by multi-
family residential
properties 18,663 6% 18,891 6% 18,330 6%
Secured by 1-4
family residential
properties 10,498 3% 11,697 4% 9,405 3%
-------- ----- ------ ----- ------ -----
Total real estate
loans 150,802 45% 159,143 48% 163,679 52%
Construction and
land development
loans 92,077 27% 79,097 24% 50,289 16%
Consumer: installment,
home equity
and unsecured 7,239 2% 4,786 1% 2,516 1%
-------- ----- ------ ----- ------ -----
Total loans
outstanding $339,592 100% $331,307 100% $314,913 100%
Total assets grew 15% to $448.8 million at December 31, 2005, compared to $391.1 million a year earlier. Total deposits increased 16% to $363.2 million at December 31, 2005, compared to $313.5 million a year earlier. Time certificates of deposit ($100,000 and over) account for $46 million in deposit growth, of which $30.0 million were brokered deposits added as part of the securities interest rate hedge discussed earlier. Deposits, excluding time certificates, accounted for 71% of total deposits at December 31, 2005. Demand deposits and low cost NOW accounts represent 42% of the deposit base at December 31, 2005.
Shareholders' equity increased 12% to $38.5 million, or a book value of $8.46 per share at December 31, 2005, compared to $34.5 million, or $7.68 per share at December 31, 2004. Tangible book value per share increased 13% to $7.55 per share at December 31, 2005, from $6.70 per share at December 31, 2004. All per share calculations reflect the conversion of the Series A preferred shares to common shares in June of this year and also assumes full conversion of non-cumulative preferred stock and dilutive stock options. On June 23, 2005, the Series A Preferred holders approved the conversion and the 643,893 outstanding shares of the Series A Preferred were converted into 1,287,786 shares of common stock.
Looking Ahead
"The hard work and dedication of our team over the past few years produced excellent results during 2005 and set the stage for further growth in 2006. We have added experienced lenders in a number of our niche markets, and expect them to contribute to our portfolio expansion. We have increased our strategic planning efforts to include exploring additional ways to introduce new products and services to our markets while enhancing product delivery to our clients. In addition, the improvement in credit quality and the positive economic environment in Southern California add to our optimism for the coming year," 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 is on business banking with 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, 2004.
Quarterly Income Statement
(Unaudited)
(In thousands, except share data)
--------------------------------------------
Dec. 31, Sept. 30, Dec. 31, Annual %
2005 2005 2004 Change
--------- --------- --------- ------
Interest income $ 7,585 $ 6,754 $ 5,510 37.7%
Interest expense 1,846 1,298 828 122.9%
--------- --------- ---------
Net interest income
before provision
for credit losses 5,739 5,456 4,682 22.6%
Provision for credit
losses 40 (213) 100 -60.0%
--------- --------- ---------
Net interest income
after provision for
credit losses 5,699 5,669 4,582 24.4%
Other operating income:
Net gain on sale of
securities -- -- (121) -100.0%
Deposit-related and
other customer
services 242 252 476 -49.2%
Other operating income 25 26 28 -10.7%
Other operating expenses 3,561 3,730 3,788 -6.0%
--------- --------- ---------
Income before provision
for income taxes 2,405 2,217 1,177 104.3%
Provision for income
taxes 999 920 499 100.2%
--------- --------- ---------
Net income 1,406 $ 1,297 $ 678 107.4%
--------- --------- ---------
Earnings per share:
Basic 0.32 $ 0.29 $ 0.23 39.1%
Diluted 0.29 $ 0.28 $ 0.15 93.3%
Weighted average shares
outstanding:
Basic 4,367,622 4,327,175 2,945,088
Diluted 4,769,760 4,740,663 4,634,365
RATIOS
Return on quarterly
average assets 1.27% 1.27% 0.68%
Return on quarterly
average equity 14.66% 13.77% 7.76%
Net interest margin -
average earning assets 5.57% 5.77% 5.26%
Operating expense ratio 3.22% 3.65% 3.81%
Efficiency ratio (1) 59.29% 65.05% 74.78%
(1) Other operating expense divided by net interest income and
other operating income.
Credit Quality and Other Data
(Unaudited)
(In thousands, except ratios and shares)
December 31, September 30, December 31,
2005 2005 2004
-------- -------- --------
Average quarterly assets $438,715 $405,572 $394,388
Nonperforming assets
Nonaccrual loans 319 313 18
Loans 90 days past due and
still accruing -- -- 1,804
Other real estate owned 1,056 1,056 1,056
-------- -------- --------
Total nonperforming assets 1,375 1,369 2,878
Loan to deposit ratio 93.50% 93.44% 100.10%
Allowance for credit losses
to total loans 1.32% 1.37% 1.12%
Allowance for credit losses
to nonperforming assets 324.95% 330.61% 121.99%
Annual Income Statement
(Unaudited)
(In thousands, except share data)
For the Years Ended
------------------------------
Dec. 31, Annual %
2005 2004 Change
------------------------------
Interest income $ 26,265 $ 19,454 35.0%
Interest expense 5,136 3,004 71.0%
-------- --------
Net interest income
before provision for
credit losses 21,129 16,450 28.4%
Provision for credit losses (84) 220 n/a
-------- --------
Net interest income after
provision for credit losses 21,213 16,230 30.7%
Other operating income:
Net gain on sale of securities -- (197) -100.0%
Deposit-related and other
customer services 1,060 1,652 -35.8%
Other operating income 106 112 -5.4%
Other operating expenses 14,376 14,028 2.5%
-------- --------
Income before provision for
income taxes 8,003 3,769 112.3%
Provision for income taxes 3,322 1,583 109.9%
-------- --------
Net income 4,681 2,186 114.1%
-------- --------
Earnings per share:
Basic 1.26 0.75 68.0%
Diluted 0.99 0.48 106.3%
Weighted average shares
outstanding:
Basic 3,704,149 2,895,309
Diluted 4,718,205 4,555,622
Total shares outstanding(a) 4,403,024 4,286,674
RATIOS
Return on average assets 1.16% 0.57%
Return on average equity 12.78% 6.61%
Net interest margin - average
earning assets 5.67% 4.83%
Operating expense ratio 3.55% 3.68%
Efficiency ratio(1) 64.48% 77.86%
(1) Other operating expense divided by net interest income and
other operating income.
(a) For 2004, includes conversion of convertible Series A
preferred stock into common stock
Balance Sheet
(Unaudited)
(In thousands, except share data)
Dec. 31, Sept. 30, Dec. 31, Annual
2005 2005 2004 % Change
-------- -------- -------- --------
ASSETS
Cash and due from
banks-demand $ 13,507 $ 15,113 $ 14,187 -5%
Due from banks-interest
bearing 2,000 2,000 2,728 -27%
Federal funds sold and
securities purchased under
agreements to resell 685 3,110 --
Investment securities 74,370 59,177 40,461 84%
Loans
Commercial 89,474 88,281 98,429 -9%
Real estate 150,802 159,143 163,679 -8%
Construction and
land development 92,077 79,097 50,289 83%
Consumer and other loans 7,239 4,786 2,516 188%
-------- -------- --------
Total loans outstanding 339,592 331,307 314,913 8%
Deferred net loan fees (1,034) (1,128) (1,066) -3%
-------- -------- --------
Loans receivable, net 338,558 330,179 313,847 8%
Allowance for loan and
lease losses (4,468) (4,526) (3,511) 27%
-------- -------- --------
Net loans receivable 334,090 325,653 310,336 8%
Goodwill and intangible
assets 4,632 4,688 4,855 -5%
Accrued interest receivable
and other assets 19,512 18,742 18,972 3%
-------- -------- --------
Total assets $448,796 $428,483 $391,539 15%
======== ======== ========
LIABILITIES & CAPITAL
Deposits:
Noninterest-bearing
demand $115,924 $124,053 $113,852 2%
Interest-bearing
demand deposits 36,018 31,583 34,961 3%
Money market accounts 76,334 75,377 69,431 10%
Savings 28,208 30,180 32,199 -12%
Time certificates of
deposit:
$100,000 or more 87,468 72,845 41,111 -12%
Under $100,000 19,256 20,518 21,988 -12%
-------- -------- --------
Total deposits 363,208 354,556 313,542 16%
Other borrowings 28,337 19,000 25,900 9%
Junior subordinated
deferrable interest
debentures 15,464 15,464 15,464 0%
Accrued interest and
other liabilities 3,288 2,376 2,151 53%
-------- -------- --------
Total liabilities 410,297 391,396 357,057 15%
Total shareholders' equity 38,499 37,087 34,482 12%
-------- -------- --------
Total liabilities &
shareholders' equity $448,796 $428,483 $391,539 15%
======== ======== ========
Book value per
common share $ 8.46 $ 8.35 $ 7.68 10%
Tangible book value per
common share (1) $ 7.55 $ 7.42 $ 6.70 13%
(1) Total common equity, less goodwill and other intangible
assets; divided by fully-diluted shares outstanding.