LOS ANGELES, April 26, 2005 (PRIMEZONE) -- National Mercantile Bancorp (Nasdaq:MBLA), the holding company for Mercantile National Bank and South Bay Bank, N.A., today reported its most profitable quarter in sixteen years. First quarter earnings increased 223% compared to the first quarter a year ago quarter and were up 39% from the immediate prior quarter. Fueled by expanding net interest margin, improving efficiencies and strong growth in loans and deposits, first quarter net income was $941,000, or $0.20 per diluted share, compared to $291,000, or $0.06 per diluted share in the first quarter of 2004 and $678,000 or $0.15 per diluted share, in the fourth quarter of 2004. The financial results are unaudited for the first quarters ended March 31, 2005 and 2004.
"Our strategic plan is focused on producing quality assets, introducing new products and building an efficient infrastructure in the high-growth markets we serve," said Scott A. Montgomery, President and CEO. "The strong earnings generated in the first quarter of this year demonstrate the effectiveness of these efforts, coupled with benefits of a strong Southern California economy and rising interest rates. We continue to work to expand our client base, add new products and services and recruit talented bankers to expand in our target markets. Our goal is to become not just our clients' first choice for banking, but also for a broad range of financial services."
FINANCIAL HIGHLIGHTS
(at or periods ended March 31, 2005, compared to March 31, 2004)
-- Revenues grew 32% to $5.2 million.
-- Net interest income after provision for loan losses grew 38%.
-- Net interest margin expanded 110 basis points to 5.45% and
19 basis points from 4Q04.
-- Efficiency ratio improved to 67% from 87% a year earlier
and from 75% in 4Q04.
-- The loan portfolio grew 16% to $304 million.
Rising short-term interest rates contributed to earnings growth during the first quarter with the yield on interest earning assets up 133 basis points to 6.55% from 5.22% a year ago. "Our loan portfolio consists of more than 70% adjustable rate loans, few of which are at or below minimums, and respond quickly to changing interest rates. Deposit costs, however, are less sensitive to interest rate changes due to composition, account features and maturities. With deposits diversified at 37% in non-interest-bearing demand accounts, 42% in low-cost transaction accounts and 21% in CDs, rising rates have less immediate impact on cost of funds," said David Brown, Chief Financial Officer. "Consequently, we anticipate that further interest rate increases in the short term will contribute to further margin expansion."
REVIEW OF OPERATIONS
Revenue (net interest income plus non-interest income) grew 32% to $5.2 million in the first quarter of 2005 compared to $3.9 million in the first quarter of 2004. Net interest income before provision for loan losses grew 41% to $4.9 million from $3.5 million a year ago. Net interest margin was 5.45% compared to 4.35% in the first quarter a year ago and up from 5.26% during the fourth quarter of 2004. Net interest income, after provision for loan losses of $89,000 during the first quarter, increased 38% to $4.8 million as compared to $3.5 million a year ago. Non-interest income totaled $322,000 in the first quarter compared to $465,000 a year ago, due to a reduction in deposit-related fees.
Operating expenses rose only 1.8% in the first quarter of 2005 with lower compensation and occupancy costs almost offsetting higher legal, audit and professional services fees. Non-interest expense in the first quarter of 2005 was $3.5 million compared to $3.4 million in 1Q04. "The Company's operating efficiencies continued to improve during the quarter with top-line growth and cost control contributing to better performance," said Montgomery. The efficiency ratio during the first quarter improved dramatically from the year ago quarter to 67.26% as compared to 87.41%, and also improved from 74.78% during the fourth quarter of 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 PERFORMANCE
Total assets were $387 million at March 31, 2005, compared to the prior year, with net loans up 16% and total deposits up 3%. Total assets were $373 million at March 31, 2004, and $391 million at December 31, 2004. The Company reduced its borrowings at March 31, 2005 to $10 million as compared to $26 million at December 31, 2004, which reduced the level of assets.
The loan portfolio grew 16% to $310 million at March 31, 2005 from $266 million at March 31, 2004. The growth was fueled by strong loan demand in construction loans and commercial loans. During the first quarter, loans outstanding moderated to $310 million, principally the result of paydowns of real estate loans. Also during the first quarter non-real estate commercial loans and construction loan commitments increased from December 31, 2004. New construction projects, which are usually slow during the first quarter, were further delayed this year due to the unusually high level of rainfall in Southern California.
LOAN PORTFOLIO COMPOSITION:
(Dollars in thousands)
March 31,
----------------------------------
2005 2004
--------------- ---------------
Amount % Amount %
-------- ----- -------- -----
Real estate secured loans:
One to four family residential $ 9,527 3% $ 7,811 3%
Multifamily residential 17,594 6% 13,070 5%
Commercial 129,695 42% 137,601 52%
Construction and land development 50,019 16% 26,632 10%
Commercial loans:
Other - secured and unsecured 99,176 32% 78,020 29%
Consumer installment, home equity
and unsecured loans 3,545 1% 2,728 1%
-------- ----- -------- -----
Total loans outstanding $309,556 100% $265,860 100%
======== ===== ======== =====
Total deposits increased 3% to $325 million at March 31, 2005, compared to $317 million a year earlier. Demand deposits, NOW, money market and savings deposits, while down slightly, totaled $257 million, accounting for 79% of total deposits, compared to $270 million, or 85% of total deposits, at March 31, 2004. Although time deposits increased, the cost of interest-bearing liabilities increased only 30 basis points in the past 12 months.
Shareholders' equity increased 11% to $35 million, or $7.71 per share, at March 31, 2005, compared to $32 million, or $7.24 per share, at March 31, 2004. Tangible book value per share at quarter-end was $6.74 compared to $6.18 a year earlier. All per share calculations assume full conversion of non-cumulative preferred stock and dilutive stock options.
"Asset quality remains an important focus with an emphasis on maintaining credit standards in a highly competitive market", said Bob Bartlett, Chief Credit Officer. At the end of the first quarter, non-performing loans totaled $1.8 million, or 0.58% of gross loans, and non-performing assets totaled $2.9 million or 0.76% of total assets, relatively unchanged from year end levels. Delinquencies in the 30-89 day category were $96,000, or 0.03%. Asset quality ratios compare favorably to California peer group ratios. The nonperforming loans consisted of one loan at $1.8 million that is secured by a first trust deed on commercial property appraised at $2.7 million. The property has been sold and is in escrow scheduled to close prior to second quarter end. The other non-performing asset carried as Other Real Estate Owned (OREO) is secured by land with a book value of $1.1million. Net charge offs in the first quarter were negligible at $3,000. The allowance for loan losses increased to $4.0 million, or 1.30% of gross loans, at quarter end as compared to $3.6 million, or 1.37% of gross loans, at March 31, 2004.
LOOKING AHEAD
"We remain optimistic that the plans implemented in the past few years will continue to build earnings momentum in 2005. We anticipate adding talented people in each of our growth markets as opportunities are identified. Our selection process is directed by our assessment of short- and long-term return on investment when recruiting new business development staff. We are excited about the opportunities that lie ahead in 2005 and building shareholder value," Montgomery concluded.
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; and the Company's abilities to realize further efficiencies and achieve growth targets. 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.
Selected Statement of Operations Data and Ratios:
(Unaudited)
(In thousands, except share data)
For the Three Months Ended
--------------------------
March 31, December 31, March 31, Annual %
2005 2004 2004 Change
-------------------------------------------
Interest income $ 5,837 $ 5,510 $ 4,141 41%
Interest expense 976 828 690 41%
--------- --------- ---------
Net interest income
before provision for
credit losses 4,861 4,682 3,451 41%
Provision for credit
losses 89 100 -- n/a
--------- --------- ---------
Net interest income
after provision for
credit losses 4,772 4,582 3,451 38%
Other operating income:
Net gain (loss) on sale
of securities -- (121) 19 -100%
Deposit-related and other
customer services 297 476 420 -29%
Other operating income 25 28 26 -4%
Other operating expenses 3,486 3,788 3,423 2%
--------- --------- ---------
Income before provision
for income taxes 1,608 1,177 493 226%
Provision for income
taxes 667 499 202 230%
--------- --------- ---------
Net income $ 941 $ 678 $ 291 223%
--------- --------- ---------
Earnings per share:
Basic $ 0.32 $ 0.23 $ 0.10 220%
Diluted $ 0.20 $ 0.15 $ 0.06 233%
Weighted average shares
outstanding:
Basic 2,972,923 2,945,088 2,810,522
Diluted 4,651,028 4,634,365 4,470,376
RATIOS
Return on quarterly
average assets 0.96% 0.68% 0.32%
Return on quarterly
average equity 10.80% 7.76% 3.63%
Net interest margin
- average earning assets 5.45% 5.26% 4.35%
Operating expense ratio 3.56% 3.81% 3.81%
Efficiency ratio (a) 67.26% 74.78% 87.41%
(a) Other operating expense divided by net interest income and
other operating income.
Selected Financial Condition Data:
(Unaudited)
(In thousands, except share data)
March 31, Dec. 31, March 31, Annual %
2005 2004 2004 Change
---------------------------------------------------------------------
ASSETS
Cash and due from
banks-demand $ 16,562 $ 14,187 $ 25,373 -35%
Due from banks-interest
bearing 2,728 2,728 4,325 -37%
Federal funds sold and
securities purchased under
agreements to resell -- -- 18,000 -100%
Investment securities 39,125 40,461 40,556 -4%
Loans
Commercial 99,176 98,429 78,020 27%
Real estate 156,816 163,679 158,482 -1%
Construction and land
development 50,019 50,289 26,632 88%
Consumer and other loans 3,545 2,516 2,726 30%
-------- -------- --------
Total loans outstanding 309,556 314,913 265,860 16%
Deferred net loan fees (1,056) (1,066) (781) 35%
-------- -------- --------
Loans receivable, net 308,500 313,847 265,079 16%
Allowance for credit losses (4,014) (3,928) (3,633) 10%
-------- -------- --------
Net loans receivable 304,486 309,919 261,446 16%
Goodwill and intangible assets 4,799 4,855 5,023 -4%
Accrued interest receivable
and other assets 19,306 18,972 18,290 6%
-------- -------- --------
Total assets $387,006 $391,122 $373,013 4%
======== ======== ========
LIABILITIES & CAPITAL
Deposits:
Noninterest-bearing demand $121,793 $113,852 $127,411 -4%
Interest-bearing demand
deposits 30,050 34,961 31,582 -5%
Money market accounts 72,615 69,431 70,480 3%
Savings 32,762 32,199 40,121 -18%
Time certificates of deposit:
$100,000 or more 47,430 41,111 26,378 80%
Under $100,000 21,125 21,988 21,266 -1%
-------- -------- --------
Total deposits 325,775 313,542 317,238 3%
Other borrowings 9,900 25,900 7,500 32%
Junior subordinated deferrable
interest debentures 15,464 15,464 15,464 0%
Accrued interest and
other liabilities 1,066 1,734 770 38%
-------- -------- --------
Total liabilities 352,205 356,640 340,972 3%
Total shareholders' equity 34,801 34,482 32,041 9%
-------- -------- --------
Total liabilities &
shareholders' equity $387,006 $391,122 $373,013 4%
======== ======== ========
Book value per common share $ 7.71 $ 7.68 $ 7.21 7%
Tangible book value
per common share (a) $ 6.74 $ 6.70 $ 6.18 9%
(a) Total common equity, less goodwill and other intangible assets;
divided by fully-diluted shares outstanding.
Selected Financial Condition Ratios:
(Unaudited)
(In thousands, except ratios and quantity)
March 31, December 31, March 31,
2005 2004 2004
--------- --------- ---------
Average quarterly assets $ 397,055 $ 394,388 $ 360,153
Nonperforming assets
Nonaccrual loans -- 18 319
Loans 90 days past due
and still accruing 1,804 1,804 --
Other real estate owned 1,056 1,056 968
--------- --------- ---------
Total nonperforming assets 2,860 2,878 1,287
Loan to deposit ratio 94.70% 100.10% 83.56%
Allowance for credit losses
to total loans 1.30% 1.25% 1.37%
Allowance for credit losses
to nonperforming assets 140.35% 136.48% 282.28%
Risk weighted assets 348,327 367,383 296,524
Total shares outstanding (a) 4,316,024 4,286,674 4,233,099
(a) includes assumed conversion of currently convertible Series A
preferred stock into common stock