LOS ANGELES, Oct. 28, 2005 (PRIMEZONE) -- National Mercantile Bancorp (Nasdaq:MBLA), the holding company for Mercantile National Bank and South Bay Bank, N.A., today reported its third consecutive record quarter with earnings up 49% year-over-year and 25% above the immediate prior quarter. Solid growth in revenues, continuing cost control, expanding margin and a recovery fueled the earnings increase during the third quarter.
For the quarter ended September 30, 2005, National Mercantile posted net income of $1.3 million, or $0.28 per diluted share, compared to $872,000, or $0.19 per diluted share in the third quarter of 2004. Year-to-date earnings more than doubled to $3.3 million, or $0.70 per diluted share, compared to $1.5 million, or $0.33 per diluted share, in the first nine months of last year. All financial results are unaudited.
"The Southern California economy continues to generate strong population growth and expanding employment, increasing demand for business services and housing. Los Angeles County, which covers 4,752 square miles, has a population of over 10 million as of July of 2004 and is the largest manufacturing center in the U.S. with 484,200 workers employed in these activities. The County's population would rank it as the eighth largest state in the nation, just behind Ohio and ahead of Michigan," said Scott A. Montgomery, President and CEO.
"The Los Angeles Economic Development Corporation reported that Los Angeles County, in addition to the manufacturing jobs, has over 260,000 jobs related to tourism, 249,000 jobs from motion picture and TV production, 202,700 in technology and over 261,000 jobs in international trade creating a strong economic engine. The Los Angeles Customs District reported, based on two-way trade in 2004, that the district was the largest in the nation with economic activity of $264 billion. Within this extensive market, our banks focus on serving businesses and high value communities through specialty expertise in a number of niche markets," Montgomery continued.
"Our lending portfolio posted solid growth during the third quarter including our construction loans, many of which were delayed during the first quarter due to the record rain fall. Also, we are beginning to build momentum in several niche areas following the addition of several senior managers earlier in the year," Montgomery noted.
Financial Highlights (at or for quarter and nine months ended Sept. 30, 2005, compared to Sept. 30, 2004)
-- Revenue grew 14% to $5.7 million in 3Q05 and rose 26% to $16.3
million year-to-date.
-- Net interest income before provision for loan losses grew 16% in
3Q05 and 31% year-to-date.
-- A $1.1 million recovery from a prior loan charge off generated a
pre-tax reversal of $213,000 and after taxes of $125,000, adding
$0.03 to EPS in the third quarter.
-- Net interest margin expanded 51 basis points (bp) to 5.77% in 3Q05
and 102 bp to 5.70% year-to-date.
-- Loans grew 9% to $326 million with construction loans continuing
to rebound.
-- The efficiency ratio improved from 67.40% to 65.05% in 3Q05.
-- Deposits grew 10% to $355 million.
-- Non-interest bearing demand deposits account for 35% of total
deposits.
-- Asset quality was solid with nonperforming assets at 0.32% of
total assets.
Results of Operations
Revenue (net interest income before provision for credit losses plus non-interest income) rose 14% in 3Q05 to $5.7 million compared to $5.0 million in 3Q04. Year-to-date revenue was up 25% to $16.3 million compared to $13.0 million in the first nine months 2004. Third quarter net interest income before provision for credit losses grew 16% to $5.5 million with interest income up 23%. In the first nine months of 2005, net interest income grew 31% to $15.4 million with interest income rising 34%.
National Mercantile's net interest margin expanded to 5.77% for the third quarter of 2005 and 5.70% year-to-date, compared to 5.26% and 4.68% in the respective periods of 2004. "With an asset sensitive balance sheet, we continue to benefit from rising short-term interest rates and are generating solid margin expansion this year. We also have added several hedging strategies to protect the margin should short-term interest rates decline," said David R. Brown, Chief Financial Officer. "In addition to utilizing interest rate swaps and floors, we added securities to the portfolio to protect against a decline in rates. The addition of the securities contributed to profitability in the quarter, but also reduced net interest margin slightly."
The reverse provision for credit losses during the third quarter of 2005 added $213,000 to net interest income after provision, following the recovery of $1.1 million from a loan charged-off in 2003. "Our loan portfolio continues to perform very well with few delinquent loans," said Robert Bartlett, EVP and Chief Credit Officer. The allowance for credit losses improved to 1.52% of gross loans at the end of the third quarter, from 1.35% at the immediate prior quarter end, and from 1.27% at September 30, 2004.
Third quarter non-interest income totaled $278,000 compared to $317,000 in the third quarter a year ago, reflecting lower fees from deposit-related products and other client services. Year-to-date, non-interest income totaled $899,000 compared to $1.2 million a year ago, reflecting a change in the deposit fee structure. We anticipate that over the longer term the changes made to bundle several services, will better serve our customers and result in increased deposits and enhance our funding base.
Overhead expense growth year to date was significantly lower at 6% than revenue growth at 26% contributing to strong efficiency improvement in the quarter and year-to-date. Non-interest income declined 12% in the third quarter of 2005 and 24% year-to-date. Non-interest expense in the third quarter of 2005 was $3.7 million compared to $3.4 million in the third quarter a year ago. Non-interest expense was $10.8 million year-to-date, compared to $10.2 million in the first nine months of 2004. Lower occupancy and data processing costs helped offset growth in salaries and professional service costs.
Operating efficiencies continued to improve during the quarter and year-to-date, reflecting top-line growth and cost control efforts. The efficiency ratio in 3Q05 improved to 65.05% compared to 67.40% in 3Q04. Year-to-date, the efficiency ratio improved to 66.39% from 79.06% in the like period 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
The loan portfolio grew 9% to $330.2 million at September 30, 2005, compared to $303.8 million at September 30, 2004, and up 7% from the beginning of the quarter. "We seeing very strong demand in the construction sector, with builders reacting to the pent-up demand, caused by the extraordinarily wet spring this year," said Montgomery. "In addition, population growth continues to outstrip housing starts, creating strong demand for apartments and entry-level homes. Population growth is also generating demand for business services, which in turn is producing solid growth in office and retail properties."
Loan Portfolio Composition
30-Sep-05 30-Jun-05 30-Sep-04
% of % of % of
Amount total Amount total Amount total
-------------- -------------- --------------
Commercial loans --
secured and
unsecured $ 88,281 27% $ 94,117 30% $ 88,802 29%
Real estate loans: 0% 0%
Secured by
commercial real
properties 128,555 39% 126,081 41% 142,218 47%
Secured by
multifamily
residential
properties 18,891 6% 17,532 6% 12,771 4%
Secured by 1-4
family
residential
properties 11,697 4% 9,953 3% 11,134 4%
-------- -------- --------
Total real estate
loans 159,143 48% 153,566 50% 166,123 55%
Construction and
land development
loans 79,097 24% 56,843 18% 47,784 16%
Consumer:
installment, home
equity and
unsecured 4,786 1% 4,203 1% 2,033 1%
Total loans -------------- -------------- --------------
outstanding $331,307 100% $308,729 100% $304,742 100%
Total assets grew 6% to $428.5 million at September 30, 2005, compared to $405.8 million a year earlier. Total deposits increased 10% to $354.6 million at September 30, 2005, compared to $322.5 million a year earlier. Time certificates of deposits ($100,000 and over) account for $32 million in deposit growth, of which $20 million were brokered deposits added as part of the securities interest rate hedge discussed above. Core deposits, excluding time certificates, accounted for 74% of total deposits at September 30, 2005. Demand deposits and low cost NOW accounts represent more that 55% of the deposit base at September 30, 2005.
Shareholders' equity increased 9% to $37.1 million, or a book value of $8.29 per share at September 30, 2005, compared to $33.9 million, or $7.60 per share at September 30, 2004. Tangible book value per share increased 12% to $7.37 per share at September 30, 2005, from $6.60 per share at September 30, 2004. All per share calculations reflect the conversion of the Series A preferred shares in June of this year and also assumes full conversion of non-cumulative preferred stock and dilutive stock options.
At this year's annual meeting, shareholders approved an amendment to terms of the Company's Series A Preferred stock to provide for the automatic conversion of all shares of Series A Preferred into common shares upon the approval of a majority of holders of the Series A Preferred. Under the terms of the Series A Preferred Stock agreement entered into in 1997 each preferred share was convertible into two shares of common stock. On June 23, 2005, the Series A Preferred holders approved the conversion and the 643,893 outstanding shares of the Series A Preferred which were converted into 1,287,786 shares of common stock.
Looking Ahead
"We have established a strong platform for profitability with our third record quarter in a row and are beginning to generate momentum in our earnings performance. With the expansion of our lending team, strong loan quality, solid margins and continued demand for business loans, our outlook for the remainder of this year and into 2006 is bright," 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
For the Three Months Ended
(Unaudited) -------------------------------------------------
(In thousands, September 30, June 30, September 30, Annual %
except share data) 2005 2005 2004 Change
-------------------------------------------------
Interest income $ 6,754 $ 6,089 $ 5,487 23.1%
Interest expense 1,298 1,016 792 63.9%
----------- ----------- -----------
Net interest
income before
provision for
credit losses 5,456 5,073 4,695 16.2%
Provision for
credit losses (213) -- 120 n/a
----------- ----------- -----------
Net interest
income after
provision for
credit losses 5,669 5,073 4,575 23.9%
Other operating
income:
Net loss on sale
of securities -- -- (95) -100.0%
Deposit-related
and other
customer services 252 269 374 -32.6%
Other operating
income 26 30 38 -31.6%
Other operating
expenses 3,730 3,599 3,378 10.4%
----------- ----------- -----------
Income before
provision for
income taxes 2,217 1,773 1,514 46.4%
Provision for
income taxes 920 736 642 43.3%
----------- ----------- -----------
Net income $ 1,297 $ 1,037 $ 872 48.7%
=========== =========== ===========
Earnings per share:
Basic $ 0.29 $ 0.33 $ 0.30 -3.3%
Diluted $ 0.28 $ 0.22 $ 0.19 47.4%
Weighted average
shares outstanding:
Basic 4,327,175 3,126,701 2,918,583
Diluted 4,740,663 4,703,484 4,565,380
Ratios
Return on quarterly
average assets 1.27% 1.09% 0.88%
Return on quarterly
average equity 13.77% 11.64% 10.47%
Net interest margin
-- average earning
assets 5.77% 5.81% 5.26%
Operating expense
ratio 3.65% 3.77% 3.39%
Efficiency ratio (a) 65.05% 66.99% 67.40%
(a) Other operating expense divided by net interest income and other
operating income
Credit Quality
Average quarterly
assets $ 405,572 $ 383,244 $ 395,115
Nonperforming
assets
Nonaccrual loans 313 300 238
Loans 90 days past
due and still
accruing -- -- 5
Other real estate
owned 1,056 1,056 1,043
----------- ----------- -----------
Total nonperforming
assets $ 1,369 $ 1,356 $ 1,286
Loan to deposit
ratio 93.44% 87.79% 94.48%
Allowance for
credit losses to
total loans (b) 1.52% 1.35% 1.27%
Allowance for
credit losses to
nonperforming
assets (b) 366.25% 305.75% 299.38%
(b) Allowance for credit losses is the sum of the allowance for
loan and lease losses and the reserve for contingent losses on
unfunded commitments
Year-to-Date Income Statement
For the Nine Months Ended
(Unaudited) -------------------------------------
(In thousands, except September 30, September 30, Annual %
share data) 2005 2004 Change
-------------------------------------
Interest income $ 18,680 $ 13,944 34.0%
Interest expense 3,290 2,176 51.2%
----------- -----------
Net interest income
before provision for
credit losses 15,390 11,768 30.8%
Provision for credit losses (124) 120 -203.3%
----------- -----------
Net interest income
after provision for
credit losses 15,514 11,648 33.2%
Other operating income:
Net loss on sale of
securities -- (76) -100.0%
Deposit-related and
other customer services 818 1,176 -30.4%
Other operating income 81 84 -3.6%
Other operating expenses 10,815 10,240 5.6%
----------- -----------
Income before provision
for income taxes 5,598 2,592 116.0%
Provision for income
taxes 2,323 1,084 114.3%
----------- -----------
Net income $ 3,275 $ 1,508 117.2%
=========== ===========
Earnings per share:
Basic $ 0.94 $ 0.52 80.8%
Diluted $ 0.70 $ 0.33 112.1%
Weighted average shares
outstanding:
Basic 3,480,560 2,878,595
Diluted 4,699,097 4,593,926
Total shares
outstanding (c) 4,337,874 2,924,078
RATIOS
Return on average assets 1.11% 0.53%
Return on average equity 12.11% 6.18%
Net interest margin --
average earning assets 5.70% 4.68%
Operating expense ratio 3.67% 3.72%
Efficiency ratio (a) 66.39% 79.06%
(a) Other operating expense divided by net interest income and other
operating income.
(c) includes assumed conversion of currently convertible Series A
preferred stock into common stock
Balance Sheet
(Unaudited)
(In thousands, September 30, June 30, September 30, Annual
except share data) 2005 2005 2004 % Change
------------------------------------------------
ASSETS
Cash and due from
banks-demand $ 15,113 $ 19,294 $ 25,855 -41.5%
Due from banks-
interest bearing 2,000 2,000 2,728 -26.7%
Federal funds
sold and
securities
purchased
under agreements
to resell 3,110 9,000 4,000 -22.3%
Investment
securities 59,177 46,335 44,797 32.1%
Loans
Commercial 88,281 94,117 88,802 -0.6%
Real estate 159,143 153,566 166,123 -4.2%
Construction and
land development 79,097 56,843 47,784 65.5%
Consumer and other
loans 4,786 4,203 2,033 135.4%
--------- --------- ---------
Total loans
outstanding 331,307 308,729 304,742 8.7%
Deferred net loan
fees (1,128) (1,201) (930) 21.3%
--------- --------- ---------
Loans receivable,
net 330,179 307,528 303,812 8.7%
Allowance for
loan and lease
losses (4,526) (3,669) (3,483) 29.9%
--------- --------- ---------
Net loans
receivable 325,653 303,859 300,329 8.4%
Goodwill and
intangible assets 4,688 4,744 4,911 -4.5%
Accrued interest
receivable and
other assets 18,742 18,929 23,205 -19.2%
--------- --------- ---------
Total assets $ 428,483 $ 404,161 $ 405,825 5.6%
========= ========= =========
LIABILITIES AND
CAPITAL
Deposits:
Noninterest-
bearing demand $ 124,053 $ 145,997 $ 121,503 2.1%
Interest-bearing
demand deposits 31,583 31,284 30,832 2.4%
Money market
accounts 75,377 65,894 72,702 3.7%
Savings 30,180 30,555 34,744 -13.1%
Time
certificates of
deposit:
$100,000 or more 72,845 56,079 40,833 78.4%
Under $100,000 20,518 20,501 21,935 -6.5%
--------- --------- ---------
Total deposits 354,556 350,310 322,549 9.9%
Other borrowings 19,000 0 31,900 -40.4%
Junior
subordinated
deferrable
interest
debentures 15,464 15,464 15,464 0.0%
Accrued interest
and other
liabilities 2,376 1,955 1,974 20.4%
--------- --------- ---------
Total
liabilities 391,396 367,729 371,887 5.2%
Total
shareholders'
equity 37,087 36,432 33,938 9.3%
--------- --------- ---------
Total
liabilities and
shareholders'
equity $ 428,483 $ 404,161 $ 405,825 5.6%
========= ========= =========
Book value per
common share $ 8.29 $ 8.09 $ 7.60 9.1%
Tangible book
value per common
share (d) $ 7.37 $ 7.14 $ 6.60 11.7%
(d) Total common equity, less goodwill and other intangible assets;
divided by fully-diluted shares outstanding.