GRAND RAPIDS, Mich., Oct. 11, 2006 (PRIMEZONE) -- Mercantile Bank Corporation (Nasdaq:MBWM) reported net income for the third quarter of 2006 of $5.2 million, an increase of 21.0 percent from the $4.3 million reported for the third quarter of 2005. Diluted earnings per share were $0.64 compared with $0.53 reported for the year-ago quarter, an increase of 20.8 percent. Results reflect solid growth in earning assets and disciplined control of expenses, partially offset by the impact of rising funding costs and higher provision expense.
For the first nine months of 2006, Mercantile reported net income of $15.2 million, an increase of 14.2 percent from the $13.4 million reported in the prior-year period. Diluted earnings per share were $1.88, an increase of 14.6 percent from the first nine months of 2005.
Gerald R. Johnson, Jr., Chairman and CEO, commented, "Our Company continues to expand at a dynamic pace, despite the extremely competitive environment in which we operate. This quarter, we surpassed the $2.0 billion milestone in total assets. All of our growth since we opened for business late in 1997 has been organic. We reached the $1.0 billion asset mark in June 2003, and our annual compound asset growth rate since that time has been approximately 26 percent. More recently, our growth has moderated somewhat as our competition has demonstrated an increasing willingness to compromise on loan structure and pricing to retain market share, compromises which we have found unacceptable to the extent that we have declined a number of credit requests which we would have otherwise approved under normal circumstances."
Total revenue, comprised of net interest income and non-interest income, was $16.9 million for the third quarter of 2006, an increase of 9.8 percent over the $15.4 million reported for the third quarter of 2005. Net interest income increased 10.5 percent over the prior-year third quarter to $15.6 million, reflecting average earning asset growth of 14.2 percent, offset by a 12 basis point decline in net interest margin to 3.34 percent from year-ago levels. Year-to-date, net interest margin is 3.44 percent, a four basis point decline compared with 3.48 percent for the first nine months of 2005. Mr. Johnson continued, "Although the majority of our loans are tied to prime, this rate was unchanged during the third quarter, while our deposits continued to price upward." Non-interest income for the third quarter of 2006 was $1.4 million, a 2.4 percent increase over the third quarter of 2005.
Overhead expenses remain well-controlled, with operating expenses (annualized) declining quarterly as a percent of average assets throughout 2006, from 1.73 percent in the first quarter to 1.61 percent for the most recent quarter. Mercantile's expansion activities were completed by year-end 2005, and for the past three quarters, non-interest expense has remained extremely stable at $8.0 million per quarter, while total assets increased since year-end at an annualized rate of 13.7 percent. The efficiency ratio was 47.5 percent for the third quarter of 2006 compared with 54.0 percent for the year-ago quarter, and 52.2 percent for fourth quarter 2005. For the first nine months of 2006, the ratio was 48.0 percent compared with 50.6 percent for the prior-year period.
Asset quality has been relatively stable throughout 2006, although quality remains below the exceptional levels reported in prior years. Net loan charge-offs for the third quarter of 2006 were $920,000, equivalent to 0.22 percent of average loans on an annualized basis; this compares with $988,000, or 0.24 percent of average loans in the second quarter of 2006, and $756,000, or 0.19 percent, for the first quarter of this year. Non-performing assets were $9.4 million, or 0.47 percent of total assets at September 30, 2006, compared with $8.7 million, or 0.44 percent, of assets at June 30, 2006, and $8.8 million, or 0.46 percent of assets at March 31, 2006. Loan and lease loss reserves were $21.9 million, or 1.28 percent of total loans and leases at September 30, 2006.
Total assets were $2.03 billion at September 30, 2006, an increase of $230.1 million, or 12.8 percent, from September 30, 2005. Earning asset growth was $220.8 million, or 13.0 percent, during this twelve-month period, with loans up $221.3 million, or 14.9 percent. The composition of the loan portfolio remains basically unchanged from the previous quarter, and from the 2005 third quarter. Growth in earning assets was primarily funded by a $217.4 million, or 15.6 percent, increase in deposits. Local funds currently comprise 35.7 percent of total funds at September 30, 2006 compared to 31.3 percent at September 30, 2005.
Shareholders' equity at September 30, 2006 was $167.5 million, a twelve-month increase of $15.2 million, or 10.0 percent. Total shares outstanding at quarter-end were 8,018,680. Mercantile remains well-capitalized, with a total risk-based capital ratio of 11.6 percent at quarter-end. Mr. Johnson concluded, "We continue to be selective about growth opportunities in this current environment. Our reputation for lending expertise and service excellence has placed us in a preferred position with small- to medium-sized businesses in the communities we serve. We are pleased with our current rate of growth as we address the uncertainties in today's business and banking climate."
About Mercantile Bank Corporation
Mercantile Bank Corporation is the bank holding company for Mercantile Bank of Michigan. Headquartered in Grand Rapids, the Bank provides a wide variety of commercial banking services through its five full-service banking offices in greater Grand Rapids, and its full-service banking offices in Holland, Lansing, and Ann Arbor, Michigan. Mercantile Bank Corporation's common stock is listed on the NASDAQ Global Market under the symbol "MBWM."
Forward Looking Statements
This news release contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations that involve a number of risks and uncertainties. Actual results may differ materially from the results expressed in forward-looking statements. Factors that might cause such a difference include changes in interest rates and interest rate relationships; demand for products and services; the degree of competition by traditional and non-traditional competitors; changes in banking regulation; changes in tax laws; changes in prices, levies, and assessments; the impact of technological advances; governmental and regulatory policy changes; the outcomes of contingencies; trends in customer behavior as well as their ability to repay loans; changes in the national and local economy; and other factors, including risk factors, disclosed from time to time in filings made by Mercantile with the Securities and Exchange Commission. Mercantile undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
(dollars in thousands except per share data)
Quarterly
------------------------------------------------------
2006 2006 2006 2005 2005
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr
---------- --------- --------- --------- ---------
EARNINGS
Net
interest
income $ 15,547 15,646 15,099 14,957 14,072
Provision
for loan
and lease
losses $ 1,350 1,500 1,225 1,270 895
NonInterest
income $ 1,362 1,275 1,243 1,903 1,330
NonInterest
expense $ 8,028 8,031 8,006 8,802 8,320
Net income $ 5,202 5,111 4,929 4,549 4,300
Basic
earnings
per share $ 0.65 0.64 0.62 0.57 0.54
Diluted
earnings
per share $ 0.64 0.63 0.61 0.56 0.53
Average
shares out-
standing(a) 8,016,016 8,000,998 7,974,180 7,968,632 7,965,172
Average
diluted
shares out-
standing(a) 8,118,206 8,119,820 8,102,052 8,102,195 8,115,575
PERFORMANCE
RATIOS
Return on
average
assets 1.04% 1.06% 1.07% 1.00% 0.98%
Return on
average
common
equity 12.54% 12.81% 12.74% 11.76% 11.33%
Net interest
margin
(fully tax-
equivalent) 3.34% 3.47% 3.51% 3.54% 3.46%
Efficiency
ratio 47.48% 47.46% 48.99% 52.21% 54.02%
Full-time
equivalent
employees 284 277 275 273 263
CAPITAL
Period-
ending
equity to
assets 8.27% 8.21% 8.37% 8.44% 8.48%
Tier 1
leverage
capital
ratio 10.14% 10.15% 10.29% 10.45% 10.62%
Tier 1
risk-based
capital
ratio 10.47% 10.52% 10.74% 10.82% 11.07%
Total
risk-based
capital
ratio 11.61% 11.66% 11.91% 12.00% 12.24%
Book value
per share $ 20.89 20.17 19.86 19.42 19.08
Cash
dividend
per share $ 0.13 0.13 0.12 0.11 0.11
ASSET
QUALITY
Gross loan
charge-offs $ 1,250 1,083 780 350 338
Net loan
charge-offs $ 920 988 756 315 181
Net loan
charge-offs
to average
loans 0.22% 0.24% 0.19% 0.08% 0.05%
Allowance
for loan
and lease
losses $ 21,938 21,507 20,995 20,527 19,571
Allowance
for losses
to total
loans 1.28% 1.29% 1.30% 1.31% 1.31%
Nonper-
forming
loans $ 9,017 8,530 8,791 3,995 1,926
Other real
estate and
repossessed
assets $ 421 150 0 0 195
Nonper-
forming
assets to
total
assets 0.47% 0.44% 0.46% 0.22% 0.12%
END OF PERIOD
BALANCES
Loans and
leases $1,710,268 1,670,471 1,612,351 1,561,812 1,488,959
Total
earning
assets
(before
allowance) $1,922,051 1,859,411 1,800,909 1,743,971 1,701,275
Total
assets $2,026,834 1,969,429 1,896,974 1,838,210 1,796,770
Deposits $1,614,703 1,547,912 1,482,219 1,419,352 1,397,280
Shareholders'
equity $ 167,548 161,660 158,910 155,125 152,320
AVERAGE
BALANCES
Loans and
leases $1,684,700 1,643,022 1,581,617 1,519,616 1,460,792
Total
earning
assets
(before
allowance) $1,881,873 1,841,666 1,778,694 1,709,612 1,647,294
Total
assets $1,984,199 1,939,413 1,871,945 1,804,067 1,740,203
Deposits $1,569,614 1,521,037 1,459,266 1,394,023 1,339,486
Shareholders'
equity $ 164,560 160,039 156,901 153,522 150,540
Year-To-Date
--------------------------
2006 2005
------------ ------------
EARNINGS
Net interest income $ 46,292 40,335
Provision for loan and lease losses $ 4,075 2,520
NonInterest income $ 3,880 3,758
NonInterest expense $ 24,065 22,315
Net income $ 15,242 13,352
Basic earnings per share $ 1.91 1.68
Diluted earnings per share $ 1.88 1.64
Average shares outstanding(a) 7,997,187 7,956,205
Average diluted shares outstanding(a) 8,117,709 8,134,657
PERFORMANCE RATIOS
Return on average assets 1.05% 1.07%
Return on average common equity 12.69% 12.15%
Net interest margin (fully tax-equivalent) 3.44% 3.48%
Efficiency ratio 47.97% 50.61%
Full-time equivalent employees 284 263
CAPITAL
Period-ending equity to assets 8.27% 8.48%
Tier 1 leverage capital ratio 10.14% 10.62%
Tier 1 risk-based capital ratio 10.47% 11.07%
Total risk-based capital ratio 11.61% 12.24%
Book value per share $ 20.89 19.08
Cash dividend per share $ 0.38 0.32
ASSET QUALITY
Gross loan charge-offs $ 3,113 1,042
Net loan charge-offs $ 2,664 768
Net loan charge-offs to average loans 0.22% 0.07%
Allowance for loan and lease losses $ 21,938 19,571
Allowance for losses to total loans 1.28% 1.31%
Nonperforming loans $ 9,017 1,926
Other real estate and repossessed assets $ 421 195
Nonperforming assets to total assets 0.47% 0.12%
END OF PERIOD BALANCES
Loans and leases $ 1,710,268 1,488,959
Total earning assets (before allowance) $ 1,922,051 1,701,275
Total assets $ 2,026,834 1,796,770
Deposits $ 1,614,703 1,397,280
Shareholders' equity $ 167,548 152,320
AVERAGE BALANCES
Loans and leases $ 1,636,824 1,403,289
Total earning assets (before allowance) $ 1,834,455 1,581,042
Total assets $ 1,932,264 1,667,600
Deposits $ 1,517,043 1,279,132
Shareholders' equity $ 160,533 146,926
(a) - Adjusted for 5% stock dividend paid on May 16, 2006
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
INTEREST INCOME
Loans and leases,
including fees $33,261,000 $24,570,000 $93,292,000 $66,592,000
Investment
securities 2,335,000 2,113,000 6,871,000 6,036,000
Federal funds sold 76,000 76,000 347,000 176,000
Short-term
investments 3,000 5,000 10,000 11,000
----------- ----------- ----------- -----------
Total interest
income 35,675,000 26,764,000 100,520,000 72,815,000
INTEREST EXPENSE
Deposits 17,268,000 10,554,000 46,111,000 26,886,000
Short-term
borrowings 707,000 475,000 2,028,000 1,188,000
Federal Home Loan
Bank advances 1,452,000 1,148,000 4,136,000 3,011,000
Long-term
borrowings 701,000 515,000 1,953,000 1,395,000
----------- ----------- ----------- -----------
Total interest
expense 20,128,000 12,692,000 54,228,000 32,480,000
----------- ----------- ----------- -----------
Net interest
income 15,547,000 14,072,000 46,292,000 40,335,000
Provision for loan
and lease losses 1,350,000 895,000 4,075,000 2,520,000
----------- ----------- ----------- -----------
Net interest income
after provision
for loan and
lease losses 14,197,000 13,177,000 42,217,000 37,815,000
NON INTEREST INCOME
Service charges on
accounts 361,000 369,000 1,006,000 1,048,000
Net gain on sales
of commercial
loans 0 56,000 29,000 84,000
Other income 1,001,000 905,000 2,845,000 2,626,000
----------- ----------- ----------- -----------
Total non interest
income 1,362,000 1,330,000 3,880,000 3,758,000
NON INTEREST EXPENSE
Salaries and
benefits 4,731,000 4,983,000 14,179,000 13,547,000
Occupancy 802,000 805,000 2,404,000 1,889,000
Furniture and
equipment 513,000 459,000 1,550,000 1,109,000
Other expense 1,982,000 2,073,000 5,932,000 5,770,000
----------- ----------- ----------- -----------
Total non interest
expense 8,028,000 8,320,000 24,065,000 22,315,000
----------- ----------- ----------- -----------
Income before
federal income
tax expense 7,531,000 6,187,000 22,032,000 19,258,000
Federal income tax
expense 2,329,000 1,887,000 6,790,000 5,906,000
----------- ----------- ----------- -----------
Net income $ 5,202,000 $ 4,300,000 $15,242,000 $13,352,000
----------- ----------- ----------- -----------
Basic earnings
per share $ 0.65 $ 0.54 $ 1.91 $ 1.68
Diluted earnings
per share $ 0.64 $ 0.53 $ 1.88 $ 1.64
Average shares
outstanding(a) 8,016,016 7,965,172 7,997,187 7,956,205
Average diluted
shares
outstanding(a) 8,118,206 8,115,575 8,117,709 8,134,657
(a) - Adjusted for 5% stock dividend paid on May 16, 2006
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30,
2006 2005 2005
-------------- -------------- --------------
ASSETS (Unaudited) (Audited) (Unaudited)
Cash and due
from banks $ 39,100,000 $ 36,208,000 $ 38,894,000
Short-term investments 176,000 545,000 392,000
Federal funds sold 16,000,000 0 33,800,000
-------------- -------------- --------------
Total cash and cash
equivalents 55,276,000 36,753,000 73,086,000
Securities available
for sale 125,746,000 112,961,000 109,966,000
Securities held to
maturity 62,097,000 60,766,000 60,271,000
Federal Home Loan Bank
stock 7,764,000 7,887,000 7,887,000
Total loans and leases 1,710,268,000 1,561,812,000 1,488,959,000
Allowance for loan and
lease losses (21,938,000) (20,527,000) (19,571,000)
-------------- -------------- --------------
Total Loans and
leases, net 1,688,330,000 1,541,285,000 1,469,388,000
Premises and
equipment, net 32,309,000 30,206,000 30,791,000
Bank owned life
insurance policies 30,150,000 28,071,000 26,075,000
Accrued interest
receivable 10,438,000 8,274,000 8,039,000
Other assets 14,724,000 12,007,000 11,267,000
-------------- -------------- --------------
Total assets $2,026,834,000 $1,838,210,000 $1,796,770,000
-------------- -------------- --------------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 115,269,000 $ 120,828,000 $ 116,107,000
Interest-bearing 1,499,434,000 1,298,524,000 1,281,173,000
-------------- -------------- --------------
Total deposits 1,614,703,000 1,419,352,000 1,397,280,000
Securities sold under
agreement to
repurchase 74,111,000 72,201,000 62,994,000
Federal funds
purchased 0 9,600,000 0
Federal Home Loan
Bank advances 115,000,000 130,000,000 135,000,000
Subordinated
debentures 32,990,000 32,990,000 32,990,000
Other borrowed money 3,147,000 2,347,000 2,211,000
Accrued expenses and
other liabilities 19,335,000 16,595,000 13,975,000
-------------- -------------- --------------
Total liabilities 1,859,286,000 1,683,085,000 1,644,450,000
SHAREHOLDERS' EQUITY
Common stock 161,045,000 148,533,000 148,472,000
Retained earnings 8,230,000 8,000,000 4,287,000
Accumulated other
comprehensive
income (loss) (1,727,000) (1,408,000) (439,000)
-------------- -------------- --------------
Total shareholders'
equity 167,548,000 155,125,000 152,320,000
Total liabilities
and shareholders'
equity $2,026,834,000 $1,838,210,000 $1,796,770,000
-------------- -------------- --------------