GRAND RAPIDS, Mich., Jan. 10, 2007 (PRIME NEWSWIRE) -- Mercantile Bank Corporation (Nasdaq:MBWM) reported net income for fiscal year 2006 of $19.8 million, an increase of 10.9 percent from the $17.9 million reported for 2005. Diluted earnings per share were $2.45, an increase of 11.4 percent from the $2.20 reported for the prior year. Earnings benefited from solid loan growth, most notably from within the Company's newer markets, and effective expense control. Net interest margin pressure and a higher loan loss provision partially offset earnings growth.
For the fourth quarter of 2006, Mercantile reported net income of $4.6 million, an increase of 1.2 percent from the $4.5 million reported for the fourth quarter of 2005. Diluted earnings per share were $0.57 compared with $0.56 reported for the year-ago quarter, an increase of 1.8 percent.
Gerald R. Johnson, Jr., Chairman and CEO of Mercantile Bank Corp., commented, "We reported a healthy earnings increase for the year, despite formidable challenges faced not only by us, but by the entire banking industry. We continue to generate strong organic loan growth, spearheaded by the success of our recent expansion initiatives into Holland, Ann Arbor, and Lansing, which together contributed over fifty percent of 2006 loan growth. Local deposit growth was also exceptionally strong, contributing nearly eighty percent of deposit growth this past year.
"However, competitive pricing and underwriting pressures in our markets restrained our lending activities throughout the year; the aggressive pricing terms offered by competitors negatively impacted the volume of loans we booked, lowered our yields, and accelerated the level of paydowns as well. Despite these pressures, we have remained committed to our traditionally high standards of underwriting and believe the long term benefits of this conservative posture far outweigh the short term costs to our bottom line."
Total revenue, comprised of net interest income and non-interest income, was $66.8 million for 2006, an increase of 9.7 percent over the $61.0 million reported for the prior fiscal year. Net interest income increased 11.4 percent year over year to $61.6 million, reflecting average earning asset growth of 15.3 percent, partially offset by a 13 basis point decline in net interest margin to 3.37 percent. Mr. Johnson continued, "Our net interest margin has been subjected to a three-fold challenge this past year; in addition to the uncertainty associated with the direction of interest rates, margin compression has been exacerbated by the flat to inverted yield curve and competitive loan and deposit pricing pressures. Although we have more funding flexibility than many banks, there is little that we can do until the yield curve reverts to a more normal relationship." Non-interest income for the year was $5.3 million compared with $5.7 million for 2005; approximately $0.7 million of 2005 fee income represented a one-time gain on the fourth quarter 2005 sale of state tax credits derived from the construction of the Company's new headquarters building.
Mr. Johnson noted that Mercantile has continued to leverage its investment in infrastructure, supporting additional loan growth while maintaining operating expense at a stable level throughout the year. For 2006, the efficiency ratio averaged 48.3 percent compared to 51.1 percent in 2005, and was below 50.0 percent for each of the four quarters of 2006. Non interest expense was $32.3 million for 2006, a modest increase of 3.7 percent over the fiscal year 2005; this compares with year-over-year asset growth of 12.5 percent. Salaries and benefits, the largest component of non interest expense, was $19.0 million, an increase of 1.9 percent over the prior year.
Asset quality has remained relatively stable throughout the year. Mr. Johnson commented that a return to Mercantile's historically high levels of asset quality remains a top corporate priority; to that end, Mercantile has been strengthening its credit administration function throughout 2006, adding seasoned professionals and closely monitoring performance of the loan portfolio in light of changing economic conditions. Net loan charge-offs for 2006 were $4.9 million, equivalent to 0.29 percent of average loans; this compares with $1.1 million or 0.08 percent of average loans for the prior year. Non-performing assets were $9.6 million, or 0.46 percent of total assets at December 31, 2006, compared with $9.4 million, or 0.47 percent of assets at September 30, 2006, and $4.0 million, or 0.22 percent, of assets at December 31, 2005. Loan and lease loss reserves were $21.4 million, or 1.23 percent of total loans and leases at December 31, 2006.
Total assets grew $229.1 million, or 12.5 percent, over the past twelve months, reaching $2.07 billion at December 31, 2006. Earning asset growth was $204.2 million, or 11.7 percent, during this period, with loans up $183.7 million, or 11.8 percent. The composition of the loan portfolio remains basically unchanged from the prior year; commercial loans account for over 90% of outstandings. "As a highly regarded business bank in our local markets," Johnson added, "we continue to see a substantial volume of well-structured transactions in the small-to-mid-sized commercial sector, where our pipeline remains strong, pricing pressures notwithstanding." Growth in earning assets was primarily funded by a $227.6 million, or 16.0 percent, increase in deposits; local deposits contributed the majority of deposit growth, up $176.6 million, or 38.7 percent from last year. Local deposits now comprise 38.4 percent of total deposits at December 31, 2006 compared to 32.2 percent at December 31, 2005.
Shareholders' equity at December 31, 2006 was $171.9 million, a twelve-month increase of $16.8 million, or 10.8 percent. Total shares outstanding at year-end were 8,022,221. Mercantile remains well-capitalized, with a total risk-based capital ratio of 11.5 percent at year-end. Mr. Johnson concluded, "We completed 2006 positioned to capitalize on growth opportunities in our markets. Nonetheless, we maintain a cautious lending posture in this current environment."
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
Fourth Quarter 2006 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
(dollars in thousands except per share data)
Quarterly
------------------------------------------------------
2006 2006 2006 2006 2005
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr
---------- --------- --------- --------- ---------
EARNINGS
Net interest
income $ 15,295 15,547 15,646 15,099 14,957
Provision for
loan and
lease losses $ 1,700 1,350 1,500 1,225 1,270
NonInterest
income $ 1,381 1,362 1,275 1,243 1,903
NonInterest
expense $ 8,197 8,028 8,031 8,006 8,802
Net income $ 4,605 5,202 5,111 4,929 4,549
Basic earnings
per share $ 0.57 0.65 0.64 0.62 0.57
Diluted
earnings
per share $ 0.57 0.64 0.63 0.61 0.56
Average shares
outstanding * 8,020,303 8,016,016 8,000,998 7,974,180 7,968,632
Average diluted
shares
outstanding * 8,117,442 8,118,206 8,119,820 8,102,052 8,102,195
PERFORMANCE RATIOS
Return on
average assets 0.89% 1.04% 1.06% 1.07% 1.00%
Return on
average
common equity 10.78% 12.54% 12.81% 12.74% 11.76%
Net interest
margin (fully
tax-equivalent) 3.19% 3.34% 3.47% 3.51% 3.54%
Efficiency ratio 49.15% 47.48% 47.46% 48.99% 52.21%
Full-time
equivalent
employees 291 284 277 275 273
CAPITAL
Period-ending
equity to
assets 8.32% 8.27% 8.21% 8.37% 8.44%
Tier 1 leverage
capital ratio 10.04% 10.14% 10.15% 10.29% 10.45%
Tier 1
risk-based
capital ratio 10.37% 10.47% 10.52% 10.74% 10.82%
Total
risk-based
capital ratio 11.45% 11.61% 11.66% 11.91% 12.00%
Book value
per share $ 21.43 20.89 20.17 19.86 19.46
Cash dividend
per share $ 0.13 0.13 0.13 0.12 0.11
ASSET QUALITY
Gross loan
charge-offs $ 2,276 1,250 1,083 780 350
Net loan
charge-offs $ 2,227 920 988 756 315
Net loan
charge-offs
to average
loans 0.51% 0.22% 0.24% 0.19% 0.08%
Allowance for
loan and
lease losses $ 21,411 21,938 21,507 20,995 20,527
Allowance for
losses to
total loans 1.23% 1.28% 1.29% 1.30% 1.31%
Nonperforming
loans $ 8,571 9,017 8,530 8,791 3,995
Other real
estate and
repossessed
assets $ 986 421 150 0 0
Nonperforming
assets to
total assets 0.46% 0.47% 0.44% 0.46% 0.22%
END OF PERIOD BALANCES
Loans and
leases $1,745,478 1,710,268 1,670,471 1,612,351 1,561,812
Total earning
assets (before
allowance) $1,948,179 1,922,051 1,859,411 1,800,909 1,743,971
Total assets $2,067,268 2,026,834 1,969,429 1,896,974 1,838,210
Deposits $1,646,903 1,614,703 1,547,912 1,482,219 1,419,352
Shareholders'
equity $ 171,915 167,548 161,660 158,910 155,125
AVERAGE BALANCES
Loans and
leases $1,729,899 1,684,700 1,643,022 1,581,617 1,519,616
Total earning
assets (before
allowance) $1,938,499 1,881,873 1,841,666 1,778,694 1,709,612
Total assets $2,042,037 1,984,199 1,939,413 1,871,945 1,804,067
Deposits $1,628,233 1,569,614 1,521,037 1,459,266 1,394,023
Shareholders'
equity $ 169,452 164,560 160,039 156,901 153,522
Year-To-Date
-------------------------
2006 2005
---------- ---------
EARNINGS
Net interest income $ 61,587 55,292
Provision for loan and lease losses $ 5,775 3,790
NonInterest income $ 5,261 5,661
NonInterest expense $ 32,262 31,117
Net income $ 19,847 17,901
Basic earnings per share $ 2.48 2.25
Diluted earnings per share $ 2.45 2.20
Average shares outstanding * 8,003,013 7,959,338
Average diluted shares outstanding * 8,112,355 8,137,164
PERFORMANCE RATIOS
Return on average assets 1.01% 1.05%
Return on average common equity 12.19% 12.05%
Net interest margin (fully
tax-equivalent) 3.37% 3.50%
Efficiency ratio 48.26% 51.05%
Full-time equivalent employees 291 273
CAPITAL
Period-ending equity to assets 8.32% 8.44%
Tier 1 leverage capital ratio 10.04% 10.45%
Tier 1 risk-based capital ratio 10.37% 10.82%
Total risk-based capital ratio 11.45% 12.00%
Book value per share $ 21.43 19.46
Cash dividend per share $ 0.51 0.43
ASSET QUALITY
Gross loan charge-offs $ 5,389 1,392
Net loan charge-offs $ 4,891 1,083
Net loan charge-offs to average loans 0.29% 0.08%
Allowance for loan and lease losses $ 21,411 20,527
Allowance for losses to total loans 1.23% 1.31%
Nonperforming loans $ 8,571 3,995
Other real estate and repossessed
assets $ 986 0
Nonperforming assets to total assets 0.46% 0.22%
END OF PERIOD BALANCES
Loans and leases $1,745,478 1,561,812
Total earning assets (before
allowance) $1,948,179 1,743,971
Total assets $2,067,268 1,838,210
Deposits $1,646,903 1,419,352
Shareholders' equity $ 171,915 155,125
AVERAGE BALANCES
Loans and leases $1,660,284 1,432,609
Total earning assets (before
allowance) $1,860,680 1,613,448
Total assets $1,959,933 1,701,997
Deposits $1,545,069 1,308,091
Shareholders' equity $ 162,781 148,589
* - Adjusted for 5% stock dividend paid on May 16, 2006
Mercantile Bank Corporation
Fourth Quarter 2006 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
THREE MONTHS ENDED TWELVE MONTHS ENDED
December 31, December 31,
2006 2005 2006 2005
----------- ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Audited)
INTEREST INCOME
Loans and leases,
including
fees $34,178,000 $27,074,000 $127,470,000 $93,666,000
Investment
securities 2,425,000 2,148,000 9,296,000 8,184,000
Federal funds
sold 135,000 90,000 482,000 266,000
Short-term
investments 2,000 3,000 12,000 14,000
----------- ----------- ------------ -----------
Total interest
income 36,740,000 29,315,000 137,260,000 102,130,000
INTEREST EXPENSE
Deposits 18,644,000 11,998,000 64,755,000 38,884,000
Short-term
borrowings 839,000 607,000 2,867,000 1,795,000
Federal Home
Loan Bank
advances 1,257,000 1,189,000 5,393,000 4,200,000
Long-term
borrowings 705,000 564,000 2,658,000 1,959,000
----------- ----------- ------------ -----------
Total interest
expense 21,445,000 14,358,000 75,673,000 46,838,000
----------- ----------- ------------ -----------
Net interest
income 15,295,000 14,957,000 61,587,000 55,292,000
Provision for
loan and lease
losses 1,700,000 1,270,000 5,775,000 3,790,000
----------- ----------- ------------ -----------
Net interest
income after
provision for
loan and lease
losses 13,595,000 13,687,000 55,812,000 51,502,000
NON INTEREST INCOME
Service charges
on accounts 380,000 343,000 1,386,000 1,391,000
Net gain on
sales of
commercial loans 0 0 29,000 84,000
Other income 1,001,000 1,560,000 3,846,000 4,186,000
----------- ----------- ------------ -----------
Total non
interest income 1,381,000 1,903,000 5,261,000 5,661,000
NON INTEREST EXPENSE
Salaries and
benefits 4,804,000 5,088,000 18,983,000 18,635,000
Occupancy 732,000 752,000 3,136,000 2,641,000
Furniture and
equipment 500,000 558,000 2,050,000 1,667,000
Other expense 2,161,000 2,404,000 8,093,000 8,174,000
----------- ----------- ------------ -----------
Total non
interest
expense 8,197,000 8,802,000 32,262,000 31,117,000
----------- ----------- ------------ -----------
Income before
federal income
tax expense 6,779,000 6,788,000 28,811,000 26,046,000
Federal income
tax expense 2,174,000 2,239,000 8,964,000 8,145,000
----------- ----------- ------------ -----------
Net income $ 4,605,000 $ 4,549,000 $ 19,847,000 $17,901,000
=========== =========== ============ ===========
Basic earnings
per share $0.57 $0.57 $2.48 $2.25
Diluted earnings
per share $0.57 $0.56 $2.45 $2.20
Average shares
outstanding * 8,020,303 7,968,632 8,003,013 7,959,338
Average diluted
shares
outstanding * 8,117,442 8,102,195 8,112,355 8,137,164
* - Adjusted for 5% stock dividend paid on May 16, 2006
Mercantile Bank Corporation
Fourth Quarter 2006 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2006 2005 2004
------ ------ ------
(Unaudited) (Audited) (Audited)
ASSETS
Cash and due
from banks $ 51,098,000 $ 36,208,000 $ 20,662,000
Short-term
investments 282,000 545,000 149,000
-------------- -------------- --------------
Total cash
and cash
equivalents 51,380,000 36,753,000 20,811,000
Securities
available for
sale 130,967,000 112,961,000 93,826,000
Securities held
to maturity 63,943,000 60,766,000 52,341,000
Federal Home Loan
Bank stock 7,509,000 7,887,000 6,798,000
Total loans and
leases 1,745,478,000 1,561,812,000 1,317,124,000
Allowance for
loan and
lease losses (21,411,000) (20,527,000) (17,819,000)
-------------- -------------- --------------
Total Loans
and leases,
net 1,724,067,000 1,541,285,000 1,299,305,000
Premises and
equipment, net 33,539,000 30,206,000 24,572,000
Bank owned life
insurance
policies 30,858,000 28,071,000 23,750,000
Accrued interest
receivable 10,287,000 8,274,000 5,644,000
Other assets 14,718,000 12,007,000 9,072,000
-------------- -------------- --------------
Total assets $2,067,268,000 $1,838,210,000 $1,536,119,000
============== ============== ==============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
NonInterest-
bearing $ 133,197,000 $ 120,828,000 $ 101,742,000
Interest-bearing 1,513,706,000 1,298,524,000 1,057,439,000
-------------- -------------- --------------
Total deposits 1,646,903,000 1,419,352,000 1,159,181,000
Securities sold
under agreement
to repurchase 85,472,000 72,201,000 56,317,000
Federal funds
purchased 9,800,000 9,600,000 15,000,000
Federal Home Loan
Bank advances 95,000,000 130,000,000 120,000,000
Subordinated
debentures 32,990,000 32,990,000 32,990,000
Other borrowed
money 3,316,000 2,347,000 1,609,000
Accrued expenses
and other
liabilities 21,872,000 16,595,000 9,405,000
-------------- -------------- --------------
Total
liabilities 1,895,353,000 1,683,085,000 1,394,502,000
SHAREHOLDERS' EQUITY
Common stock 161,223,000 148,533,000 131,010,000
Retained earnings 11,794,000 8,000,000 10,475,000
Accumulated other
comprehensive
income (loss) (1,102,000) (1,408,000) 132,000
-------------- -------------- --------------
Total
shareholders'
equity 171,915,000 155,125,000 141,617,000
Total
liabilities
and
shareholders'
equity $2,067,268,000 $1,838,210,000 $1,536,119,000
============== ============== ==============