Nov. 15, 2010 (Marketwire) --
QUINCY, IL -- (Marketwire) -- 11/15/10 -- Mercantile Bancorp, Inc. (NYSE Amex: MBR)
-- Significantly Narrows Loss vs. Nine Months 2009
-- Year-Over-Year Net Interest Income Rises Sharply
-- Strong Improvement in Net Interest Margin
-- Loan Loss Provision Stable; Foreclosure Sales Continue
-- Subsidiary Banks Well-Capitalized
Mercantile Bancorp, Inc. (NYSE Amex: MBR) today reported results for the third quarter and nine months 2010. For the quarter ended September 30, 2010, the Company reported an unaudited net loss from both continuing and discontinued operations of $7.5 million or $(0.86) per share compared with a net loss of $1.4 million or $(0.15) per share in third quarter 2009. Last year's third quarter results included $2.3 million of income from discontinued operations, compared to $219,000 in the third quarter of 2010. Also, the third quarter of 2009 reflected $3.0 million of income tax benefit, compared to income tax expense of $2.7 million in third quarter 2010, primarily due to the Company recognizing a $3.3 million increase in the valuation allowance against its deferred tax assets.
For the nine months ended September 30, 2010, the Company reported a net loss of $11.0 million or $(1.27) per share compared with a net loss of $54.3 million or $(6.24) per share in the nine months of 2009, which included a $30.4 million goodwill impairment loss.
The Company's 2009 financial statements have been restated to reflect discontinued operations due to the sale or exchange for debt of three of its subsidiary banks in December 2009 and February 2010.
An improved net interest margin, largely due to a reduction in total interest expense, contributed to net interest income increasing to $6.4 million for the three months ended September 30, 2010, compared with $5.7 million for the same period a year ago. The quarter ended September 30, 2010 marked the Company's third consecutive-quarter improvement in net interest income. Net interest margin for the three months ended September 30, 2010 was 2.73% as compared to 2.17% for the three months ended September 30, 2009.
Provision for loan losses was $5.4 million for third quarter 2010, an increase of only $45 thousand from the same period a year ago, as the Company's credit quality continues to stabilize. Total noninterest income in third quarter 2010 rose to $2.1 million compared with $1.9 million in third quarter 2009, while total noninterest expense declined to $9.1 million in the quarter ended September 30, 2010 from $9.4 million in the same period a year ago.
"Our Company continues to make progress in expense control and generating returns on a leaner, more efficient base of operations," said Ted T. Awerkamp, President and CEO. "The Company's results in the third quarter of 2010 show numerous areas of improvement when compared with the previous year.
"Our Mercantile Bank subsidiary, which comprises the majority of the Company's revenues and assets, has demonstrated numerous positive trends throughout 2010. Heartland Bank, in Leawood, Kansas, returned to generating an operating profit in third quarter 2010 and has reduced overhead significantly since the first of the year. Royal Palm Bank in Naples, Florida, while continuing to battle a severely depressed Southwest Florida economy, has maintained high levels of customer retention and sustained core deposits.
"Loan quality issues, primarily related to a small number of previously identified larger credits at Heartland and Royal Palm Bank are having a negative impact on overall Company results. However, teams at both banks are working diligently to manage these issues. We anticipate the positive expense control impact of human resources and operational initiatives at all three banks, including an early retirement program and workforce reduction implemented in third quarter 2010, will generate meaningful cost savings in coming quarters."
Awerkamp said the Company's Board of Directors is working with its outside advisors and management to develop an enhanced capital plan to fortify the Company's capital structure. Awerkamp explained: "We have a tremendous opportunity to grow and prosper, but in the near term, it is important to enhance our capital base to enable the Company and its subsidiary banks to meet their regulatory requirements and to give us an elevated level of financial strength as we work through selective asset quality issues at our subsidiary banks.
"We emphasize that while we are looking to enhance capital at the holding company level, all three subsidiary banks continue to be well-capitalized based on current regulatory standards," said Awerkamp. "These banks represent substantial franchise value and have the strength to operate effectively."
At September 30, 2010, the Tier 1 leverage and total risk-based capital ratios at each of the subsidiary banks were as follows:
-- Tier 1 leverage 8.82%
-- Total risk-based 12.80%
Royal Palm Bank
-- Tier 1 leverage 6.79%
-- Total risk-based 11.30%
-- Tier 1 leverage 5.79%
-- Total risk-based 9.87%
In third quarter 2010, the Company maintained its focus on trimming loans at all three subsidiary banks to create stronger loan portfolios, emphasizing core deposits and growing net interest margin, explained Awerkamp. "The Company's leaner balance sheet at September 30, 2010 reflects our focus throughout the year on strengthening the quality and diversity of loan and deposit portfolios at all three subsidiary banks."
Total assets at September 30, 2010 were $999 million compared with $1.4 billion at December 30, 2009, reflecting the above-mentioned focus on quality loans, as well as the sale of two of the Company's subsidiary banks in February 2010. Total loans, net of allowance for losses, for continuing operations, were $684.5 million at September 30, 2010 compared with $757.8 at December 31, 2009 as the Company continued to eliminate troubled loans and specific lending relationships that were not able to meet stronger credit standards.
Total deposits for continuing operations at September 30, 2010 decreased to $868.9 million compared with $954.5 million at December 31, 2009, reflecting lower funding required for the loan portfolio that allowed for a reduction in higher-cost brokered time deposits, with a focus on further developing core deposit relationships.
"We held steady on deposits when compared with the second quarter of this year, which we believe reflects an encouraging ability to retain customers in a tough economy and with significant reductions in rates on interest-bearing accounts," explained Awerkamp. "Our banks' teams have maintained a high-touch approach to serving customers, which we believe has resulted in enhanced customer loyalty and satisfaction. This has been a key initiative and it is succeeding."
Nine Months Results, Status of Other Real Estate Owned
As previously noted, the Company's net loss declined to $11.0 million or $(1.27) per share for the nine months of 2010 compared with a net loss of $54.3 million or $(6.24) per share in the same period of 2009.
The Company recorded net interest income of $18.8 million for the nine months ended September 30, 2010, compared with $15.8 million during the nine months of 2009. This improvement primarily reflected a dramatic reduction of total interest expense to $15.3 million in the nine months of 2010 compared with $22.4 million for the same period in the prior year.
Awerkamp noted the Company-wide initiative to lower its cost of funds as a major contributor to an increase in net interest margin to 2.63% for the nine months ended September 30, 2010, compared with 1.99% for the same period a year ago.
Non-interest income rose to $6.3 million in the nine months of 2010, compared with $6.0 million during the same period of 2009. This improvement partially reflected additional contributions from fiduciary activities, brokerage fees and data processing revenues, partially offset by smaller gains from loan sales due to a reduction in mortgage refinancing activity in 2010 compared to 2009.
Total non-interest expense declined in the nine months ended September 30, 2010 to $26.4 million compared with $61.6 million in the same period a year ago. The Company had significantly less noncash accounting-related adjustments to its equity investments in other financial institutions and experienced reduced losses on foreclosed assets in the nine months of 2010, while the prior year period included a special FDIC insurance premium and a noncash goodwill impairment loss from continuing operations of $30.4 million.
"Through a number of operational and expense control initiatives, the Company lowered year-over-year expenses in key line items such as salaries and employee benefits and equipment expense," explained Awerkamp. "We expect these initiatives to produce even greater savings in the future and continue to fine-tune our operations to be as efficient as possible with no loss of customer service or back-office capabilities. Our banks continue to enhance existing technological capabilities and add new products."
As of September 30, 2010, the company held $26.1 million in other real estate owned (OREO), compared with $24.7 million at the end of second quarter 2010 and $16.4 million at December 31, 2009. Of the total as of September 30, 2010, Mercantile Bank had $18.8 million, Royal Palm Bank had $3.4 million, and Heartland Bank had $3.9 million.
"Our subsidiary banks continue to list and conclude sales of these foreclosed assets, primarily on improved commercial properties," explained Awerkamp. "Although we continue to hold what we believe are attractive parcels of unimproved land, the market for these properties has been slow, particularly in Florida. We have generally been satisfied with the prices attained in real estate sales, and have been making steady progress in working through our portfolio. In the nine months of 2010, the three subsidiary banks have realized a combined $8.4 million through sales of these assets."
Subsidiary Bank Operating Highlights
Mercantile Bank, which represents approximately 71% of the Company's assets, continues to generate solid operating performance despite continuing flat loan demand, noted Awerkamp. The bank's served markets, including Quincy, Illinois, St. Joseph, Missouri, and Carmel, Indiana, did not suffer dramatic economic declines that were seen in other areas of the country.
For the nine months of 2010, Mercantile Bank recorded net income of $1.8 million, compared with a net loss of $75,000 in the nine months of 2009. The Bank's continuing ability to lower its cost of funds contributed to a 31 basis point margin increase year over year. Deposits were $621.4 million at September 30, 2010, loans were $506.6 million and total assets stood at $714.6 million.
Heartland Bank, the wholly owned subsidiary of Mid-America Bancorp, Inc., in which the Company holds a 55.5% ownership, continued to make operational improvements, said Awerkamp. Since December 31, 2009, the Bank has lowered operating expenses by 24% and generated an operating profit in third quarter 2010. Of particular note was a significant increase in non-interest bearing deposits, which stood at $29.5 million compared with $18.4 million at September 30, 2009, contributing to a lower cost of funds.