(MERCANTILE(R) BANK CORPORATION LOGO)
FOR FURTHER INFORMATION:
AT MERCANTILE BANK CORPORATION:
Gerald R. Johnson, Jr. Charles Christmas
Chairman & CEO Chief Financial Officer
616-726-1200 616-726-1202
gjohnson@mercbank.com cchristmas@mercbank.com
MERCANTILE BANK CORPORATION ANNOUNCES 2005 FISCAL YEAR NET
INCOME OF $17.9 MILLION, UP 30.5%
Grand Rapids, MI -- January 11, 2006 -- Mercantile Bank Corporation (Nasdaq:
MBWM) reported net income for the fiscal year ended December 31, 2005 of $17.9
million, an increase of 30.5 percent from the $13.7 million reported for the
fiscal year ended December 31, 2004. Diluted earnings per share were $2.31
compared with $1.78 reported for 2004, an increase of 29.8 percent. Earnings for
the 2004 fiscal year include an $845,000 ($548,000 after-tax) write-off
associated with the unamortized balance of issuance costs related to the
redemption of a $16.0 million trust preferred offering issued in 1999. Excluding
this one-time expense, net income and diluted earnings per share for 2005
increased 25.5 percent and 24.9 percent, respectively, over 2004.
For the fourth quarter of 2005, Mercantile reported net income of $4.55 million,
an increase of 1.4 percent above the $4.48 million reported in the prior-year
period. Diluted earnings per share were $0.59, an increase of 1.7 percent above
the $0.58 reported in the fourth quarter of 2004. Moderation in earnings growth
primarily reflects the Company's recent expansion initiatives in Michigan.
"During the last six months of 2005," Gerald R. Johnson, Jr., Chairman and CEO,
commented, "we made several significant investments to support growth in our
West Michigan markets, and also to extend our presence further eastward into
Lansing and Ann Arbor. We are pleased by the loan and deposit growth we are
already experiencing in our new markets; we generated loans in excess of $30
million and nearly $10 million in core deposits since the Lansing and Ann Arbor
banking centers opened in July and September, respectively. As we entered these
new markets, we incurred increased occupancy and other costs related to the
opening of the two new banking centers, as well as significant salary
and benefit expenses in our successful efforts to hire individuals whom we felt
were the very best bankers available. We now expect to leverage these
investments as we continue to generate potentially significant earnings in
Lansing and Ann Arbor that will complement our continuing growth in West
Michigan."
Mr. Johnson continued, "Strong organic loan growth in all of our markets,
supported by solid asset quality, has enabled us to achieve another record year
of earnings. We continue to produce exceptionally strong revenue growth based on
the consistent execution of our strategic vision: To be the premier provider of
financial services to small and mid-size businesses in the communities we
serve."
Total revenue, comprised of net interest income and non-interest income, was
$61.0 million for fiscal year 2005, an increase of 30.4 percent over the $46.7
million reported for fiscal year 2004. Net interest income increased 30.3
percent over the 2004 period to $55.3 million, reflecting a combination of 22.7
percent growth in average earning assets and a 20 basis point improvement in the
net interest margin to 3.50 percent. Mr. Johnson noted that despite deposit rate
pressures, the Company managed its balance sheet effectively through yet another
year; 2005 represents the fifth straight year that Mercantile improved its net
interest margin.
Non-interest income was $5.7 million, a $1.4 million, or 31.6 percent, increase
over 2004. Approximately half of that increase reflects overall business growth
while the remaining $0.7 million of the increase represents a gain on the sale
of state tax credits derived from the construction of the Company's new
headquarters building and sold during the fourth quarter of 2005.
Non-interest expense for fiscal year 2005 was $31.1 million, an increase of $7.9
million, or 34.1 percent, over the prior year in support of extensive
infrastructure expansion. Excluding the $845,000 pre-tax charge associated with
the write-off of unamortized issuance costs incurred in 2004, non-interest
expense increased 39.2 percent. Salaries and benefits, up $4.7 million, or 33.5
percent, represented over half of the dollar increase; Mercantile added 79
full-time equivalent employees (an increase of 40.7 percent, to 273) over the
past twelve months. Occupancy, equipment and furniture expense rose 60.7
percent, also in support of infrastructure expansion, and in particular, from
the investment in three new full-service banking offices in Holland, Lansing and
Ann Arbor, as well as the recently-opened headquarters building in Grand Rapids.
Other non-interest expense totaled $8.2 million for 2005; excluding the one-time
2004 charge, this represented an increase of 43.0 percent above the year-ago
period, again reflecting investments associated with the Company's growth and
expansion initiatives. The efficiency ratio was 51.1 percent for 2005; this
compares with 49.6 percent for 2004.
Mr. Johnson continued, "We are pleased with our ability to maintain outstanding
asset quality year after year, while at the same time we continue to grow our
loan portfolio. Over the past five years, loans increased at a compound average
annual rate of 29.8 percent, reaching $1.56 billion this year-end, while we
charged off a net balance of $3.4 million during this entire five-year period."
Net charge-offs for fiscal year 2005 were $1.1
million, or 0.08 percent of average loans, compared with $1.2 million, or 0.10
percent, for fiscal year 2004. Non-performing assets were $4.0 million, or 0.22
percent of total assets at December 31, 2005, compared with $2.8 million, or
0.19 percent, at December 31, 2004. Loan and lease loss reserves were $20.5
million, or 1.31 percent of total loans and leases at December 31, 2005.
Total assets were $1.84 billion at December 31, 2005, an increase of $302.1
million, or 19.7 percent, from December 31, 2004. Earning asset growth was
$273.7 million, or 18.6 percent, during this twelve-month period, with loans
increasing $244.7 million. The increase in earning assets was primarily funded
by a $260.2 million, or 22.4 percent, increase in deposits.
Shareholders' equity at December 31, 2005 was $155.1 million, a twelve-month
increase of $13.5 million, or 9.5 percent. Total shares outstanding at
quarter-end were 7,590,526. Mercantile's total risk-based capital ratio was
12.00 percent at year-end. Mr. Johnson concluded, "We look forward to a
continuation of balance sheet and revenue growth in 2006 as our expansion
initiatives take hold. Our banking expertise appears to be valued by the new
markets we entered in 2005, as well as in our home base of western Michigan."
ABOUT MERCANTILE BANK CORPORATION
Mercantile Bank Corporation is the bank holding company for Mercantile Bank of
Michigan. The Bank's primary service area is the Kent and Ottawa County area of
West Michigan, which includes the City of Grand Rapids, the second-largest city
in the State of Michigan. The Bank provides a wide variety of commercial banking
services primarily to businesses, individuals, and governmental units 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 National
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, referred to 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 2005 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2005 2004 2003
-------------- -------------- --------------
(Unaudited) (Audited) (Audited)
ASSETS
Cash and due from banks $ 36,208,000 $ 20,662,000 $ 16,309,000
Short-term investments 545,000 149,000 255,000
Federal funds sold 0 0 0
-------------- -------------- --------------
Total cash and cash equivalents 36,753,000 20,811,000 16,564,000
Securities available for sale 112,961,000 93,826,000 71,421,000
Securities held to maturity 60,766,000 52,341,000 45,112,000
Federal Home Loan Bank stock 7,887,000 6,798,000 4,977,000
Total loans and leases 1,561,812,000 1,317,124,000 1,035,963,000
Allowance for loan and lease losses (20,527,000) (17,819,000) (14,379,000)
-------------- -------------- --------------
Total Loans and leases, net 1,541,285,000 1,299,305,000 1,021,584,000
Premises and equipment, net 30,206,000 24,572,000 15,305,000
Bank owned life insurance policies 28,071,000 23,750,000 16,441,000
Accrued interest receivable 8,274,000 5,644,000 4,098,000
Other assets 12,007,000 9,072,000 7,835,000
-------------- -------------- --------------
Total assets $1,838,210,000 $1,536,119,000 $1,203,337,000
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 120,828,000 $ 101,742,000 $ 76,579,000
Interest-bearing 1,298,524,000 1,057,439,000 826,313,000
-------------- -------------- --------------
Total deposits 1,419,352,000 1,159,181,000 902,892,000
Securities sold under agreement to repurchase 72,201,000 56,317,000 49,545,000
Federal funds purchased 9,600,000 15,000,000 6,000,000
Federal Home Loan Bank advances 130,000,000 120,000,000 90,000,000
Subordinated debentures 32,990,000 32,990,000 16,495,000
Other borrowed money 2,347,000 1,609,000 1,114,000
Accrued expenses and other liabilities 16,595,000 9,405,000 7,090,000
-------------- -------------- --------------
Total liabilities 1,683,085,000 1,394,502,000 1,073,136,000
SHAREHOLDERS' EQUITY
Common stock 148,533,000 131,010,000 118,560,000
Retained earnings 8,000,000 10,475,000 11,421,000
Accumulated other comprehensive income (1,408,000) 132,000 220,000
-------------- -------------- --------------
Total shareholders' equity 155,125,000 141,617,000 130,201,000
Total liabilities and shareholders' equity $1,838,210,000 $1,536,119,000 $1,203,337,000
============== ============== ==============
Mercantile Bank Corporation
Fourth Quarter 2005 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED REPORTS OF INCOME
THREE MONTHS ENDED THREE MONTHS ENDED TWELVE MONTHS ENDED TWELVE MONTHS ENDED
December 31, 2005 December 31, 2004 December 31, 2005 December 31, 2004
------------------ ------------------ ------------------- -------------------
(Unaudited) (Unaudited) (Unaudited) (Audited)
INTEREST INCOME
Loans and leases, including fees $27,074,000 $17,968,000 $ 93,666,000 $62,791,000
Investment securities 2,148,000 1,728,000 8,184,000 6,152,000
Federal funds sold 90,000 22,000 266,000 75,000
Short-term investments 3,000 1,000 14,000 4,000
----------- ----------- ------------ -----------
Total interest income 29,315,000 19,719,000 102,130,000 69,022,000
INTEREST EXPENSE
Deposits 11,998,000 6,401,000 38,884,000 21,786,000
Short-term borrowings 607,000 301,000 1,795,000 877,000
Federal Home Loan Bank advances 1,189,000 693,000 4,200,000 2,471,000
Long-term borrowings 564,000 242,000 1,959,000 1,461,000
----------- ----------- ------------ -----------
Total interest expense 14,358,000 7,637,000 46,838,000 26,595,000
----------- ----------- ------------ -----------
Net interest income 14,957,000 12,082,000 55,292,000 42,427,000
Provision for loan and lease losses 1,270,000 1,000,000 3,790,000 4,674,000
----------- ----------- ------------ -----------
Net interest income after provision
for loan and lease losses 13,687,000 11,082,000 51,502,000 37,753,000
NON INTEREST INCOME
Service charges on accounts 343,000 325,000 1,391,000 1,255,000
Net gain on sales of securities 0 0 0 78,000
Net gain on sales of loans 0 50,000 84,000 225,000
Other income 1,560,000 731,000 4,186,000 2,744,000
----------- ----------- ------------ -----------
Total non interest income 1,903,000 1,106,000 5,661,000 4,302,000
NON INTEREST EXPENSE
Salaries and benefits 5,088,000 3,574,000 18,635,000 13,956,000
Occupancy 752,000 418,000 2,641,000 1,588,000
Furniture and equipment 558,000 276,000 1,667,000 1,093,000
Other expense 2,404,000 1,960,000 8,174,000 6,561,000
----------- ----------- ------------ -----------
Total non interest expense 8,802,000 6,228,000 31,117,000 23,198,000
----------- ----------- ------------ -----------
Income before federal income
tax expense 6,788,000 5,960,000 26,046,000 18,857,000
Federal income tax expense 2,239,000 1,472,000 8,145,000 5,136,000
----------- ----------- ------------ -----------
Net income $ 4,549,000 $ 4,488,000 $ 17,901,000 $13,721,000
=========== =========== ============ ===========
Basic earnings per share $ 0.60 $ 0.59 $ 2.36 $ 1.82
Diluted earnings per share $ 0.59 $ 0.58 $ 2.31 $ 1.78
Average shares outstanding * 7,589,174 7,549,053 7,580,322 7,533,036
Average diluted shares outstanding * 7,718,076 7,717,686 7,749,680 7,721,713
* - Adjusted for 5% stock dividend paid on August 1, 2005
Mercantile Bank Corporation
Fourth Quarter 2005 Results
MERCANTILE BANK CORPORATION
CONSOLIDATED FINANCIAL HIGHLIGHTS
(Unaudited)
QUARTERLY
------------------------------------------------------ YEAR-TO-DATE
2005 2005 2005 2005 2004 --------------------
(dollars in thousands except per share data) 4TH QTR 3RD QTR 2ND QTR 1ST QTR 4TH QTR 2005 2004
---------- --------- --------- --------- --------- --------- ---------
EARNINGS
Net interest income $ 14,957 14,072 13,608 12,655 12,082 55,292 42,427
Provision for loan and lease losses $ 1,270 895 900 725 1,000 3,790 4,674
NonInterest income $ 1,903 1,330 1,218 1,210 1,106 5,661 4,302
NonInterest expense $ 8,802 8,320 7,145 6,850 6,228 31,117 23,198
Net income $ 4,549 4,300 4,690 4,362 4,488 17,901 13,721
Basic earnings per share $ 0.60 0.57 0.62 0.58 0.59 2.36 1.82
Diluted earnings per share $ 0.59 0.56 0.61 0.57 0.58 2.31 1.78
Average shares outstanding * 7,589,174 7,585,879 7,579,437 7,566,638 7,549,053 7,580,322 7,533,036
Average diluted shares outstanding * 7,718,076 7,732,872 7,720,821 7,712,820 7,717,686 7,749,680 7,721,713
PERFORMANCE RATIOS
Return on average assets 1.00% 0.98% 1.13% 1.11% 1.18% 1.05% 0.99%
Return on average common equity 11.76% 11.33% 12.80% 12.36% 12.74% 12.05% 10.16%
Net interest margin (fully tax-equivalent) 3.54% 3.46% 3.52% 3.46% 3.43% 3.50% 3.30%
Efficiency ratio 52.21% 54.02% 48.19% 49.41% 47.22% 51.05% 49.64%
Full-time equivalent employees 273 263 237 212 194 273 194
CAPITAL
Average equity to average assets 8.51% 8.65% 8.81% 8.99% 9.29% 8.73% 9.79%
Tier 1 leverage capital ratio 10.45% 10.62% 10.86% 11.13% 11.53% 10.45% 11.53%
Tier 1 risk-based capital ratio 10.82% 11.07% 11.40% 11.53% 11.82% 10.82% 11.82%
Total risk-based capital ratio 12.00% 12.24% 12.58% 12.71% 13.03% 12.00% 13.03%
Book value per share $ 20.44 20.08 19.63 19.04 18.71 20.44 18.71
Cash dividend per share $ 0.11 0.11 0.11 0.10 0.09 0.43 0.36
ASSET QUALITY
Gross loan charge-offs $ 350 338 211 493 262 1,392 1,405
Net loan charge-offs $ 315 181 140 447 226 1,083 1,234
Net loan charge-offs to average loans 0.08% 0.05% 0.04% 0.13% 0.07% 0.08% 0.10%
Allowance for loan and lease losses $ 20,527 19,571 18,856 18,097 17,819 20,527 17,819
Allowance for losses to total loans 1.31% 1.31% 1.32% 1.32% 1.35% 1.31% 1.35%
Nonperforming loans $ 3,995 1,926 2,535 4,016 2,842 3,995 2,842
Other real estate and repossessed assets $ 0 195 1,177 1,177 0 0 0
Nonperforming assets to total assets 0.22% 0.12% 0.22% 0.31% 0.19% 0.22% 0.19%
END OF PERIOD BALANCES
Loans and leases $1,561,812 1,488,959 1,424,463 1,374,577 1,317,124 1,561,812 1,317,124
Total earning assets (before allowance) $1,743,971 1,701,275 1,620,632 1,575,697 1,470,238 1,743,971 1,470,238
Total assets $1,838,210 1,796,770 1,709,153 1,664,876 1,536,119 1,838,210 1,536,119
Deposits $1,419,352 1,397,280 1,321,844 1,290,017 1,159,181 1,419,352 1,159,181
Shareholders' equity $ 155,125 152,320 149,200 144,501 141,617 155,125 141,617
AVERAGE BALANCES
Loans and leases $1,519,616 1,460,792 1,402,469 1,345,336 1,276,913 1,432,609 1,177,568
Total earning assets (before allowance) $1,709,612 1,647,294 1,582,453 1,511,891 1,428,121 1,613,448 1,314,532
Total assets $1,804,067 1,740,203 1,669,202 1,591,764 1,504,526 1,701,997 1,379,178
Deposits $1,394,023 1,339,486 1,281,652 1,214,890 1,150,606 1,308,091 1,049,397
Shareholders' equity $ 153,522 150,540 146,997 143,169 139,744 148,589 135,002
* - Adjusted for 5% stock dividend paid on August 1, 2005
Mercantile Bank Corporation
Fourth Quarter 2005 Results
MERCANTILE BANK CORPORATION
Reconciliation of GAAP-Based Operating Performance Measures
and Adjusted Operating Performance Measures
The following schedule reflects the adjustment of GAAP-based operating results
and certain performance measures for the one-time charge associated with the
unamortized balance of issuance costs of trust preferred securities that were
redeemed during the third quarter of 2004. Management believes excluding the
impact of the one-time charge from 2004 operating results and performance
measures allows a more meaningful comparison of 2005 results to 2004 results.
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
December 31, 2005 December 31, 2004
------------------- -------------------
(Unaudited) (Audited)
GAAP-BASED OPERATING PERFORMANCE MEASURES
Net interest income $55,292,000 $42,427,000
Provision for loan and lease losses 3,790,000 4,674,000
Noninterest income 5,661,000 4,302,000
Noninterest expense 31,117,000 23,198,000
----------- -----------
Income before federal income tax expense 26,046,000 18,857,000
Federal income tax expense 8,145,000 5,136,000
----------- -----------
Net income 17,901,000 13,721,000
Basic earnings per share $ 2.36 $ 1.82
Diluted earnings per share 2.31 1.78
Return on average assets 1.05% 0.99%
Return on average equity 12.05% 10.16%
Net interest margin 3.50% 3.30%
Efficiency ratio 51.05% 49.64%
ADJUSTED OPERATING PERFORMANCE MEASURES
Net interest income $55,292,000 $42,427,000
Provision for loan and lease losses 3,790,000 4,674,000
Noninterest income 5,661,000 4,302,000
Noninterest expense 31,117,000 23,198,000
Elimination of one-time charge associated
with redemption of trust preferred securities 0 845,000
----------- -----------
Income before federal income tax expense 26,046,000 19,702,000
Federal income tax expense 8,145,000 5,136,000
Increase in federal income tax expense due to
elimination of one-time charge 0 297,000
----------- -----------
Net income 17,901,000 14,269,000
Basic earnings per share $ 2.36 $ 1.89
Diluted earnings per share 2.31 1.85
Return on average assets 1.05% 1.03%
Return on average equity 12.05% 10.57%
Net interest margin 3.50% 3.30%
Efficiency ratio 51.05% 47.84%