* Second Quarter EPS Increases 7.9 Percent to 41 Cents * Net
Interest Income Rises 11 Percent to $10.4 Million * Net Loans
Steady at $1.03 Billion * Planned Roll-off of High-Cost CD's Causes
Modest Decline in Deposits * Core Deposit Growth Remains Strong
QUINCY, Ill., July 18 /PRNewswire-FirstCall/ -- Mercantile Bancorp
(AMEX: MBR) today reported net income for the second quarter ended
June 30, 2007 of $2.4 million, or 41 cents per share, on 5,829,437
weighted average shares outstanding, compared with net income of
$2.2 million, or 38 cents per share on 5,848,345 weighted average
shares outstanding in the second quarter a year ago. For the six
months ended June 30, the company posted net income of $4.2
million, or 72 cents per share, on 5,830,585 weighted average
shares outstanding, compared with net income of $4.2 million, or 71
cents per share, on 5,848,245 weighted average shares outstanding
for the first six months of the previous year. "Our second quarter
performance was an improvement over the first quarter as the impact
of our acquisition of Royal Palm Bank in late 2006 contributed to
results. However, our performance was still impacted by the
combination of factors we have been experiencing for the past
year," said Ted T. Awerkamp, President and Chief Executive Officer.
"Intense competition among financial institutions for loans and
deposits, a continuation of the well-documented softness in the
housing market and a flat interest rate curve all had an impact on
our results. This combination made it challenging to generate loans
and to price them in a manner that provided reasonable margins."
Net interest income for the second quarter rose by 11.2 percent to
$10.4 million from $9.4 million in the second quarter a year ago.
The increase is due primarily to the inclusion of results from
Royal Palm Bank, based in Naples, Florida, which was acquired in
November, 2006. "The softness in the housing market clearly had an
effect on the second quarter," Awerkamp noted. "Both individuals
and commercial customers took a cautious approach to making
additional loan commitments. That ratcheted up the level of
competition for loans of all types. Although our markets have been
more stable in terms of lending activity than the nation as a
whole, we nonetheless saw the level of lending grow more slowly
than previously anticipated." Net interest income for the first six
months of 2007 was $20.8 million compared with $18.3 million in the
first half of the prior year, an increase of 13.6 percent. The
growth primarily reflects the inclusion of Royal Palm Bank's
results for the entire six month period. Noninterest income in the
second quarter rose to $2.8 million from $2.4 million in the
comparable period last year. For the first six months of 2007,
noninterest income rose to $5.1 million from $4.8 million in the
same period a year earlier. "We have made it a priority to grow
noninterest income," Awerkamp stated. "Although the initiatives to
accomplish this are still in their infancy, they are gaining
traction. Over the long term we believe they can become a more
significant part of our total income stream." Noninterest expense
in the second quarter rose to $9.4 million from $7.5 million in the
same period last year. For the first six months of the current
year, noninterest expense amounted to $18.6 million vs. $15.3
million in the comparable period a year earlier. The increases in
both the three- and six- month periods primarily reflect
noninterest expenses attributable to the Royal Palm acquisition.
Due to the timing of the acquisition, no Royal Palm expenses were
included in the prior-year periods. Additionally, noninterest
expenses include costs related to the expansion of the company's
subsidiary, Mid-America Bancorp, whose operating unit, Heartland
Bank, opened two new locations late in 2006 in the Kansas City
metro market. Mercantile said its efficiency ratio rose in the
second quarter to 71 percent compared with 64 percent in the
comparable period a year earlier. The increase reflects both the
Royal Palm acquisition, the integration of which is still underway,
and the costs associated the two new branches opened by Heartland
Bank, which have not yet matured. Commenting on the lower
efficiency level, Awerkamp said, "We are accepting a temporarily
lower-than- normal level of operating efficiency in order to
facilitate growth. It is an unfortunate fact that expenses do not
rise in lock-step with revenue. We view the higher level of costs
as a form of investment we will more than recover as they reach
their full earning potential." Average assets in the second quarter
were $1.4 billion. This compares to average assets of $1.1 billion
in the second quarter of last year. Although, as expected, the
Royal Palm acquisition was a major contributor to the increase,
particularly strong performance at Heartland Bank was also a factor
in the growth. Net loans at the ends of the second quarter stood at
$1.03 billion, approximately level compared with $1.02 billion at
the end of 2006. "The steady level of loans compared with the end
of last rear reflects active management of credit risk and the
portfolio as a whole. We decided to withdraw from involvement in
certain commercial loans that we believe were no longer consistent
with our lending practices. The current environment has meant it is
taking longer to replace those loans. We believe the actions were
prudent and eliminated risks with which we were no longer
comfortable," Awerkamp stated. Total non-performing loans increased
from $4.2 million at June 30, 2006 to $11.1 million at June 30,
2007. The increase was primarily due to several large commercial
real estate loans that are in foreclosure proceedings and being
closely monitored by management. The Company is confident that the
subject property values provide adequate collateral, and full
recovery is expected. Deposits at mid-year stood at $1.12 billion,
down modestly from their level of $1.17 billion at the end of 2006.
Awerkamp said "The decline in deposits is due to a combination of
normal variation and a decision we made to allow certain high-cost
brokered CD's to run off. Our core deposit growth has been very
strong and we believe the higher cost CD's can be replaced in a
reasonable amount of time with lower-cost core deposits as funding
needs increase with loan growth. Moreover, our high retention rate
for core deposits helps reduce the extent to which we are affected
by deposit repricing." The executive said it is important to
recognize that changes in loan and deposit totals are due to active
management of the company's balance sheet. "The banking environment
is in a state of flux. Under such conditions, we want to proceed
with a certain amount of caution so we are well-positioned to take
advantage of opportunities that may present themselves as we go
forward." Awerkamp also said Mercantile continued to pursue its
three-pronged strategy for growth in the second quarter. "We have
been active in a number of areas. Our previously announced
acquisition of HNB Financial Services is winding its way through
the regulatory approval process. We currently expect that
transaction to close late in the third quarter of this year. When
complete, HNB is expected to give us a stronger position in eastern
Missouri and a presence in the fast-growing northern portion of
metropolitan St. Louis. "We also continued our efforts to generate
long-term growth through strategic investments in de novo banks. In
the second quarter we announced two transactions. We agreed to
acquire a 4.4 percent interest in a newly- formed community banking
organization in the metropolitan Denver area that intends to focus
on serving the large Hispanic segment of the population. We also
monetized an investment by agreeing to sell our interest in New
Frontier Bancshares, Inc. of St. Charles, Missouri for $6.8
million, which will generate a pre-tax gain of approximately $2.1
million. That transaction should close in the fourth quarter.
Awerkamp pointed out that Mercantile has also made progress in the
company's core bank operations. "The investments we've made in
technology allow us to remain competitive by offering a range of
services comparable to those available from larger banks. Further,
our infrastructure makes possible the effective integration of
locations that are geographically distant from our Quincy
headquarters." "Looking toward the second half, we remain
cautiously optimistic," Awerkamp stated. "In recent weeks, we have
seen what appears to be the start of a return to a more normal
relationship between long-term and short-term interest rates.
Although it is premature to draw any definitive conclusions,
movement toward an interest rate curve closer to historic norms
should allow us to obtain more reasonable pricing on new loans and
relieve some of the pressure on margins we have been experiencing."
"We believe the current environment will create a number of new
opportunities for growth from internal sources and through
strategic acquisitions. By marshalling our resources, we are
well-positioned to take full advantage of those opportunities when
they arise and deliver increased value to our shareholders,"
Awerkamp concluded. Separately, Mercantile noted it recently
amended and extended an existing line of credit through US Bank,
N.A., which expired June 30, 2007. The new $8 million credit
facility bears interest at a floating rate relative to changes in
the national prime interest rate until maturity on June 30, 2008.
The Company intends to continue to use this revolving credit line
for various corporate purposes, including, but not limited to,
pursuit of the Company's growth and operating strategy, stock
repurchases, and/or other general corporate purposes. The amount of
the new facility has been reduced form its previous level of $15
million. Mercantile noted it expects to incorporate the additional
$7 million previously included in the credit facility in other
borrowings being contemplated in relation to its previously
announced acquisition of HNB Financial Services, Inc. About
Mercantile Bancorp Mercantile Bancorp, Inc. is a Quincy,
Illinois-based bank holding company with majority-owned
subsidiaries consisting of three banks in Illinois, two banks in
Missouri and one bank in each of Kansas and Florida, where the
Company conducts full-service commercial and consumer banking
business, engages in mortgage banking, trust services and asset
management, and provides other financial services and products. In
addition, the Company has minority investments in eight community
banks in Missouri, Georgia, Florida, North Carolina and Tennessee.
Further information is available on the company's website at
http://www.mercbanx.com/. This release contains information and
"forward-looking statements" that relate to matters that are not
historical facts and which are usually preceded by the words "may,"
"will," "should," "could," "would," "plan," "potential,"
"estimate," "project," "believe," "intend," "anticipate," "expect,"
"target" and similar expressions. These forward-looking statements
are subject to significant risks, assumptions and uncertainties.
Because of these and other uncertainties, our actual results may be
materially different from those described in these forward-looking
statements. The forward-looking statements in this release speak
only as of the date of the release, and we do not assume any
obligation to update the forward-looking statements or to update
the reasons why actual results could differ from those contained in
the forward- looking statements. Tables follow ... MERCANTILE
BANCORP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS June 30,
December 31, 2007 2006 (In Thousands) (Unaudited) ASSETS Cash and
cash equivalents $50,335 $99,147 Securities 194,934 188,579 Loans
held for sale 5,787 1,660 Loans, net of allowance for loan losses
1,025,140 1,021,043 Premises and equipment 28,956 25,693 Interest
receivable 9,682 10,277 Cash surrender value of life insurance
18,586 18,143 Goodwill 32,125 32,120 Other 29,744 26,165 Total
assets $1,395,289 $1,422,827 LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities: Deposits $1,120,969 $1,166,814 Short-term borrowings
57,354 26,338 Long-term debt 96,899 107,249 Interest payable 5,436
6,039 Other 4,084 6,531 Total liabilities 1,284,742 1,312,971
Minority Interest 9,514 9,198 Total stockholders' equity 101,033
100,658 Total liabilities and stockholders' equity $1,395,289
$1,422,827 MERCANTILE BANCORP, INC. CONDENSED CONSOLIDATED
STATEMENTS OF INCOME Six Months Ended June 30, 2007 June 30, 2006
(In Thousands) (Unaudited) Interest Income: Loans and fees on loans
$39,974 $30,760 Securities: Taxable 3,834 2,508 Tax exempt 844 889
Other 1,316 401 Total interest income 45,968 34,558 Interest
Expense: Deposits 21,287 14,309 Short-term borrowings 843 667
Long-term debt 3,025 1,268 Total interest expense 25,155 16,244 Net
Interest Income 20,813 18,314 Provision for Loan Losses 1,181 1,403
Net Interest Income After Provision for Loan Losses 19,632 16,911
Noninterest Income: Fiduciary activities 1,145 979 Brokerage fees
762 621 Customer service fees 1,854 1,739 Other service charges and
fees 355 334 Net gains on loan sales 285 292 Other 715 807 Total
noninterest income 5,116 4,772 Noninterest Expense: Salaries and
employee benefits 11,190 8,755 Net occupancy expense 1,277 923
Equipment expense 1,253 894 Professional fees 1,074 802 Postage and
supplies 517 428 Other 3,306 3,504 Total noninterest expense 18,617
15,306 Minority Interest 334 386 Income Before Income Taxes 5,797
5,991 Income Taxes 1,577 1,818 Net Income $4,220 $4,173 MERCANTILE
BANCORP, INC. SELECTED FINANCIAL HIGHLIGHTS Six Months Ended June
30, 2007 June 30, 2006 (Dollars In Thousands except share data)
(Unaudited) EARNINGS AND PER SHARE DATA Basic Earnings Per Share
$.72 $.71 Weighted average shares outstanding 5,830,585 5,848,245
Cash dividends paid per share $.18 $.16 Book value per share $17.40
$16.08 Tangible book value per share (1) $11.52 $14.81 Ending
number of common shares outstanding 5,806,745 5,848,245 AVERAGE
BALANCES Assets $1,395,319 $1,143,028 Securities $192,482 $158,029
Loans (2) $1,030,181 $872,169 Earning assets $1,273,412 $1,056,246
Deposits $1,137,438 $954,888 Interest bearing liabilities
$1,166,620 $932,931 Stockholders' equity $101,535 $93,368 END OF
PERIOD FINANCIAL DATA Net interest income $20,813 $18,314 Loans (2)
$1,042,340 $911,473 Allowance for loan losses $11,413 $8,523
PERFORMANCE RATIOS Return on average assets .61% . 74% Return on
average equity 8.38% 9.01% Net interest margin 3.27% 3.47% Interest
spread 2.91% 3.06% Efficiency ratio 72% 66% Allowance for loan
losses to loans (2) 1.09% .94% Allowance as a percentage of
non-performing loans 103% 204% Average loan to deposit ratio 91%
91% Dividend payout ratio 24.66% 22.54% ASSET QUALITY Net
charge-offs $381 $962 Non-performing loans $11,100 $4,187 Other
non-performing assets $585 $528 (1) Net of goodwill and core
deposit intangibles (2) Loans include loans held for sale and
nonaccrual loans MERCANTILE BANCORP, INC. CONDENSED CONSOLIDATED
STATEMENTS OF INCOME Three Months Ended June 30, 2007 June 30, 2006
(In Thousands) (Unaudited) Interest Income: Loans and fees on loans
$20,181 $16,026 Securities: Taxable 1,946 1,288 Tax exempt 413 446
Other 520 124 Total interest income 23,060 17,884 Interest Expense:
Deposits 10,708 7,519 Short-term borrowings 475 393 Long-term debt
1,465 610 Total interest expense 12,648 8,522 Net Interest Income
10,412 9,362 Provision for Loan Losses 426 768 Net Interest Income
After Provision for Loan Losses 9,986 8,594 Noninterest Income:
Fiduciary activities 572 494 Brokerage fees 454 302 Customer
service fees 983 917 Other service charges and fees 173 164 Net
gains on loan sales 177 148 Other 415 412 Total noninterest income
2,774 2,437 Noninterest Expense: Salaries and employee benefits
5,562 4,355 Net occupancy expense 642 452 Equipment expense 641 451
Professional fees 579 474 Postage and supplies 254 183 Other 1,746
1,606 Total noninterest expense 9,424 7,521 Minority Interest 159
161 Income Before Income Taxes 3,177 3,349 Income Taxes 801 1,100
Net Income $2,376 $2,249 MERCANTILE BANCORP, INC. SELECTED
FINANCIAL HIGHLIGHTS Three Months Ended June 30, 2007 June 30, 2006
(Dollars In Thousands except share data) (Unaudited) EARNINGS AND
PER SHARE DATA Basic Earnings Per Share $.41 $.38 Weighted average
shares outstanding 5,829,437 5,848,245 Cash dividends paid per
share $.09 $.08 Book value per share $17.40 $16.08 Tangible book
value per share (1) $11.52 $14.81 Ending number of common shares
outstanding 5,806,745 5,848,245 AVERAGE BALANCES Assets $1,385,658
$1,146,626 Securities $194,283 $155,684 Loans (2) $1,031,215
$883,940 Earning assets $1,263,813 $1,059,564 Deposits $1,129,006
$957,113 Interest bearing liabilities $1,157,062 $937,121
Stockholders' equity $101,631 $93,760 END OF PERIOD FINANCIAL DATA
Net interest income $10,412 $9,362 Loans (2) $1,042,340 $911,473
Allowance for loan losses $11,413 $8,523 PERFORMANCE RATIOS Return
on average assets .69% .79% Return on average equity 9.48% 9.62%
Net interest margin 3.30% 3.53% Interest spread 2.93% 3.11%
Efficiency ratio 71% 64% Allowance for loan losses to loans (2)
1.09% .94% Allowance as a percentage of non-performing loans 103%
204% Average loan to deposit ratio 91% 92% Dividend payout ratio
21.95% 21.05% ASSET QUALITY Net charge-offs $185 $572
Non-performing loans $11,100 $4,187 Other non-performing assets
$585 $528 (1) Net of goodwill and core deposit intangibles (2)
Loans include loans held for sale and nonaccrual loans DATASOURCE:
Mercantile Bancorp, Inc. CONTACT: Ted T. Awerkamp, President &
Chief Executive Officer of Mercantile Bancorp, Inc.,
+1-217-223-7300; or Michael Arneth or Tad Gage both of The Investor
Relations Company, +1-312-245-2700, for Mercantile Bancorp, Inc.
Web site: http://www.mercbanx.com/
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