| News Release Mercantile Bancorp, Inc. 2006 Net Income Up 8.6 Percent to $10.3 Million
Quincy Illinois, February 7, 2007 – Mercantile Bancorp, Inc. (AMEX: MBR) today reported unaudited net income for the year ended December 31, 2006 grew to $10.3 million, or $1.76 per share, an increase of 8.6 percent over net income of $9.5 million or $1.62 per share in the previous year. For the fourth quarter ended December 31, 2006 the Company reported net income of $3.2 million or 55 cents per share, compared with $2.5 million, or 42 cents per share in the fourth quarter a year earlier. Mercantile said earnings per share data for the prior-year periods have been adjusted to reflect its three-for-one stock split completed in June 2006. “We experienced a challenging interest rate environment for the entire year; however, we were still able to post strong results,” said Dan S. Dugan, Chairman, President and Chief Executive Officer. Assets grew by almost 25 percent to over $1.4 billion, thanks in part to our acquisition of Royal Palm Bancorp, which added almost $190 million to our asset base. Our total loan portfolio passed the $1 billion mark during the year and continued to be well-diversified.” “The strength of our performance in 2006 was, to some extent, masked by the impact of a $1.3 million increase in our provision for loan losses in the fourth quarter. As a result of that event, provision for loan losses for the year was $3.9 million, up from $2.4 million in the prior year. That increase was related to our portion of a single real estate development loan,” Dugan said. Dugan also noted deposits showed strong growth. “Deposits reached almost $1.2 billion at year-end, an increase of 23.3 percent. Perhaps equally important, we experienced growth in every deposit category. This performance is evidence of a strong economy in the markets we serve and also reflects the effort we are making to provide our customers with outstanding service and a wide variety of choices in a highly competitive environment.” Net interest income for 2006 rose to $37.7 million, an increase of 6.5 percent. “We achieved solid loan growth in 2006. This is particularly significant given the general housing market softness for most of the year. Continued growth in our portfolio reflects both the soundness of the markets we serve and the diversity of our loan portfolio. We are not overly dependent on any single segment of the lending market. We have been able to generate loan growth in a less-than-ideal market while maintaining our asset quality. The single large loan we wrote off represents our participation in a loan to a real estate developer whose business failed rather than any erosion of our lending standards. The loan, as made originally, met our standards,” Dugan commented. Net interest income in the fourth quarter amounted to $10.0 million vs. $9.3 million in the comparable period a year earlier. Reflecting the single loan, provision for loan losses in the fourth quarter was $1.7 million, compared with $688,000 in the fourth quarter a year ago. Dugan said Mercantile posted noninterest income of $13.8 million in 2006, up 63.2 percent from $8.5 million the previous year. “The large increase was due to a number of factors. Gains from the sale of two equity investments in de novo banks, NorthStar Bancshares and GBC Bancorp, amounted to $4.3 million. There were no comparable gains the prior year. Additionally, our brokerage operation gained significant traction during 2006. Income from that operation rose to $1.1 million from $430,000 a year earlier. Trust operations also made an increased contribution.” In the fourth quarter, noninterest income amounted to $5.3 million, compared with $2.4 million in the same period a year earlier. The increase was due principally to the recording of a $2.8 million gain from the sale of the company's equity investment in GBC Bancorp during the fourth quarter of 2006, according to the Company. “Strategic investments in promising startup banking organizations, with the intent to participate in the growth of those banks within a reasonable time period, has been one of the three legs of our strategy to deliver increased value to our shareholders,” Dugan noted. “During 2006, we benefited from taking advantage of opportunities to realize returns on two of those investments. The magnitude of those returns clearly validates that element of our strategy.” Noninterest expense in 2006 was $31.5 million, an increase of 13.6 percent over its level of $27.7 million the prior year. The increase was due to a combination of normal increases in the cost of salaries and benefits and staff additions, and higher professional fees due mostly to implementation of Sarbanes Oxley Section 404 and financing arrangements associated with acquisition activity. For the same reasons, noninterest expense in the fourth quarter amounted to $8.4 million, up from $7.3 million in the fourth quarter a year earlier. Commenting on noninterest expense, Ted T. Awerkamp, currently Vice President of the Company and President and Chief Executive Officer-elect, who will assume his new duties on March 1, said, “Continuing control of noninterest expense will be an ongoing focus for us. During 2006 we took important steps by combining several of our charters, thereby reducing future administrative and regulatory expense. We are also investing in new headquarters in Quincy which, when open, will allow us to consolidate operations currently spread over several different locations into more efficient facilities. The new headquarters will also provide our customers with improved service.” Mercantile noted that, reflecting the company's growth, its balance sheet remained very strong at the end of 2006. Total assets stood at $1.4 billion. Loans at year-end were $1.0 billion, up 20.0 percent from $861.3 million at the same time a year ago. The increase is due to a combination of organic loan growth and to the acquisition of Royal Palm Bancorp, which was completed in mid-November. Similarly, the Company said deposits grew by 23.3 percent to $1.2 billion from $946.1 million at the end of the prior year. Long-term debt grew to $107.2 million from $51.7 million a year earlier. Stockholders' equity at 2006 year-end was $100.7 million vs. $91.5 million at the end of the previous year. “All of the elements of our strategy are working well,” said Awerkamp. “We enjoyed solid organic growth in our core markets. Our wide variety of financial products and banking services, combined with the personalized service we offer have made Mercantile and its family of banks the logical choice for both business and retail customers. During 2006, our strategic initiative to make selective investments in startup banks yielded very satisfactory returns. Finally, we were able to complete the acquisition of Royal Palm Bancorp, which gave us a strong presence in one of the fastest growing metropolitan areas in the nation and provided an additional avenue for growth over the long-term. “Looking forward, we believe the next few years will yield continued growth and further increases in the value of our shareholders' investment. The nation's economy, and more specifically those of the areas we serve, should remain strong in the coming year. We expect the housing market and the level of mortgage lending activity, one of our core businesses, to rebound in 2007. The impact of our acquisition of Royal Palm Bancorp, which was only reflected in our results for a matter of weeks in 2006, will begin contributing in 2007, and become significant in the following years. Further, we expect interest rates to at least begin to normalize during the second half of the year. That will relieve some of the pressure on interest margins we have experienced,” he noted. “There is additional opportunity to grow our noninterest income by expanding our fee-based services. We expect to further expand our brokerage operation. We also believe there are opportunities to expand our trust services. We will be increasing our emphasis on these and other areas in the coming year,” Awerkamp stated. “Mercantile has transformed itself into a highly flexible organization with a clear strategy and diverse income sources. We believe this bodes well for our continued growth in 2007 and beyond,” Awerkamp concluded. About Mercantile Bancorp 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.
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